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NZ electricity reforms pose 'major credit challenges' for SOEs, says S&P

Thursday 22nd April 2010

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There is too little transparency around the physical and virtual asset swap proposals to know what the New Zealand government's electricity reforms will do for generator-retailers' balance sheets, Standard & Poor's warns in a new report on the electricity sector.  

In comments apparently more significant for state-owned than NZX-listed power companies, S&P says the credit quality impacts of the refoms are "tough to judge."

"One of our biggest concerns is that, without appropriate support to the balance sheets, gen-tailers rated by S&P don’t have the financial headroom to withstand risks of transitioning to the new environment,” it said. “Also, the desire to pursue offshore growth could heighten the business risks for some rated gentailers, in our view."

Meridian Energy has wind energy projects in Australia and MightyRiverPower is exploring geothermal opportunities in Chile at present.

At the heart of its concerns is the "still limited transparency" about how the proposed asset swap and recapitalisation issues will be addressed when Meridian hands over the Tekapo-A and B hydro stations at the top of the Waitaki hydro chain, to Genesis Energy.

This physical asset between the two SOEs is backed up by new contracting requirements, which will operate like "virtual asset swaps" by committing MRP, Meridian and Genesis to a new balance of geographic load.  This is intended to facilitate Genesis and MRP competing in the South Island, where retail electricity competition has been limited in the past.

Reflecting this environment, Contact Energy reported in its monthly operational statistics this morning that it had lost a further 2500 electricity and 500 gas customers, with the totals for each standing at 487,500 and 64,000 respectively.  Electricity customers peaked at almost 530,000 customers in September 2008.

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