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Grant Bradley

Aviation, tourism and energy writer for the Business Herald

Baptism of fire as Binns prepares for power sale

Meridian Energy chief executive Mark Binns says the controversy over partial asset sales does not faze him. Photo / Supplied
Meridian Energy chief executive Mark Binns says the controversy over partial asset sales does not faze him. Photo / Supplied

When Mark Binns took over at Meridian Energy at the beginning of the year it stopped raining everywhere he wanted it to for the next six months.

While rain fell for farmers last summer the catchment around its South Island hydro lakes was the driest since its records began.

"It was a tough baptism of fire having the lowest inflows of water into our southern lakes for the last 79 years of records so it obviously placed us under a fair amount of pressure," Binns said.

That led the country's biggest renewable power generator to issue a full-year profit warning in May, indicating its profit slide could be worse than the first half's 20 per cent fall, not good for a state-owned enterprise in line to be partly sold by the Government.

Binns said there had been some recovery since then and inflows last month had boosted lake levels in the South Island, although they are still well below average.

"By hedging we were able to ensure that our risk position was acceptable but that did come at a price so our annual profit won't be as good as last year but it will be better than our previous dry year in 2008."

The former Fletcher Building infrastructure boss could now have been about to launch into rebuilding Christchurch but he says he's got no regrets about making the big switch.

Part of that satisfaction comes from getting his head around a complicated new industry and having the mandate to streamline a business with partial privatisation looming.

"It's a complex business," he said.

"It is different in that at Fletchers you had a portfolio of businesses, at Meridian it's one large complex business so you find that you're able to focus on one business and one sector."

He hasn't wasted time acting on what he's discovered. Two major projects have been scrapped - the Project Hayes wind farm in Otago and Mokihinui Hydro Project on the West Coast.

The company has also quit its loss-making investment in a Spanish joint-venture making gas-fired domestic boilers for the European market and sold out of a solar power project in California.

It has said it will start building the Mill Creek wind farm near Wellington and laid the foundations for 140 wind turbines at Meridian's joint-venture Macarthur windfarm in Victoria, Australia, and it has just opened a small solar project in Tonga.

"That was all part of coming on board as any new CEO does and being asked by the board to look at the business, look at the strategic plan and come back to the board with recommendations."

He had looked at the economic viability of all Meridian's projects and assessed what issues had arisen since they were first contemplated.

"With Project Hayes we found that after eight years of battling we were back to square one with the Environment Court and had to go around the mulberry bush again," Binns said.

"A couple of other wind projects that had come on to our radar screens since then were more economic than Hayes."

With Mokihinui the company faced fighting what was shaping up as the country's biggest Resource Management Act case and would still have needed the permission of the Department of Conservation.

"We had a situation where Labour and the Greens were implacably opposed to that," he said.

"We started to form the view that this would be a very difficult project to get over the line and the chances of success were not huge."

The company had spent about $26 million on the projects.

In California, Meridian bought Cleantech for $8 million in 2009 but is selling it after writing down its value.

"Our mandate was to learn about solar and we probably learned as much about solar as we were going to.

"We were learning a lot about the regulatory situation in California and doing some fancy tax driven financing."

Asked if the clean-out was about preparing the company for partial sale Binns said it would have happened anyway.

"I would just call that good business," he said.

"I think it's what anybody would be doing coming into a new role looking at the ship and seeing what needs to be tweaked."

However, Meridian is getting itself market-ready. It could be next out of the blocks following the sale of up to 49 per cent of Mighty River Power, due in the third quarter.

Meridian has had a full-time executive preparing since early this year, investigating what engineering reports need to be done on dams, the presentation of financial accounts, commissioning the writing of a prospectus and considering what risk items would need to be included.

"We're doing everything so that if the Government decides they want Meridian to be second we're ready to go."

He said the controversy over the asset sales did not faze him. Meridian was accustomed to high emotions surrounding water.

"There are issues around the Land and Water Forum at the moment," Binns said. Water is going to remain an issue for us outside the current Maori Council action."

LOW LEVELS HIT SUPPLIER

Meridian Energy cut generation sharply in the three months to June 30 because of low inflows into its South Island hydro catchments.

Quarterly figures released yesterday also show it allowed customer numbers to fall by 831 to 287,304 in the quarter, as it "moderated" customer acquisition campaigns to match low inflows.

Meridian generated a total of 9 per cent less electricity than in the previous quarter and 33 per cent less than a year earlier although it then still had its Tekapo A and B hydro stations.

They were sold to Genesis Energy effective from last July.

Low lake levels pushed up wholesale prices for electricity, which averaged $148.42 per megawatt hour in the June quarter, compared with $39.65 per MWh in the same period last year, when inflows were strong.

Meridian will release its full-year profit around the middle of this month, around the same time an Electricity Authority inquiry will be released after a spike in prices for South Island generators in May.

- NZ Herald

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