Minister of Energy Gerry Brownlee is rejecting claims by Meridian Energy Ltd about the implications of forcing it to sell two Waitaki power stations to competitor Genesis Energy Ltd.
"It is to be expected that Meridian will, for want of direction and comfort, `fight its own corner'," Mr Brownlee has told Minister of Finance Bill English and Minister for State-owned Enterprises Simon Power.
Yesterday, under the Official Information Act, the Otago Daily Times obtained a copy of a five-page report Meridian sent to Mr English and Mr Power, at their request, outlining the implications of selling the Tekapo A and B power stations to Genesis.
Mr Brownlee was at an all-day caucus meeting and could not be contacted yesterday, but his office sent a letter, addressed to Mr English and Mr Power, in which he rejects some of Meridian's claims, while seeking "to provide some context".
Meridian said the sale of Tekapo A and B would result in inefficient use of water in the Waitaki system, leading to higher electricity prices for South Island consumers.
There would be an increased risk of spill, reducing generation, and it would have to retain more water in Lake Pukaki to meet its resource consent obligations of a 120cumecs minimum flow in the lower Waitaki River.
Mr Brownlee does not comment directly on the claim of higher electricity prices, but said Meridian and Genesis were expected to enter a water management agreement so Meridian could meet its resource consent obligations.
If an agreement could not be reached, ministers would determine the terms and conditions to ensure security of supply and efficiency were not compromised.
In terms of increasing the risk of dry years on Meridian's revenue, Mr Brownlee said that, even after the reforms, the company would still be New Zealand's largest generator and control 50% of the country's hydro storage.
Meridian said the sale might require the approval of Rio Tinto Alcan New Zealand, under its contract with Meridian for electricity for its Bluff aluminium smelter.
Mr Brownlee said Rio Tinto had indicated it agreed with and supported the reforms because it would add to competition in the South Island.
If Meridian faced a risk of debt default in dry years as a result of the loss of Tekapo A and B, it would have to manage that through contacts and hedges with other generators.
One purpose of the reforms was to encourage Meridian to retail more electricity in the North Island and Mighty River Power and Genesis to retail more in the South Island.
He could see no significant problems with the Commerce Commission and Commerce Act - the view of Ministry for Economic Development officials after discussions with the commission.
He accepted the sale would affect Meridian's value as a company and rejected the need for the company to refinance $US400 million ($NZ564.5 million) in debt at a potential cost of $NZ82 million.
"If this [refinancing] is an issue, it will need to be taken into account in the valuation of assets to be transferred to Genesis," he said.
