Tuesday 26th February 2019
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Mercury NZ wants efforts to improve disclosure in the gas sector accelerated.
Chief executive Fraser Whineray says the electricity industry did well last year adapting flexibly and dynamically to “real stresses” in the system created by low hydro storage and multiple unplanned disruptions to gas supply.
While the significant spot market volatility in the December half-year had been caused by an “unusual alignment of factors’, Whineray says gas disclosure needs to be improved and quicker than planned by that sector’s regulator – the Gas Industry Company.
“The electricity market would benefit from a much stronger disclosure regime from thermal generators concerning their fuel position and upstream gas and coal supplies, which would make it equivalent to the ability to monitor hydro positions - lake levels - which are already available in real time,” he said in the firm’s half-year report.
“We were pleased to see improvements in this area raised in the recent Electricity Price Review options paper.”
Earlier, Mercury reported a slight decline in first-half operating earnings after reduced hydro generation and a lower energy margin took the gloss off record wholesale prices late last year.
Earnings before interest, tax, depreciation, amortisation and changes in the financial instruments fell to $302 million in the six months through December, from the record $304 million reported a year earlier.
Net profit fell to $104 million, from $131 million a year earlier. Revenue climbed 13 percent to $1.08 billion. Underlying profit was unchanged at $114 million.
Mercury shares rose 0.5 percent to $3.73, taking its gain the past year to almost 16 percent.
The firm today reiterated its September forecast for $515 million of operating earnings in the year through June, and its full-year hydro generation assumption at 4,150 GWh.
It also raised its interim dividend to 6.2 cents, up from 6 cents a year earlier. It will be paid on April 1.
Auckland-based Mercury is the country’s third-largest power retailer and makes most of its electricity at nine power stations on the Waikato River. It delivered record earnings last year after two years of unusually strong inflows.
But storage at Lake Taupo, at the head of the firm’s generation chain, has been below average for most of the past four months and earlier this week was at its lowest since May 2016.
That left the firm’s first-half hydro production at 3,901 GWh, down 5 percent from the record volumes a year earlier.
That exacerbated a sharp jump in wholesale prices in October and November, when South Island storage was also declining and when some generators were shut for maintenance and gas supplies from the Pohokura field were reduced. That lifted Mercury’s average generation price for the six months to $138.15/MWh - 53 percent higher than a year earlier.
Former operator Shell cut production from the offshore section of the Pohokura field twice last year for maintenance, with major users complaining of the lack of notice.
At the end of November, First Gas also completed repair work on the Maui pipeline. The work, signalled to users in April, was carefully scheduled to avoid maintenance work Transpower planned on the main high-voltage link across Cook Strait.
Late last year the Gas Industry Company, at the request of Energy and Resources Minister Megan Woods, started looking at whether information disclosure was sufficient for an efficient market. It aimed to deliver options early this year with any resulting intervention to take place during the 2020 financial year.
Mercury supplied about 381,000 customers at the end of December, down from 393,000 a year earlier.
Its average mass-market sale price rose almost 4 percent to $126.82/MWh while volume was down 1.8 percent at 1,703 GWh for the six months. The firm’s total purchases from the market were down about 4 percent at 2,850 GWh.
Whineray said none of the firm’s mass-market customers were affected by the price spikes. But he was disappointed by the withdrawal of some of the country’s other major generators from the voluntary market-making arrangements they have for setting prices in the ASX futures market.
The government’s electricity price review last week recommended those voluntary arrangements be made mandatory.
Whineray says the arrangement is important and has improved liquidity and enabled greater competition, but is also costly.
He says that cost should either be met by the market, or all participants should be required to provide proportionate market-making, either directly or through an agent.
He endorsed the panel’s recommendation that low-fixed charges be scrapped, but also called for faster action to get network companies to move to cost-reflective tariffs.
Existing tariffs have an “excessively high” variable component, when most of the costs are fixed.
“This causes a much larger summer/winter variation in electricity costs to consumers than is desirable or necessary.”
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