Mercury seeks collective action to ‘keep the lights on’

New Zealand’s generating assets were largely undamaged by recent weather events, although the scale of destruction for distribution and lines networks has been significant, says Mercury in its latest report.

“Resilience of critical infrastructure needs to be one of New Zealand’s biggest priorities. We know that weather events will become increasingly severe, and we need to adapt,” says Mercury chair Prue Flacks.

“Keeping the lights on for New Zealanders is a collective goal and so collective action will be vital,” she explains, adding that many people lost access to electricity and telecommunications across the country.

Flacks says Mercury’s team has been making welfare calls, providing financial support to those worst affected and staying connected to communities to help hard-to-reach customers where possible.

Meanwhile, significant investment to increase scale and strong generation underpinned Mercury’s financial results for the six months to December 31, 2022.

Hydro production was up 852GWh to 2735GWh after Lake Taupō experienced its highest ever inflows for the July to December period.

Wind production was also notably higher (up 201GWh to 788GWh), reflecting a full six months of generation across Mercury’s wind farms including from the newly commissioned Turitea North wind farm.

“Wet weather has defined the period, in sharp contrast to a dry FY2022,” says Mercury chief executive Vince Hawksworth.

“In addition to producing the highest hydro generation volume in our company’s history, another 675GWh was spilled to maintain lakes within Resource Consent operating limits.”

The result also reflects a significantly larger retail business, primarily due to completion of the Trustpower retail acquisition in May 2022 and a full six-month contribution at increased scale. Mercury also acquired the outstanding shares in the broadband company NOW NZ in December 2022.

“Mercury is a much larger business than it was this time last year, and it shows strongly in our result. We added 440,000 more connections from those two transactions alone,” says Hawksworth.

The company has recently embarked on a major period of growth, having spent more than $1.7 billion acquiring Tilt Renewables’ New Zealand operations in 2021, Trustpower’s retail business in 2022 and building New Zealand’s biggest windfarm at Turitea.

While operating earnings (EBITDAF) were up $209m to $451m for the period, net profit was down $197m to $230m with the previous period including the one-off net gain made from the sale of Mercury’s shareholding in Tilt Renewables when Mercury acquired Tilt’s NZ operations in August 2021.

The early exit of a long-term hedge with Norske Skog in HY2022, which reduced revenue by $65m in that period, also contributed to the lift in EBITDAF in HY2023.

Operational expenditure was $54m higher than the prior comparable period while stay-in-business capital expenditure was up $11m, reflecting increased scale and activity across the business, even though retail and generation encountered significant headwinds over the period including an inflationary environment, access to technology and a tight labour market.

“We expect these to continue into the future and have factored these into our business planning,” says Flacks.

“Recent events aside, we understand the cost pressures many families are facing, and we are focused on our extensive programme of support for those customers experiencing hardship.”

Mercury will trial a capped electricity product that helps contribute to overall wellbeing for these households.

Last year mass market customers’ prices increased by an average of 2% across lines and energy and will be limited to between 3% and 5% for the coming year.

Mercury is delaying price changes (including lines increases) for at least six months for those adversely impacted by recent weather, and its full year EBITDAF guidance remains at $795m.