Meridian Energy Limited ($MEL)

Good morning, and welcome to the Meridian quarterly operating results call. I'm Mandy Simpson, Meridian's CFO. And with me today is Owen Hackston, our Investor Relations Manager. This is our regular call where we share thoughts and insights on the last quarter. And this is something we do in the quarters in between interim and annual results announcements. Owen and I will provide commentary today on climate, hydrology, generation, wholesale prices, electricity consumption, retail operating costs and capital spend, and we'll take the next 10 to 15 minutes to do that. Given it's a general update on Meridian's operations, we will be steering clear of the financial results. We'll take questions at the end. So if you do have any questions please drop them and your name into the Q&A, and as we go through, there's around about a 20-second delay between you submitting the question and us being able to see it. So just bear that in mind. And with that, I will hand over to Owen.

Thank you, Mandy, and good morning. February felt like autumn and March felt like the height of summer, that's pretty much how the season has been. The most recent summer started warm and it finished cool. Summer air pressure was lower than normal over the country, and that led to some very active weather patterns. At least that's partially driven by the weak to moderate La Nina conditions that were prevailing through summer. Despite that overall lower pressure, there were extended periods of high pressure. In between those were repeated heavy rainfall events that brought record rain totals to parts of both islands. As I said, La Nina conditions were prevalent with that La Nina transitioning to an El Nino neutral state by the end of the season. And while March saw a dry and very mild start to autumn for much of New Zealand, a subtropical low late in the month pushed monthly rainfall totals in the Upper North Island to well above average. Looking ahead on the climate, Earth Sciences autumn outlook suggests near average temperatures for all regions with the possibility it's warmer than average in the west of the South Island. And from a rainfall point of view, normal to above normal rainfall across the North Island and the eastern part of the South Island. And slightly more interestingly for us, normal to possibly below normal rainfall in the West and the north of the South Island. There's a high likelihood that the current El Nino neutral conditions remain in place over autumn and into early winter. And looking out later this calendar year, El Nino conditions are expected to become increasingly likely with already an 80% probability of emergence into spring 2026. And that matters because within a decent range of variability, El Nino conditions tend to bring stronger hydro inflows to the west of the South Island. With the La Nina prevalence, you see increased drought risk in the South Islands West. From a hydrology point of view, this time a year ago, we had just experienced the lowest summer inflows in our 92 years of rainfall records. And that was despite only a weak La Nina influence around last summer. And that probably highlights how much variability you get within general weather patterns in New Zealand. It's fair to say it's something of a relief that this summer, we have seen inflows approaching more normal levels with the Q3 inflows slightly below average at 87%. Getting 80% more water this Q3 compared to the last has certainly alleviated the fuel stress of 2025. And coupled with the wet first 6 months of this financial year, inflows for the 9 months of FY '26 are the sixth highest on record. South Island Lakes, including Pukaki, are sitting very slightly below average, while the most recent rainfall events have pushed North Island storage to 180% of average. Reported demand growth for the March quarter looks reasonably strong at 2.4%. A year ago, we had in place with the New Zealand Aluminum smelter agreement to reduce electricity consumption by 50 megawatts, and that reduction was running between March 2025 and August 2025. And it gets slightly complicated because that agreement actually modified the remainder of a ramp-up to a demand response call for the biggest option we have under the agreement with NZAS. We'd originally exercised that option for call back in July 2024. And we called that to help manage with the record winter drought of 2024. What all that means? Well, if you back the Tiwai load out, underlying Q3 demand growth is about 0.8%, which is a similar level of growth that we've seen in earlier quarters of this financial year. And look, with more water, you'd expect our hydro volumes to be up, and they are. Q3 is up for hydro about 15% on the drought impacted Q3 of last year. And that quarter last year was also characterized by pretty low wind. By comparison, this Q3, we've seen a 24% or 81 gigawatt hour increase in our wind generation. And typically, more hydro sees a lower reaction in terms of spot prices and our generation spot prices averaged 61 megawatts -- sorry, $61 a megawatt hour during this Q3, 71% lower than the same quarter of last year. And in this quarter, we had the most remarkable January where our average generation price averaged just $1. And what I'll do now is pass it back to Mandy to talk a little bit more about market prices.

Thanks, Owen. So spot prices have lifted from those extraordinary lows of January as South Island storage eases back towards the seasonal averages and then front-end coal forward prices jumping with the uncertainty in the current Middle East conflict. Meridian's average generation price cleared $41 per megawatt hour in February this year and $146 per megawatt hour in March. Despite climate forecasts suggesting some chance of drier than usual conditions in South Island catchments over the next 3 months, winter 2026 prices fell over 20% during quarter 1. Across the longer-dated forward curve, prices fell in the order of 15% during quarter 1, perhaps starting to reflect some of the impacts of proposed new renewable generation expected to come to market. And the Huntly Strategic Energy Reserve contracting now in place. We're also seeing compression of North Island to South Island price differentials in the ASX forward curve. That differential is running around half what it was a year ago prior to the completion of our Ruakaka battery. So while the ample rainfall this financial year has seen modest day to nighttime price differences and so limited battery cycling, we are getting the expected portfolio benefits from that asset. In the retail business, the retail business is powering on with another quarter of sales volume growth, albeit with a lower irrigation season than last year. Our Kraken migration now has 135,000 customers on the platform, including 40,000 Powershop customers. Customer service levels are feeling some pressure from the temporary situation of having 2 customers on the 2 platforms, along with a lift in customer engagement following the 1st of April price increases. Quarterly OpEx, up 5% on the same quarter last year, and we remain on track to land in the $311 million to $316 million full year guidance range. After an extended consent process ahead of the start of the build, we have now seen the first solar panels installed at Ruakaka. With $27 million spent on the project in quarter 3 and resolution of the Te Rere Hau Airways Tower still progressing, our CapEx outlook has been tracking down. We now expect to land between $280 million and $310 with growth CapEx of up to $200 million and stay in business CapEx up to $110 million. Our Fast Track application to access Lake Pukaki contingent storage for the next 3 years is currently being considered by the expert panel. Submitters to this process tabled their views to the panel last week. Encouragingly, the electricity authority was supportive of the significant economic benefits delivered by enhancing this country's electricity supply security and lowering its wholesale electricity prices. However, we note there are opposing views on this application, but we remain confident of a successful outcome. And lastly, a few updates on some Meridian projects. I mentioned the consent process for the Te Rere Hau Airways Tower. While that is continuing, long lead time equipment for the tower has been purchased and roading upgrades to the proposed tower site will get underway later this month. Te Rahui solar JV with Nova has construction well underway with the program on track for full power mid-calendar year 2027. Ruakaka solar farm construction that I mentioned earlier has some pressure around its quarter 1 2027 full power date. However, that is what we are still aiming for. The Waiinu Energy Park Fast Track application was submitted late March. It will take 3 to 4 months before we know whether it will gain acceptance into the fast track process. Between December 26 and February 27, we expect to FID 3 projects: Te Rere Hau, Mount Munro and Te Rahui Stage 2 with the Manawa 2 Energy Park to follow by mid-2027. And by the end of this calendar year, Waikato Solar and Swannanoa Solar should have their consents granted and the Fast Track application for both stages of Western Bay Solar is still on track for submission later this year. That is it from us. So I'm going to move to questions if we have any. If you do have one, as I said, please make sure that you include your name so we know who we're answering, and there is a 20-second delay between the time you submit your question and when we see it.

And so I'll start. I think we've got a couple of questions waiting for us. Firstly, from Josh, should we read the $50 million reduction in CapEx for FY '26 to mean the pushing out of construction timing for Ruakaka or Te Rahui? I think hopefully, I've covered that as we went through Te Rahui Stage 1 remains on track and no changes there. Ruakaka has been a little bit slower to get going than we had hoped, but we are expecting to catch that up through the process. And so that remains roughly on track for full power. The majority of the reduction in CapEx spend is actually to do with Te Rere Hau being pushed out to next financial year as well as some minor changes in some of our stay in business CapEx. Do we yet have a sense of the potential generation uplift from the Waitaki Station replacement? Owen, I don't think we are ready to give that figure yet. Do you have anything on that?

No, we certainly will. But the economic viability and engineering feasibility of the program at Waitaki is still being developed, and it's too early to start talking potential generation uplift.

Great. So we'll -- as we get closer to FID on that replacement project, we will provide that information. And then another question on the CapEx guidance. Is that the result of project timing or drop in total projected cost? That is simply project timing. Our pipeline remains as it was when we last spoke to it, but particularly Te Rere Hau being pushed out into next financial year. I think that is all that we have on questions today. So with that, we'll wrap up. Thank you so much for your time this morning, and look forward to speaking to you again soon.

Thank you.