Interim report 2011

Mighty River Power

Interim Report 2011

About Mighty River Power

Generation and Retail Operations

Mighty River Power is a New Zealandbased integrated energy 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.

We supply both electricity and thermal energy to major commercial users and have more than 400,000 retail customers with our brands, Mercury Energy, BOSCO Connect and Tiny Mighty Power.

Our generation portfolio is unique in New Zealand, being the only large renewable-dominated company in which geothermal is a major component.

Mighty River Power’s generation assets are located in the upper North Island, close to the major energy load centres and play a vital role in responding to demand peaks and supporting security of supply.

They include nine hydro stations on the Waikato River (1040MW), four geothermal plants (387MW, not all 100% owned), and a gas-fired co-generation plant (175MW).

Mighty River Power is a world leader in geothermal energy development, construction and operation – leveraging this expertise with investment in geothermal energy development in the US, Chile and Germany through GeoGlobal Energy.

Mighty River Power is actively pursuing future growth opportunities in geothermal generation and wind farm developments to help meet future domestic energy demand.

Our generation capacity will continue to be complemented by a nationally competitive and sustainable retail presence.

Formed in April 1999 from some of the assets of the former Electricity Corporation of New Zealand, Mighty River Power has driven shareholder value through sustained strategic growth – from our beginnings as a hydro generator to a diversified energy business today with assets of more than NZ$4 billion. Much of our domestic geothermal growth has been in partnership with Maori Land Trusts, such as the 140MW Nga Awa Purua plant commissioned in 2010 – a joint venture with the Tauhara North No.2 Trust.

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

CO-GENERATION SOUTHDOWN 175MW

0-9 10-19 20-29 30-39 40-49 50-59 60-69

GENERATION PRODUCTION

WAIKATO HYDRO SYSTEM 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

SIX MONTHS TO 31 DECEMBER 2010

*Not 100% owned by Mighty River Power

CO-GENERATION 6%

SALES VOLUMES 4000

GEOTHERMAL 31% GWh

3000

HYDRO 63%

2000

1000

SOUTH ISLAND

Mighty River Power Limited

JUL–DEC 2010

Cover: 140MW Nga Awa Purua geothermal station, a joint venture between Mighty River Power and Tauhara North No.2 Trust.

JUL–DEC 2009

JUL–DEC 2008

0

NORTH ISLAND

Interim Report 2011

1

Chair and Chief Executive’s Report

Highlights

Joan Withers

• $233.6m EBITDAF, a 22% increase • Higher interest and depreciation costs resulted in NPAT of $85.2m and underlying earnings of $88.7m • US$200m (NZ$260m) debt raised in US private placement, extended average maturity to 7.3 years • 3,504GWh total generation up 18%, with 69% increase in contribution from geothermal

• Entered into 15-year virtual asset swap, providing South Island energy hedge • Retail expanded into new geographies; 49% growth in South Island sales • International geothermal investment expanded to eight reservoirs across three countries • Volunteer Crew of more than 500 people supported 2010 FISA World Rowing Championships • $64.7m interim dividend announced, a 15% increase.

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Interim Report 2011

The value to Mighty River Power’s broader generation portfolio from $1 billion investment in new geothermal assets over the past five years clearly showed through in a 22% increase in EBITDAF (earnings before interest, taxation, depreciation, amortisation and financial instruments) to $233.6 million for the six months to 31 December 2010.

In a half year marked by drought and flood conditions affecting our Waikato hydro operations and creating extreme volatility in the wholesale electricity market, the contribution from our newlycommissioned 140MW Nga Awa Purua joint venture plant was significant.

It resulted in a 69% increase in geothermal generation on the same period last year and was the main driver of the lift in EBITDAF.

• Geothermal 31% of generation, an increase of more than 400% on the same period in 2007

Mighty River Power Limited

Doug Heffernan

Geothermal made up 31% of total generation, representing a fourfold increase since the same period in 2007. The high availability of the Company’s geothermal plants during the half year complemented Mighty River Power’s core hydro operations, which also increased production despite challenging hydrology. Alongside this, the flexible gas-fired Southdown plant was used selectively to optimise wholesale market portfolio performance and support security of supply nationally at times of peak demand.

Collectively our retail businesses, Mercury Energy, BOSCO Connect and Tiny Mighty Power, held market share in the highly competitive environment, and grew sales in the South Island by 49% through expansion into new

geographies, while maintaining a focus on managing credit risk.

to Mighty River Power’s business operations or capital structure.

Mighty River Power continued to advance options for domestic generation development, including several potential wind farm sites and additional geothermal capacity. We are also pleased to report progress on our international geothermal investment programme in partnership with GeoGlobal Energy (GGE) in the US and Chile, and its extension into Germany.

Mighty River Power has announced an increased interim dividend of $64.7 million, up from $56.2 million last year. The dividend is consistent with our dividend policy targeting a 75% payout ratio of IFRS adjusted NPAT and will be paid in March 2011.

In January 2011 the New Zealand Government announced that it was considering a mixed ownership model for several state-owned enterprises, including Mighty River Power. The Government has not made any decisions and has asked the Treasury to conduct further analysis of the mixed ownership approach on the basis of the Government retaining majority ownership and control.

We will work with the Government and our shareholding Ministers to assist them in their consideration of the mixed ownership model.

The Government is expected to make further public announcements before the General Election on 26 November 2011. In the interim, there will be no related changes

Mighty River Power Limited

Interim Report 2011

3

Chair and Chief Executive’s Report

FINANCIAL OVERVIEW At $233.6 million, EBITDAF was up 22% on the prior comparable period’s $191.2 million. This strong result was driven by an 18% increase in generation volumes, primarily from the contribution of the new Nga Awa Purua geothermal plant.

NPAT (net profit after tax) was $85.2 million for the period, up 15% on the prior period. After-tax profit was impacted by higher depreciation and amortisation charges (up $10 million) relating to the higher valuation of generation assets at 30 June 2010 and higher interest expense (up $19.8 million to $34.4 million) due to lower capitalised interest and higher debt levels following last year’s special dividend payment and the capital investment programme we have undertaken in recent years.

Impairments of $3.5 million during the period reflect the Company’s decision in August to exit the upstream gas business. We also completed an exit from the small biomass generation business with the sale of our 50% share of the 1MW Tirohia joint venture in July.

Underlying earnings at $88.7 million were not materially different from NPAT. Adjustments relate to unfavourable pre-tax fair value movements in derivatives (both domestic and international) of $4.0 million and the pre-tax gas exploration impairments of $3.5 million.

Other expenses were $138.2 million, up from $121.8 million in the prior comparable period, due primarily to an increase of $9.8 million in maintenance expenditure. GeoGlobal Energy management fees increased due to the increased level of activity from the larger development pipeline, and in New Zealand we had higher

4

“This strong result was driven by an 18% increase in generation volumes, primarily from the contribution of the Nga Awa Purua geothermal plant.” retail marketing costs driven by intense competition and customer churn.

Operating cash flow, at $151.3 million, was up $29.3 million on the prior period, reflecting the increased generation from Nga Awa Purua and lower taxes paid in the period ($24.0 million), but partially offset by higher interest paid of $13.9 million due to higher debt levels and interest rates.

Capital expenditure was $80.0 million, down significantly on the $128.6 million in the six months to 31 December 2009. The lower spend reflects the completion of the Nga Awa Purua project in April 2010. The capital expenditure was made up of $29.7 million stay-in-business and $50.3 million of growth capital. Of the new development funding, $33.8 million was domestic, primarily for geothermal development including funding research to improve performance of the Kawerau geothermal steamfield, and $16.5 million for our international geothermal programme.

Mighty River Power’s total assets at 31 December 2010 were $4,956 million, compared with $4,361 million at 31 December 2009.

Our debt financing profile was strengthened during the half year with the settlement of a US$200 million (NZ$260 million) private placement with US-based institutional investors with a duration of 10 to 15 years.These funds were used to repay bank debt and extended the average debt maturity profile from around 5.4 years at 30 June to more than 7.3 years at 31 December.

We have also established a new threeyear revolving cash facility of $150 million in New Zealand with local banks.

As at 31 December 2010, Mighty River Power’s debt facilities totalled $1,210 million (up from $1,050 million at 30 June 2010), with $985 million drawn.

Interim Report 2011

BUSINESS OVERVIEW Operations The six months to 31 December 2010 highlighted the considerable investment we have made over the past decade in base-load geothermal capacity and the optimisation of the gas-fired Southdown facility.

The increased total capacity and the balance of our portfolio enabled an 18% lift in generation volumes to 3,504GWh and cushioned the impact of weather extremes – ranging from drought to some of the highest inflows in the Waikato. Despite the challenges this created for our operations on the Waikato River, overall hydro generation was up 6% from 2,075GWh in the prior period to 2,209GWh. The record September inflows led to very high lake levels requiring us to spill water in September and October equivalent to 165GWh or about 25% of our average hydro production for those two months – highlighting the impact of major weather events in the catchment on the small storage in Lake Taupo. Following the dry Waikato conditions starting in November, which saw a drought declared in mid-December, there was very high rainfall in the December-January period which meant the Company once again had to spill water through the Waikato system to help bring lake levels below the operating maximum.

The outcome of our close co-ordination with the flood manager, Environment Waikato, during recent high-flow events has provided clear evidence of the value and effectiveness of current operating consent conditions for the lake and river.

The Nga Awa Purua geothermal plant – a joint venture with the

Mighty River Power Limited

Operating Information

6 months

6 months

12 months

to 31 Dec 2010

to 31 Dec 2009

to 30 June 2010

Electricity Customers

402,000

400,000

412,000

Electricty Sales (GWh) Residential FPVV* (GWh) Commercial FPVV* (GWh) Spot (GWh) Net CFD (GWh) Weighted Average Price FPVV* ($/MWh)

1,445 1,085 1,098 512 $108.63

1,379 1,106 1,035 556 $100.54

2,612 2,245 2,105 1,247 $102.53

3,797 $58.54

3,697 $50.33

7,307 $61.28

0.62 2.05 $7.7

0.74 2.30 $6.8

1.23 5.22 $7.4

Electricty Purchases Total NZEM (GWh) Weighted Average Cost ($/MWh) Gas Purchases Retail (PJ) Co-generation (PJ) ($/GJ) Generation Hydro (GWh) Geothermal (GWh)** Gas co-generation (GWh) Biomass (GWh) Total (GWh) Weighted Average Price ($/MWh) LWAP/GWAP ratio Carbon emissions (tonnes)

2,209 1,092 204 0 3,504 $56.24

2,075 646 228 10 2,959 $52.79

3,730 1,562 504 16 5,812 $63.17

1.04

0.95

0.97

284,900

228,900

479,300

*FPVV: Fixed Price Variable Volume **Mighty River Power's equity interest

Tauhara North No.2 Trust – was the major contributor to the increase in production volumes. The plant brought additional capacity to our generation portfolio and has performed at a world-leading average 96% availability over the six months, including scheduled inspection downtime. This outstanding performance reflects the application of knowledge and

Mighty River Power Limited

expertise from the development and operation of the Kawerau geothermal plant, which uses similar technology.

Improvements in the Kawerau geothermal field were secured following a research project to identify solutions to chemistry issues that were restricting injection capacity. These had limited the Kawerau plant output

Interim Report 2011

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Chair and Chief Executive’s Report

to its original 90MW design through most of the last financial year. After drilling two additional injection wells and implementing technical measures to better balance the chemistry of the injection fluid with the reservoir characteristics, production capacity was restored to 100MW. This research project will have long-term benefits in helping inform how we maintain production from the plant as the steam field changes naturally over time.

Our 175MW gas-fired plant at Southdown in Auckland was used during the half year to optimise our portfolio performance and meet demand when hydro operators nationally were taking a prudent approach to declining water storage and snow pack coming into summer.

Overall production from Southdown was 10.5% lower than the prior period.

The implementation of the Emission Trading Scheme (ETS) from 1 July 2010 meant the Company incurred carbon liabilities. The key emissions sources were our Southdown plant (105,500 tonnes), our interests in geothermal plants (143,500 tonnes) and retail gas sales (35,800 tonnes).

Mighty River Power’s geothermal plants have very low carbon intensity (on average 0.13kt/GWh compared with 0.52kt/GWh for Southdown, which is gas-fired). The Company has carbon credits from the Government in the form of PREs (Projects to Reduce Emissions credits) a policy predecessor to the ETS to encourage renewable generation. These were secured from the Government prior to the investment in the Kawerau geothermal station and some have been used to fully offset the Company’s carbon liabilities for the period valued at $3.6 million.

During the period we continued to negotiate long-term carbon reduction supply agreements with

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a range of parties, following our tender process announced in August.

Certainty around emissions trading legislation is important if further parties are to commit to these types of arrangements. The outcome of the Government’s review of the ETS is important to provide this certainty.

The weighted average wholesale electricity price earned for the six months (GWAP) of $56.24/MWh, was up 6.5% on the $52.79/MWh in the prior period. However the cost of purchases from the wholesale market (LWAP) at $58.54/MWh was up 16.3%. The resulting LWAP/GWAP ratio of 1.04, reflected the high hydro production to move the extremely high inflows in September and October and the increased base-load generation from Nga Awa Purua. A partially offsetting factor was the improved price performance achieved with Southdown.

Our hydro asset management programme to upgrade and improve the efficiency of our nine power stations on the Waikato River continued and in December we signed an $18 million multi-year contract with Alstom Power for the design through to commissioning of four generator units at Arapuni.

We announced in December a virtual asset swap (VAS) with Meridian Energy, which took effect on 1 January 2011 at 300GWh/year and will increase to a maximum of 700GWh/year during the 15-year VAS term. The VAS provides a South Island energy hedge to help mitigate the risks associated with supplying customers in the South Island in the absence of owning local generation plant.

These risks materialise because of the country’s limited transmission capacity and variable and storageconstrained hydro generation.

In 2009 we commenced a strategy to build a South Island residential customer base to complement our commercial sales. Customers in the South Island typically have higher electricity consumption. As a result we have grown our South Island sales to 444GWh in the six months to 31 December, a 49% increase on the previous period. The VAS will reduce our wholesale market risks, enabling Mercury Energy and Tiny Mighty Power to offer competitive pricing to their South Island customers without increasing financial risks.

Retail Intense competition across all segments of the retail electricity and gas markets continued during the period. This was driven in part by changes to the market resulting from the Electricity Industry Act (EIA), which was passed in October 2010. The provision in the EIA for major physical and virtual asset swaps between the three state-owned generators has driven a rebalancing of the other two companies’ retail customer bases between the North and South Islands.

We have continued to expand the reach of our residential retail offering, with Mercury Energy entering the Nelson and Invercargill areas; Bosco entering the Wellington apartment segment and Tiny Mighty Power opening in Wairarapa, Marlborough and North Canterbury. We now have 39,000 customers in the South Island, representing 10% of total customer numbers and 12% of sales volumes.

Customer numbers at the end of the half year were 402,000, an increase of 2,000 on the prior comparable period but below the peak of 412,000 at 30 June 2010. We had increased our customer numbers over the past

Interim Report 2011

Mighty River Power Limited

financial year at a faster rate and to a higher level than planned, and remain comfortable with a market share that is around 20% in what continues to be an intensely competitive electricity market.

Total sales to residential customers at 1,445GWh were up 4.8% on last year, while sales to commercial customers were down 1.9% to 1,085GWh. Total purchases from the wholesale market (NZEM) to satisfy customers needs were up 100GWh (2.7%) with the average cost of purchases up 16.3%, an $8.21/MWh increase. Consistent with this cost increase, average sales prices were up $8.09/MWh, an 8% increase on last year.

While the overall electricity demand conditions have been weak, peak residential demand continues to grow. We are conscious of current economic conditions, but have been taking a pragmatic view of the need for customer prices to reflect the costs of the investment in new generation required to support the economic recovery and future growth. Reflecting this, after the end of the half year, we implemented a retail price increase for Mercury Energy residential customers averaging 3.4% on the total bill including the pass-through of transmission and local lines costs.

Mercury Energy is actively working in the community with support agencies and directly with customers who have difficulty paying their electricity bill.

This involves helping them better understand their energy consumption and manage it effectively in line with their incomes, with products such as GLOBUG prepay. In an environment of high customer churn and weak economic conditions, these initiatives have enabled us to hold bad debt writeoffs at a similar level to the prior period.

“In 2009 we commenced a strategy to build a South Island residential customer base to complement our commercial sales…

As a result we have grown our South Island sales to 444GWh in the six months to 31 December, a 49% increase on the previous period.”

Development In the half year to 31 December 2010, we continued to progress potential generation development opportunities in both geothermal and wind. Although New Zealand’s recent weak electricity demand growth conditions mean that consented projects are likely to come to the market later than originally planned, it is vital that we continue to prepare opportunities through geothermal exploration, wind monitoring and securing resource consents. This will ensure that we are ready to commit projects as economic growth and electricity demand recover.

As announced in the previous financial year, Mighty River Power and our partners the Tauhara North No.2 Trust have secured consents to build a geothermal power station on the Ngatamariki geothermal field. We are now working through the commercial considerations for the Ngatamariki project including with equipment suppliers and will be making further announcements with our joint venture partners as this work evolves. The earliest this project will come to market is late 2013 with the actual date governed by these negotiations.

We are also discussing, with a number of Maori partners, green field opportunities on geothermal fields in the central North Island. These domestic geothermal opportunities

Mighty River Power Limited

are typically smaller in scale and will have higher development costs than our recent projects, but we see opportunities to deliver benefits to the partners through our specific geothermal and project development expertise and innovation.

Mighty River Power also continued to investigate potential wind developments at a number of sites throughout New Zealand. After the end of the financial period we received the draft decision from the Turitea Board of Inquiry granting Mighty River Power resource consents for the construction and operation of a 61-turbine wind farm at Turitea, east of Palmerston North. While the draft decision allows significantly fewer turbines than the 105 applied for, it removes one uncertainty around the project. Mighty River Power applied for and has been granted an extension to 12 May 2011 for responding to the Board of Inquiry’s draft report. This was necessary given the need for us to respond on a large number of complex and substantive issues.

Alongside this process, we are now assessing detailed technical and commercial considerations for the project.

In addition to Turitea, we are also actively investigating opportunities for wind farms in superior wind resource areas of the Puketoi Ranges near Pahiatua, at Cape Campbell in Marlborough, and elsewhere.

Interim Report 2011

7

Left: Mighty River Power’s Maraetai I and II power stations, part of the Waikato Hydro System.

Chair and Chief Executive’s Report

INTERNATIONAL GEOTHERMAL Mighty River Power’s geothermal competencies and experience and New Zealand’s institutional capability in geothermal are highly regarded and globally rare in what is a niche renewable energy field which has significant growth potential. Our offshore geothermal strategy is to deliver enhanced shareholder value through leveraging these competencies and capabilities and to further strengthen New Zealand’s international reputation as a geothermal leader.

We have committed capital of US$250 million to our international partner, GeoGlobal Energy (GGE), to secure and develop geothermal projects consistent with this strategy. They have continued to progress several projects over the past six months with US$124 million deployed at 31 December involving eight geothermal reservoirs across three countries.

GGE has a 20% shareholding in EnergySource which is constructing the 49.9MW Hudson Ranch I geothermal power station in Southern California’s Imperial Valley. The project is now several months into the detailed design and construction phase and remains on track for commissioning in early 2012.

Through GGE we have now invested US$92 million of a total potential commitment of US$107 million for a majority share of the US$400 million project which is leveraging Mighty River Power’s experience from the similar Kawerau and Nga Awa Purua projects, along with the geothermal resource capability of GGE. In Chile the major activity in the reporting period has been the preparation for production-scale well drilling on the Tolhuaca field,

Operator in Nga Awa Purua Power Station control room.

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Interim Report 2011

Mighty River Power Limited

including access road preparation and completion of landowner negotiations.

In late 2010 we committed further capital to allow a three-well programme to be undertaken. This brings the total commitment to Tolhuaca to US$66 million of which US$17 million had been deployed by the end of 2010.

In Germany, through its subsidiary Oberland Erdwarme, GGE has been steadily progressing a strategy to develop low temperature geothermal resources under the German government’s renewable energy policy.

By the end of 2010 GGE had secured a number of concessions in Bavaria and was undertaking geophysical surveys of the Weilheim prospect.

A total of US$11 million has been deployed to date in Germany with the next six months focused on securing a development permit for Weilheim and acquiring additional concessions.

levels was well-considered, and that we support their proposals.

As part of the wider consideration of water allocation and use, Mighty River Power has supported the collaborative process of the Land and Water Forum and we look forward to seeing the Forum’s work progress into national policy. In particular, we note the Forum's recognition of the importance of renewable electricity for New Zealand. We are also concerned that changes in policy recognise the need to provide certainty to all investors in infrastructure including land development, both present and future, since the capital intensity of water-related infrastructure requires the regulatory support of a low capital risk environment.

We have continued to work with stakeholder groups and on water allocation and Government policy issues that could have implications for our hydro operations.

The variability of rainfall during the half year highlights the need for New Zealand as a whole, and water users in particular, to look more broadly at the potential of water storage – ensuring that the focus is not that New Zealand is short of water, but that the water is not always in the right place at the right time.

At a regional level, we saw the establishment of the Waikato River Authority during the half year, and we will be working with the Authority to help realise their vision for a healthy and well-managed Waikato River, a vision we have been committed to since our formation in 1999. Mighty River Power will also be engaged in Environment Court proceedings over the coming months on Variation 6 (Waikato River water allocation). This is a fundamental consideration for the fuel source of the Waikato hydro system. We will be advocating that the process undertaken by Environment Waikato to determine the allocation

In the Waikato catchment, there is more than enough water for everyone’s needs if the right investment in storage infrastructure is made by those who value water. Storage would enable water that is not currently being utilised to be captured for a wide range of uses such as pastoral agriculture, horticulture and related productive uses without compromising existing users. We are encouraged by the Government’s plans in this area elsewhere in New Zealand and will be investigating opportunities to partner with others to investigate the potential of such water storage initiatives in the Waikato catchment.

WATER ALLOCATION AND POLICY

Mighty River Power Limited

Interim Report 2011

9

Chair and Chief Executive’s Report

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COMMUNITY SUPPORT

STRATEGY AND OUTLOOK

During the half year Mighty River Power played a substantial role in supporting the 2010 FISA World Rowing Championships, held at Lake Karapiro for the first time in 32 years – attracting record attendances.

Mighty River Power was a Premier Partner of the Championships and exclusive sponsor of the more than 500 volunteers for the event – the Karapiro Crew. As operator of the Waikato hydro system we also worked closely with event organisers to provide optimum lake level and flow conditions – showcasing to a global audience one of New Zealand’s hydro lakes and the Mighty River Domain being used for a top-class recreational event.

Another special milestone was the celebration in November to mark the 10th anniversary of our support for Starship children’s hospital – which has seen more than $3.3 million provided in financial support from Mercury Energy and our customers, together with many hundreds of hours of volunteer time.

Mighty River Power has come through a period of sustained strategic growth and capital restructuring in good financial shape, and has benefited from an expanded geothermal capacity in the six months to 31 December 2010. Our significant growth in geothermal and the optimisation of Southdown has reduced the impact of hydro variability on Mighty River Power, as demonstrated in 2010, and we expect this to be an important new characteristic of our future performance. Based on the strong half year and positive outlook, full-year EBITDAF guidance has increased from the $391 million we announced at our Annual Public Meeting in October to $420-$435 million, subject to any unforeseen market or hydrology conditions.

Above: Hamish Bond and Eric Murray celebrate their gold medal win at the FISA World Rowing Championships, which were held at the Mighty River Domain on Lake Karapiro.

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Interim Report 2011

Mighty River Power Limited

In the near term, our geothermal investment programme – both domestically and internationally – will continue to be a focus for Mighty River Power. The programme presents significant opportunities to create shareholder value, and is not limited by weak domestic demand. Completion of commercial arrangements for Ngatamariki should position us well for the expected recovery in electricity demand, and finalisation of consents for Turitea will give us a firm option for future wind development. Offshore there are a number of projects underway and we expect GGE to have good progress to report in all regions by year end.

decision on Waikato River allocation levels and investigate opportunities for water storage in the Waikato.

OUR PEOPLE The Geothermal Centre in Rotorua is now fully operational and the benefits of being close to the geothermal resources were borne out in the performance for the half year. All staff can be proud of the outcomes achieved – with customers, in the community and with the environment, and financially.

BOARD CHANGES During the half year, Tania Simpson was reappointed to the Mighty River Power Board and Parekawhia McLean was appointed to the Board, replacing Diana Crossan, who has made a valuable contribution since joining the Company as a Director in November 2007. These changes took effect on 1 November 2010.

JOAN Withers Chair

Doug Heffernan Chief Executive

We will support the Government’s commitment to develop policy to ensure water is valued as a strategic resource.

At the same time we will participate in Environment Court proceedings to support Environment Waikato’s

Mighty River Power Limited

Interim Report 2011

11

Condensed Consolidated Interim Financial Statements For the six months ended 31 December 2010

   14. Condensed Consolidated Income Statement 15. Consolidated Statement of Comprehensive Income 16. Consolidated Statement of Changes in Equity 17. Consolidated Balance Sheet 18. Consolidated Cash Flow Statement 19. Notes to the Financial Statements

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Interim Report 2011

Mighty River Power Limited

Mighty River Power Limited

Interim Report 2011 13

Condensed Consolidated Income Statement

Consolidated Statement of Comprehensive Income

For the six months ended 31 December 2010

For the six months ended 31 December 2010

Note

Sales Less line charges Other revenue Total revenue

Energy costs Other expenses Total expenses

Earnings before net interest expense, income tax, depreciation, amortisation and financial instruments (EBITDAF)

Depreciation and amortisation Change in the fair value of financial instruments 11 Impaired assets 4 Equity accounted earnings of associate companies 7 Equity accounted earnings of interest in jointly controlled entities 8

Earnings before net interest expense and income tax (EBIT)

Interest expense Interest income Net interest expense

Profit before income tax

Income tax expense 5 Net profit for the period

Net profit for the period is attributable to: Owners of the parent Non controlling interests

Unaudited 6 Months 31 Dec 2010 $000

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

822,173 (213,985) 10,057 618,245

720,183 (209,606) 11,180 521,757

1,485,088 (403,286) 22,773 1,104,575

246,423 138,174 384,597

208,787 121,783 330,570

500,737 276,050 776,787

233,648

191,187

327,788

(67,699) (10,193) (3,514) (29) 4,005

(57,603) (1,540) (15,019) 1,753 0

(98,707) 8,081 (31,373) (11,703) (21,992)

156,218

118,778

172,094

(34,459) 913 (33,546)

(14,691) 696 (13,995)

(34,394) 3,653 (30,741)

122,672

104,783

141,353

(37,478) 85,194

(30,878) 73,905

(56,739) 84,614

85,198 (4) 85,194

73,905 0 73,905

84,647 (33) 84,614

Note

Net profit for the period Other comprehensive income Fair value revaluation of hydro and co-generation assets Fair value revaluation of other generation assets Fair value revaluation of office land and buildings Equity accounted share of movements in associates' reserves Fair value movements on available-for-sale investment reserve Release of the available-for-sale investment reserve to the income statement Movements in foreign currency translation reserve Cash flow hedges loss taken to equity, net of taxation Income tax on items of other comprehensive income Impact of tax rate change Other comprehensive income for the period, net of taxation

Total comprehensive income for the period Total comprehensive income for the period is attributable to: Owners of the parent Non controlling interests

Unaudited 6 Months 31 Dec 2010 $000

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

85,194

73,905

84,614

0 0 0 1,320 (24) 0 (16,147) (74,766) 22,437 0 (67,180)

0 0 0 (2,418) (826) 0 (9) (101,231) 30,611 0 (73,873)

287,000 85,048 (950) 19,865 0 3,097 610 (89,281) (85,041) 48,216 268,564

18,014

32

353,178

18,018 (4) 18,014

32 0 32

353,211 (33) 353,178

Supplementary disclosure Underlying earnings after tax is presented to enable stakeholders to make an assessment and comparison of underlying earnings after removing significant one-off items and the change in the fair value of financial instruments.

Underlying earnings after tax

3

88,690

85,496

139,554

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

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Interim Report 2011

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

Mighty River Power Limited

Mighty River Power Limited

Interim Report 2011 15

Consolidated Statement of Changes in Equity

Consolidated Balance Sheet

For the six months ended 31 December 2010

As at 31 December 2010

Available- Foreign

for-sale currency Asset

Issued Retained investment translation revaluation

capital earnings reserve reserve reserve

$000 $000 $000 $000 $000

Balance as at 1 July 2009 (Audited) 377,561 709,461 (2,168) 15 1,534,035

Equity accounted share of movements in associates' reserves 0 0 0 0 0 Net loss on available-for-sale investments, net of taxation 0 0 (584) 0 0 Movements in foreign currency translation reserve 0 0 0 (9) 0 Cash flow hedges loss taken to equity, net of taxation 0 0 0 0 0 Other comprehensive income 0 0 (584) (9) 0

Net profit for the period 0 73,905 0 0 0 Total comprehensive income for the period 0 73,905 (584) (9) 0 Dividend 0 (229,800) 0 0 0 Balance as at 31 December 2009 (Unaudited) 377,561 553,566 (2,752) 6 1,534,035

Balance as at 1 January 2010 (Unaudited) 377,561 553,566 (2,752) 6 1,534,035

Fair value revaluation of hydro and co-generation assets, net of taxation 0 0 0 0 200,900 Fair value revaluation of other generation assets, net of taxation 0 0 0 0 60,250 Fair value revaluation of office land and buildings 0 0 0 0 (950) Equity accounted share of movements in associates' reserves 0 0 0 0 21,020 Net loss on available-for-sale investments, net of taxation 0 0 2,752 0 0 Movements in foreign currency translation reserve 0 0 0 619 0 Cash flow hedges gain taken to equity, net of taxation 0 0 0 0 0 Release of asset revaluation reserve for assets taken out of service 0 158 0 0 (158) Impact of tax rate change 0 0 0 0 50,652 Other comprehensive income 0 158 2,752 619 331,714

Net profit for the period 0 10,742 0 0 0 Total comprehensive income for the period 0 10,900 2,752 619 331,714 Non-controlling interest 0 0 0 0 0 Dividend 0 (56,200) 0 0 0 Balance as at 30 June 2010 (Audited) 377,561 508,266 0 625 1,865,749 Balance as at 1 July 2010 (Audited)

377,561 508,266

0

625 1,865,749

Cash flow Non- hedge controlling reserve interest $000 $000

2,696

Total equity $000

0 0 0 0 0

(2,418) (584) (9) (70,862) (73,873)

0 (73,280) 0 (70,584)

0 73,905 0 32 0 (229,800) 0 2,391,832

(70,584)

0 2,391,832

0

0 200,900

0 0

0 0

60,250 (950)

1,263 0 0 8,367

0 0 0 0

22,283 2,752 619 8,367

0 (2,436) 7,194

0 0 0 48,216 0 342,437

0 7,194 0 0 (63,390)

(33) 10,709 (33) 353,146 192 192 0 (56,200) 159 2,688,970

(63,390)

159 2,688,970

Interim Report 2011

Unaudited 31 Dec 2009 $000

Audited 30 June 2010 $000

SHAREHOLDERS’ EQUITY

2,676,686

2,391,832

2,688,970

ASSETS CURRENT ASSETS Cash and cash equivalents Receivables Inventories Derivative financial instruments 11 Total current assets

41,821 209,285 24,349 27,524 302,979

19,252 256,823 18,280 34,421 328,776

7,905 174,635 20,226 35,476 238,242

NON-CURRENT ASSETS Property, plant and equipment 6 Intangible assets Available-for-sale financial assets Investment and advances to associates 7 Investment to jointly controlled entities 8 Advances Derivative financial instruments 11 Total non-current assets TOTAL ASSETS

4,297,668 33,202 2,025 123,000 104,648 11,399 80,801 4,652,743 4,955,722

3,892,424 35,106 3,224 96,042 0 0 5,503 4,032,299 4,361,075

4,307,547 32,114 2,049 113,614 111,926 11,841 77,567 4,656,658 4,894,900

LIABILITIES CURRENT LIABILITIES Payables and accruals Provisions 9 Current portion loans 12 Derivative financial instruments 11 Taxation payable Total current liabilities

178,217 2,829 0 139,785 8,926 329,757

141,304 2,176 30,064 90,227 16,303 280,074

148,469 2,673 0 143,155 10,596 304,893

NON-CURRENT LIABILITIES Derivative financial instruments 11 Loans 12 Deferred tax 10 Total non-current liabilities TOTAL LIABILITIES

192,709 985,552 771,018 1,949,279 2,279,036

147,774 831,500 709,895 1,689,169 1,969,243

132,685 978,758 789,594 1,901,037 2,205,930

NET ASSETS

2,676,686

2,391,832

2,688,970

0 1,320 0 (17) 0 (16,147) 0 (52,336) 0 (67,180) (4) 85,194 (4) 18,014 2 2 0 (30,300) 157 2,676,686

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

16

Unaudited 31 Dec 2010 $000

0 2,621,600

(2,418) 0 0 (70,862) (73,280)

Equity accounted share of movements in associates' reserves 0 0 0 0 (3,075) 4,395 Net loss on available-for-sale investments, net of taxation 0 0 (17) 0 0 0 Movements in foreign currency translation reserve 0 0 0 (16,147) 0 0 Cash flow hedges loss taken to equity, net of taxation 0 0 0 0 0 (52,336) Other comprehensive income 0 0 (17) (16,147) (3,075) (47,941)

Net profit for the period 0 85,198 0 0 0 0 Total comprehensive income for the period 0 85,198 (17) (16,147) (3,075) (47,941) Non-controlling interest 0 0 0 0 0 0 Dividend 0 (30,300) 0 0 0 0 Balance as at 31 December 2010 (Unaudited) 377,561 563,164 (17) (15,522) 1,862,674 (111,331)

Note

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

Mighty River Power Limited

Mighty River Power Limited

Interim Report 2011 17

Consolidated Cash Flow Statement

Notes to the Financial Statements

For the six months ended 31 December 2010

For the six months ended 31 December 2010

Note

Unaudited 6 Months 31 Dec 2010 $000

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Interest paid Taxes paid Net cash provided by operating activities 13

579,194 (357,742) 1,515 (36,396) (35,300) 151,271

558,600 (355,299) 443 (22,483) (59,300) 121,961

1,109,232 (782,430) 3,555 (52,807) (78,040) 199,510

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Advances to associate Advances to associates repaid Advances to joint venture partner Repayment from joint venture partner Investment in jointly controlled entities Acquisition of intangibles Acquisition of other non-current assets Net cash used in investing activities

(87,709) 772 (15,164) 1,875 0 442 (1,342) (6,141) 0 (107,267)

(107,027) 100 (19,111) 3,902 0 0 0 (7,769) (18,824) (148,729)

(199,256) 696 (27,866) 4,402 (11,841) 100,563 (133,835) (7,350) (21,938) (296,425)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans Repayment of loans Dividends paid Net cash (used in)/provided by financing activities

260,212 (240,000) (30,300) (10,088)

230,000 (11,003) (229,800) (10,803)

375,000 (41,003) (286,000) 47,997

Net increase/(decrease) in cash and cash equivalents held

Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

33,916 7,905 41,821

(37,571) 56,823 19,252

(48,918) 56,823 7,905

Cash balance comprises: Cash Short term deposits Cash balance at the end of the period

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 NZ IFRS 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 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. 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 2010, 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, apart from the ones noted below, are consistent with those of the annual financial statements for the year ended 30 June 2010, as described in those annual financial statements.

The following amending standard has been adopted from 1 July 2010.

NZ IAS 24 (revised) – Related Party Disclosures. This revised standard simplifies the definition of a related party and provides a partial exemption from the disclosure requirements for government-related entities.

41,821 0 41,821

5,550 13,702 19,252

7,905 0 7,905

The Group has elected not to early adopt the following standard which has been issued but is not yet effective: NZ IFRS 9 – Financial Instruments. This standard is part of the project to replace NZ IAS 39 - Financial Instruments: Recognition and Measurement.

The standard, which will be effective for periods beginning on or after 1 January 2013, applies to financial assets, their classification and measurement. Management have yet to determine the impact of this new standard on the financial statements. (c) Estimates and judgements The preparation of interim financial statements in conformity with NZ 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 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 accompanying notes form an integral part of these financial statements.

18

Interim Report 2011

Mighty River Power Limited

Mighty River Power Limited

Interim Report 2011 19

Notes to the Financial Statements

Notes to the Financial Statements

For the six months ended 31 December 2010

For the six months ended 31 December 2010

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 customers 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.

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.

Deferred tax In May 2010 the Government passed a bill decreasing the headline company tax rate from 30% to 28% effective from 1st July 2011. Management have calculated the impact of the tax rate change on deferred tax based on an estimate of the deferred tax liability as at 30 June 2011. The Government also announced that tax depreciation deductions for buildings would be disallowed effective the same date. As there is no definition of a building in the Income Tax Act, the Company has had to make an assessment of 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 the Company has not adjusted their position taken at 30 June 2010. In the event the Inland Revenue Department disagree with the position that has been taken an additional deferred tax liability of $21.3m would need to be recognised associated with the portion of the powerhouses that the Company had considered to be more appropriately classified as plant. (d) Functional and presentation currency These financial statements are presented in New Zealand Dollars ($). 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 Mighty Geothermal Power, and its subsidiaries and PT ECNZ Services Indonesia is United States Dollars which has 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 reported to the chief-operating decision maker on at least a monthly basis.

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.

Interim Report 2011

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

Wholesale Retail

Other segments

Total

$000

$000

Six months ended 31 December 2010 (Unaudited)

$000

$000

Total segment revenue Inter-segment revenue Revenue from external customers

494,539 (258,141) 236,398

378,292 0 378,292

18,275 (14,720) 3,555

891,106 (272,861) 618,245

Segment EBITDAF

183,061

63,153

(12,566)

233,648

Segment Assets

4,461,019

152,176

342,527

4,955,722

Wholesale Retail

Other segments

Total

$000

$000

Six months ended 31 December 2009 (Unaudited)

$000

$000

Total segment revenue Inter-segment revenue Revenue from external customers

411,210 (245,489) 165,721

353,570 0 353,570

16,828 (14,362) 2,466

781,608 (259,851) 521,757

Segment EBITDAF

153,160

51,501

(13,474)

191,187

Segment Assets

4,053,050

144,831

163,194

4,361,075

Other

Wholesale Retail segments Total

Twelve months to 30 June 2010 (Audited)

$000

$000

Total segment revenue Inter-segment revenue Revenue from external customers

Segment EBITDAF

Segment Assets

855,065 (476,361) 378,704

720,601 0 720,601

37,482 (32,212) 5,270

1,613,148 (508,573) 1,104,575

229,848

126,163

(28,228)

327,783

4,442,078

169,890

282,932

4,894,900

$000

$000

Reconciliation of segment revenue to the income statement

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

20

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 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, share of profits of associates, change in fair value of financial instruments, impairment of exploration expenditure, finance costs and income tax expense.

Mighty River Power Limited

Unaudited 6 Months 31 Dec 2010 $000

Total segment revenue Inter-segment sales elimination Total revenue per the income statement

891,106 (272,861) 618,245

Unaudited 6 Months 31 Dec 2009 $000

781,608 (259,851) 521,757

Audited 12 Months 30 June 2010 $000

1,613,148 (508,573) 1,104,575

Reconciliation of segment assets to total assets

Unaudited 6 Months 31 Dec 2010 $000

Segment assets Current tax assets Total assets

4,955,722 0 4,955,722

Mighty River Power Limited

Unaudited 6 Months 31 Dec 2009 $000

4,361,075 0 4,361,075

Audited 12 Months 30 June 2010 $000

4,894,900 0 4,894,900

Interim Report 2011 21

Notes to the Financial Statements

Notes to the Financial Statements

For the six months ended 31 December 2010

For the six months ended 31 December 2010

NOTE 3. UNDERLYING EARNINGS

NOTE 5. INCOME TAX EXPENSE

Unaudited 6 Months 31 Dec 2010 $000

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

Net profit for the period

85,194

73,905

84,614

Change in the fair value of financial instruments Change in the fair value of financial instruments of associate entities Change in the fair value of financial instruments of jointly controlled entities Impaired assets Adjustments before income tax expense

10,193 (214) (5,949) 3,514 7,544

1,540 0 0 15,019 16,559

(8,081) 17,534 21,337 31,373 62,163

Income tax expense on adjustments Impact of deferred tax rate change through the income statement Deferred tax impact of removal of building depreciation Adjustments after income tax expense

(4,048) 0 0 3,496

(4,968) 0 0 11,591

(10,002) (7,067) 9,846 54,940

Underlying earnings after tax

88,690

85,496

139,554

Tax has been applied on all taxable adjustments at 30%.

Income tax expense Profit before income tax Prima facie income tax expense at 30% on profit before tax

Increase/(decrease) in income tax due to:

• effect of tax rate change on deferred tax

• deferred tax impact of the removal of building tax depreciation

• share of associates' tax paid earnings

• share of jointly controlled entities tax paid earnings

• capital loss

• loss making offshore entities with no deferred tax

• other differences

Over provision in prior period Income tax expense attributable to profit from ordinary activities Represented by: Current tax expense Deferred tax expense recognised in the income statement Total income tax expense

Unaudited 6 Months 31 Dec 2010 $000

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

122,672 (36,802)

104,783 (31,435)

141,353 (42,406)

0 0 (9) 1,202 0 (2,209) (6) 346 (37,478)

0 0 526 0 0 0 (29) 60 (30,878)

7,067 (9,846) (3,511) (6,598) (2,246) 0 (704) 1,505 (56,739)

(44,184) 6,706 (37,478)

(34,252) 3,374 (30,878)

(49,546) (7,193) (56,739)

NOTE 4. IMPAIRED EXPENDITURE

Unaudited 6 Months 31 Dec 2010 $000

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

Impaired property, plant and equipment Impaired exploration and development expenditure Impaired investment in associate Impaired available-for-sale financial asset Total impaired assets

0 3,514 0 0 3,514

0 15,019 0 0 15,019

9,469 16,396 410 5,098 31,373

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

Unaudited Unaudited Audited

6 Months 6 Months 12 Months

31 Dec 2010 31 Dec 2009 30 June 2010

$000 $000 $000

Assets acquired at cost Net book value of assets disposed (Loss)/gain on disposal

57,341 1,072 (300)

101,736 95 5

206,969 752 (56)

NOTE 7. INVESTMENT AND ADVANCES TO ASSOCIATES

22

Interim Report 2011

Mighty River Power Limited

Unaudited 6 Months 31 Dec 2010 $000

Balance at the beginning of the period

113,614

84,713

84,713

Additions during the year Equity accounted earnings Equity accounted share of movements in reserves Repayment of advances during the year Accrued interest on advances Exchange movements Impaired investment in associate

15,173 (29) 1,320 (1,875) 166 (5,369) 0

19,111 1,753 (2,418) (3,902) 0 (3,215) 0

27,873 (11,703) 19,865 (4,402) 38 (2,360) (410)

Balance at the end of the period

123,000

96,042

113,614

Mighty River Power Limited

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

Interim Report 2011 23

Notes to the Financial Statements

Notes to the Financial Statements

For the six months ended 31 December 2010

For the six months ended 31 December 2010

NOTE 8. INVESTMENTS IN JOINTLY CONTROLLED ENTITIES

Unaudited 6 Months 31 Dec 2010 $000

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

Balance at the beginning of the period

111,926

0

0

Additions during the year Equity accounted earnings Exchange movements

1,342 4,005 (12,625)

0 0 0

134,020 (21,992) (102)

Balance at the end of the period

104,648

0

111,926

NOTE 9. PROVISIONS

Unaudited 6 Months 31 Dec 2010 $000

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

Balance at the beginning of the period

2,673

2,058

2,058

Provisions made during the year Provisions used during the year Provisions reversed during the year Unwind of discount rate

0 0 0 156

0 0 0 118

366 0 0 249

Balance at the end of the period

2,829

2,176

2,673

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

The timing of expected cash out-flows required to settle the above provision is uncertain and will depend on the extent of the geothermal steam resource for the well and the field.

NOTE 10. DEFERRED TAX

Unaudited 6 Months 31 Dec 2010 $000

Balance at the beginning of the period

(789,594)

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

(743,924)

(743,924)

Current period changes in temporary differences affecting tax expense 6,706 3,374 Current period changes in temporary differences affecting reserves 11,870 30,655 Balance transferred to joint venture partner 0 0 Change in tax rate recognised in tax expense 0 0 Change in tax rate recognised in reserves 0 0

Balance at the end of the period (771,018) (709,895)

(14,261) (87,240) 547 7,068 48,216

24

Interim Report 2011

NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS

Assets Unaudited 31 Dec 2010 $000

Liabilities Unaudited 31 Dec 2010 $000

Assets Unaudited 31 Dec 2009 $000

Interest rate derivatives 16,381 121,554 20,665 Cross currency interest rate derivatives 0 16,030 0 Cross currency interest rate derivatives - margin 0 8,636 0 Electricity price derivatives 91,915 178,487 11,992 Foreign exchange rate derivatives 29 7,787 7,267

108,325 332,494 39,924

Current 28,466 139,785 34,421 Non-current 79,859 192,709 5,503

108,325 332,494 39,924

Liabilities Unaudited 31 Dec 2009 $000

Assets Audited 30 June 2010 $000

Liabilities Audited 30 June 2010 $000

68,474 0 0 145,033 24,494 238,001

18,133 0 0 93,990 920 113,043

125,942 0 0 136,834 13,064 275,840

90,227 147,774 238,001

35,476 77,567 113,043

143,155 132,685 275,840

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 and the Virtual Asset Swap contracts) 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:

Cross currency interest rate swaps Borrowings

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 recognised in the income statement

Income statement Unaudited 6 Months 31 Dec 2010 $000

Income statement Unaudited 6 Months 31 Dec 2009 $000

Income statement Equity Equity Audited Unaudited Unaudited 12 Months 6 Months 6 Months 30 June 2010 31 Dec 2010 31 Dec 2009 $000 $000 $000

(16,030) 12,445 (3,585) 3,745 0 (1,474) (3) 0 (1,317)

0 0 0 49 0 (1,543) 0 0 (1,494)

0 0 0 (61,597) 0 70,027 3 0 8,433

(8,876)

(46)

(352)

0 0 0 0 (1,216) (41,696) (31,854) 22,430 52,336

0 0 0 0 0 (91,232) (9,999) 30,369 (70,862)

Equity Audited 12 Months 30 June 2010 $000

0 0 0 0 0 (73,094) (16,187) 26,786 (62,495)

Fair value movements of derivative financial instruments recognised in the income statement are non cash movements.

(789,594)

Mighty River Power Limited

Mighty River Power Limited

Interim Report 2011 25

Notes to the Financial Statements

Notes to the Financial Statements

For the six months ended 31 December 2010

For the six months ended 31 December 2010

NOTE 12. LOANS

NOTE 14. COMMITMENTS AND CONTINGENCIES

Unaudited 6 Months 31 Dec 2010 $000

Current Non-current

0 985,552 985,552

Unaudited 6 Months 31 Dec 2009 $000

30,064 831,500 861,564

Audited 12 Months 30 June 2010 $000

0 978,758 978,758

Commitments

Unaudited 31 Dec 2010 $000

Commitments for future capital expenditure Commitments for future operating expenditure

103,088 30,924

The Company issued US$200m ($260m) of Notes in a private placement with US investors, which was used to repay and cancel a $250m facility with banks in New Zealand. The Company also raised $150m in revolving cash facilities with ASB Bank and ANZ National Bank in December 2010.

Contingencies The Group has no material contingent assets or liabilities.

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

NOTE 15. SUBSEQUENT EVENTS

Unaudited 31 Dec 2009 $000

84,554 43,795

Audited 30 June 2010 $000

87,097 30,444

The Board has approved an interim dividend of $64.7 million to be paid on 31 March 2011.

Unaudited 6 Months 31 Dec 2010 $000

Profit for the period

85,194

73,905

84,614

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

• Loan charges

(2,447) 1,108

(9,781) 1,114

(20,237) (1,446)

Non-cash items Depreciation and amortisation

Net gain/(loss) on sale of property, plant and equipment

Change in the fair value of financial instruments Impaired assets Unwind of discount on long term provisions Share of earnings of associate companies Share of earnings of jointly controlled entities Other non-cash items

67,699 300 10,193 3,514 156 29 (4,005) 909

57,603 (5) 1,540 15,019 118 (1,753) 0 4,434

98,707 56 (8,081) 31,373 249 11,703 21,992 5,261

Net cash provided by operating activities before change in assets and liabilities

162,650

142,194

224,191

Change in assets and liabilities during the period: • (Increase)/decrease in trade receivables and prepayments

• Increase in inventories

• Increase/(decrease) in trade payables and accruals

• Decrease in provision for taxation

• Increase/(decrease) in deferred taxation

(34,651) (4,123) 25,209 (1,670) 3,856

38,728 (3,981) (26,555) (25,013) (3,412)

19,268 (5,927) (16,156) (30,720) 8,854

Net cash inflow from operating activities

151,271

121,961

199,510

26

Interim Report 2011

Unaudited 6 Months 31 Dec 2009 $000

Audited 12 Months 30 June 2010 $000

Mighty River Power Limited

There have been no other material events subsequent to 31 December 2010.

Mighty River Power Limited

Interim Report 2011 27

Directory

Shareholders The Minister for State Owned Enterprises (Hon Simon Power) and Minister of Finance (Hon Bill English) Company Credit Rating (as at 30 June 2010) Standard & Poor’s Short-term: A-2 Long term: BBB+ Outlook: Negative Company Secretary Tony Nagel, LLB, MComLaw (Hons) Registered Office Level 14, 23-29 Albert Street, Auckland Phone +64 9 308 8200 Fax +64 9 308 8209 Email enquiries@mightyriver.co.nz Web www.mightyriver.co.nz

Board of Directors Joan Withers, Chair Trevor Janes, Deputy Chair Dr Michael Allen Prue Flacks Jon Hartley Sandy Maier Parekawhia McLean Tania Simpson Keith Smith Senior Management Doug Heffernan, Chief Executive William Meek, Chief Financial Officer James Munro, General Manager Retail and Corporate Affairs Bridget O’Shannessey, General Manager Human Resources Mark Trigg, General Manager Development Fraser Whineray, General Manager Operations

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.

Solicitors Chapman Tripp Bell Gully Bankers ANZ National Bank ASB Bank Kiwibank Bank of Tokyo-Mitsubishi Bank of New Zealand

28

Interim Report 2011

Mighty River Power Limited

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