Power deal to save FCL millions

By Mark Reynolds

Fletcher Challenge has signed a deal with state-owned Mighty River Power that could save it millions of dollars a year by insuring it against potential price rises on the wholesale electricity market.

Fletcher has signed the deal because its main power supply company, Tauranga-based TrustPower, is exposed to the wholesale market where prices can increase sharply when demand expands.

The contract with Mighty River Power effectively guarantees the price Fletcher will pay, even though TrustPower will continue to be responsible for the physical transfer of power to Fletcher's 263 sites around the country.

Fletcher is forecast to use 1.2 million megawatt hours of power over the next year - equivalent to a quarter of the power supplied to Auckland City or about one-tenth of Mighty River Power's total retail sales. A mere $1 an hour change in prices on the wholesale market could therefore sway Fletcher's annual power bill by millions of dollars.

The contract is needed because the demand for power by TrustPower customers is at times greater than that company's generation capacity. Mighty River Power, on the other hand, has a surplus of generation over its sales contracts, and can therefore use that available capacity to give Fletcher some price certainty.

The deal comes as TrustPower faces having to lift prices for some of its retail customers.