“This is significantly lower than spot prices and comparable to the prices Winstone has noted their international competitors are paying.
“We don’t have visibility on the electricity not contracted by Mercury, however, it may be that Winstone have taken a calculated risk to purchase some of their remaining power off the spot market,” Mercury chief executive Vince Hawksworth said.
“This is a business decision, taken by a large and sophisticated international company,” he said.
“In making this decision, Winstone is required to complete tests of their risk exposure (called stress tests) quarterly.
“These should be signed off by their senior management and visible to their board.”
Mercury said that it had been talking with Winstone since July.
Over two weeks ago, Mercury provided Winstone with a further contract to reduce its exposure to the spot market.
“We are still waiting to hear back from them on this.
“This new contract is at a similar level to our existing agreement with them.
“We completely sympathise with those individuals who are impacted by the current process that Winstone Pulp International are working through.”
Wholesale power prices - which are set on the half hour - peaked at over $800 per megawatt hour this month due to very low lake levels and constrained gas supply.
Recent rain and an agreement to buy gas off Methanex have taken pressure off the spot market, so prices have fallen back to just under $200/MWh.
Asked for comment, Winstone chief executive Mike Ryan took issue with Mercury’s statement.
Ryan said Winstone had been discussing fixed-priced CFD (contracts for difference) options with Mercury over the past few weeks.
“We have been exchanging emails regularly and had a call scheduled with Mercury’s Executive GM Portfolio at 4pm yesterday.
“To say we had not responded to their offer is untrue,” he said in an email to the Herald.
Ryan said Mercury’s latest offer was a 56% increase on its current expiring fixed rate.
“It is on 10-year terms and locks us into elevated and internationally uncompetitive pricing for the next decade, at a time when energy companies are assuring the public that prices will come down given the scale of their planned investment,” Ryan said.
Ryan said Winstone is a direct participant in the wholesale electricity spot market, which is settled via the clearing house.
It does not buy directly from Mercury today, nor any other generator.
The company hedges its exposure generally via CFDs with generators or other energy users.
“Our board regularly reviews our hedge position, is aware of our exposure, and where the current market for hedging sits.
“WPI has historically maintained high levels of hedging as part of our normal risk management processes.
“As those long-term hedges have come up for renewal, the cost of renewing them has become internationally uncompetitive.
“This issue is not unique to WPI. Mercury cannot avoid the fact that, while it enjoys record profits, New Zealand’s manufacturing and export businesses are under extreme pressure.”
Winstone is owned by Oregon Group - an investment holding company of the Tiong family of Malaysia led by Tan Sri Sir Tiong Hiew King.
Other assets in the group include forestry company Ernslaw One, Neil Group, New Zealand King Salmon, Lumberbank, Talus Industries, Innova Products and Oregon Nurseries.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
