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Meridian cashes in on high rainfall in first half

Wednesday 24th February 2010

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Meridian Energy's underlying earnings rose 40% to deliver tax-paid earnings, excluding unrealised gyrations in the value of its huge Bluff smelter contract, of $118.7 million in the six months to December 31.

Like all other power generators who both make and sell electricity, "exceptionally wet" weather sank wholesale power prices, so Meridian paid far less for electricity in the first half than in the same period a year earlier, but also earned much less from its generation activities.

The difference for hydro-dominated Meridian was its far greater use of its hydro generation assets, pushing total generation up 22.1% to 6854 Gigawatt hours for the six months under review, assisted also by a 105.2% increase in the contribution from wind power, thanks to the opening of the giant West Wind development during the period.

Low prices saw wholesale revenues fall 29.8% to $422.7 million, while fierce competition kept retail sales static at $490.5 million. The dramatic impact of changes in wholesale prices on the retail segment's performance was writ large, with retail earnings before interest, tax, depreciation, amortisation and financial instruments sprang from a loss of $25.4 million a year earlier to $121.6 million in the period under review.

Retail customer churn was historically high during the six months under review, but Meridian kept customer numbers almost unchanged at 186,200. While there will be upward pressure on tariffs when customers come out of a price freeze in October, chief financial officer Paul Chambers said Meridian would take a "restrained approach" to pricing in the South Island, where competition is strongest at present and where most of its customers are.

Chambers said Meridian had not fundamentally changed its view about how to value its stored water, despite comments from other market participants suggesting that Meridian is taking a more conservative approach to its hydro storage.

Chambers said Meridian's place in the market would change once it ceded the Tekapo A and B stations to Genesis Energy when electricity reforms announced last Christmas are in place.

"We will be third in terms of storage with the loss of Tekapo," he said, pointing the relative storage value of coal stockpiled at Genesis's Huntly plant.

The Meridian executives also indicated automatic sale of the diesel-powered Whirinaki reserve energy station should not be assumed. Meridian inherits Whirinaki in the sector reforms, creating a potential headache for its "renewables-only" brand.

However, Lusk said it was small compared to the rest of Meridian's portfolio, and plans for new capacity, all of which is renewable. "It's not material, a red herring," he said.

The company expects arbitration talks with Rio Tinto, owners of the Tiwai Point aluminium smelter and Meridian's single largest customer, over the loss of a third of production for some months following a transformer failure on the smelter site which Rio is arguing should be treated as a force majeure event.

Tiwi Point consumes around one-seventh of all power generated in New Zealand when all three aluminium potlines are operating.

Of its often-criticised subsidiary businesses, Lusk said the online Powershop retail offering had just gained its 10,000th customer, while first production of WhisperGen gas-fired micro-generation was occurring at its manufacturing plant in Spain. All the subsidiaries now had independent boards and much tighter capital allocation rules.

Meridian also continues to develop two wind projects in Victoria, Australia. Trans-Tasman scale gave Meridian bargaining power as a bulk purchaser of wind turbines, said Lusk, who stressed the growing value to Meridian of its intellectual property as a wind farm developer.

The company is yet to declare an interim dividend.

Businesswire.co.nz



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