Three months ended 31 December 2019
Portfolio position strong as approaching low inflow quarter coincides with transmission, thermal fuel outages
Mercury maintained a prudent approach to risk management in Q2-FY2020, decreasing hydro generation by 74GWh compared to
the same quarter last year resulting in a strong hydro storage position in the approach to the third quarter;
historically the lowest inflow quarter for the Waikato catchment. Forecast low inflows in Q3-FY2020 were also expected
to coincide with an increased likelihood of high spot prices, indicated by a $158/MWh Otahuhu futures price for
Q3-FY2020 as at 1 October 2019, impacted by planned transmission and thermal fuel supply outages.
Lower hydro generation during the quarter lifted hydro storage in Lake Taupo to 85GWh above average1 by the end of the
quarter. Low spill and high efficiency offset below-average inflows leading to Mercury's full-year hydro generation
forecast being materially unchanged at 4,070GWh.
Mercury's geothermal generation also decreased by 84GWh compared to Q2-FY2019 due to two-yearly maintenance outages at
Nga Awa Purua, Kawerau and Ngatamariki stations.
Wholesale market prices dampened by high south island hydro inflows but remain historically high
Spot prices in the most recent quarter started strongly but declined following very high South Island hydro inflows (at
the 99th percentile2 or 3,308GWh above average2). The average spot price for the quarter decreased from $206/MWh at
Otahuhu and $175/MWh at Benmore in the prior comparable period, when dry hydrological conditions and thermal fuel supply
outages led to record prices, to $102/MWh and $87/MWh respectively but remained elevated at the 95th percentile1.
High South Island inflows also coincided with the low demand holiday period leading to national hydro storage increasing
across the quarter from 354GWh below average to 1,060GWh above average2. This surfeit of hydro storage has lowered spot
price expectations for FY2020 with futures prices easing from $139/MWh to $123/MWh at Otahuhu and from $121/MWh to
$96/MWh at Benmore across the quarter.
Commercial yields lift through focus on customer value and re-alignment with wholesale market prices
The Commercial & Industrial average sales yield (from both physical and financial sales) increased by 6.7% from $74/MWh to $79/MWh due
to the impact of contract renewals at current wholesale market levels. Mercury's focus on loyalty and higher-value
customers resulted in the average yield received for Mass Market sales increasing by 2.3% from $127/MWh in Q2-FY2019 to
$129/MWh in the current quarter.
Customer numbers were 356,000 at the end of Q2-FY2020, a net decrease of 5,000 over the quarter and of 25,000 from the
end of Q2-FY2019. This includes a reduction of around 8,000 connections from Mercury's exit of lower-yielding Farm
Source contracts as part of its portfolio management strategy.
Irrigation load up as agricultural regions remain dry; industrial load decline continues
Temperature adjusted demand increased by 1.7% (2.1% on an unadjusted basis) primarily due to increased irrigation demand
(+1.2%) as heavy South Island rainfall was limited to hydro catchment regions. The urban (+0.5%), rural (+0.1%) and
dairy (+0.2%) sectors also made positive contributions to total demand. Industrial demand remains subdued, contributing
-0.3% of the change in total demand as large consumers responded to high spot prices; demonstrated by Tiwai holding
their consumption below peak load at an average 593MW across the quarter.
1 For quarters ended 31 December since 1999
2 For quarters ended 31 December since 1927