Meridian reports $20m loss

Meridian's Benmore Dam. Photo/Simon Baker

State owned energy company Meridian's half year net profits fell 14.9 per cent to $85 million, but it says earnings are now improving and ahead of target due to unprecedented inflows into its hydro lakes.

The six months to the end of December were particularly challenging due to inflow extremes, transmission constraints and plant failure at the Tiwai Point aluminium smelter, the company said today.

Taking two unrealised charges into account, Meridian's bottom line result for the half year was a loss of $20.5m, compared to a profit of $93.7m in the corresponding period a year ago.

International accounting rules require non-cash movements in the fair value of financial instruments, such as electricity and financial derivatives, to be recorded in the profit and loss statement.

An unrealised loss on electricity derivatives of $55.9m related to a pricing agreement with New Zealand Aluminium Smelters that was negotiated in 2007 and starts from 2013 for a period of up to 18 years.

Chief financial officer Neal Barclay said the contract was "massive", and the contract revaluation resulted from a comparison of the pricing in the contract with what was expect to happen in the wholesale electricity market.

"It doesn't take much of a change in the underlying assumptions, given the size and nature of the contract, to actually drive what would look on the face of it to be a significant valuation loss, or gain for that matter," said Barclay.

"We're still very happy with the contract. It's quite a step forward in terms of the pricing from our existing supply contract.

"It gives us a very strong commercial return on the assets that we've got deployed servicing the smelter, and it's actually removed quite a lot of risk in terms of the physical delivery nature of the existing contract."

A second unrealised loss of $49.7m related to interest rate derivatives and the decline in the New Zealand swap yield curve during the period.

Meridian reported a 21.6 per cent increase in revenue for the six months to $1.11 billion, but operating costs rose 32.6 per cent to $875.2m.

For the wholesale segment, revenue was up 29.2 per cent to $601.7m, while expenses rose 28.7 per cent to $292.6m.

Low lake levels continued into the first quarter of the year, resulting in a continuation of high wholesale prices and reduced generation, the company said.

In the second quarter, inflows were above average while demand was reduced.

In the retail segment, revenues were up 14.3 per cent to $504.6m, while operating expenses were up 42.1 per cent to $528.2m.

The rise in retail revenues partly reflected the impact of an average 6 per cent price rise for residential and small business customers last September. Retail electricity sales rose 5 per cent.

Earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf) for the residential segment were a loss of $23.6m compared to a profit of $69.8m a year earlier.

The decline was due to a significant increase in the average electricity purchase price to $82.90 per megawatt hour from $51.90 the previous year, Meridian said.

Spot prices in July and August were more than double those of the prior year.

- NZPA