In this issue:

• Spot Market Overview
• Enalysis Fair Value - Reporting Made Easy
• Energy Manager - Keeping Track of Usage
• Industry News

Spot Market Overview

Winter 2006 is well and truly upon us, with record low temperatures and peak demand across the country reaching 6676MW. This is well above the previous record which was the result of a severe storm in August 2004. Similarly, peak demand in Auckland and Northland in June was 5% higher than the winter peak in 2005. The surge in demand caused elevated prices across the country and lead to lines companies controlling usage during June, most commonly by cutting hot water heating.

The Transpower outage that affected the Auckland region on Monday 12 June impacted five minute pricing. Demand was cut instantaneously sending prices to $0. This was followed by an over-supply of generation which caused high frequency, leading thermal plants to shut off. The rebalance of the supply-demand equation temporarily caused elevated pricing before prices reverted to normal levels. The net effect in half-hour pricing was negligible.

Higher prices in the first quarter of the 2006 year, which were the result of lower than average hydro storage levels and increased use of thermal generation, have diminished. This is largely the result of increased inflows into the South Island lakes. Prices for the second quarter have averaged approximately 9.5c/kWh at the Haywards node, significantly higher than the 7.0c/kWh average for the same period in 2005. Prices for this quarter are below the 11.37c/kWh average for the first quarter of 2006.

If severe weather patterns continue to hit the country, they are likely to result in upward pricing pressure into the third quarter of 2006. Hydro lakes are currently 10% below the historical average, and forecasts are for average inflows over the next 3 months. This will probably result in a continued reliance on thermal generation for winter demand.

Enalysis Fair Value - Reporting Made Easy

Mercury Energy is making it easier for companies with electricity derivatives to comply with International Financial Reporting Standards. Enalysis Fair Value is a web based service that enables organisations to value their electricity hedge portfolio against a forward curve applicable at the time of the valuation. All businesses with electricity hedges will have to comply with the International Financial Reporting Standards from the start of the company’s financial year following January 2006.

Enalysis Fair Value has been developed with general advice on IFRS requirements from Price Waterhouse Coopers. The curves used by Enalysis Fair Value are based on the published prices available for daily trades on the Energyhedge website (http://www.energyupdate.co.nz).

Enalysis Fair Value offers:

• Fair value calculations using discount factors based on wholesale rates as published by Reuters.
• Retrospective fair value calculations.
• The ability to upload your hedge portfolio.
• The ability to upload your own forward curves if the Enalysis Fair Value curves are not suitable.
• The ability to undertake effectiveness testing of your hedge portfolio.
• Flexible user defined reports.
• Simple web based access via a user name and password.

To find out more contact Rob Harpur on 09 308 8241 or email rob.harpur@mercury.co.nz.
 
Energy Manager - Keeping Track of Usage

If your organisation has Time of Use metering (TOU), Mercury Energy’s Energy Manager can help track your electricity spend and usage. Energy Manger is a complimentary web based service that provides reports detailing the usage and capacity requirements for your premises.

Utilising Energy Manager you can track demand and usage profiles down to the half hour. If required you can even tailor your reports to track the equivalent spot price at your given location.

Energy Manager includes a number of additional user-defined services, such as SMS or email notification of price fluctuations, market events and grid constraints, as well as access to weekly and monthly market updates and other news services.
Energy Manager takes details directly from your TOU meter and is accessed through the internet via a secure part of the Mercury Energy website. This service is available to all Mercury Energy customers with appropriate metering and can be set up easily by contacting your Account Manager on 0800 490 010.

Industry News

Lines Approval Urged

Transpower wants its $200 million cheaper upgrade proposal for transmission lines into Auckland to be approved by the Electricity Commission by the end of the year.

Chief executive Ralph Craven said that Transpower had altered the original 400 kilovolt line proposal through the Waikato into South Auckland to be less expensive initially, so that it would satisfy the Electricity Commission’s grid investment test (GIT).

Transpower was working with the Commission to make sure it met the GIT, but had also been highly critical of it.

Craven said the GIT was not a robust model for the future and Transpower considers its original proposal to be the right way forward.

Transpower engaged international experts who confirmed its opinion that the Commission’s draft decision rejecting the 400kV line was too narrowly focused.

Craven said the Commission’s alternatives to Transpower’s 400kV line had significant operational and delivery risks. The alternatives involved a series of incremental upgrades until the big line upgrade in 2017. But a delay in any of the interdependent upgrades could push the new line beyond 2017.
Craven said the grid would be in reasonable shape until 2012. Transpower was targeting the revised transmission proposal to be in place by 2011 to give it breathing space. Transpower was likely to submit its revised proposal to the commission at the end of July or early August. (Source: The Press, 24 June 2006)

Power Plan Makes Waves

Cook Strait could be the answer to New Zealand’s energy problems say scientists.

Power companies are investigating an ambitious project to place underwater turbines in Cook Strait as an answer to New Zealand’s electricity shortage. Scientists behind the idea say harnessing the tidal currents could meet the entire country’s electricity needs.

State-owned power companies Meridian Energy and Transpower are also included in the project’s development.

In what would be a multibillion-dollar scheme, up to 7,000 turbines would be anchored to the sea floor and float about 40 metres below the surface.
The project’s leaders, Christchurch scientists David Beach and Chris Bathurst, believe the tidal currents could be harnessed to generate enough electricity for the whole country.

The scientists, the founding directors of Neptune Power, are investigating the placing of the submerged turbines in an area stretching over 200 square kilometres of Cook Strait, from its northern fringes close to Marlborough Sounds to further south between Wellington and Cloudy Bay.

“We think we have the best site in the southern hemisphere,” Bathurst said.
A secondary tidal generation project in Foveaux Strait is also being considered. (Source: The Dominion Post, 24 June 2006)

Spread Wings SOES Urged

State owned enterprises are to be encouraged to spread their commercial wings by expanding into areas “adjoining” their existing businesses.
Underpinning the new policy is a belief that commercialising innovation often involves costs and risks that require a substantial balance sheet. But in New Zealand’s case, most enterprises of any size – Telecom excepted – are foreign-owned, farmer-owned or state-owned.

Trevor Mallard, Minister of Economic Development, said diversification would, except in rare cases, have to be funded from the SOEs’ existing balance sheets, with no fresh injection of capital by the taxpayer.
Diversification would have to make use of their core competencies and be linked to “adjacent” technologies, products and markets.

Four of the five largest SOEs are in the same sector, electricity, suggesting that their scope for expansion will overlap.

But Mallard denies electricity consumers will end up paying for a lot of empire building.

“We do sometimes have a discussion about whether [the electricity sector] is competitive enough. But my view is that there is just no room for any cross-subsidy out of the electricity business.”

The expansion might take the form of a joint venture with private-sector partners in some cases, with the SOE providing capital and expertise. (Source: The New Zealand Herald, 03 June 2006)