Meridian Energy's snow-pack is the furthest below average Forsyth Barr has seen, Forsyth Barr broker Damian Foster says.
In theory there was only 305 gigawatt hours (GWh) worth of snow-melt to go into the lakes, 833GWh less than normal and 93GWh lower than the previous low at this time of the year.
Two weeks ago, Forsyth Barr noted the snow-pack was well below average, but it had fallen a further 300GWh below average in the past two weeks.
The snow-melt was happening very early this year, Foster said.
As hydro lakes were already below average, Meridian had been generating from the early snow-melt. Meridian's Lake Pukaki was 10 per cent below average.
''The big unknown is to what extent the permanent snow-pack will reduce over the summer months. The most ever is 400 gigawatt hours' worth.
''While we suspect the permanent melt will break that record, it is still shaping up as a dry period for Meridian, [and] the reason for high wholesale electricity prices at present.''
Forsyth Barr had earlier downgraded its 2018 operating forecast for Meridian by $14 million to $639m, due to the growing risk of a dry period, he said.
The latest snow-pack report confirmed those thoughts. If Forsyth Barr was correct, there were further 2018 financial earnings downgrades required in the market.
The current consensus was about $20m higher than Forsyth Barr's forecast and the next lowest estimate in the market was $12m higher.
Hydrology was a short-term earnings risk only and did not impact on the long-term underlying value of Meridian. However, it might affect sentiment.
Despite the gloomy future, Foster said Meridian had a strong November. Electricity sales were well up on the previous corresponding period and generation volumes were also strong.
''We believe Meridian ran its hydro generation harder than it would have liked, meaning its hydro storage is well below average for this time of the year.''
Meridian had called the Genesis Energy swap option on occasions this month, taking advantage of the flexibility of the new contract. That highlighted Meridian was becoming increasingly concerned about its hydro storage position, he said.
Forsyth Barr had a rating on Meridian of neutral and a target price of $2.75. Meridian last traded at $2.95.
Electricity Authority chief executive Carl Hansen agreed hydro-lake storage was lower than average.
Thermal generation was running harder than usual to conserve hydro-lake levels.
''We've been in similar situations in previous years and substantial rain occurred before we headed into winter. Transpower's hydro risk meter shows the risks are normal.''
The electricity market had shown good resilience in previous years and was well placed to manage dry years without it significantly impacting consumers, Mr Hansen said.
''We have robust schemes in place that put the onus on the electricity industry to manage the situation prudently.''
Wholesale prices for electricity had risen, which was the market performing as it should to pay for reserve generation and encourage demand response from consumers that chose to be exposed to spot prices.
It was important to note about 98 per cent of residential consumers were not exposed to those prices, Hansen said.