Trustpower has signalled it could take the government to court over planning controls intended to improve water quality in the country's lakes and rivers.
The country's fifth-largest electricity retailer operates 25 hydro schemes around the country but is not being offered the same protections that the operators of larger schemes have been granted under a draft national policy statement on fresh water management.
Under that statement, or NPS, larger power stations operated in five named catchments by Meridian Energy, Contact Energy, Mercury NZ and Genesis Energy may not have to meet proposed "bottom-line" environmental standards when it comes to consent renewal.
Trustpower chair Paul Ridley-Smith said the firm works "assiduously" to comply with the more than 420 resource consents controlling its generation activities and is disappointed by the "arbitrary and ill-founded" distinction the government has tried to make.
He said Trustpower's hydro plants deliver the same 100 percent renewable, zero-carbon electricity that the NPS is attempting to protect – as part of the country's climate change efforts - but they will not enjoy the same protection the firm's rivals get.
"The final form of this NPS is not yet set," Ridley-Smith said in notes for the firm's annual shareholder meeting.
"We are lobbying the Ministry for the Environment to remove this arbitrary distinction and recognise, without favour, the contribution that all hydro generators make to a low-carbon future. We hope to avoid having to challenge it in the courts."
Resource consents are a major issue for the power industry. Not only are they costly and time-consuming to gain for new generation development, but re-consenting projects already in place for decades can cost millions of dollars and has opened some firms to legal challenges by iwi and environmental groups.
Being able to amend existing consents, particularly to better capture flood and seasonal flows, is also of growing importance for firms wanting to increase production by upgrading older turbines and generators.
Steven Joyce: Show an open door to international students
Jet Raro swoops on old Virgin route, despite no Cooks air bridge
Auckland waterfront projects will not be finished for America's Cup
The legal challenge Trustpower has signalled would not be its first. Previous challenges have included action against Inland Revenue on the tax treatment of development costs of projects that were not proceeded with, and to the process the Electricity Authority previously ran on transmission and distributed generation pricing principles. Earlier this month it kicked off a court challenge against the authority's final ruling on transmission pricing.
Ridley-Smith told shareholders the planned closure of the Tiwai Point aluminium smelter – the country's biggest electricity user - is happening faster than it had thought.
The greatest impact on the company will be from lower power prices its 80-megawatt Waipori hydro scheme near Dunedin will receive. The electricity it is contracted to buy from Tilt Renewables' Mahinerangi wind farm will also be higher than spot prices for some years but will average out over time.
Ridley-Smith said the smelter closure should help speed the closure of some older gas and coal-fired generation and reduce the country's emissions. But he said it is still important that some gas-fired generation remains available to help cover the inherent volatility of wind, hydro and solar power.
"Only if we know that thermal generation is available to provide resilience and back up will we and others commit to building more new renewable generation," he said.
"Recent changes to the Resource Management Act, that will make it harder to consent thermal generation, are not helpful and may work against decarbonisation."