Interim report 2012

Mighty River Power Limited Interim Report 2012

Mighty River Power is a New Zealand electricity company, with a flexible portfolio of electricity generation assets, a strong national retail presence and a focus on domestic generation and international geothermal development opportunities. More than 90% of our generation is from renewable sources.

Our sales to major industrial and commercial users and through our retail brands, Mercury Energy, GLO-BUG, Bosco Connect and Tiny Mighty Power, account for more than 18% of New Zealand’s total electricity consumption.

Cover: Drilling underway at the 82MW Ngatamariki geothermal project near Taupo.

Electricity Generation and Retail Sales GAS

SOUTHDOWN 175MW

HYDRO

ARATIATIA 78MW OHAKURI 106MW ATIAMURI 74MW WHAKAMARU 98MW MARAETAI I & II 360MW WAIPAPA 54MW ARAPUNI 182MW KARAPIRO 96MW

GEOTHERMAL

KAWERAU 100MW ROTOKAWA 34MW *NGA AWA PURUA 140MW *MOKAI 112MW NGATAMARIKI 82MW (UNDER CONSTRUCTION) * Not 100% owned by Mighty River Power

WIND

PUKETOI (CONSENTING) TURITEA (CONSENTED) CAPE CAMPBELL (LAND ACCESS)

RETAIL MARKET SHARE (%) 0-9 10-29 30-49 50-69

Mighty River Power Limited Interim Report 2012 1

Performance Highlights

9%

$74.8m

4%

Interim dividend for the half-year ended 31 December 2011.

Increase in total electricity generation to 3,664GWh, with increased gas-fired production in response to higher wholesale prices.

$81.5m

No. 1

Lift in fixed-price variable volume customer sales volumes, despite 5% fall in customer numbers. Average FPVV price up to $113.58/MWh.

Increase in capital expenditure with the start of $466m Ngatamariki geothermal project and further deployment of committed funds to international geothermal projects.

Deloitte Energy Excellence Awards: Mercury Energy named 2011 Energy Retailer of the Year, following the Company’s wins in 2010 of Overall Energy Company and Energy Project.

49.9MW

$80.16/MWh $1,360m

Hudson Ranch Power I project on Salton Sea reservoir in Southern California, US, completed and first full power to grid in March 2012.

Weighted average price for electricity generation, up more than $20/MWh, reflecting significantly stronger prices in the wholesale market.

2

Lift in operating earnings (EBITDAF) to $254.5 million.

1%

Mighty River Power Limited Interim Report 2012

In total debt facilities with an average duration of 5.9 years at balance date. BBB+/stable Standard & Poor’s credit rating.

Underlying Earnings ($m)

101.7 HY 2012

89.4 HY 2011

HY 2012

17.6

92.8

-81%

Capital Expenditure ($m)

+14%

Total Debt ($m)

988.6

1057.6 HY 2012

+99%

HY 2011

HY 2012

HY 2011

+22%

82.2

163.7

185.4 HY 2012

152.2

HY 2011

+9%

Operating Cash Flow ($m)

HY 2011

NPAT ($m)

254.5 HY 2012

HY 2011

233.6

EBITDAF ($m)

+7%

Generation Production Six months to 31 December 2011

GAS-FIRED 8%

GEOTHERMAL 30%

HYDRO 62%

Mighty River Power Limited Interim Report 2012 3

Drilling activity at the Ngatamariki geothermal project.

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Mighty River Power Limited Interim Report 2012

Chair and Chief Executive’s Report We started the new financial year with a clear focus on building on the benchmark set by our 2011 performance.

Mighty River Power’s interim results for 2012 show a healthy lift in operating earnings and underlying performance on the prior comparable period (pcp). We are also pleased to report on positive progress on the commitment we have made to future growth – both in New Zealand and through investments offshore.

Joan Withers

returns and created significant value for our shareholders.

Reliable base-load geothermal capacity has significantly expanded and diversified our electricity production from renewable low-cost fuels, and with the completion of Ngatamariki will represent around 40% of our domestic generation.

Our renewable portfolio is complemented by flexible gas-fired generation.

We achieved gains in market share and pricing, across both generation and customer sales, in a competitive domestic electricity market which experienced no volume growth during HY2012.

We achieved gains in market share and pricing, across both generation and customer sales, in a competitive domestic electricity market which experienced no volume growth during HY2012. Those achievements are a credit to our people and their focus on continued operational improvements across the business.

This Report also marks some key milestones for the Company.

During the half-year, there was clear evidence of the Company’s continued growth, with the start of construction for the Ngatamariki geothermal project near Taupo and, soon after balance date, the commissioning of EnergySource’s Hudson Ranch Power I geothermal project in the United States.

These new projects extend the track record of growth achieved through investment in geothermal generation in New Zealand over the past five years that has underpinned

This differentiates Mighty River Power from our competitors, and provides a stronger earnings base alongside our integrated sales channels which account for more than 18% of total electricity consumption in New Zealand.

The diversity now embedded in our business provides far-greater resilience to the impacts of poor hydrology in the Waikato catchment, and opens up potential market opportunities such as when there are contrasting lower inflows to hydro catchments in the South Island.

Mighty River Power’s financial results for HY2012 are built on this diverse and complementary portfolio.

Highlights: • Operating earnings (EBITDAF) of $254.5 million for the six months ended 31 December 2011, up 9% on the first half of FY2011.

Doug Heffernan

• N et profit after tax (NPAT) reported under NZ IFRS of $17.6 million compared with $92.8 million in the pcp, as a result of $106 million of non-cash fair value movements on derivatives and financial instruments recognised.

• U nderlying earnings up by 14% from $89.4 million to $101.7 million.

For comparative purposes, this measure removes significant oneoff items and the change in the fair value of financial instruments from net profit after tax.

• I nterim dividend of $74.8 million, to be paid on 30 March 2012 (representing 75% of net profit after tax after adjusting for the impact of fair value movements net of tax).

• I ncrease in capital expenditure to $163.7 million with the start of the $466 million Ngatamariki project and further deployment of committed funds to international geothermal projects.

• T otal debt facilities of $1,360 million with an average duration of 5.9 years at balance date. BBB+/stable Standard & Poor’s credit rating.

Business Overview Mighty River Power’s operating performance and financial results for HY2012 were achieved in a challenging environment.

New Zealand’s weak economic climate following the lingering effects of the Global Financial Crisis and Canterbury earthquakes is very evident in the electricity markets. While there is an expectation across the industry that domestic electricity demand growth will return with a more robust economic recovery, the past year has seen the continuation of flat to declining national demand that has prevailed since 2007.

Mighty River Power Limited Interim Report 2012 5

The Electricity Authority reported a 1% contraction in the New Zealand electricity market in the 2011 calendar year. Also, with the strong supply side in the market over the past few years, there has been a trend of larger commercial consumers increasing their exposure to fluctuating half-hourly wholesale market prices, rather than fixing prices through hedge contracts.

Despite these dynamics, the Company has been able to achieve market share and pricing gains in generation and fixed-price customer sales.

including pre-pay through GLO-BUG, it was also pleasing to have the external recognition of the Company’s flagship retail brand, Mercury Energy – named 2011 Energy Retailer of the Year at the Deloitte Energy Excellence Awards – following Mighty River Power’s success

Mercury Energy has responded to the high levels of customer churn across the industry with a range of pricing and customer retention initiatives.

Retail During the half-year we achieved an increase in customer pricing and made further gains (up 1% from 2,531GWh to 2,555GWh) in fixed price sales volumes, despite a 5% drop in customer numbers to 383,000 at 31 December 2011.

Mercury Energy has responded to the high levels of customer churn across the industry with a range of pricing and customer retention initiatives.

Our three-year fixed-price offer introduced in FY2011 has continued to be popular, attracting around 80,000 mainly higher-use residential customers. A highlight of the halfyear was the strong commercial sales growth, which sustained the overall increase in sales volume, partially offset by a drop in residential volumes. The Company achieved a 4.5% increase in the average FPVV (fixed price variable volume) price to $113.58/MWh for the six months to 31 December compared to the same period a year ago. The Company has also been an active participant in the high-growth ASX market for 0-3 year contracts to optimise our integrated generation and sales portfolio.

Along with sales volume gains in the competitive retail electricity market in New Zealand, and metering innovation

as Overall Energy Company of the Year in 2010, and finalist in 2011.

Post balance date, the Company announced a price increase averaging 5.8% for Mercury Energy’s residential customers from 1 April 2012. The price change includes the pass through to customers of lines charges from the local distribution company, which account for around 40% of a customer’s bill.

This year’s lines increase reflected a significant rise in transmission charges from Transpower following regulatory approval of major investments in New Zealand’s National Electricity Grid, improving grid security and reliability for customers. After accounting for the pass through of distribution and transmission costs, Mercury Energy’s energy price rise represents, on average, an increase of 2.1% on a customer’s total bill.

Another notable initiative in February was the Mercury Energy ‘Good Energy’ brand launch, supported by our first television advertising campaign in several years along with online and other promotional activity.

The campaign is based on the concept of ‘good energy’ as integral to the Kiwi culture, and something that Mighty River Power and Mercury Energy

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Mighty River Power Limited Interim Report 2012

harness and share – from the inter-generational benefits of New Zealand’s bountiful endowment of natural renewable energy resources such as geothermal and hydro, through to supporting the Starship Foundation.

The Company’s other retail brands specialise in targeting niche markets: inner-city apartments (Bosco Connect); pre-pay energy (GLO-BUG); and smaller provincial towns (Tiny Mighty Power).

Bosco Connect continues to make a positive contribution to earnings. The specialty apartment brand maintained its market-leading position in the Auckland apartment market and continues to supply over half of the contestable Auckland CBD apartments.

Over the past three years GLO-BUG has transformed the credit area of our business by providing a modern-day solution that helps meet the needs of customers who struggle to manage their energy budgets. As smart meters are deployed nationwide by the industry over the coming years, GLO-BUG will enter new geographies to meet the need for this service, and we have recently begun offering the service to customers in Christchurch.

Our metering business, Metrix, has now completed the roll-out of more than 290,000 smart meters in the Auckland region, and as reported at 30 June 2011, is moving to focus on providing services over this platform.

Under the provincial-focused Tiny Mighty Power brand, we secured further sales growth in Waikato,

Wairarapa, Marlborough and North Canterbury. Tiny Mighty added more than 2,500 customers during the period, a 30% increase, and ahead of our expectations. Since launch in late 2009, the brand has grown its customer base to more than 10,000.

Operations The first half of FY2012 was characterised by higher wholesale market prices, with national hydro inflows and storage significantly lower than the pcp for most of the half.

The Company’s total generation production was up on what was a strong first half in FY2011 by 4% (from 3,520GWh to 3,664GWh), with the increase largely driven by greater use of gas-fired production in response to higher wholesale prices. Geothermal output, at 1098GWh (including our equity share of joint ventures), was just over the prior period’s record level.

Above-average hydro inflows and our flexible gas units allowed greater flexibility in our generation production to respond to wholesale market opportunities. The generation portfolio continues to support volume growth in our integrated sales portfolio whilst managing downside earnings risk.

The Company’s generation yields were up more than $20/MWh from $56.18/MWh to an average $80.16/ MWh, reflecting the significantly stronger prices in the wholesale market during the period, as poor national hydrology more than offset flat or declining national demand.

From an operational perspective, we noted several significant court and regulatory outcomes over recent months.

During the half-year, the Waikato Regional Council confirmed a consent change for a reduction in the duration of the daily hydro spill at Aratiatia.

This change, which involved extensive discussions with local businesses and other stakeholders, provides for additional generation while enhancing

the local tourism experience from the passage of water down the natural Aratiatia Rapids, temporarily bypassing the hydro station.

In November we received the reserved decision from the Environment Court hearings on Variation 6 of the Waikato Regional Plan concerning water allocation.

The most significant aspect for our business was a small increase in the volume of water allocated for abstraction from the Waikato River (from 3.6% to 5% of minimum flow at Karapiro). We were disappointed that the Waikato Regional Council’s original decision to not change the existing allocation, which we supported, was not upheld by the Court.

However, we anticipate that the effects of the additional potential abstraction will be mitigated by ongoing operational and plant efficiency gains from refurbishments underway across the Waikato hydro system. Normal seasonal hydrological variations in the catchment remain the most significant influence on production from our hydro operations.

We welcomed in February the High Court ruling upholding the Electricity Authority’s decision that a UTS (Undesirable Trading Situation) occurred on March 26, 2011. This ruling supports our view that the declaration of a UTS and a consequent wholesale price re-set was an appropriate remedy for the events, which had exposed Mighty River Power and other market participants to prices more than 200 times those prevailing at the time. While the ruling remains subject to appeal, the Authority’s decision to reset prices to around $3,200/MWh is consistent with the Company’s treatment in the FY2011 accounts.

We also see the decision as important from a regulatory standpoint, and as positive for electricity customers, current and future investors and the wider economy – confirming that the market has clear rules

and proven and appropriate mechanisms for enforcement.

Another positive development on this front was the move by the Electricity Authority to change the methodology for selecting offers into the frequency-keeping market (which is run by the system operator to ensure real-time balancing of electricity supply and demand).

Following an investigation, the Electricity Authority reported abnormally high North Island frequency costs due to a change in the way another North Island service provider was structuring their frequency-keeping and energy offer prices, particularly between August and October 2011. The Electricity Authority implemented a change from November 2011 in the selection methodology to ensure the lowest cost solution is now selected.

If this methodology had been in place for the half-year the benefit to Mighty River Power from lower costs and higher revenues would have been approximately $4 million. In addition, industry-wide electricity costs would have been $10 million lower.

Development We have committed to geothermal investments domestically and offshore, building on the strong geothermal growth that began with Kawerau in 2008, which are aimed at enhancing shareholder value over the longer term.

The ground-breaking for the new $466m 82MW Ngatamariki geothermal plant near Taupo was a clear highlight during the half-year, reflecting further growth in our generation portfolio in New Zealand.

The Ngatamariki construction project is now well underway and the project is on track for full commissioning in mid-2013. As highlighted earlier, this will take geothermal’s contribution to more than 40% of our generation production.

Mighty River Power Limited Interim Report 2012 7

stage geothermal exploration and development in Chile and Germany, complemented in the US by the laterstage investments in EnergySource and Hudson Ranch Power I. While positive progress has been made on most international

Our geothermal growth – based on a core strategy of securing lowest-cost, economic development sites – has been a ‘game-changer’, broadening and strengthening our earnings base with the addition of more than 2,200GWh of annual base-load generation alongside our core hydro assets on the Waikato River. This is a differentiator and competitive advantage for us in growing and diversifying our low fuel cost generation portfolio over the past five years, with the addition of Kawerau (100MW) and Nga Awa Purua (140MW) – and now Ngatamariki.

The recent completion of the 49.9MW Hudson Ranch Power I geothermal project on the Salton Sea reservoir in Southern California’s Imperial Valley was a key milestone for Mighty River Power’s international geothermal programme. The EnergySource-owned project in which Mighty River Power has a US$92 million investment stake through the GeoGlobal Partners I Fund (GGE Fund) produced its first full power to grid in early March 2012, twenty-one months after start of construction.

Hudson Ranch Power I, the largest geothermal development in the US in recent years, is the first of Mighty River Power’s international geothermal developments to move into commercial operation. The plant supplies renewable energy under a long-term contract to Salt River Project, an Arizona utility providing electricity to around 900,000 customers, and uses similar technology to Mighty River Power’s Kawerau and Nga Awa Purua geothermal stations in New Zealand.

The Company has taken, and will continue to take, a measured and prudent approach to international development opportunities. Through our investment in the GGE Fund, we now have a platform for international geothermal growth which leverages Mighty River Power’s experience and competencies in this global niche.

This approach has focused on investing equity capital in early-

geothermal projects, the Tolhuaca project in southern Chile has experienced delays in production-scale well drilling due to abnormally harsh winter conditions and a mechanical incident with the rig in November involving GeoGlobal Energy’s drilling contractor. The first well has now been completed and drilling commenced on the second well.

Drilling and final testing of these two wells is due to be completed prior to year-end.

Fuel diversity continues to be a key focus of our domestic development strategy. We see geothermal and wind playing a key role in new generation development in New Zealand over the next decade.

In FY2011 we received consents for a 180MW wind project of up to 60 turbines at Turitea near Palmerston North. We have since lodged resource consent applications for a proposed 53-turbine 326MW wind development on the Puketoi Range, south of Dannevirke, and this is now progressing through a public hearing.

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Mighty River Power Limited Interim Report 2012

The Company has been testing and assessing wind generation prospects in the area for a number of years and we have confidence in the exceptional quality of the resource at Puketoi. We have based our proposal on best-practice principles, following

Fuel diversity continues to be a key focus of our domestic development strategy. We see geothermal and wind playing a key role in new generation development in New Zealand over the next decade. extensive consultation with the local communities. We are confident that the Puketoi project will provide significant long-term economic benefits to the local communities, and renewable energy benefits to the whole of New Zealand. However, the current demand situation means any firm capital commitment on these wind projects will be several years away.

During HY2012, Mighty River Power signed a joint development agreement with Okere Incorporation and Ruahine & Kuharua Incorporation for the investigation and development of geothermal power generation on the Taheke field, northeast of Rotorua. The development agreement, for what will be known as the Te ia a Tutea Development, brings together multiple land owners who share an interest in sustainable, integrated development of the resource.

The agreement enables initial exploration of the geothermal resource and provides for long-term co-ownership of any subsequent developments. Subject to consenting arrangements, exploration drilling is expected to start on the Taheke field within the next 12 months.

Engineers planning maintenance work on the Waikato Hydro System.

Mighty River Power Limited Interim Report 2012 9

Our People and Communities Our people and communities remain key to our future success.

The operational and financial results in this Report would not have been possible without the absolute focus and quality of our people, and the deep relationships we have built with local communities including iwi and our commercial partners in New Zealand and internationally.

These cornerstone principles and our values will remain a vital foundation for our commercial sustainability and future growth – reflecting that corporate social responsibility is part of our Company’s DNA, and is integral to our business model.

Mighty River Power’s joint development approach with Maori Land Trusts have been the platform for the Company’s significant growth in geothermal over the past decade, supported by our internationally recognised expertise. These highly-valued, long term partnerships will continue to deliver significant mutual benefits.

We have also reinforced our commitment to building a powerful and vigorous health and safety culture across the whole Company and we are tracking well against our key measure. TRIFR (Total Recordable Injury Frequency Rate) was down 18% at 31 December 2011, with a continued focus on our systems, engagement and responding to potential hazards in our workplaces.

With our people, we remain focused on unlocking employee potential and further building high performance in every area of the business. During the half-year we have continued to invest through a range of programmes in employee and leadership development, supporting the retention of people in key areas of organisational capability and ensuring strong alignment to both current and future business requirements.

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Mighty River Power Limited Interim Report 2012

An excellent example is our apprentice programme, which is focused on building tomorrow’s workforce. Over the past six years this programme has had a 95% completion rate, and the model has been extended into a partnership with Contact

impetus to enhancing New Zealand’s geothermal capacity, both in terms of a greater number of graduates with the skills sought by Mighty River Power for its domestic and international strategies, and also in building a greater depth of geothermal knowledge

Our financial results in the halfyear highlight Mighty River Power’s diverse and balanced operational base that underpins earnings.

Energy, establishing the Electricity Supply Apprentice Programme.

We are also actively partnering with New Zealand universities. Mighty River Power is one year into its ‘Source to Surface’ programme with the University of Canterbury’s Geology Department. The programme is already providing valuable information back to the Company’s Geothermal Technical Resources team and is resulting in other positive outcomes, such as increased geothermal content in the Department’s undergraduate programme.

During the half-year we broadened our support at a tertiary level. Mighty River Power invested in the continued development of New Zealand’s expertise and research into geothermal power generation by entering into an agreement with The University of Auckland to sponsor a newly established Chair in Geothermal Reservoir Engineering.

The Company’s sponsorship provides funding of $1 million over a five year period – known as the Mighty River Power Chair in Geothermal Reservoir Engineering – supporting the revival of the University’s internationally acknowledged Geothermal Institute.

We see the re-establishment of the Geothermal Institute as providing

in New Zealand to ensure New Zealand companies can capitalise on the growing global interest in geothermal utilisation for power and heating.

Financial Review Our financial results in the half-year highlight Mighty River Power’s diverse and balanced operational base that underpins earnings. The Company continues to take an active approach to managing the balance sheet, ensuring adequate headroom and with no further debt refinancing expected until late in the 2013 calendar year.

EBITDAF (earnings before interest, taxation, depreciation, amortisation and financial instruments) increased 9% from $233.6 million to $254.5 million.

This was driven primarily by a 4.5% increase in the weighted average price (Fixed Price Variable Volume) received from residential and commercial customers during the period, and a $7 million gain from the sale of PRE (Projects to Reduce Emissions) credits from the Nga Awa Purua joint venture.

NPAT (net profit after tax) reported under NZ IFRS was $17.6 million with the Company recognising non-cash fair value movements on derivatives of $106.0 million, both domestically and through its international interests in jointly-controlled entities. Of this, $103.7 million related to interest rate derivatives

which are not hedge accounted – impacted by a fall in wholesale interest rates to record lows in the six months to 31 December 2011 compared with those used to measure fair value at 30 June 2011. After tax profit was also impacted by higher depreciation (due to FY2011 asset revaluations) and interest expense reflecting the higher average debt levels and higher average cost of funds.

Mighty River Power’s underlying earnings (that adjusts NPAT for the non-cash fair value movements of derivatives, impairments and other significant items) for the period increased by $12.3 million (or 14%) from $89.4 million to $101.7 million. The Company’s Board and management recognise the critical importance of reported profits meeting appropriate accounting standards. In complying with NZ IFRS accounting standards, we believe the additional reporting of underlying earnings is helpful to shareholders and other audiences in making meaningful comparisons of our results over time and between different companies.

In line with the Company’s dividend policy (of 75% of net profit after tax after adjusting for the impact of non-cash fair value movements net of tax), the Mighty River Power Board has approved an interim dividend of $74.8 million, to be paid on 30 March, 2012. This represents a 16% (or $10.1 million) increase on the last year’s interim dividend of $64.7 million.

While operating expenses, at $115.1 million, were lower than the previous half-year of $117.2 million, largely as a result of the rescheduling of maintenance projects.

Reflecting the Company’s lift in operating earnings, cash flows for the period improved 22% from $152.2 million to $185.4 million for HY2012.

The Company’s capital expenditure increased $81.5 million on the prior comparable period from $82.2 million to $163.7 million, with the Ngatamariki project underway and further

deployment of the US$250 million commitment to the GGE Fund, with US$205 million drawn at 31 December 2011. The increased capital spend was partially offset by the deferral to FY2013 of $12.5 million relating to the drilling of a geothermal well at the 100MW Kawerau geothermal plant.

Following a significant debt refinancing programme in FY2011, the Company increased an existing bank facility with Bank of Tokyo-Mitsubishi by $50 million to $200 million to create additional liquidity headroom. Total debt rose to $1057.6 million, up 7% on the pcp. Total facilities at 31 December 2011 stood at $1,360 million with an average duration of 5.9 years.

The Company’s debt portfolio remains well-diversified with a mix of bank debt, wholesale and retail bonds, and a US private placement.

Mighty River Power’s Standard & Poor’s credit rating is BBB+/stable.

Subsequent to the half-year balance date, to reduce the costs of short-term funding the Company established a $200 million Commercial Paper Programme fully backed by committed and undrawn bank facilities, with the first $25 million placed in February 2012.

the Waikato River catchment, in contrast to poor South Island hydrology.

These factors have enabled us to further increase production since the start of 2012 in response to elevated prices in the wholesale market. The structure of our generation portfolio supports ongoing growth in sales volume and yields through a range of channels.

We look forward to updating you further with the release of our full-year results in August.

JOAN WITHERS Chair

Doug Heffernan Chief Executive

Outlook Alongside the significant achievements of HY2012, our financial results show a solid start to the financial year.

It was satisfying to be able to announce in March an increase in guidance for FY2012. Based on the Company’s interim results and a strong start to the second half, we are forecasting full-year earnings (EBITDAF) in the range of $460 million to $475 million. This compares with our initial guidance for FY2012 of $430 million to $450 million issued in October 2011.

This improvement reflects the benefit of our geothermal base-load capacity, complemented by relatively favourable hydrology in

Mighty River Power Limited Interim Report 2012 11

Chartered Accountants

Independent Auditor’s Report TO THE SHAREHOLDERS OF MIGHTY RIVER POWER LIMITED REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF MIGHTY RIVER POWER LIMITED FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2011 The Auditor-General is the auditor of Mighty River Power Limited and its subsidiaries. We have carried out the audit of the condensed consolidated interim financial statements of Mighty River Power Limited (hereafter referred to as the financial statements of the group), on behalf of the Auditor-General.

We have audited the financial statements of the group on pages 16 to 31, that comprise the consolidated balance sheet as at 31 December 2011, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the six months period ended on that date and the notes to the financial statements that include accounting policies and other explanatory information.

Opinion Opinion on the financial statements of the group In our opinion the financial statements of the group on pages 16 to 31: • comply with generally accepted accounting practice in New Zealand as it relates to interim financial statements; • comply with International Financial Reporting Standards as it relates to interim financial statements; and • give a true and fair view of the group’s:

• financial position as at 31 December 2011; and

• financial performance and cash flows for the six month period ended on that date.

Opinion on other Legal Requirements In accordance with the Financial Reporting Act 1993 we report that, in our opinion, proper accounting records have been kept by the group as far as appears from an examination of those records.

Our audit was completed on 27 March 2012. This is the date at which our opinion is expressed.

The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities, and explain our independence.

Basis of Opinion We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of the financial statements. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.

An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation of the group’s financial statements that give a true and fair view of the matters to which they relate.

We consider internal control in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the group’s internal control.

An audit also involves evaluating: • the appropriateness of accounting policies used and whether they have been consistently applied; • the reasonableness of the significant accounting estimates and judgements made by the Board of Directors; • the adequacy of all disclosures in the financial statements; and • the overall presentation of the financial statements.

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Mighty River Power Limited Interim Report 2012

We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements. In accordance with the Financial Reporting Act 1993, we report that we have obtained all the information and explanations we have required.

We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.

Responsibilities of the Board of Directors The Board of Directors is responsible for preparing financial statements that: • comply with generally accepted accounting practice in New Zealand; and • give a true and fair view of the group’s financial position, financial performance and cash flows.

The Board of Directors is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Board of Directors’ responsibilities arise from the State-Owned Enterprises Act 1986 and the Financial Reporting Act 1993.

Responsibilities of the Auditor We are responsible for expressing an independent opinion on the financial statements and reporting that opinion to you based on our audit.

Independence When carrying out the audit we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the New Zealand Institute of Chartered Accountants.

Partners and staff of Ernst & Young may deal with the group on normal terms within the ordinary course of trading activities of the business of the group. Since 31 December 2011, Ernst & Young has been engaged to provide assurance services in relation to prospective financial information. Other than these matters and the audit, we have no relationship with or interests in the company and group.

Brent Penrose Ernst & Young On behalf of the Auditor-General Auckland, New Zealand

Matters relating to the electronic presentation of the condensed consolidated interim audited financial statements This audit report relates to the condensed consolidated interim financial statements (“financial statements”) of Mighty River Power Limited (the company) and group for the period ended 31 December 2011 included on the company’s website. The Board of Directors is responsible for the maintenance and integrity of the company‘s website. We have not been engaged to report on the integrity of the company’s website. We accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

The audit report refers only to the financial statements named above. It does not provide an opinion on any other information which may have been hyperlinked to or from the financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited financial statements and related audit report dated 27 March 2012 to confirm the information included in the audited financial statements presented on this website.

Legislation in New Zealand governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

Mighty River Power Limited Interim Report 2012 13

Mercury Energy – Good Energy TV Campaign

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Mighty River Power Limited Interim Report 2012

Condensed Consolidated Interim Financial Statements For the six months ended 31 December 2011 16 17 18 19 20 21

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Balance Sheet Consolidated Cash Flow Statement Notes to the Financial Statements

Mighty River Power Limited Interim Report 2012 15

Consolidated Income Statement For the six months ended 31 December 2011

6 Months 6 Months

31 Dec 2011 31 Dec 2010

Restated

Note $000 $000

12 Months 30 June 2011 $000

Sales 930,730 822,173 1,546,740 Less line charges (214,359) (213,985) (404,031) Other revenue 12,686 10,057 21,172 Total revenue 729,057 618,245 1,163,881

Energy costs 344,011 246,423 445,971 Other direct cost of sales, including metering 15,454 20,936 42,025 Employee compensation and benefits 36,554 36,848 74,599 Maintenance expenses 26,612 26,250 55,866 Sales and marketing 8,877 9,037 19,458 Contractors’ fees 4,773 5,845 11,268 Professional services 7,732 5,305 15,051 Other expenses 30,587 33,953 56,590 Total expenses 474,600 384,597 720,828

Earnings before net interest expense, income tax, depreciation, amortisation, financial instruments and other significant items (EBITDAF) 254,457 233,648 443,053

Depreciation and amortisation (73,201) (67,699) (145,404) Change in the fair value of financial instruments 11 (85,746) (5,819) (25,621) Impaired assets 4 (2,727) (3,514) (19,786) Equity accounted earnings of associate companies

7 2,066 (29) 2,069 Equity accounted earnings of interest in jointly controlled entities 8 (21,464) 8,598 2,935

Earnings before net interest expense and income tax (EBIT) 73,385 165,185 257,246

Interest expense (38,131) (34,459) (74,629) Interest income 1,225 913 2,843 Net interest expense (36,906) (33,546) (71,786)

Profit before income tax 36,479 131,639 185,460

Income tax expense 5 (18,832) (38,791) (58,387) Net profit for the period 17,647 92,848 127,073

Net profit for the period is attributable to: Owners of the parent 17,696 92,852 127,087 Non-controlling interests (49) (4) (14)

17,647 92,848 127,073

The accompanying notes form an integral part of these financial statements.

16

Mighty River Power Limited Interim Report 2012

Consolidated Statement of Comprehensive Income For the six months ended 31 December 2011

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

Restated

$000 $000 $000

Net profit for the period 17,647 92,848 127,073

Other comprehensive income Fair value revaluation of hydro and gas-fired generation assets

- - 219,000 Fair value revaluation of other generation assets

- (34,500) 193,250 Equity accounted share of movements in associates’ reserves (1,347) 1,320 (3,065) Fair value movements on available-for-sale investment reserve

(429) (24) (858) Movements in foreign currency translation reserve 6,181 (16,147) (31,146) Cash flow hedges gain/(loss) taken to equity (1,261) (82,186) (107,445) Income tax on items of other comprehensive income 472 34,175 (91,184) Impact of tax rate change - - 6,797 Other comprehensive income/(loss) for the period, net of taxation 3,616 (97,362) 185,349

Total comprehensive income/(loss) for the period 21,263 (4,514) 312,422

Total comprehensive income/(loss) for the period is attributable to: Owners of the parent 21,312 (4,510) 312,436 Non-controlling interests (49) (4) (14)

21,263 (4,514) 312,422

The accompanying notes form an integral part of these financial statements.

Mighty River Power Limited Interim Report 2012 17

Consolidated Statement of Changes in Equity For the six months ended 31 December 2011

Available- Foreign

for-sale currency Asset Cash flow Non-

Issued Retained investment translation revaluation hedge controlling Total capital earnings reserve reserve reserve reserve interest equity $000 $000 $000 $000 $000 $000 $000 $000

Balance as at 1 July 2010 377,561 508,266 - 625 1,865,749 (63,390)

Equity accounted share of movements in associates’ reserves

- - - - (3,075) 4,395 Net loss on available-for-sale investments, net of taxation - - (17) - - - Fair value revaluation of other generation assets, net of taxation - - - - (24,840) - Movements in foreign currency translation reserve

- - - (16,147) - - Cash flow hedges gain/(loss) taken to equity, net of taxation - - - - - (57,678) Other comprehensive income

- - (17) (16,147) (27,915) (53,283)

Net profit for the period - 92,852 - - - - Total comprehensive income for the period

- 92,852 (17) (16,147) (27,915) (53,283) Non-controlling interest - - - - - - Dividend - (30,300) - - - - Balance as at 31 December 2010 (Restated) 377,561 570,818 (17) (15,522) 1,837,834 (116,673)

Balance as at 1 January 2011 377,561 570,818 (17) (15,522) 1,837,834 (116,673)

Fair value revaluation of hydro and gas-fired generation assets, net of taxation - - - - 153,300 - Fair value revaluation of other generation assets, net of taxation

- - - - 160,115 - Equity accounted share of movements in associates’ reserves - - - - - (4,385) Net loss on available-for-sale investments, net of taxation - - (583) - - - Movements in foreign currency translation reserve - - - (14,999) - - Cash flow hedges gain/(loss) taken to equity, net of taxation - - - - - (17,534) Impact of tax rate change

- - (17) - 8,245 (1,431) Other comprehensive income

- - (600) (14,999) 321,660 (23,350)

Net profit for the period - 34,235 - - - - Total comprehensive income for the period

- 34,235 (600) (14,999) 321,660 (23,350) Non-controlling interest - - - - - - Dividend

- (64,700) - - - - Balance as at 30 June 2011 377,561 540,353 (617) (30,521) 2,159,494 (140,023)

Balance as at 1 July 2011 377,561 540,353 (617) (30,521) 2,159,494 (140,023)

Equity accounted share of movements in associates’ reserves - - - - - (1,347) Net loss on available-for-sale investments, net of taxation - - (310) - - - Movements in foreign currency translation reserve - - - 6,181 - - Cash flow hedges gain/(loss) taken to equity, net of taxation - - - - - (908) Other comprehensive income - - (310) 6,181 - (2,255)

Net profit for the period - 17,696 - - - - Total comprehensive income for the period - 17,696 (310) 6,181 - (2,255) Non-controlling interest - - - - - - Dividend - (45,700) - - - - Balance as at 31 December 2011 377,561 512,349 (927) (24,340) 2,159,494 (142,278)

The accompanying notes form an integral part of these financial statements.

18

Mighty River Power Limited Interim Report 2012

159 2,688,970

- -

1,320 (17)

- - - -

(24,840) (16,147) (57,678) (97,362)

(4) 92,848 (4) (4,514) 2 2 - (30,300) 157 2,654,158 157 2,654,158

- 153,300 - 160,115 - (4,385) - (583) - (14,999) - (17,534) - 6,797 - 282,711 (10) 34,225 (10) 316,936 148 148 - (64,700) 295 2,906,542 295 2,906,542

-

(1,347) (310) 6,181 (908) 3,616

(49) 17,647 (49) 21,263 90 90 - (45,700) 336 2,882,195

Consolidated Balance Sheet As at 31 December 2011

31 Dec 2011 31 Dec 2010

Restated

Note $000 $000

30 June 2011 $000

SHAREHOLDERS’ EQUITY Issued capital 377,561 377,561 377,561 Reserves 2,504,298 2,276,440 2,528,686 Non-controlling interest 336 157 295 Total shareholders’ equity 2,882,195 2,654,158 2,906,542

ASSETS CURRENT ASSETS Cash and cash equivalents 43,185 41,821 28,722 Receivables 214,502 208,905 199,868 Inventories 22,245 24,349 23,015 Derivative financial instruments 11 18,114 19,564 20,100 Total current assets 298,046 294,639 271,705

NON-CURRENT ASSETS Property, plant and equipment

6 4,827,246 4,263,168 4,749,506 Intangible assets 45,287 33,202 38,821 Emissions units 794 - 429 Available-for-sale financial assets

762 2,025 1,191 Investment and advances to associates

7 76,917 123,937 76,252 Investment in jointly controlled entities 8 84,500 109,241 98,970 Advances

10,470 11,399 10,877 Receivables 402 - 378 Derivative financial instruments 11 160,726 88,761 128,458 Total non-current assets 5,207,104 4,631,733 5,104,882 TOTAL ASSETS 5,505,150 4,926,372 5,376,587

LIABILITIES CURRENT LIABILITIES Payables and accruals 201,268 178,774 180,431 Provisions 9 4,390 2,829 4,200 Current portion loans 12 6,234 5,657 12,081 Derivative financial instruments 11 27,600 23,692 24,498 Taxation payable 20,813 8,926 4,271 Total current liabilities 260,305 219,878 225,481

NON-CURRENT LIABILITIES Payables and accruals 21,366 - 21,298 Derivative financial instruments 11 444,100 308,802 374,524 Loans 12 1,051,398 982,941 973,400 Deferred tax 10 845,786 760,593 875,342 Total non-current liabilities 2,362,650 2,052,336 2,244,564 TOTAL LIABILITIES 2,622,955 2,272,214 2,470,045

NET ASSETS 2,882,195 2,654,158 2,906,542

For and on behalf of the Board of Directors who authorised the issue of the Financial Statements on 27 March 2012.

Joan Withers Chair 27 March 2012

Trevor Janes Deputy Chair 27 March 2012

The accompanying notes form an integral part of these financial statements.

Mighty River Power Limited Interim Report 2012 19

Consolidated Cash Flow Statement For the six months ended 31 December 2011

6 Months 6 Months

31 Dec 2011 31 Dec 2010

Restated

Note $000 $000

12 Months 30 June 2011 $000

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 731,419 580,169 1,123,166 Payments to suppliers and employees (473,221) (357,742) (691,283) Interest received 1,225 1,515 2,534 Interest paid (42,675) (36,396) (78,578) Taxes paid (31,378) (35,300) (63,013) Net cash provided by operating activities 13 185,370 152,246 292,826

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment

(140,748) (87,709) (174,091) Proceeds from sale of property, plant and equipment 2 772 312 Advances to associate

- (16,139) (52,251) Advances to associates repaid

- 1,875 27,005 Repayment from joint venture partner 407 442 964 Investment in jointly controlled entities (2,188) (1,342) (4,130) Acquisition of intangibles

(8,560) (6,141) (20,776) Acquisition of subsidiaries

- - 18,448 Dividends received 1,613 - 1,525 Proceeds from disposal of other non-current assets - - 600 Net cash used in investing activities (149,474) (108,242) (202,394)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans 30,000 260,212 266,212 Repayment of loans (6,000) (240,000) (240,000) Dividends paid (45,700) (30,300) (95,000) Net cash used in financing activities (21,700) (10,088) (68,788)

Net increase in cash and cash equivalents held 14,196 33,916 21,644 Net foreign exchange movements 267 - (827) Cash and cash equivalents at the beginning of the period 28,722 7,905 7,905 Cash and cash equivalents at the end of the period 43,185 41,821 28,722

The accompanying notes form an integral part of these financial statements.

20

Mighty River Power Limited Interim Report 2012

Notes to the Financial Statements For the six months ended 31 December 2011 NOTE 1. ACCOUNTING POLICIES (1) Reporting entity Mighty River Power Limited is a company incorporated in New Zealand, registered under the Companies Act 1993 and is a reporting entity for the purposes of the Financial Reporting Act 1993. The condensed consolidated interim financial statements have been prepared in accordance with the Financial Reporting Act 1993 and the Companies Act 1993.

The condensed consolidated interim financial statements are for Mighty River Power Limited Group (the “Group”). The condensed consolidated interim financial statements comprise the Company, its subsidiaries, associates and interests in jointly controlled assets and entities.

Mighty River Power Limited is wholly owned by Her Majesty the Queen in Right of New Zealand (the Crown). Consequently, the Company is bound by the requirements of the State-Owned Enterprises Act 1986.

The liabilities of the Company are not guaranteed in any way by the Crown.

The Group’s principal activities are to invest in, develop and produce electricity from renewable and other energy sources and to sell energy and energy related services and products to retail and wholesale customers.

2) Basis of preparation (a) Statement of compliance These condensed consolidated interim financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (“NZ GAAP”) as applicable to interim financial statements and as appropriate to profit-oriented entities.

These condensed consolidated interim financial statements comply with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting. These condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements, and should therefore be read in conjunction with the annual financial statements for the year ended 30 June 2011, which have been prepared in accordance with the New Zealand equivalents to International Financial Reporting Standards and comply with International Financial Reporting Standards. (b) Accounting policies The accounting policies and methods of computation are consistent with those of the annual financial statements for the year ended 30 June 2011, as described in those annual financial statements. (c) Estimates and judgements The preparation of interim financial statements in conformity with NZ IAS 34 and IAS 34 requires Management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described below: Generation plant and equipment The Group’s generation assets are stated at fair value based on a periodical valuation by an independent valuer. The basis of the valuation is the net present value of the future earnings of the assets, excluding any reduction for costs associated with restoration and environmental rehabilitation.

The major inputs and assumptions that are used in the valuation model that require judgment include the forecast of the future electricity price path, sales volume forecasts, projected operational and capital expenditure profiles, capacity and life assumptions for each generation plant and discount rates. The last revaluation was performed in June 2011. Management expect to engage an independent valuer in June 2012 to test whether carrying values remain materially consistent with fair value.

Retail revenue Management has exercised judgement in determining estimated retail sales for unread gas and electricity meters at balance date. Specifically this involves an estimate of consumption for each unread meter, based on the customer’s past consumption history. The estimated balance is recorded in sales and as an accrual balance within receivables.

Restoration and environmental rehabilitation Liabilities are estimated for the abandonment and site restoration of areas from which natural resources are extracted. Such estimates are valued at the present value of the expenditures expected to settle the obligation. Key assumptions have been made as to the expected expenditures to remediate based on the expected life of the assets employed on the sites and an appropriate discount rate.

Mighty River Power Limited Interim Report 2012 21

Notes to the Financial Statements For the six months ended 31 December 2011 Valuation of financial instruments Energy contracts are valued by reference to the Group’s financial model for future electricity prices. Foreign exchange and interest rate derivatives are valued based on quoted market prices. Detailed information about assumptions and risk factors relating to financial instruments and their valuation are included in the annual financial statements.

Impairment of non-financial assets Assets that have an indefinate useful life are not subject to amortisation and are tested annually for impairment. Other assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Evaluation and exploration assets are assessed for impairment when there is an indication that the carrying amount of the asset may exceed its recoverable amount.

Deferred tax In May 2010 the Government announced that tax depreciation deductions for buildings would be disallowed effective for the Group from 1 July 2011.

As there is no definition of a building in the Income Tax Act, Management have used judgement, and sought expert independent advice, to assess whether those generation assets, which have historically been classified as buildings, have been appropriately classified or whether they would more appropriately be classified as plant. While the government has issued some additional guidance about what constitutes a building several areas were left open for further discussion. As a consequence Management has not altered the position taken at 30 June 2011. In the event the Inland Revenue Department disagrees with the position Management takes when filing the 2012 tax returns in 2013, then an additional deferred tax liability and tax expense of $21.3 million would need to be recognised associated with the portion of the powerhouses that Management considered should be more appropriately classified as plant. (d) Functional and presentation currency These financial statements are presented in New Zealand Dollars ($). The functional currency of Mighty River Power Limited and all its subsidiaries, apart from Mighty Geothermal Power Limited and its direct subsidiaries and PT ECNZ Services Indonesia, is New Zealand Dollars. The functional currency of PT ECNZ Services Indonesia and Mighty Geothermal Power Limited, and its subsidiaries except the German subsidiaries, is the United States Dollar. The German subsidiaries have a functional currency of Euro. The financial statements of these entities have been translated to the presentation currency for these Group Accounts. All financial information has been rounded to the nearest thousand. (e) Seasonality of operations The energy business operates in an environment that is dependent on weather as one of the key drivers of supply and demand. Fluctuations in seasonal weather patterns, particularly over the short term, can have a positive or negative effect on the reported result. It is not possible to consistently predict this seasonality and some variability is common. (f) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive.

NOTE 2. SEGMENT REPORTING Identification of reportable segments The operating segments are identified by Management based on the nature of the products and services provided. Discrete financial information about each of these operating businesses is available to the chief operating decision-maker on at least a monthly basis.

Operating segments are aggregated into reportable segments only if they share similar economic characteristics.

Types of products and services Wholesale The wholesale segment encompasses activity associated with the production of energy from all power stations, the purchase of energy related products and services, and the sale of power to the retail segment, generation development activities together with activities such as risk and asset management. The wholesale segment is exposed to volatility in wholesale prices which may result in significant fluctuations in segmental results from year to year.

Retail The retail segment encompasses activity associated with the purchase of power from the wholesale segment and the subsequent sale of energy and energy related services and products to customers. The retail segment is also exposed to fluctuation in wholesale prices relating to energy purchases, electricity sales at spot and the settlement of electricity price derivatives. The results of wholesale price volatility will have a partially offsetting impact between the wholesale and retail segments.

Other Segments Other operating segments that are not considered to be reporting segments are grouped together in the “Other Segments� column. Activities include metering, upstream gas and other corporate support activities.

22

Mighty River Power Limited Interim Report 2012

Notes to the Financial Statements For the six months ended 31 December 2011

Accounting Policies and inter-segment transactions The accounting policies used by the Group in reporting segments are the same as those contained in note 1 to the annual financial statements and in the prior comparative periods. The Chief Executive assesses the performance of the operating segments on a measure of EBITDAF. Segment EBITDAF represents profit earned by each segment exclusive of any allocation of central administration costs, depreciation and amortisation, share of profits of associates and jointly controlled entities, change in fair value of financial instruments, impairment of exploration expenditure, finance costs and income tax expense.

Transactions between segments are carried out on an arm's length basis.

Other Wholesale Retail segments Total

Six months ended 31 December 2011 $000 $000 $000 $000 626,107 (311,633) 314,474

410,080 - 410,080

21,229 (16,726) 4,503

1,057,416 (328,359) 729,057

Segment EBITDAF 227,875

41,462

(14,880)

254,457

Segment Assets 4,888,676

178,462

438,012

5,505,150

Total segment revenue Inter-segment revenue Revenue from external customers

Other Wholesale Retail segments Total

Six months ended 31 December 2010 (Restated) $000

$000

$000

$000

Total segment revenue Inter-segment revenue Revenue from external customers

494,539 (258,141) 236,398

378,292 - 378,292

18,275 (14,720) 3,555

891,106 (272,861) 618,245

Segment EBITDAF

183,061

63,153

(12,566)

233,648

Segment Assets

4,426,519

152,176

347,120

4,925,815

Other Wholesale Retail segments Total

Twelve months to 30 June 2011 $000 $000 $000 $000 Total segment revenue Inter-segment revenue Revenue from external customers

905,867 (500,069) 405,798

750,734 - 750,734

37,894 (30,545) 7,349

1,694,495 (530,614) 1,163,881

Segment EBITDAF

336,483

133,661

(27,091)

443,053

Segment Assets

4,836,993

208,836

330,758

5,376,587

Reconciliation of segment revenue to the income statement

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

$000 $000 $000

Total segment revenue 1,057,416 Inter-segment sales elimination (328,359) Total revenue per the income statement 729,057

891,106 (272,861) 618,245

1,694,495 (530,614) 1,163,881

Reconciliation of segment assets to total assets

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

$000 $000 $000

Segment assets 5,505,150 Current tax assets - Total assets 5,505,150

4,925,815 - 4,925,815

5,376,587 5,376,587

Mighty River Power Limited Interim Report 2012 23

Notes to the Financial Statements For the six months ended 31 December 2011 NOTE 3. UNDERLYING EARNINGS Underlying earnings after tax is presented to enable stakeholders to make an assessment and comparison of underlying earnings after removing significant one-off items, impairments and the change in the fair value of financial instruments.

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

Restated

$000 $000 $000

Net profit for the period

17,647

92,848

127,073

Change in the fair value of financial instruments 85,746 5,819 25,621 Change in the fair value of financial instruments of associate entities (374) (214) 1,429 Change in the fair value of financial instruments of jointly controlled entities 20,601 (9,854) 1,962 Impaired assets 2,727 3,514 19,786 Adjustments before income tax expense

108,700 (735) 48,798 Income tax expense on adjustments Impact of deferred tax rate change through the consolidated income statement Adjustments after income tax expense

(24,668) - 84,032

(2,736) - (3,471)

(12,874) (823) 35,101

Underlying earnings after tax

101,679

89,377

162,174

Tax has been applied on all taxable adjustments at 28% or 30% in comparative periods.

Note 15 provides details of the restatement in the 31 December 2010 comparative period.

NOTE 4. IMPAIRED EXPENDITURE

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

$000 $000 $000

Impaired property, plant and equipment Impaired exploration and development expenditure Impaired intangible asset Impaired investment in associate Total impaired assets

24

Mighty River Power Limited Interim Report 2012

- 3,604 - (877) 2,727

- 3,514 - - 3,514

11,476 4,933 2,500 877 19,786

Notes to the Financial Statements For the six months ended 31 December 2011 NOTE 5. INCOME TAX EXPENSE

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

Restated

$000 $000 $000

Income tax expense Profit before income tax 36,479 Prima facie income tax expense at 28% (comparative periods: 30%) on profit before tax (10,214) Increase/(decrease) in income tax due to: • effect of tax rate change on deferred tax

- • share of associates’ tax paid earnings

578 • share of jointly controlled entities’ tax paid earnings

(6,010) • foreign entities’ tax losses not recognised for deferred tax

(3,725) • capital loss

- • other differences

345 Over/(under) provision in prior period 194 Income tax expense attributable to profit from ordinary activities (18,832) Represented by: Current tax expense (46,535) Deferred tax expense recognised in the consolidated income statement 27,703 Total income tax expense (18,832)

131,639 (39,492)

185,460 (55,638)

- (9) 2,579 (2,209) - (6) 346 (38,791)

823 621 881 (3,792) (1,440) 164 (6) (58,387)

(44,185) 5,394 (38,791)

(69,935) 11,548 (58,387)

Note 15 provides details of the restatement in the 31 December 2010 comparative period.

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

Restated

$000 $000 $000

Assets acquired at cost

Net book value of assets disposed Gain/(loss) on disposal Asset revaluations

152,956 28 (26) -

57,341 1,072 (300) (34,500)

143,360 1,039 (727) 412,250

Note 15 provides details of the restatement in asset valuation in the 31 December 2010 comparative period.

NOTE 7. INVESTMENT AND ADVANCES TO ASSOCIATES

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

Restated

$000 $000 $000

Balance at the beginning of the period 76,252

113,614

113,614

Additions during the period

- Equity accounted earnings 2,066 Equity accounted share of movements in reserves (1,347) Dividends received during the period

(1,613) Repayment of advances during the period - Loans converted to equity by GeoGlobal Partners 1 Limited Partnership - Accrued interest on advances

- Exchange movements 682 Impaired investment in associate reversed 877 Impaired investment in associate - Balance at the end of the period 76,917

16,148 (29) 1,320 - (1,875) - 166 (5,407) - - 123,937

52,251 2,069 (3,065) (1,525) (27,006) (54,289) 339 (5,259) (877) 76,252

Mighty River Power Limited Interim Report 2012 25

Notes to the Financial Statements For the six months ended 31 December 2011 NOTE 8. INVESTMENTS IN JOINTLY CONTROLLED ENTITIES

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

Restated

$000 $000 $000

Balance at the beginning of the period 98,970 111,926 111,926

Additions during the period

2,188 2,601 4,130 Equity accounted earnings (21,464) 8,598 2,935 Exchange movements 4,806 (13,884) (20,021) Balance at the end of the period 84,500 109,241 98,970

NOTE 9. PROVISIONS

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

$000 $000 $000

Balance at the beginning of the period 4,200

2,673

2,673

Provisions made during the period 9 Movement in effect of discounting 181 Balance at the end of the period 4,390

- 156 2,829

1,215 312 4,200

Provisions have been recognised for the abandonment and subsequent restoration of areas from which geothermal resources have been extracted.

The provision is calculated based on the present value of management’s best estimate of the expenditure required, and the likely timing of settlement. The increase in provision resulting from the passage of time (the discount effect) is recognised as an interest expense.

NOTE 10. DEFERRED TAX

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

Restated

$000 $000 $000

Balance at the beginning of the period (875,342)

(789,594)

(789,594)

Current period changes in temporary differences affecting tax expense 27,703 Current period changes in temporary differences affecting reserves 1,853 Balance transferred to joint venture partner - Change in tax rate recognised in tax expense - Change in tax rate recognised in reserves - Balance at the end of the period (845,786)

5,394 23,607 - - - (760,593)

10,725 (104,258) 165 823 6,797 (875,342)

Note 15 provides details of the restatement in the 31 December 2010 comparative period.

26

Mighty River Power Limited Interim Report 2012

Notes to the Financial Statements For the six months ended 31 December 2011

NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS

Assets Liabilities Assets Liabilities Assets Liabilities

31 Dec 2011 31 Dec 2011 31 Dec 2010 31 Dec 2010 30 June 2011 30 June 2011 Restated Restated Restated Restated

$000 $000 $000 $000 $000 $000

Interest rate derivatives 31,291 239,418 16,381 Cross currency interest rate derivatives 19,161 - - Cross currency interest rate derivatives – margin - 9,507 - Electricity price derivatives 125,878 216,910 91,915 Foreign exchange rate derivatives

2,510 5,865 29

178,840 471,700 108,325

Current 18,114 27,600 19,564 Non-current 160,726 444,100 88,761

178,840 471,700 108,325

121,554 16,030 8,636 178,487 7,787 332,494

21,106 - - 127,448 4 148,558

144,431 30,287 12,037 201,863 10,404 399,022

23,692 308,802 332,494

20,100 128,458 148,558

24,498 374,524 399,022

The current/non-current split of the fair value of interest rate derivatives has been restated and the treatment of movements in the fair value of cross currency interest rate swaps has also been restated. Refer to note 15 for details.

Interest rate derivatives, short term low value foreign exchange rate derivatives, and short term low value electricity price derivatives, while economic hedges, are not designated as hedges under NZ IAS 39 but are treated as at fair value through profit and loss. All other foreign exchange rate and electricity price derivatives (except the Tuaropaki Power Company Foundation Hedge, Virtual Asset Swap with Meridian, the Nga Awa Purua outage contract and the Genesis swaption) are designated as cash flow hedges under NZ IAS 39. Cross currency interest rate swaps, which are used to manage the combined interest and foreign currency risk on borrowings issued in foreign currency, have been split into two components for the purposes of hedge designation. The hedge of the benchmark interest rate is designated as a fair value hedge and the hedge of the issuance margin is designated as a cash flow hedge.

The changes in fair values of derivative financial instruments recognised in the income statement and equity are summarised below:

Income Income Income

statement statement statement Equity Equity Equity

6 Months 6 Months 12 Months 6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011 31 Dec 2011 31 Dec 2010 30 June 2011

Restated Restated

$000 $000 $000 $000 $000 $000

Cross currency interest rate derivatives Borrowings – fair value change

Interest rate derivatives Cross currency interest rate swaps – margin Electricity price derivatives Foreign exchange derivatives Income tax on changes taken to equity

Ineffectiveness of cash flow hedges Total fair value movements recognised through the consolidated income statement

49,302 (16,030) (30,141) - (47,638) 9,399 19,084 - 1,664 (6,631) (11,057) - (84,802) 3,745 (13,822) - - - - 3,001 (691) (1,474) 2,397 (15,766) 108 (3) (588) 11,504 - - - 353 (83,721) (4,363) (23,070) (908) (2,025)

(1,456)

(2,551)

(85,746)

(5,819)

(25,621)

- - - - (8,636) (11,604) (41,696) (56,851) (31,854) (38,990) 24,508 32,233 (57,678) (75,212)

Mighty River Power Limited Interim Report 2012 27

Notes to the Financial Statements For the six months ended 31 December 2011 NOTE 12. LOANS

31 Dec 2011 31 Dec 2010 30 June 2011

Restated

$000 $000 $000

771,235 260,212 (2,369) 28,554 1,057,632

740,660 260,212 (2,875) (9,399) 988,598

747,081 260,212 (2,728) (19,084) 985,481

Current 6,234 Non-current 1,051,398

1,057,632

5,657 982,941 988,598

12,081 973,400 985,481

Notional value of bank loans Notional value of US Private Placement Deferred financing costs Fair value adjustments

Carrying value of loans

For details of the restatement please refer to note 15.

In September 2011 the Group increased an existing facility with the Bank of Tokyo-Mitsubishi by $50 million to $200 million which matures in December 2015. This increases the Group’s facilities to $1,360 million with an average duration of 5.9 years.

Subsequent to 31 December 2011 the Group established a $200 million Commercial Paper programme which is fully backed by committed and undrawn bank facilities. The Group also entered into $200 million of new bank facilities to address the refinancing of $200 million Retail Bonds which will mature in May 2013. This further increases the Group’s facilities to $1,560 million. Refer to Note 17 for further details.

NOTE 13. RECONCILIATION OF PROFIT FOR THE PERIOD TO NET CASH FLOWS FROM OPERATING ACTIVITIES

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

Restated

$000 $000 $000

Net profit for the period 17,647

92,848

127,073

Items classified as investing/financing activities • Fixed, intangible and investment asset charges • Loan charges

(2,447) 1,108

(6,870) 1,835

Non-cash items Depreciation and amortisation Net loss on sale of property, plant and equipment Change in the fair value of financial instruments Impaired assets Movement in effect of discounting on long-term provisions Share of earnings of associate companies Share of earnings of jointly controlled entities Other non-cash items Net cash provided by operating activities before change in assets and liabilities

(5,573) 370

73,201 67,699 145,404 26 300 727 85,746 5,819 25,621 2,727 3,514 19,786 190 156 312 (2,066) 29 (2,069) 21,464 (8,598) (2,935) 504 909 1,996 194,236 161,337 310,880

Change in assets and liabilities during the period: • Increase in trade receivables and prepayments

(9,611) • Decrease/(increase) in inventories

771 • Increase in trade payables and accruals

12,508 • Increase/(decrease) in provision for taxation

16,550 • (Decrease)/increase in deferred taxation (29,084) Net cash inflow from operating activities 185,370

28

Mighty River Power Limited Interim Report 2012

(33,676) (4,123) 25,209 (1,670) 5,169 152,246

(21,402) (2,790) 10,880 (6,325) 1,583 292,826

Notes to the Financial Statements For the six months ended 31 December 2011 NOTE 14. RELATED PARTY TRANSACTIONS Ultimate shareholder The ultimate shareholder of Mighty River Power Limited is the Crown. All transactions with the Crown and other State-Owned Enterprises are at arm’s length and at normal market prices and on normal commercial terms.

Transactions with related parties Notes 15, 16, 17 and 18 from the 30 June 2011 annual financial statements provide details of subsidiaries, associates, jointly controlled assets and jointly controlled entities. All of these entities are related parties. The following offshore geothermal development entities have been incorporated subsequent to 30 June 2011 and are also related parties: Erdwärme Chiemgau GmbH Erdwärme Aying GmbH Erdwärme Alz GmbH Erdwärme Isar GmbH As these are consolidated financial statements transactions between related parties within the group have been eliminated. Consequently, only those transactions between entities which have parties external to the Group have been reported below:

Transaction Value

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

$000 $000 $000

Management fees and service agreements received (paid) Associates

Jointly controlled assets

(4,560) 2,429

(4,884) 2,407

(8,077) 4,817

Energy contract settlements received (paid) Associates

Jointly controlled assets

(183) 205

(429) (3,102)

(3,618) (25,610)

Interest income (expense) Associates

Jointly controlled assets

- 863

166 1,029

339 1,929

For the terms and conditions of these related party transactions please refer to note 29 of the 30 June 2011 annual financial statements.

Key management personnel Key management personnel compensation comprised:

6 Months 6 Months 12 Months

31 Dec 2011 31 Dec 2010 30 June 2011

$000 $000 $000

Directors fees 317 Salary and other short term benefits of the Chief Executive and Senior Management 2,004

2,321

251 1,805 2,056

502 3,245 3,747

Other transactions with key management personnel Directors and employees of the Group deal with Mighty River Power Limited as electricity consumers on normal terms and conditions within the ordinary course of trading activities.

A number of key management personnel provide directorship services to other entities as part of their employment without receiving any additional remuneration. A number of these entities transacted with the Group in the reporting period. The terms and conditions of the transactions with key management personnel were conducted on an arms length basis.

Mighty River Power Limited Interim Report 2012 29

Notes to the Financial Statements For the six months ended 31 December 2011 NOTE 15. CORRECTION OF ERRORS, REVISIONS OF ACCOUNTING ESTIMATES AND RECLASSIFICATIONS Restatements impacting the income statement or other comprehensive income As reported in the 30 June 2011 financial statements the joint venture partner in the Rotokawa and Nga Awa Purua Joint Ventures notified their intention to exercise an option to acquire an additional 10% interest in the joint ventures which would reduce the Group’s interest to 65%.

Management anticipate this occurring in the next six months. As a consequence a reduction in the carrying value in the Group’s interest in jointly controlled assets of $34.5 million, with an offsetting reduction in the Group’s share of the asset revaluation reserve net of deferred tax, was recognised. This adjustment was not undertaken in the previously reported 31 December 2010 balance sheet so this has been adjusted to align with the 30 June 2011 treatment.

The Group entered into forward starting cross-currency interest rate swaps in November 2010 as a hedge of the US Private Placement issued in December 2010. The hedge accounting for these types of derivatives is complex. A prudent position was taken in the 31 December 2010 interim financial statements which, upon further analysis, proved to be incorrect based on the final treatment recognised in the 30 June 2011 annual financial statements. Consequently an adjustment has been recognised as at 31 December 2010 which reduces the fair value loss in the income statement by $4,373,000, reduces the cash flow hedge reserve of $7,419,000 and increases the carrying value of the foreign currency debt by $3,046,000. The associated deferred tax adjustments impacting tax expense and the cash flow hedge reserve which is reported net of deferred tax were also recognised.

As at 31 December 2010 the Group had to recognise its earnings from jointly controlled entities based on unaudited financial statements. Audit adjustments were subsequently recognised, primarily relating to the fair value measurement of interest rate derivatives. The Group’s share of earnings from interests in jointly controlled entities recognised through the income statement has been increased by $4,593,000 ($3,905,000 of which related to fair value measurement of derivatives) as at 31 December 2010 with a corresponding increase to the carrying value of investments in jointly controlled entities on the balance sheet.

All the adjustments mentioned above impact the comparative period only. There was no need to restate opening equity.

Reclassifications Loans are recognised on the balance sheet at amortised cost. There is no separate recognition of accrued interest. Historically the classification of current and non-current loans was based on the maturity of the loans with no recognition that the accrued interest on the loans will settle within the next 12 months. A reclassification adjustment has been made at 31 December 2010 to transfer accrued interest from non-current to current consistent with the treatment at 30 June 2011. This means that the Group will recognise a component of loans as current whether or not any loans actually mature within the next 12 months.

Accounting standards state that derivatives are classified as held for trading unless they are accounted for as hedges. The held for trading category would usually be expected to carry a designation of current. However, if the intent is not to actually trade instruments with maturities greater than one year but to hold them long term to match the maturities of the underlying debt that they are hedging, then those instruments would more appropriately be classified as non-current. As a consequence the fair value of interest rate derivatives with maturities greater than 12 months have now been reclassified from current to non-current for both comparative periods. The impact of this adjustment can be seen in note 11.

A related party receivable balance of GeoGlobal Partners 1 Limited Partnership recognised at 31 December 2010 within receivables was incorrectly classified and should have been reported as advances to associate. A reclassification adjustment for $937,000 has been made to correct this. This also results in a change of classification in the cash flow between operating and investing activities.

NOTE 16. COMMITMENTS AND CONTINGENCIES Commitments

31 Dec 2011 31 Dec 2010 30 June 2011

$000 $000 $000

Commitments for future capital expenditure Commitments for future operating expenditure Contingencies The Group has no material contingent assets or liabilities.

30

Mighty River Power Limited Interim Report 2012

206,696 39,705

100,588 30,924

325,238 28,338

Notes to the Financial Statements For the six months ended 31 December 2011 NOTE 17. SUBSEQUENT EVENTS Undesirable trading situation The Electricity Authority (EA) declared that an undesirable trading situation occurred on the 26th March 2011 and determined that final prices should be reduced from the interim price level. In Auckland this resulted in prices during the affected trading periods falling from approximately $20,000/ MWh to approximately $3,200/MWh. At 30 June 2011 the prices determined by the EA were used as the best estimate of the revenue and cost impact for the affected trading periods. The EA decision was appealed and the issuing of final prices was delayed. As at 31 December 2011 there has been no change to this estimate. On 28 February 2012 the result of the appeal was announced by the High Court which upheld the EA’s decision.

On 26 March 2012 at least one appellant has sought leave of the High Court to appeal the matter in the Court of Appeal. In the event the High Court’s decision is overturned, final prices would be set at interim levels and as a consequence, EBITDAF could reduce by approximately $24 million.

Interim dividend The Board has approved an interim dividend of $74.8 million to be paid on 30 March 2012.

Commercial Paper Programme In February 2012 the Group established a $200 million Commercial Paper programme which is fully backed by committed and undrawn bank facilities. Notes issued under the programme are short-term money market instruments, unsecured and unsubordinated and targeted at professional investors. The programme is rated A2 by Standard & Poor’s and as at the date of signing the Financial Statements $50 million of notes have been issued.

New bank debt facilities On 12 March 2012 the Group entered into $200 million 3 year bank facilities to address the refinancing of $200 million Retail Bonds which will mature in May 2013. These new bank facilities will expire in March 2015.

There have been no other material events subsequent to 31 December 2011.

Mighty River Power Limited Interim Report 2012 31

Directory Shareholders The Minister for State Owned Enterprises, Hon Tony Ryall, and Minister of Finance, Hon Bill English.

Credit Rating (as at 31 December 2011) Long-term: BBB+ Outlook: Stable

Board of Directors Joan Withers, Chair Trevor Janes, Deputy Chair Dr Michael Allen Prue Flacks Jon Hartley ParekÄ whia McLean Sandy Maier Tania Simpson Keith Smith

Auditor The Auditor-General pursuant to section 14 of the Public Audit Act 2001. Brent Penrose of Ernst & Young was appointed to perform the audit on behalf of the Auditor-General.

Executive Management Team Dr Doug Heffernan Chief Executive

Bankers ANZ National Bank ASB Bank Kiwibank Bank of Tokyo-Mitsubishi UFJ Bank of New Zealand

Tracy Ellis General Manager Human Resources William Meek Chief Financial Officer James Munro General Manager Retail Mark Trigg General Manager Development Fraser Whineray General Manager Operations Company Secretary (Acting) Glenn Rockell, General Counsel (Acting) Registered Office Level 14, 23-29 Albert Street, Auckland 1010

32

Mighty River Power Limited Interim Report 2012

Solicitors Chapman Tripp Bell Gully

Key Office Locations Head Office Level 14, 23-29 Albert Street, Auckland 1010 Phone +64 9 308 8200 Fax +64 9 308 8209 enquiries@mightyriver.co.nz www.mightyriver.co.nz

Hamilton 160 Peachgrove Road Hamilton 3216 Phone +64 7 857 0199 Fax +64 7 857 0192 Rotorua 283 Vaughan Road Rotorua 3010 Phone +64 7 343 8500 Fax +64 7 343 8599

Taupo First Floor, 93 Heuheu Street Taupo 3330 Phone +64 7 376 1529 Fax +64 7 376 1521

Mercury Energy 602 Great South Road Auckland 1062 Phone +64 9 580 3500 Fax +64 9 580 3501 www.mercury.co.nz Bosco Connect Level 2, 27 Bath Street Parnell, Auckland 1052 Phone +64 9 302 1500 Fax +64 9 309 0431 info@bosco.co.nz www.bosco.co.nz Tiny Mighty Power Level 2, 27 Bath Street Parnell, Auckland 1052 Phone 0800 88 66 99 www.tinymighty.co.nz

Metrix Head Office 42 Olive Road, Penrose Auckland 1061 Phone +64 9 580 3900 Fax +64 9 580 3949 info@metrixinfo.co.nz www.metrixinfo.co.nz GeoGlobal Energy LLC 5471 Wisconsin Ave, Suite 300-A Chevy Chase, Maryland 20815 United States Phone +1 240 752 7530 Fax +1 240 752 9050 contactus@geoglobal-energy.com www.geoglobal-energy.com

Energy Retailer of the Year

Mighty River Power Level 14, 23-29 Albert Street Auckland 1010, PO Box 90 399 Auckland, New Zealand PHONE +64 9 308 8200 FAX +64 9 308 8209 www.mightyriver.co.nz