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Meridian signs a variation to its electricity agreement

Meridian Energy signs a variation to its electricity agreement with the smelter owner

3 August 2015 Meridian Energy has signed a variation to the existing Electricity Agreement with New Zealand Aluminium Smelters Ltd (NZAS) following extended negotiations.

“It has been a complex and demanding negotiation, but this is a good outcome for Meridian,” said Meridian Chief Executive Mark Binns.

NZAS did have the right to terminate the existing contract today with effect from 1 January 2017, but by signing this variation, this right has been waived. The variation commits Meridian to cover the full 572 MW currently used at the smelter from 1 January 2017 at more competitive rates for the smelter than would have applied if NZAS chose to rely on the previous arrangement for the full 572 MW.

“This variation will give the smelter the flexibility to operate at current production levels for the full contract period should it want to and provide Meridian with an improved overall price for its electricity.

Although the smelter already had the option of a contractual volume of 572 MW from 1 January 2017 prior to this amendment, pricing had meant NZAS was incentivised to reduce to 400 MW from that date,” said Mr Binns.

“Meridian has always been clear that the contract structure entered into in 2013 was intended to incentivise NZAS to obtain 172 MW from other generators and allow Meridian to achieve market prices for this volume, which would be released from the contract.

Meridian’s view was that it was in the interest of other generators to provide that cover to NZAS. While Meridian is disappointed NZAS was unable to reach an agreement with other parties, it believes the new arrangement provides pricing for the 172 MW that is more in line with market expectations,” said Mark Binns.

Meridian and NZAS had agreed to an extension of the termination right from 1 July to 3 August, when it was clear that negotiations between NZAS and other generators were not going to be completed by 1 July.

“While other generators have differing views as to the impact of a smelter exit on their competitive position, Meridian has been able to gain sufficient support from some parties to warrant it covering this extra volume from 2017,” said Mr Binns.

Meridian is committed to cover Tiwai Point’s electricity usage at current production levels through to 2030, but NZAS retains all its termination rights from the 2013 round of negotiations, which includes a 12 month notice of termination that can be given any time from 1 January 2017.

ENDS

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