Meridian warns of price hikes

Meridian Energy has warned that wholesale electricity prices may rise because a proposed reform package.

The reforms would impose penalties on generators if electricity shortages lead to national conservation campaigns, such as those seen in the winters of 2001, 2003, and 2006, and was contemplated in 2008.

"This is intended to improve incentives on market participants to manage supply risks and to remove incentives on those over-exposed to spot prices to push for conservation campaigns," Meridian says in a prospectus. 

"This may lead to upward pressure on hedge prices and has the potential for high spot prices for major users choosing to buy on the spot market."

The prospectus was lodged with the NZX today for its offer to retail investors of up to $150 million of Renewable Energy Bonds. It is Meridian's most fulsome response yet to Energy Minister Gerry Brownlee's reform plans.

Brownlee has fingered Meridian in the past for undervaluing its stored hydro water, and raising the risk of electricity shortages caused by low rainfall.

Contact Energy managing director David Baldwin last week suggested water was already being valued more highly as electricity market players began focusing on the impact of the reforms.

Shedding customers

Meanwhile, the requirement to negotiate long term wholesale electricity hedge contracts to create a "virtual asset swap" with both Genesis and MightyRiverPower by contracting for North Island electricity output will force Meridian to rebalance its customer base, the prospectus says.

Meridian said it will shed some of its South Island customers and is worried more government intervention will be required when it sheers off its Tekapo hydro-power stations and gives them to Genesis Energy under electricity reforms announced in December.

The majority of Meridian's 187,000 retail customers are in the South Island, with its only North Island stronghold at present being in the network area around Whangarei, although marketing based on Meridian's "all-renewables" branding has garnered customers across the country in the last five years.

"It is expected that implementation of the hedge agreements will result in Meridian divesting some of its South Island customer base, and acquiring a larger North Island customer base."

Genesis and MRP, who have no South Island generation assets at present, are already seeking South Island customers from the customer bases currently held by Contact, TrustPower and Meridian.

Contact's Baldwin last week lamented the cost to the industry of competition for new customers created in part by the proposed reforms, saying a "structural resolution" was desirable.

On divestment of the Tekapo A and B hydro stations and their associated water storage, the Meridian prospectus says "negotiations may be complicated and may require further regulatory intervention".

The release of the prospectus comes as the Ministry of Economic Development starts sifting submissions on the Brownlee reforms, which were due by Feb. 26 and are likely to be published on the MED website in the near future. 

- BusinessDesk