Good times may not last, says power chief

By RICHARD BRADDELL

Meridian Energy may be tempting fate after producing a maiden profit for the June year comfortably in excess of its statement of corporate intent.

Meridian yesterday reported net earnings of $96.3 million, about $12 million ahead of target on revenue of $574 million, which was also about $20 million more than budget.

The largest of the three state-owned enterprise generators, Meridian appears to be comfortably geared with its equity of $1.67 billion equal to 71 per cent of total assets of $2.36 billion.

But if the accounts exude the same aroma as expensive leather, chief executive Keith Turner said Meridian's business was a risky one - and that is not just because the Treasury might have thoughts of raiding its balance sheet.

Meridian boosted equity by $78 million through revaluations of its assets, and retired $50 million in debt during the year.

But Dr Turner said the company needed a strong balance sheet because business conditions could change markedly from year to year.

Wet weather has been the key to Meridian's recent good fortune since it produces 30 per cent of New Zealand's electricity from eight hydro stations on the Waitaki River and one at Manapouri.

While expected wholesale electricity prices of $29 a megawatt-hour were lower than the $30 a MWh expected, high winter rainfall in Meridian's catchment ensured that plenty of water was available to meet demand.

Dr Turner said that would not always be the case and in a dry year revenue could fall to $150 million below average and yet the company would still face the full load of operating costs because the dams could not be switched off, unlike thermal generation.

Further, even although Meridian's negligible customer base when it began business had blossomed to 100,000, that was still an insufficient hedge against its production.

Of those customers, 64 per cent declared themselves satisfied with Meridian, against a lamentable industry average that has gone up from 44 to 49 per cent.

Meridian's profit also reflects the benefits of restructuring, much of it involving outsourcing.

The consolidation of its customer service centres into Christchurch has left only four permanent employees, with many of the 100 staff now employees of call-centre operator Teletech.

Outsourcing has also involved the transfer of asset maintenance to Alsthom Power, while treasury management is undertaken by Westpac and financial services are done in partnership with KPMG.

The company now has a core staff of 150 and with the completion of a $50 million automation project, all dams are operated from a single control centre, which makes it possible for one person to manage the lot.

Dr Turner said the "very sophisticated software" in use would enable between 80 and 120GWh in extra generation - or enough to power more than 12,000 homes.

But he was concerned that constraints in Transpower's network were forcing up electricity prices north of Taupo.

"We remain quite concerned that the market is changing from a wide open market to three regional monopolies."