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TrustPower sees one more year of intense retail electricity competition

Thursday 11th March 2010

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TrustPower expects electricity market reforms to drive customer churn as state-owned electricity retailers ditch and replace customers in different areas, reflecting asset swaps ordered in a December review by Energy Minister Gerry Brownlee.

The 50.5% Infratil-owned electricity generator and retailer is predicting 100,000 South Island and 40,000 North Island electricty-customer switches, along with some swapped commercial and industrial accounts.

However, "a new equilibrium will be reached" by early to mid-2011, ending almost three years of unusually intense competition in retail electricity," according to a presentation for an Infratil investor briefing, held today.

Much of the customer-poaching will reflect retailers' needs to reassemble their retail portfolios and reduce the business risk and losses incurred through requirements to own new assets and contract for mandatory amounts of electricity in both the North and South Islands.

The effect of the policy is to make South Island-based Meridian seek new North Island customers, while Genesis and MightyRiverPower, under the Mercury brand, must seek new southern customer bases.  To guard against that risk, TrustPower says it has 75% of its high value customers on contract terms, making them less likely to be tempted by competing offers.

Despite the competition, overall upward pressure on wholesale and therefore retail electricity prices will remain, says Infratil, although TrustPower has "moderated retail price uplift short term".

Wholesale prices will also be more volatile than in the past, creating value in both peaking plant and TrustPower's hydro storage, prompting construction of up to 170 Megawatts of additional hydro generation potentially available from its existing assets, of which 60MW could be available quickly.

The presentation concentrates particularly on a "unique opportunity" at TrustPower's Coleridge hydro scheme, in mid-Canterbury, which has "tremendous potential" not only to add 70MW of generating capacity, but also 100,000 hectares of additional irrigation at a time when Canterbury water issues are becoming a major policy challenge.

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