October 3, 2008

Meridian Hit By ‘Perfect Storm’ of Events

By WEIR, James

STATE-OWNED power giant Meridian Energy took a $112 million knock to profits because of a "perfect storm" of events including severe drought, and at times relied on North Island gas-fired power for much more than half its energy.

Combined, the state power companies made a $446 million profit, down $115 million mainly because of Meridian's tough year in the face of the second lowest hydro lake levels since 1931.

Meridian made $128.6 million after tax, from $241 million last year.

Despite the profit slump, Meridian had already decided earlier this year to pay the Crown a $235.9 million dividend, which it could do because of its low debt levels and assets worth $6.6 billion.

Last month, Meridian increased retail power prices about 6 per cent, but it would not comment on the potential for power price rises next year. Earlier this week, Contact Energy raised power prices 10 per cent to 12 per cent. Nationally, power prices are up about 55 per cent since 1999 when Labour was elected.

Meridian chief executive Tim Lusk said winter had been hard for the company to manage because of the prolonged drought.

The company suffered the "perfect storm", with low lake levels in both islands, the unexpected shutdown of Contact Energy's New Plymouth power station and the closure of part of the Cook Strait power cable, which won't be fixed till 2012.

Meridian's profits were hammered because it had to buy high- priced power from gas-fired power stations in the North Island to sell to its own contracted customers.

Wholesale power prices skyrocketed to $356 a megawatt hour in the final quarter of the financial year -- more than five times the prices a year before.

Hydro stations provided well under half of Meridian customers' needs, even though the biggest customer, the Bluff aluminium smelter cut production and power demand by 10 per cent.

The smelter is now back to near full production after recent rain in the South Island.

Meanwhile, fellow state energy firm Mighty River Power posted a $111 million annual profit, up from $96.9 million last year.

Chairwoman Carole Durbin said Mighty River regarded geothermal as its No 1 development priority.

The company had made good progress on several fronts, notably the completion of the 100MW Kawerau geothermal power station, he said.

The Waikato drought, which reduced hydro volumes by 9 per cent, required running the Southdown gas-fired co-generation plant to cover the shortfall, with increased wholesale electricity prices not fully offsetting higher gas purchase costs.

Mighty River's retail arm, Mercury Energy, continued to perform well, she said.

Genesis Energy increased its profit to $99.1 million in the year ended June 30 from a restated $89.5 million last year as it generated more power.

National grid company Transpower made an after-tax profit of $108 million, from $134 million the previous year.

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