The potential impact of the dry North Island summer on Mighty River Power's second-half performance is a reminder of earnings volatility in state-owned energy companies, says an analyst.
Milford Asset Management senior analyst William Curtayne said that while MRP's operational data for the first six months of the financial year had been strong, hydro conditions "may cause headwinds" for the rest of the period.
"When we talk about the weather impact for Mighty River it's more about the margins. You could potentially have a tougher second half but that doesn't mean earnings are going to fall through the floor and they end up having a terrible result."
Mighty River is the first of the state-owned assets being prepared for partial sale and volatility in earnings as a result of varying rainfall was something investors would have to get used to, he said.
"While Mighty River is a strong business, earnings will swing as hydro generation fluctuates depending how much rain falls and where."
A year of low rainfall in its Lake Taupo catchment could affect earnings by around 5 per cent, Curtayne said.
"They have a very good portfolio in that they can balance their long and short generation. Their volatility of earnings is not massive compared to Meridian, or Contact in the past."
The company has a growing geothermal portfolio but the bulk of its generation still comes from its power stations along the Waikato River.
Lake levels in Taupo had fallen steadily since October, meaning without significant rainfall Mighty River's hydro generation was likely to decline, Curtayne said.
Lower generation was okay if it was matched by an increase in wholesale electricity prices but those prices were currently subdued because of high lake levels in the South Island.
Another analyst, who did not want to be named, said it could be "a year of two halves" for MRP, whose sale is still subject to a Supreme Court challenge this week by the Maori Council.
Mighty River Power on Tuesday said sales grew 12 per cent in the three months to December 31 as both residential and commercial consumers used more energy and the company gained new customers. The majority of the gain came from a 22 per cent increase in volumes to business customers, compared with the December 2011 quarter.
MRP also showed customer growth in both the North and South Islands, with 391,000 customers in the north, compared with 383,000 a year earlier, and 43,000 southern customers, up from 37,000 in December 2011.
Total electricity production was up 6 per cent in the quarter, compared with the same period a year earlier.
Taupo hydrology is currently at 76 per cent of the average. The company said the difference between the average and current levels equated to less than one day's national electricity consumption.