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Mercury Quarterly Operational Update

Three months ended 31 March 2019

Sustained dry hydrological conditions and thermal generation constraints led to record spot prices

18 April 2019 – Record spot prices were observed over the quarter as the market responded to limited thermal fuel and plant availability and national hydro storage tracking below-average until the last week of March. Average spot prices for the quarter increased versus the prior comparable period by $77/MWh to $162/MWh at Otahuhu and by $67/MWh to $145/MWh at Benmore.

Hydro generation decrease partially offset by improved geothermal availability

Waikato catchment inflows were 9th percentile1 (or 270GWh below average) in the most recent quarter leading to hydro generation decreasing by 273GWh from 1,035GWh in Q3-FY2018 to 762GWh in Q3-FY2019. Mercury's full year hydro generation forecast has been reduced by 150GWh to 4,000GWh, the long-run annual average.

Mercury made the most of limited hydro generation as the hydro GWAP/TWAP ratio increased to 1.10 in Q3-FY2019 from 1.08 in the prior comparable period. This, combined with steady geothermal generation, led to the LWAP/GWAP ratio decreasing from 1.06 in Q3-FY2018 to 1.05 in Q3-FY2019.

Mercury's geothermal generation for the quarter was 710GWh, an increase of 74GWh compared to the same period in FY2018 due to planned maintenance outages conducted in that period. These outages enabled Mercury's geothermal fleet to provide reliable baseload generation at 98% availability versus 91% in the same period last year.



Futures prices increase on thermal fuel uncertainty; longer-term prices moderated by new development

Ongoing uncertainty regarding thermal fuel and plant availability flowed through to the futures market with the Otahuhu futures price for FY2019 increasing by $15/MWh during the quarter to $150/MWh and for FY2020 by $17/MWh to $112/MWh. New generation development, heralded by Mercury's Turitea wind farm announcement, moderated the lift in longer-term futures prices with the Otahuhu FY2021 price rising by $8/MWh to $93/MWh over the quarter.

Mercury continues to pursue value in retail market

The volume-weighted average price received for Mass Market sales was flat year-on-year at $125/MWh as VWAP in Q3-FY2018 was elevated due to a one-off wash-up of lines charges. Mercury's continued focus on customer value has seen the Mass Market VWAP for the nine months to 31 March 2019 increase by $3.2/MWh or 2.6% compared to the same period in FY2018.

Market churn fell for the first time in four quarters, decreasing from 21.3%2 at the end of Q2-FY2019 to 20.7%2 as at 31 March 2019. Mercury group churn also fell from 20.3%2 to 19.7%2 over the same period.

Dry conditions increase irrigation and rural demand; Tiwai potline drives industrial demand higher

Temperature-adjusted national demand increased by 3.0% (3.1% on an unadjusted basis) versus the prior comparable period, mainly due to significant increases in irrigation load (+1.4%) and in the rural (+0.9%) and dairy (+0.2%) sectors which also include some irrigation demand. Industrial sector demand (+0.8%) also increased following the first full quarter of operations for NZAS 4th potline which increased average Tiwai demand from 572MW in the quarter ended 31 March 2018 to 610MW in the latest quarter; excluding Tiwai, industrial sector demand decreased by 1.0%. These increases were slightly offset by a decrease (-0.3%) in urban sector demand.

1 For quarters ended 31 March since 1927
2 12-monthly rolling average

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