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>> WHAT MATTERS MOST.
CREATING SHARED VALUE. Our business strategy is focused on creating long-term value for our owners. The foundation for creating shared value is a holistic business approach that takes a long-term and broad perspective considering all of our stakeholders and the outcomes for all New Zealanders. We apply strong financial discipline, robust risk management and respect for the inter-generational management of natural resources in operating our business and pursuing growth opportunities. Our aim is to deliver sustainable and increasing cash flows that support higher dividends to our owners to enhance value over time. Through strong and enduring partnerships, and by consistently delivering on the expectations of our communities, we will open up opportunities for economic development and societal and environmental benefits. The following sections provide an overview of our key financial results, providing readers of our Audited Financial Statements with better insight and understanding of our performance during FY2016.
ENERGY MARGIN Energy Margin is a non-GAAP measure and is defined as sales less lines charges, energy costs and other direct costs of sales, including metering (see Note 4 of the Audited Financial Statements). Energy Margin provides a measure that, unlike total revenue, accounts for the variability of the wholesale spot market on our generation revenue and the broadly offsetting impact of wholesale prices on the purchase cost of our customers’ electricity. >> FIGURE 1: ENERGY MARGIN 800 700 600
$M
500 400 300 200 100 0
2012
2013
2014
FINANCIAL YEAR
2015
2016
The company’s energy margin of $658 million was $10 million up for the year supported by the company’s highest ever geothermal generation at 2,830GWh (up 2% on 2015), due to a high station availability of almost 96% for the year and the benefit of the turbine replacement at Nga Awa Purua. In addition, total hydro generation for 2016 was up 16% from 2015 to 3,866GWh. Annual inflows into the Taupo/Waikato catchment were again below normal at the 34th percentile for the year. The LWAP/GWAP ratio for FY2016 was 1.03, with lower wholesale price volatility impacting both generation prices (GWAP) and purchase prices (LWAP). The relative difference between LWAP and GWAP was also impacted by locational price differences which are not expected to return to historic levels due to recent thermal plant closures in the Auckland region and changes to loss modelling in the System Operator’s pricing model. A drop in both sales volume and yields reflected the continued roll off of contracted commercial customers, with new sales contracts contributing to a fall in the average energy price to customers of 2% to $114.83/MWh as lower priced new commercial contracts replaced maturing contracts. A large proportion of these maturing contracts were signed between 2011 and 2013 when prices were higher. Healthy national storage and a strong demand/supply balance continue to weigh on customer pricing despite significant thermal closures in 2015.