KEY POINTS:
Low hydro lake levels and high wholesale electricity prices shouldn't hurt power companies' profits because they are passing costs on to customers, rating agency Standard & Poor's says.
However, continued poor storage levels could lead to a deterioration in companies' balance sheets, said credit analyst Chris Cudsi.
"Their substantial internal hedging of generation output against their respective retail customer base (at least 80 per cent of generation output) means they have been passing on most of the increased energy costs to retail customers," Cudsi said.
"Accordingly, generator retailers are expected to perform within 5 per cent of earnings forecasts in fiscal 2008, despite hydro storages currently tracking at their worst level since 1992, or around 60 per cent of average."
Wholesale prices had jumped 186 per cent in May from a year earlier, to $210 per megawatt hour, as total hydro lake storage across both islands fell.
S&P rated Contact Energy, Meridian Energy, Genesis Power, and Mighty River Power, with Transpower, Powerco, Vector, Port of Tauranga and Watercare. As well as low lake levels, other constraints on power supply included Contact decommissioning its 300MW New Plymouth thermal plant, and - particularly for Meridian - Transpower's decommissioning of half of Pole 1, part of the transmission link between the North and South islands.
In a report, S&P also said the nine companies rated had seen minimal impact on their credit quality as a result of the credit squeeze.
"The rated New Zealand utilities are expected to manage future refinances with minimal problems, despite significant projected annual capital expenditure of over $2 billion across the sector over the next few years."
Ratings had changed little in the last six months, indicating the sector's stability.
Other factors which could affect the sector included mergers and acquisitions, such as Vector's sale of its Wellington network, power companies' inclusion in the carbon emissions trading scheme from January 2010, and improving regulation.
- NZPA
