Meridian Energy has issued a profit warning. Lower demand and higher generation costs will hit its half-year earnings, which are expected to be lower than the $294 million it made in the six months to December 2011.
The company has already experienced the lowest rainfall levels at its South Island hydro lakes in 79 years. That knocked three-quarters off its June year profit compared with the previous year.
While inflows have returned to above average levels in the three months to September, Meridian says it is starting from a low base.
As a result of the dry period, the company purchased higher priced generation under hedge contracts as insurance to conserve water.
Meridian said demand also remains subdued while competition for customers is intense, resulting in the loss of 2515 users in the September quarter.
The company said earnings will also be hit by higher transmission costs and lower average wholesale prices.
Meridian reiterated it is still in talks with Rio Tinto, which wants to a lower price for electricity at the Bluff aluminium smelter.
Meridian is part of the Government's plans to sell minority stakes in selected State enterprises.