2013 Mighty River Power Capital Markets Day

Page 1

2 October 2013

Mighty River Power Capital Markets Day


CAPITAL MARKETS DAY

Disclaimer The information in this presentation has been prepared by Mighty River Power Limited with due care and attention. However, neither the company nor any of its directors, employees, shareholders nor any other person shall have any liability whatsoever to any person for any loss (including, without limitation, arising from any fault or negligence) arising from this presentation or any information supplied in connection with it. This presentation may contain projections or forward looking statements regarding a variety of items. Such projections or forward looking statements are based on current expectations, estimates and assumptions and are subject to a number of risks, uncertainties and assumptions. There is no assurance that results contemplated in any projections and forward looking statements in this presentation will be realised. Actual results may differ materially from those projected in this presentation. No person is under any obligation to update this presentation at any time after its release to you or to provide you with further information about Mighty River Power Limited. A number of non-GAAP financial measures are used in this presentation. You should not consider any of these in isolation from, or as a substitute for, the information provided in the audited consolidated financial statements which are available at www.mightyriver.co.nz. The information in this presentation is of a general nature and does not constitute financial product advice, investment advice or any recommendation. Nothing in this presentation constitutes legal, financial, tax or other advice.


CAPITAL MARKETS DAY

Agenda 1.00pm

Introduction and Health & Safety

1.15pm

Operations

2.15pm

Retail

3.00pm

Afternoon tea break

3.30pm

Metrix

3.45pm

Development

4.30pm

Capital Management

5.00pm

Q&A


CAPITAL MARKETS DAY

Our company and the environment we operate in > Operate in a competitive and well-functioning market that has led to world-best outcomes > >

for security, level of renewables and resilience to future fuel shocks Consumer benefits now occurring from major investments

> Our portfolio well positioned for demand-supply dynamics > >

current excess capacity, reflecting flat demand and increased renewable generation potential for reduction in excess capacity, as more flexible take-or-pay requirements lead to further response from fossil fuel generators

> Inherent portfolio advantages mean greater earnings surety under most market conditions, including weak Waikato hydro conditions > Multi-brand retail strategy delivers a tailored customer experience through innovation in an intensely-competitive market > Metrix, our technology business with unique multiple technology platforms, provides opportunity for earnings-accretive growth > Development business continues to position for weak domestic outlook and medium term economically-viable growth options offshore > Focus on sustainable earnings and capital management underway and ongoing


CAPITAL MARKETS DAY

Health & Safety > Health & Safety focus on ‘zero harm’ is an absolute priority > Critical industry opportunity with common contractors and sub-contractors - StayLive generators’ group > Company (and other generators) TRIFR well below electricity sector averages > our TRIFR shows 17% improvement y-o-y; and 59% improvement over past five years > Ngatamariki project TRIFR (involving 1 million person-hours) of 0.98 vs 3.54 for last major project (Nga Awa Purua) > LTIFR at similar levels for the last 5 years > Significant and on-going effort into Health & Safety processes, specific focus to improve critical risk identification, including systems and culture > Sentenced for ‘near-miss’ incident in September 2013 > $32,000 for drilling contractor; $16,000 for Mighty River Power as principal for failing to take all practicable steps > Judge referenced one-off nature of incident and Company’s good safety record and robust safety processes > early guilty plea from the Company; focus on capturing learnings and implementing improvements in future risk identification

TOTAL RECORDED INJURY FREQUENCY RATE 2.5 2.0 1.5 1.0 0.5 0.0 FY2009

FY2010

FY2011

FY2012

FY2013

LOST TIME INJURY FREQUENCY RATE (EMPLOYEES AND ON-SITE CONTRACTORS) 0.6 0.5 0.4 0.3 0.2 0.1 0.0 FY2009

FY2010

FY2011

FY2012

FY2013


Operations Capital Markets Day

Presented by: Fraser Whineray General Manager Operations

Phil Gibson Wholesale Markets Manager


OPERATIONS

Operations Operations is responsible for: > Managing the generation of electricity to be sold on the wholesale market and to certain large commercial customers > Managing wholesale electricity value and risk position through a range of levers > Operation and maintenance of power stations and upstream fuels


OPERATIONS

Market Structure


OPERATIONS

Wholesale/portfolio decisions and governance Governance – Management/Board

SHORT‐TERM

MEDIUM‐TERM

LONG ‐TERM

Cover risk and achieve best value for fuel

Optimise sales book and fuel choices

Future earnings growth and asset management

Pricing

Pricing

Pricing

Competitors

Competitors

Competitors

Portfolio net position

Portfolio net position

Outage Planning

Asset Management

Transmission

Plant Mode

New Plant

Fuel

Fuel

Fuel

Dispatch Optimisation Fuel Value Outage scheduling

Decisions made in conjunction with retail

Decisions made by Operations

Decisions made in conjunction with Development


OPERATIONS

Demand and supply > Excluding industrial, demand flat over last six years > deindustrialisation trend seen since 2003

> Meridian Tiwai negotiations more positive than expected > 170MW step down in Meridian contract volume in 2015 > provides clear signal and time for thermal response, including others contracting with Tiwai

> Thermal units in New Zealand are large relative to the total market > 170MW step-down equivalent to a 15% reduction by the three CCGTs NATIONAL CONSUMPTION 45,000 Thermal Generation for FY2013

35,000 30,000

National Consumption Rolling 12 months National Consumption Excl. Tiwai Rolling 12 months National Consumption Excl. all Direct Connect Rolling 12 months

03 2013

09 2012

03 2012

09 2011

03 2011

09 2010

03 2010

09 2009

03 2009

09 2008

03 2008

09 2007

03 2007

09 2006

03 2006

09 2005

03 2005

09 2004

03 2004

09 2003

03 2003

09 2002

03 2002

09 2001

03 2001

09 2000

03 2000

09 1999

03 1999

20,000

09 1998

25,000 03 1998

GWh

40,000


OPERATIONS

Thermal utilisation reducing > Record level of thermal surplus due to combination of: > long lead time generation build pipelines > sustained period of flat to declining demand growth

> Introduction of non-discretionary renewables (geothermal and wind) has led to displacement of base-load thermals > Thermal generators’ response constrained by fuel commitments

100%

25,000

80%

20,000

60%

15,000

40%

10,000

20%

5,000 ‐

0% 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Diesel Capacity

Coal Capacity

Gas Capacity

Geothermal Capacity

Southdown

Otahuhu

TCC

Huntly Main

Huntly 6

Whirinaki

e3p

Note: in the above graph thermal capacity is stacked and the geothermal capacity is overlaid

Thermal and Geothermal Capacities (GWh)

Utilisation

THERMAL UTILISATION AND CAPACITY, AND GEOTHERMAL CAPACITY


OPERATIONS

Thermal response underway > Contact > Investment in Ahuroa gas storage facility allows reduced take-or-pay quantities and converts gas supply from base load to peaking/firming > Signal to mothball Taranaki CCGT (TCC) from start of 2014 to defer maintenance capex > Considering disconnection of OTA steam turbine and conversion to OCGT

> Genesis > Recently announced the second of its units going into storage before the end of 2013 > Only two Huntly 250MW units available from 2014 – expect very low utilisation

> Mighty River Power > Converted Southdown from base-load to peaking mode from 2003 > Gas supply arrangements reducing during 2014. No gas contracted from 2016 > Earnings from ACOT over winter – offset gas transmission costs WINTER SECURITY MARGIN ASSESSMENT

Basecase

Energy Security Margin

40%

No new thermal + decommissioning of one CCGT High Demand

30% 20% 10%

Source: System Operator, Transpower

2020

2019

2018

2017

2016

2015

2014

2013

2012

0%


OPERATIONS

What does it all mean for wholesale prices? > > > > >

Future wholesale market price outcomes heavily dependent on key drivers of supply and demand Futures curves and independent forecasts consistently low for some time Market expects some increase over time to wholesale and futures prices Current commercial prices would not cover fuel and variable operating cost of thermals ASX CAL14 saw $3 lift in response to Contact TCC announcement in August 2013

THIRD PARTY WHOLESALE ELECTRICITY PRICE FORECASTS

ASX FUTURES SETTLEMENT PRICE (OTA)

110

80

100

70

90

60

80

50 $/ MWh

90

70 60

40 30

Credit Suisse Goldman Sachs

Deutsche Bank Macquarie

FNZC UBS

FY20

FY19

FY18

10

FY17

40 FY16

20 FY15

50 FY14

Nominal Price ($/MWh)

120

0 FY2014

FY2015

As at 30 June 2012

As at 5 April 2013 (date of PFI)

As at 30 June 2013

As at 26 September 2013


OPERATIONS

Mighty River Power portfolio dynamics AVERAGE WHOLESALE PRICE (WKM)

> Traditionally run ‘short’ on an annual energy basis

90 80

> mean Waikato hydrology and Southdown at circa 30% load $/MWh

> Portfolio risk assessed by internal VaR model against risk appetite > Actual short position has range driven by high/low inflow scenarios to Waikato Hydro and wholesale prices > Mixture of sales channels to residential, commercial and industrial customers nationwide - spreads exposure to location risk and portfolio decay/price risk > Current commercial contracts market clearing at low/negative margins for risk

60 50 40 30 20 10 0 FY2009

FY2010

FY2011

FY2012

FY2013

SALES PORTFOLIO

Industrial

Commercial

Residential

8,000 7,000 6,000 GWh

> risk managed with additional thermal utilisation and contracts

70

5,000 4,000 3,000 2,000 1,000 0 FY2009

FY2010

FY2011

FY2012

FY2013


OPERATIONS

CFD and ASX INDUSTRIAL CFD SALES

> Industrial Sales CFDs

Kawerau Contract

> 30% of total sales and 75% of net CFDs

GWh

> Fixed Price Fixed Volume contract, typical in Industrial sales channel > buyer takes some volume risk compared to FPVV contracts, CFDs normally priced accordingly

2,500 2,000 1,500 1,000 500 0

> Inter-generator CFDs

> ASX futures market > exchange traded market for quarterly futures contracts

FY2010

FY2011

FY2012

FY2013

3,000 2,000 GWh

> 15% of net CFDs

FY2009

NET INTER-GENERATOR CFD*

> generators use CFDs to manage fuel, plant and transmission outages > ASX and broker markets provide useful reference for OTC markets

Other Industrial Sales

1,000 0 -1,000 -2,000

FY2009

ASX CFD

> Mighty River Power participates as a Market Maker

FY2010

Buy CFD

FY2011

FY2012

FY2013

Sell CFDs

600 400

> 10% of net CFDs

200

GWh

> useful alternative for hedging inter-island risk

Location Hedging

0 -200

*Includes VAS on both buy and sell side CFDs

-400

FY2009

FY2010

FY2011

FY2012

FY2013


OPERATIONS

How is our portfolio placed to respond to short-term market conditions? > Base-load geothermal and all-year -round rain-fed Waikato hydro delivers reliable generation compared to other renewable portfolios > South Island hydrology is negatively correlated to wholesale price. Taupo inflows are typically not correlated which limits downside variability but has the opportunity for upside > Flexible gas generation delivers peaking capacity and hydro firming for dry year risk mitigation (~1000GWh of potential Southdown) > All generation located in the central North Island in close proximately to growing parts of the economy – less basis risk TAUPO AND SI STORAGE PERCENTAGES AND MEANS 100%

80% 70% 60% 50% 40%

North/South # of QTRs Wet/Wet 11 Wet/Dry 4 Dry/Wet 5 Dry/Dry 1

30% 20% 10%

Dry/Dry

Taupo storage %

SI Storage %

Mean Taupo Storage %

Mean SI Storage %

80% Mean SI Storage %

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

Oct-08

0%

Jul-08

Storage Percentage of Average

90%


OPERATIONS

Risk Management Processes Risk Assurance and Audit Committee Executive Risk Management Committee BACK OFFICE Administration of transactions/cash flows

FRONT OFFICE Customer and competitor facing transactions

MIDDLE OFFICE Position, Credit and Exposure Control

External relationships

Transaction Confirmation

Reconciliation

Competitor Insight

Counterparty Credit

Settlement

Market Insight

Accessed Credit Exposure

Debt Management

Offer and Acceptance

Policy Compliance

EA Notification

Market and Credit Risk Management Policy

Board


MARKET DYNAMICS

Market regulation > Energy prices for end consumers set by deregulated, competitive market forces > Deregulated wholesale market based on supply and demand established in 1990s, with full retail competition from 1998 > Transmission and distribution considered monopoly assets – ownership separation from generation or retailing businesses and separately regulated

> Independent Regulatory Agencies > Commerce Commission – competition law and determination of returns for regulated asset base > Electricity Authority (EA) is primary regulator of electricity markets - promotes competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers

> Framework has been settled since 1999 after a period of significant reform in mid to late 1990s


OPERATIONS

A well functioning market > Current market structure has led to highly competitive market which has resulted in world-leading outcomes: > 1,200MW renewable investment over last 10 years displacing fossil fuel > best generation projects brought to market first > security of supply highest for two decades > retail churn around 20% (second only to Victoria, Australia)

> Initiatives have seen further improvements in wholesale markets > transmission investment approvals/commisioning > increased liquidity and price certainty

> Retail markets can benefit from investment in wholesale market > Electricity Authority survey (February 2013) stated “prices in [this] market reflect the outcomes expected in a workable market� EA MARKET PERCEPTIONS SURVEY Retail

OTC

Futures

Spot

Instantaneous reserves

Frequency keeping

2013

2011 Source: UMR research

negative

positive


OPERATIONS

Transmission Pricing Review > The EA announced a new Transmission Pricing Mechanism (TPM) in October 2012 for consultation with proposed implementation in 2015 > The proposal was extremely complex, applied to all transmission (not just HVDC) and was retrospective in nature > Initial consultation attracted strong negative feedback by wide-cross section of submitters > EA has delayed proposed implementation date by one year and intends to release a further series of consultation papers on key elements of the proposal in FY2014 > Ability to recover generator charges key to any new proposal > Any decrease in Tiwai demand would change reallocation/beneficiaries


OPERATIONS

Transmission Pricing Review


OPERATIONS

Transmission

> lower opportunity for price separation between North and South Islands > increases South Island generators’ ability to compete in wholesale and end-user markets in the North Island > reduces risk of retailers competing against South Island generators in the South Island

Location factor

5

Bi-pole outages

4

HVDC Commissioned

3 2 1 Sep

Aug

Jul

Jun

May

Apr

Feb Mar

Jan

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

0

RELATIVE WHOLESALE PRICE – OTAHUHU TO WHAKAMARU 1.18 1.16 1.14 1.12 1.10 1.08 1.06 1.04 1.02 1.00

NIGUP Commissioned

01 Oct 06 Oct 11 Oct 16 Oct 21 Oct 26 Oct 31 Oct 05 Nov 10 Nov 15 Nov 20 Nov 25 Nov 30 Nov 05 Dec 10 Dec 15 Dec 20 Dec 25 Dec 30 Dec 04 Jan 09 Jan 14 Jan 19 Jan 24 Jan 29 Jan

> HVDC Pole 2 control systems commissioning underway

RELATIVE WHOLESALE PRICE – OTAHUHU TO BENMORE

Location factor

> Core infrastructure for electricity markets > Underpin national competition for customers Transmission upgrades > Transpower $3.5 billion programme expected to complete in March 2014 > North Island Grid Upgrade Programme (NIGUP) providing improved security of supply commissioned in October > Wairakei Ring providing increased transfer through central North Island > High Voltage Direct Current (HVDC) Pole 3


OPERATIONS

Reinvestment capital expenditure > $72 million of reinvestment capital expenditure for FY2014 > two wells at Kawerau and on-going hydro lifecycle work

> Higher than average reinvestment capital expenditure for the rest of the decade given the hydro lifecycle programme > Arapuni generators - three complete; all four competed end of 2013 > Ohakuri runners - two complete and all four expected to be complete at the end of FY2014 > Next phase of programme will focus on Whakamaru rehabilitation

> Geothermal reinvestment capital expenditure is lumpy as the sustainable resource is managed > dynamic system in which we manage around 200 wells > On-going requirement for make-up wells > released drilling rig in September on completion of Kawerau wells > completion of almost ten years of continuous drilling


OPERATIONS

Market Dynamics > Operate in a highly competitive and well-functioning market that has led to world-best outcomes > for security, level of renewables and resilience to future fuel shocks

> Our portfolio well positioned for demand-supply dynamics > current excess capacity, reflecting flat demand and increased renewable generation > potential for future reductions in excess capacity, as more flexible take-or-pay requirements lead to further response from fossil fuel generators

> Inherent portfolio advantages means greater earnings surety under most market conditions, including weak hydro conditions > Centralised management of wholesale price risk and optimising value across integrated portfolio


Retail Capital Markets Day

Presented by: Matthew Olde Acting General Manager Retail

Bryan Dobson Sales, Marketing and Service Manager

Luke Blincoe GM Bosco Connect and GLO-BUG


RETAIL

Retail > Retail responsible for: > Marketing and selling electricity to residential and business customers through Mighty River Power’s consumer brands (Mercury Energy, GLO-BUG, Bosco Connect and Tiny Mighty Power) > Managing customer segmentation and mix to maximise value


RETAIL

Retail FPVV BUSINESS AND RESIDENTIAL SALES 6,000

MIGHTY RIVER POWER RETAIL ELECTRICITY CUSTOMERS BY BRAND (FY13)

5,000

GWh

4,000 3,000 2,000 1,000

Other 44,504

FY09

FY10 FY11 FY12 Business Residential

FY13

FY14 PFI

MARKET SHARE OF NATIONAL DEMAND (EXCL TIWAI) 40,000

GWh

Mercury Energy 349,833

GLO‐BUG Tiny Mighty 16,956 Power 16,567 Bosco Connect 10,981

30,000

18%

19%

21%

21%

21%

22%

FY08

FY09

FY10

FY11

FY12

FY13

20,000 10,000

(note: excludes gas customers)

Rest of Market excl Tiwai

MRP Sales volumes

Source – Transpower information exchange, MRP data


RETAIL

Competitive Landscape > Retail competition a key focus for the Electricity Authority (EA): > What’s My Number campaign impact > increased liquidity in hedge markets, reduction of basis risk through transmission investment allowing more flexibility in retailer portfolio mix, and model use of systems agreements > EA currently reviewing options to reduce participant prudential requirements and further increase consumers’ propensity to compare and switch retailers

> High security margins drive elevated competition levels

% of annual customer churn

CUSTOMER ELECTRICITY SWITCHING RATES BY MARKET 30% 25% 20% 15% 10% 5% 0%

2010

Source – VaasaETT

2011

2012


RETAIL

Competitive Landscape > Mass market switching activity approaching the 2011 peak, especially in Auckland > Despite being over-represented in Auckland (68% of Mighty River Power customers Auckland-based), retail book churning below market average > Grew mass market volume since FY08 ahead of increase in retail competition backed by additional generation capacity MIGHTY RIVER POWER ICPS & SHARE OF CONSUMPTION 450

25%

24%

400

ICP's (000's)

20%

15%

10%

350

22%

300

20%

250

18%

200

16%

150 14%

100 5%

12%

50 -

10% FY08 FY09 FY10 FY11 FY12 FY13

AKL Market Churn

NZ Market Churn

Mercury AKL Churn

Mercury NZ Churn

Source: Electricity Authority

May-13

Mar-13

Jan-13

Nov-12

Sep-12

Jul-12

May-12

Mar-12

Jan-12

Nov-11

Sep-11

Jul-11

May-11

Mar-11

Jan-11

Nov-10

Sep-10

Jul-10

May-10

Mar-10

Jan-10

0%

Non Auckland Auckland Share of NZ Consumption (excl. Tiwai)

MRP Market Share %

RESIDENTIAL CUSTOMER SWITCHING IN AUCKLAND & NZ


RETAIL

Mass Market Pricing > Headwinds in mass market pricing due to the supply / demand balance and increased competition > Headline prices not reflective of offers and discounts offered in the market > Lines and transmission charges typically make up 40% of end prices AVERAGE DOMESTIC ENERGY PRICE BY RETAILER FOR NZ: 2006 - 2013 18

PROPORTION OF MERCURY CUSTOMERS ON HEADLINE PRICING 2009 3%

17 16 c/kWh

15 14

97%

13 2013

12 11 10

39%

May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 Contact Energy Mercury Energy TrustPower TrustPower Friends Extra

Genesis Energy Meridian Energy Contact Energy Online OnTime

61%

Source: Ministry of Business, Innovation & Employment & MRP Analysis

Non Standard Pricing

Headline Pricing


RETAIL

Contract Market > Increased market activity evident in the commercial contract and CFD markets > Successful in increasing commercial book in 2012 before ASX markets fell. Average contract tenure 2.8 years > Successfully contracted volume ahead of Ngatamariki commissioning > Recent market pricing not aligned with Company view of return for risk COMMERCIAL FPVV SALES VOLUMES & PRICING 10.5

800

10.0

700

9.5

c / kWh

9.0

500

8.5 400 8.0 300

7.5

200

7.0 6.5

100

6.0

0 Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

MRP FPVV Commercial Sales Volumes Source – Energy Link, ASX, MRP data

Mar-12

Jun-12

Sep-12

Energy Link FPVV Index

Dec-12

Mar-13

ASX OTA

Jun-13

Gwh per quarter

600


RETAIL

Cost Management > Whilst acquisition costs correlate to the level of switching activity, underlying OPEX continues to be actively managed, partially mitigating the cost of increased churn > Reductions in underlying costs reflect process efficiencies in billing, credit and service functions RETAIL OPERATING COSTS 25%

100%

20%

80% 70%

15%

60% 50% 40%

10%

30% 20%

5%

10% 0% FY09

0% FY10 Acquistion Costs

FY11 Servicing Costs

FY12 Mercury Churn %

FY13

% Churn

% of FY09 Operating & Direct Cost Base

90%


RETAIL

> A sustained focus on credit assessment, collection efficacy and leveraging prepay is resulting in lower bad debt write-offs than industry > Guiding principles for debt management focus on early intervention and appropriate payment solutions > Mercury disconnection rates are falling

Average write-off per ICP

Debt Management and Disconnections WRITE-OFF COST PER ICP (2012) 80 60 40 20 0

CREDIT PERFORMANCE 0.40%

0.70%

0.35%

0.60%

0.30%

0.50%

0.25%

0.40%

0.20%

0.30%

0.15%

0.20%

0.10%

0.10%

0.05% FY09

FY10

Net debt write-offs as a % of revenue Arrears disconnection rate - Industry Source – Electricity Authority, MRP data

FY11

0.00% FY12

FY13

Arrears disconnection rate - Mighty River

Disconnection rate

Net debt write off rate

Source – Veda, Electricity Authority


RETAIL

Consumer Brands > A multi-brand strategy enables a tailored customer experience and cost efficiency

Brand

Established

Customers

Description

Service Experience

1993

350,000

• Mass market, multi‐ segment • Scale operation

• • • •

2006

10,000

• CBD apartments • Low cost operating model for low consumption, high turnover segment

• Concentrates on low‐cost service channels • Delivers better value to both customer and retailer as a result

2008

17,000

• Smart meter prepay product • Pay‐as‐you‐go budget management service

• Online and app‐based self‐service, pay‐service call centre available • Uses technology including in‐home display and smartphones to deliver more control to the customer • Eliminates credit management cost

2009

17,000

• Regional towns • Local presence, community engagement

• Full‐service decentralised call centre • Regional, personalised service proposition

Full‐service call centre Comprehensive online service suite Multiple communication channels Increased use of online and email channels for both marketing and service


RETAIL

GLO-BUG > GLO-BUG is a smart meter and cloud hosted prepay solution that provides a range of tools (IHD, smart phone apps, web) to help customers manage their energy account more easily > Delivers a socially responsible solution by reducing the total cost of energy for most credit distressed customers through avoided fees associated with late payment behaviour > on average a customer migrating from Mercury to GLO-BUG reduces their total cost of energy by around $300 on average

> GLO-BUG well positioned to benefit from wider use of credit checking; Meridian and Mercury refer credit distressed and credit check fail customers to GLO-BUG > Recognised industry solution > transfer of Meridian prepay customer base > won the Innovation Award at the Deloitte Energy Excellence Awards in 2012 GLO-BUG CUSTOMERS 20,000 16,000 ICPs

12,000 8,000

Includes transfer of Meridian prepay customers

4,000 Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13


RETAIL

Tiny Mighty Power > Distributed contact centre in selected towns enables lower operating costs and more effective engagement through community presence (e.g. Schools programme) > Sustained local presence enables higher market penetration (in the towns) than could be achieved with the traditional retail approach of one-off acquisition campaign Area (Market Entry) Marlborough (Sep 10) Whakatane (Jul 12) Waipa (Nov 09) Wairarapa (Aug 10) Thames Valley (Sep 10) Rotorua (Jan 13) Taupo (Jan 13)

TINY MIGHTY ICPS 18,000 16,000 14,000 12,000

8,000 6,000 4,000 2,000

Source: Electricity Authority

Jul-13

May-13

Mar-13

Jan-13

Nov-12

Sep-12

Jul-12

May-12

Mar-12

Jan-12

Nov-11

Sep-11

Jul-11

May-11

Mar-11

Jan-11

Nov-10

Sep-10

Jul-10

May-10

Mar-10

Jan-10

Nov-09

ICPs

10,000

Market Share % 15.7% 14.6% 13.4% 10.7% 3.3% 1.2% 1.0%


RETAIL

Innovation > Focused on strengthening customer relationship beyond basic electricity supply: > 43k dual fuel customers (since April 2002) > 35k Star Supporter Club members donating $850k p.a. to Starship via monthly bill (since May 2004) > 36k Mercury Perks members receive entertainment, travel, food and wine discounts (since April 2010) > 95k residential customers on fixed price contracts (since November 2010) > 65k GEM users to date, incl. >60% repeat users (since March 2013)

MERCURY ENERGY RESIDENTIAL PRODUCT PENETRATION 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jun-09 Electricity only

* Products include: Dual Fuel, Fixed Price Contracts, Mercury Perks, Star Supporters Club, Active GEM users

Jun-10

Jun-11

2 products

Jun-12

3 products

Jun-13 4+ products *


RETAIL

Innovation > The Good Energy Monitor (GEM) is delivering increased customer engagement > Active GEM users display higher level of satisfaction and lower likelihood to switch CUSTOMER PERCEPTIONS SINCE LAUNCH OF GEM

% of Mercury customers that agree

60%

50%

40%

30%

20%

10%

0% Innovative and Progressive

Save energy Leading the way Comes up with and money new ideas

Feb-13 Source: Colmar Brunton

Jun-13

Offers something different

Appeals to you Takes away the more hassle


RETAIL

Demo of GEM live $#


Metrix Capital Markets Day

Presented by Matthew Olde GM Business Strategy & Solutions

Tim O’Halloran GM Metrix


METRIX

Introduction > Technology Business > Advanced Metering Infrastructure (AMI) and Services


METRIX

Business model > Three key components underpin a flexible business model > buy and deploy AMI or leverage third party AMI > operate AMI control systems and manage rich information > deliver AMI services and field services for retailers or their agents

AMI TECHNOLOGY

METRIX SYSTEMS

CUSTOMERS

P2P AMI Retailers Retailers Service Integration

Distribution networks

Collector Field Services Mesh AMI


METRIX

Client base > Increased electricity retailer ICP churn provides opportunities for increased deployment

CLIENT BASE JUNE 2013

Contact 13% Meridian 7% Glo-Bug 7%

Other 11%

Mercury 61%

Powershop 4%

Genesis 3%

Other 3% Bosco 1%


METRIX

Enabling retailer propositions > AMI propositions are now coming to life > Mercury - Good Energy Monitor > GLO-BUG Prepay/GLO-BUG and IPHONE > Powershop > Contact Energy


METRIX

The AMI market in Auckland > > > >

Metrix has a long heritage in New Zealand’s biggest retail/residential market Now 85% deployed with AMI Metrix holds 70% market share Ongoing deployment programme in Auckland

AUCKLAND AMI METERING MARKETS JUNE 2013

Metrix AMI AMS AMI Legacy


METRIX

AMI market nationally Market structure > Rollout of AMI is driving market consolidation in electricity metering > Three AMI providers now deployed 50% AMI > Retailer-led model > Beginning to see maturity in service interoperability among the three AMI providers

JUNE 2013

Metrix AMI, 329 Legacy upgrade assigned, 577 Other, 1043 AMS AMI , 505 Legacy upgrade uncommitted , 466 Arc AMI , 135


METRIX

The AMI market nationally Operating environment > Expect stabilisation following recent, extensive changes to the electricity metering regulations > Significant investment in systems interface with the Electricity Registry completed > Compliance deadline of 1 April 2015 rapidly approaching for Category 1 metering installations > all metering installations up to 3-phase 100 Amps require full certification

> Elevated levels of Electricity ICP churn


METRIX

Operating statistics > $101m of capital expenditure over the last five financial years > EBITDA doubled from FY2009 to FY2013

Year ended 30 June

FY2013

FY2012

FY2011

FY2010

FY2009

8.4

16.6

33.0

25.8

17.1

314,586

281,340

240,586

120,877

35,104

Legacy Meters

58,663

84,405

121,726

192,213

279,119

Legacy Meters – 3 phase

23,908

25,673

33,005

33,296

32,542

Load Control (hot water)

270,332

268,163

252,380

227,504

226,239

13,586

14,679

15,198

14,765

12,095

681,075

674,260

662,895

588,655

585,099

Capital Expenditure ($m) AMI

Pre‐pay Total Assets


METRIX

Growth opportunity Expansion activity > Deploying AMI into new regions for Mighty River Power consumer brands > Providing exclusive AMI services on the Counties Power network > Further AMI opportunities available in the market

Capital investment > Future capex spend depending on growth opportunities around $20m - $40m p.a. > PFI FY14 forecast was $12.8m

> Revenues flow immediately following deployment


Development Capital Markets Day

Presenters: Mark Trigg GM Development

Samuel Moore Manager Strategy & Planning

Dennis Radich Generation Development Manager


DEVELOPMENT

A significant role in both of the Company’s core business strategies > Maximising the value of the existing business > Technical Resources Team (Rotorua) provides specialist technical services to Operations through Geoscience; Reservoir Engineering; Asset Management; Well Services; Chemistry

> Securing economically attractive development options > Business Development Team (Auckland based) > Chilean operations and development team (Santiago based)


DEVELOPMENT

The trend in the domestic market required an adjustment to strategy > Reset the level of domestic activity > maintain a small number of long-dated options with sufficient diversity of scale, fuel type and technology > align the resourcing to match the reduced activity levels > consider the optimal configuration of existing gas generation

> Increase our focus on existing investments in offshore jurisdictions > removed the intermediary between the Company and its offshore investments in Chile and California, enabling significantly greater direct management involvement > fully controlled entity in Chile > Board representation, management and technical collaboration in EnergySource (California)


DEVELOPMENT

Domestic activity curtailed consistent with demand requirements > Small focused number of opportunities being maintained > wind and geothermal preferred

> Other lesser opportunities abandoned > Lower touch/lower cost approach as we await market recovery > Significant reductions in resourcing undertaken or planned > headcount peaked at circa 150 (inclusive of Chile) during Ngatamariki construction > trending towards 90 > 2/3 in technical resources


DEVELOPMENT

A strong position in wind has been created > Two very high quality, consented Class 1 (high wind speed) sites South East of Palmerston North > Fully consented 220kV transmission line route to link projects to the Transpower grid > Transmission line consent large enough to accommodate all four wind projects in the area (note Waitahora & Castle Hill consented without transmission) > Staged execution options to meet market opportunities > Also a third (earlier stage) Class 1 site, Cape Campbell, in Marlborough with long-term development rights


DEVELOPMENT Offshore an opportunity to leverage niche capabilities and create a new growth channel > The Company has, during the 10 year period of domestic development, built up institutional knowledge in > geothermal risk assessment > development capability > technical resource capability > geothermal operations

> The small size of the global geothermal market created opportunity to leverage that strategic advantage not held in any other fuel sources > Additional risks in new jurisdictions offset by diversifying existing risks > soft domestic market with increased regulatory uncertainty > long term domestic contract price uncertainty

> Route to maintain institutional knowledge in absence of new domestic opportunity > Consider the programme as a continuous one, not bounded by geography per se > US-based John L Featherstone plant (HR1) in commercial operation prior to completion of Ngatamariki, first evidence of that transition > further Salton Sea (US) development seen as next most likely project


DEVELOPMENT

After five years we have created a platform from which we can control future direction > Created the opportunity to consider a number of development options via GeoGlobal Energy (GGE) that would have been inaccessible otherwise > Have direct control of those investment opportunities we elected to pursue > direct investment in EnergySource with a preferred position in John L Featherstone plant > direct ownership of Chilean entity and resource rights > financial interest in German assets currently under management control of GGE, but including a repurchase option (nominal cost) should certain financial criteria not be met by GGE

> Transformed the structure of original investment (designed to meet SOE constraints) to enable direct management and control > absorbed the management of the assets / investments into our own development structure with significantly reduced cost > closer alignment of incentives between partners > leverage of existing resources and systems that successfully delivered the domestic programme over the past decade > apply patient approach to development as required with full control over capital allocation decisions


DEVELOPMENT

Investment in John L Featherstone has already paid dividends > Initial USD92m investment > 20% holding in EnergySource > preferred equity interest in John L Featherstone Plant > post construction refinancing led to lump sum distribution of USD118m

> Post tax cash flow returns influenced by “flip” dates > circa USD1m until tax equity flip forecast in late 2017 > circa USD4.5m from then until MRP “preferred” return completed in 2021 > circa USD2m thereafter

> Resourcing > EnergySource has operational and development teams based in San Diego and Salton Sea > hold one (of three) board seats > interaction at management and technical levels giving direct access to information

> Hudson Ranch II > EnergySource has PPA for a further project > has additional land


DEVELOPMENT

Salton Sea represents a significant opportunity > Field > Cal Energy has operated 10 plants with 327MWe net (340MWe gross) since 2000 > no make-up wells required to support pressure decline (small number due to well condition)

> State > ongoing significant retirements of gas plant due to restrictions on ‘Once Through Cooling’ > San Onofre (2200MW nuclear) closure > geothermal baseload characteristics / benefits are starting to be recognised in context of large amount of intermittent renewables

> But we are mindful of > Californian utilities near the 20% Renewable Portfolio Standards requirements but some way to go to reach 33% requirement by 2020 > longevity of federal tax incentives always uncertain

US GEOTHERMAL FIELD BY RUNNING CAPACITY Geysers Salton Sea Coso

Running capacity

Heber Steamboat East Mesa

Additional resource potential

Dixie Valley Blue Mountain Roosvelt Puna

0

500

1,000

1,500

MW Source:

Running Capacity: International Geothermal Assn Database Additional resource potential: Western Governors' Association Geothermal Task Force Report, Jan 2006

> Future > Mighty River Power elected not to exercise its option to increase its stake to 33% - value based decision > discussions are ongoing with partners about alternative mechanisms by which we may increase our participation > access to greater acreage of development land would enable participation in huge potential of field


DEVELOPMENT

Chile overview PUCHULDIZA

Geothermal potential > Large number of geothermal fields throughout Chile > Mighty River Power has direct ownership of two of the top concessions: > Tolhuaca (central Chile) > Puchuldiza (northern Chile)

Market potential > > > > > >

Strong growth economy (resources driven) Strong electricity demand growth Recognized electricity supply challenges Politically stable Good regulatory regime and established institutions Deep and sophisticated capital markets for infrastructure investment > Long term attractive outlook

SANTIAGO

TOLHUACA


DEVELOPMENT

Chile is a strong demand growth market 70,000 60,000 40,000 30,000 20,000 10,000 0

> Regulated client (distributor/retailers) tender market

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Source:

Chilean Ministry for Energy

TOTAL SIC NETWORK GENERATION 60,000 50,000 40,000 GWh

> “Free client” market for bilateral contracts with large end users >2MW

1990‐2011 CAGR: 6.4%

50,000 GWh

> Average historical electricity demand growth rate of >6% p.a. > Demand driven both by commodity export sector and increasingly by domestic demand (middle class expansion from 1990) > Two contracting markets for generators to sell into:

TOTAL ELECTRICITY DEMAND

30,000 20,000 10,000 0

Source:

Hydro CDEC‐SIC

Thermal

Other


DEVELOPMENT

Supply challenges driving favourable price outlook SIC SPOT PRICES

US$/MWh

> Chile imports about 75% of its total primary energy supply > Beginning in 2004, Argentina curtailed exports of natural gas to Chile > Base load generation historically dominated by coal and hydro > Energy price outlook reflects likely dependence on imported LNG for new (CCGT) capacity

400 350 300 250 200 150 100 50 0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

> growing opposition to new coal & hydro > some gas-fired plants converted to liquid fuels

Source:

REGULATED CLIENT DEMAND 50,000

> LNG import capacity constrained

40,000 GWh

> Renewables targets increasing* from 10% to 20% by 2025 > Non-conventional renewable energy credits available for geothermal generation > Generators are paid a firm capacity charge for being available

Spot price at Temuco 220kV node CDEC‐SIC

30,000 20,000 10,000 0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Contracted volume * Passed by Senate; now back with Congress

Source:

CNE

Regulated client demand


DEVELOPMENT

World geothermal players are active in Chile > Large number of exploration concessions have been granted > Some of world’s largest geothermal companies are present

> All attempting to solve similar issues of bridging geothermal potential with market opportunity > Starting to see consolidation and exit over time of more speculative resource holders > Potential for further consolidation of industry as experienced developers optimise portfolios and speculators exit > Mighty River Power’s current focus > de-risking project execution through commercial partnerships > revenue security (e.g. PPA) > deepening understanding of resource position > sizing the local platform to near term activity levels


DEVELOPMENT

Successful geothermal development requires recognition that > Patience is necessary > Successful partnerships require alignment of incentives and preferably > complementary strategic capabilities > robust financial capacity of each partner

> Scale becomes valuable to spread technical platform costs > Risk diversification is valuable > through multiple fields for resource diversity > different jurisdictions enable regulatory and pricing risk diversity

> A detailed understanding of market dynamics is important > a core strength in our home market > a key strategic capability sought in partners for other jurisdictions

> Staged development is a rational response to long-term resource uncertainty > Overheads need to be managed through the development cycle


2 October 2013

Capital Management Capital Markets Day

Presented by: William Meek Chief Financial Officer

Tim Thompson Treasury Manager


CAPITAL MANAGEMENT

Capital Structure Disciplined approach to capital allocation > Balance sheet consistent with a stand alone credit profile of ‘bbb’ by S&P (or equivalent)1 > Dividend policy targets dividend yield attractive to shareholders while cognisant of a sustainable financial structure > working capital requirements > the medium term asset investment programme > short to medium term risks on earnings

> Focus on maintaining an appropriate portfolio of high quality investment opportunities > evaluate against all competing uses for cash

> Capital management is addressed on an ongoing basis by management and the Board

1.

2.

Mighty River Power’s BBB+ corporate credit rating reflects S&P’s view that in the event of financial distress there is a “moderate” likelihood of the New Zealand Capital management as normal business sovereign providing extraordinary support to ensure the company’s financial obligations are met in a timely manner. practice Free Cash Flow defined as Operating Cash Flow after interest paid and tax less reinvestment capex


CAPITAL MANAGEMENT

Capital Allocation > FY2014 forecasts reflect full year cash flow contribution from Ngatamariki > FY2014 Capex forecast reduced relative to PFI to be in the range of $125m to $175m > FY14 PFI forecasts dividend of $182m (13 cents per share) > forecast Payout 107% of adjusted Net Profit and 71% of Free Cash Flow > gross yield circa 8% (fully imputed)

> Modest deleveraging forecast if capex at low end of forecast range > On-going focus on sustainable earnings looking forward driven by: > normalisation of generation output (average hydro, full year of Ngatamariki) > improvements in business wide effectiveness and efficiency

* Other cash flows from investing and financing activities as disclosed in Mighty River Powers FY2013 financial results and prospectus


CAPITAL MANAGEMENT

Balance sheet management > Mix of short and long term funding > weighted average maturity exceeding 5 years

DEBT MATURITY PROFILE AS AT 30 JUNE 350

> $300m of new facilities arranged in FY2013 ($200m of bank and $100m of domestic wholesale bonds)

300

> no maturing facilities in FY2014 (excluding CP)

250

> option to convert RCAF into longer term debt > $475m of committed but unutilised bank facilities > $100m of commercial paper outstanding

> Cost of Funds

150 100 50 0 2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

> cost of funds likely to remain at current levels until 2018 due to long term hedging undertaken in 2008 prior to ramp in capex/debt to support geothermal development programme

200 $m

> Liquidity

Financial Years Drawn Undrawn1 375

100 125

550

260

Facility Type ($m) 1. $100m of outstanding commercial paper deducted from undrawn debt 2. USD proceeds fully swapped to NZD via cross currency swaps

RCAF - Undrawn RCAF - Drawn US Private Placement22

RCAF - Undrawn: CP Cover Wholesale Bonds


CAPITAL MANAGEMENT

Balance sheet management INTEREST RATE HEDGING 1400

8.0%

7.0%

1200

> reduce funding and liquidity risk and provide cash flow certainty in the medium term

6.0%

1000

> most swaps not hedge accounted currently so fair value movements recognised through P&L

> The significant fall in interest rates in NZ (and globally) post 2008 has resulted in these hedges being out of the money

$m

> to reduce P&L volatility accounting policy now requires all new hedges to be hedge accounted

5.0% 800 4.0% 600 3.0% 400

2.0%

> FY2013 fair value benefit of $25.6 million

1.0%

0

Debt

FY2013

FY2012

FY2011

FY2010

0.0% FY2009

> Debt re-financing has negligible impact on cost of funds excepting credit spread which is largely driven by debt market and term > Cost of funds will be higher than benchmark funding rates until hedges expire in 2018

200

FY2008

> FY2012 fair value cost of $92.8 million

10yr IRS (Annual Average)

Swap Rate (%)

Cost of Funds > Term funding and interest rate hedging (swaps) undertaken prior to undertaking geothermal development programme


CAPITAL MANAGEMENT

Capital expenditure > $1.4b invested in geothermal domestically since 2006

CAPITAL EXPENDITURE 450

> cumulative revaluations of new geothermal assets exceed $0.5b at 30 June 2013

280

200

274 173

225 119

100

66

57

26

74

69

72 FY2014F

53

50 0

50

FY2013

150

44

FY2012

> contingent provision capex largely relates to offshore geothermal, discussing alternatives at Energy Source

10

FY2011

> other capex includes AMI

38 250

FY2010

> $13m for Ngatamariki carried forward from FY2013

14

300

FY2009

> Reinvestment capex $72m (2 new wells at Kawerau and on-going hydro lifecycle refurbishment)

42

350

$m

> Lower capital expenditure forecast on a go forward basis reflecting no large scale domestic generation development programme > FY2014F capital expenditure reduced to $125m - $175m (PFI: $199.1m)

400

Potential other new investment

Other new investment

Geothermal

Reinvestment


CAPITAL MANAGEMENT

Capital Structure > Mighty River Power Board is committed to maintaining a ‘bbb’ stand alone credit profile > S&P favour the use of cash flow metrics to assess the financial risk profile of the company > key comparative measures for Mighty River Power and it’s peers are Funds from Operations (FFO) coverage and leverage metrics FFO / DEBT*

FFO INTEREST COVERAGE* 7.0

45%

6.5 FFO Interest Coverage (x)

50%

35% 30% 25% 20% 15% 10%

6.0 5.5 5.0 4.5 4.0 3.5

Financial Years Mighty River Power

Contact

2014

2013

2012

2011

2010

2009

2014

2013

2012

2011

2010

2009

2008

3.0 2008

FFO / debt (%)

40%

Financial Years Meridian

Genesis

Mighty River Power

Contact

Meridian

Genesis

> Mighty River Power metrics presently tighter than competitors > Key credit metrics expected to improve in FY14 due to lift in earnings from removal of oneoff costs and commissioning of Ngatamariki *Calculated using S&P existing criteria and metric definitions Source: S&P Credit Reports and Mighty River Power calculations based on publicly available information


CAPITAL MANAGEMENT

Credit criteria > S&P is currently reviewing the criteria for rating corporate industrial companies and utilities > stated rationale being to make the ratings process more transparent and comparable across industries and jurisdictions

> Criteria for intermediate risk, standard volatility unchanged from 2009 core ratios but S&P specifics to NZ generators historically lower than published ratio bands > FFO/debt: 30-45%, Debt/EBITDA: 2-3x > we believe S&P are potentially seeking to pre-empt impacts on ratios when interest rates rise given currently record low rates globally

> S&P have indicated that the new criteria will likely be in place from the start of calendar year 2014 > consultation was concluded in September 2013

> S&P have indicated that 10% of credits will likely be affected . > the likelihood of upgrades and downgrades across all S&P credits has been assessed as equal by S&P


CAPITAL MANAGEMENT

Sustainable earnings focus > Weak demand and supply conditions means the company has moved from growth phase to consolidation phase > potential for demand/supply surprises particularly on supply side reflecting thermal response > FY2014 EBITDAF guidance confirmed at PFI levels > generation down over 260GWh against expected levels in Q1 FY2014 > Ngatamariki commissioned and handed over. Generation over Q1FY2014 similar to forecast but income recognition two months later than expected > improved LWAP/GWAP ratio due to peakier hydro profile and NIGUP improving location factor between generation and Auckland. > FY2014 PFI operating expenditure of $250.5 million > FY2013 operating expenditure at $318.7 million included $68.7 million one-off IPO and international geothermal related costs - $250.0 million > FY2012 operating expenditure of $264.4 million included $10.0 million one off costs - $254.4 million > Capital markets insights coupled with review processes have identified focus areas to drive sustainable earnings > in Q4 FY2013 saw $18.4 million savings –two thirds of which are permanent savings > Group-wide efficiency and effectiveness programme underway to deliver sustainable benefits through time > rationalisation of suppliers, centre led procurement > right sizing business for current market environment and activity levels > consolidation of support services


CAPITAL MARKETS DAY

Capital management considerations > Sustained level of elevated reinvestment capital planned – c$10m p.a over rest of the decade > A lower requirement for domestic growth capex exists but capital required over medium term to advance international geothermal > Clarity required around new S&P credit criteria connected to sustainable financial structure > A number of capital management options exist in absence of growth investments > change to ordinary dividend: Policy needs to be sustainable and cognisant of rating, working capital requirements, the medium term asset investment programme and earnings volatility > special dividend: one-off return of excess capital but cognisant of the above, unimputed if large > share buy-back: would need to be in the best interests of the company and shareholders

> Dividend policy > policy expressed as 90% - 110% of adjusted profits cognisant of a sustainable financial structure, working capital requirements, the medium term asset investment programme and short to medium term risks on earnings > FY2014F dividend declared of 13 cents/share. Forecast to be fully imputed –a further 3 cents worth of imputation credits available as at the end of FY2014 > 71% of free cash flow (FY2013 pay-out was 78% of FCF)

> Capital management outcomes will be announced at ASM (7 November 2013)


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