Costs could drive up Meridian prices

State-owned power company Meridian Energy is warning that power prices for some customers may go up after a freeze for almost two years.

Asked if it would be hard to put up prices in its key retail market of Christchurch after the earthquake this week, Meridian chief executive Tim Lusk said: "It is a moving feast right now ... it is too early to call."

The Government had said it may sell part of the big state- owned power companies, including Meridian.

Meridian froze residential prices in March 2009, but it is now "reviewing prices" after big rises by rivals. Prices would increase in some areas to reflect higher costs and the expected cost of building new generation.

But Meridian said prices in some areas would "go up, some [remain] frozen and some go down".

Yesterday Meridian announced an underlying profit of $123.4 million for the December half year, up 4 per cent on the previous period.

Mr Lusk said it was a strong result.

The company will pay an interim dividend of $94.2m to the Government.

It now has 263,000 retail customers, with 107,000 in the highly competitive Christchurch market.

"Our customers in Christchurch are enormously important to us," he said. The earthquake would be a "consideration" in its decision on power price rises.

"It is a very competitive market and we are conscious of where our pricing is sitting. It does need some adjustment, but we will be deeply concerned about [the earthquake]."

In some markets, Meridian's prices were "significantly below" others, so changes would be made in each region, and the company had not decided how much prices would rise.

Meridian has increased customer numbers 14 per cent in the past year, in part because it has held prices, while others have charged customers more.

In the past six months, Meridian's retail customer base has risen 13 per cent in the North Island, but it has had a drop in customers in the South Island after intense competition in Christchurch.

A slow economic recovery and a high level of retail competition remained a "challenge" for Meridian, despite the strong half-year profit.

Earnings before interest tax, depreciation and amortisation went up 19 per cent in the December half year, to $353m.

A big factor in that increase was the $28.1m gain from the settlement with the operator of the Bluff aluminium smelter, NZAS. That related to the failure of a transformer at the Tiwai Pt smelter in 2009.

Meridian has a "take or pay" arrangement, which meant the smelter had to pay for a certain amount of power whether it was used or not. The original amount in dispute was about $57m.

Stripping out that $28.1m, there was a 9 per cent lift in earnings, as a result of increased retail sales, up almost $9m in the half year. The company was also starting to see a contribution from its international operations.

Employee and other operating costs, outside power costs, were also cut almost $10m, lifting earnings. Total revenue was up 18 per cent to $1.09 billion for the six months.

Meridian produced first power from its Waikato 64 megawatt Te Uku wind farm in November, just 12 months after the first sod was turned on the project and six weeks ahead of schedule and in time to hit the recent peak in wholesale prices. Te Uku should be operational soon.

Construction has also started on the 420MW Macarthur wind farm in Australia, which Meridian holds in partnership with AGL. That project is due to be completed in 2013.

Meridian is waiting on a decision on an Environment Court appeal on its 67MW Mill Creek wind farm near Wellington.

It has not committed to its next generation project in New Zealand. But it was likely to be one of two projects that have already gained consent, or another near to getting consent. Meridian has a consent for the 120MW Central Wind project, near Waiouru, and for a project in Hawke's Bay which could be up to 127MW.