Next Wednesday all eyes, in the electricity industry at least, will be on the owners of the Tiwai Pt aluminium smelter to see if they give Meridian Energy notice they wish to terminate their contract.
If they do, then either the smelter will close in 18 months' time or Rio Tinto and its partner Sumitomo will have to strike a deal with another generator or generators for the 572MW of continuous power the smelter requires. If they do not give notice of termination, it will be 18 months before they have another opportunity to do so.
But they will have to make other arrangements for 172MW, or 30 per cent of the smelter's load, which from January 1, 2017 Meridian will be free to sell elsewhere under the terms of the contract renegotiated two years ago.
Rio has been talking to other generators about that option. Contact and Genesis are the obvious potential counterparties.
"Everyone wants them to stay, but everyone wants the other guy to do the deal," Meridian chief executive Mark Binns told the Herald.
"It comes down to who has the most incentive to see them stay and will offer them the best price. And will that price be good enough when they line it up against an exit scenario?"
Binns stresses that he does not know what Rio will do.
"They have kept their cards very close to their chest, as I would."
The aluminium industry is beset by global overcapacity and prices have gone from bad to worse in recent weeks. That has been offset, but only partially, by a fall in the New Zealand dollar.
"But we think Tiwai on a cash basis is still marginally profitable," Binns said.
Tiwai is seen as sitting below the median of the cost curve for smelters but above the bottom quartile. In addition it is understood to be one of only two in the world capable of producing metal of very high purity required for some high-end applications, for example in the semiconductor industry. Rio is reportedly trying again to sell its Pacific Aluminium business which includes Tiwai, two Australian smelters and an alumina refinery.
"They have not confirmed that to us, but we haven't asked them for any confirmation," Binns said.
The option value in Rio keeping Tiwai operating, as he sees it, is that it preserves the possibility of selling it, world aluminium prices could recover from what are seen as unsustainably low levels, and there is at least the possibility of a significant fall - $50 million a year or so - in its transmission costs in three or four years' time, which would drop straight to the smelter's bottom line.
It would also avoid significant site remediation costs at Tiwai Pt. Rio cannot just lock the gates and walk away from what has been a heavy industrial site for 40 years.
"We are not just sitting here waiting for them to give us notice," Binns said.
"We would like to think they will stay but we are planning for what might happen if they go," he said.
"There would be 5000 gigawatt hours of power down south that has to find a home, so we are talking with other generators to see who might be interested in a CfD [contract for differences] contingent on Rio terminating the contract and closing the smelter."
Analysts consider the release of that much power - about 13 per cent of national electricity requirements - would almost certainly hasten the closure of Genesis Energy's remaining coal-fired generation capacity at Huntly, and very likely Contact's gas-fired plant at Otahuhu.
All Binns will say is: "Our modelling shows it would be rational to see some supply- side response and withdrawal of capacity. There would still be some excess supply we would have to place through our retail channels."
The seismic effect on the electricity industry if Tiwai were to close is why Meridian believes others are more incentivised than it is to fill the 172MW hole in the smelter's requirements from 2017.
"I have been very clear about that at industry forums.
"Our biggest danger is that people think Meridian will buckle and sort this out.
"We are not going to. Someone else is going to have to, because I don't believe Tiwai is going to accept market pricing on 172MW."
• On July 1 Rio Tinto has to decide whether to end its contract with Meridian for the Tiwai Pt smelter.
• If it terminates the contract and the smelter closes in 2017 the electricity industry will have a lot of extra power to digest - about 13 per cent of current demand. Some generation plants will close.
• If it does not, Tiwai will need to cover 30 per cent of its demand from sources other than Meridian.