Meridian takes flick at reforms as electricity “virtual asset swap” confirmed
By Pattrick Smellie
Dec. 17 (BusinessDesk) – A major plank of the government’s electricity reforms is in place, with state-owned Meridian Energy, Genesis Energy and MightyRiverPower confirming they had signed new contracts that will back all three companies’ expansion into national electricity retailing.
However, Meridian continued to make clear its underlying opposition to the moves, saying in its statement on the “virtual asset swaps” that it had been “directed” to sign the agreements.
“Our directors are legally required to act in the best interests of the company,” Meridian’s general manager of markets and products, Neal Barclay, told BusinessDesk. “The reform package is not necessarily in Meridian’s best interests. The policy-makers are taking an industry-wide view, but the directors themselves have been directed to carry out Meridian’s side.”
MRP and Genesis both also issued statements, but without any reference to central government coercion.
The move would “enable Genesis to further grow its South Island business in the coming years,” said chair Jenny Shipley. “The lack of South Island generation has meant that Genesis has not had the opportunity in the past to actively seek South Island customers.”
Genesis and Meridian continue to negotiate over a physical asset swap that will see Genesis own the Tekapo A and B hydro power stations, currently owned by Meridian. Brownlee said he expected that transaction to occur in the first half of next year, and Genesis announced its intention to partially fund the purchase with a $300 million unsecured, subordinated capital notes issue.
Under the virtual asset swap contracts announced today, MRP and Genesis will be buying access to electricity generated in the South Island, where neither used to operate actively, while Meridian will gain access to North Island-generated electricity so that it can pursue a bigger customer base outside its South Island base.
MRP chief executive Doug Heffernan said the virtual asset swaps were “positive for the company and the energy sector”, and that MRP had “chosen” to enter into the 15 year 700 Gigagwatt hours per year arrangement with Meridian “because it is in the best interests of the company.”
For its part, Genesis will purchase up to 450 GWh annually from Meridian, and sell that quantity to Meridian in the north. In total, Meridian will be committing to 1150GWh of access to North Island generation.
Cook Strait cable and other national grid limitations have previously discouraged retailers other than Contact Energy to seek customers actively on both islands, preferring instead to secure customer bases that are close to their generating assets.
These new contractual arrangements are also expected to kick life into the electricity futures market that has also been established as part of the reforms.
The major generators are required to be offering 3000GWh of “open interest” contracts on the platform by June next year. Meridian has supported the market since before it became a mandatory activity, while both Genesis and MRP have announced in recent days that they have registered as “market-makers” for the ASX-administered market.
At the end of last month, some 439GWh of open interest contracts were available to trade, around 15% of the target, compared with just 100GWh a year earlier.
“My expectation that (with the virtual swaps in place), there will be a lot more trading as people thing about trading on the margins of that,” said the executive director of the Major Electricity Users Group, Ralph Matthes.
Barclay also told BusinessDesk that Meridian was supporting the government’s wish to allow a tender for the Whirinaki peaking station, which is Crown-owned and has previously been operated by Contact.