Mighty River Power Continues to Drive Performance Gains

MARKET ANNOUNCEMENT
19 October 2012

Mighty River Power Continues to Drive Performance Gains Across Its Business

Mighty River Power’s Annual Report for the financial year to 30 June 2012 has today been tabled in Parliament, with Chair, Joan Withers, stating the Company had built on the strong growth in earnings in 2011 and continued to drive performance gains across the business, demonstrating the increased resilience of the Company under different market conditions.

Mrs Withers said in the report that Mighty River Power had developed from a hydro-only Company 13 years ago, into a strong integrated generation and retail electricity business with diversified fuel sources, a large geothermal base and powerful retail brands. The Company has invested more than $1.1 billion into geothermal development over the past 5 years. Its latest project, the 82MW Ngatamariki geothermal power station, is expected to be in operation and contributing to earnings from mid-2013.

Mrs Withers spoke of industry trends over recent years, stating, “The investment in significant new renewable generation capacity over the last five years, coupled with flat electricity demand, has resulted in New Zealand having a higher degree of under-utilised thermal plant than has been experienced for more than 15 years. As a result, we are seeing a changing cycle across the domestic electricity sector, following a period of high capital expenditure. The impact for the industry as a whole is that until demand picks up it is likely that less operating cash flow will be allocated to new domestic power projects, meaning potentially stronger balance sheets and higher dividend flows to owners.”

Executive Management
Mighty River Power also confirmed today that its Chief Executive, Doug Heffernan, has committed to remaining with the company until 31 December 2013, with the Board holding an option to extend his contract to 31 December 2014, to ensure continuity of leadership as the company progresses through the potential Initial Public Offering and the next phase under mixed ownership. On completion of the initial contract term to 31 December 2013, a one-off retention payment of $500,000 will be made, with no further retention or termination payment if the Board elects to exercise its option to extend the contract. In agreeing to this retention arrangement, Mr Heffernan’s contract has been varied to a fixed term, and he has waived termination provisions in his previous contract.

“It’s important for the Board to ensure certainty around managing succession planning and continuity of leadership at this critical time of the Company’s evolution and we are pleased that Mr Heffernan has agreed to these contract changes,” said Mrs Withers.

Mr Heffernan has led the Company since its creation and by the end of 2013 he will have been at the Company for 15 years. Mr Heffernan was recently named Energy Executive of the Year at the 2012 Deloitte Energy Excellence Awards.

International Geothermal
Since Mighty River Power’s Annual Report was published, the Company has received its first cash returns from the GeoGlobal Partners I Fund (GGE Fund), following EnergySource’s successful post-construction refinancing of its John L Featherstone geothermal plant.

The Southern California development was commissioned after a 21 month construction period and in its first quarter of operation recorded a world-class availability performance. This operational performance has supported EnergySource in successfully refinancing the project, which has now returned capital back to the equity participants, including the GGE Fund.

“This distribution from the Fund is consistent with our business case and provides the first demonstration of the financial success of Mighty River Power’s international geothermal strategy. In addition to this first substantial distribution, the GGE Fund will be entitled to further returns from the project through its continued direct investment in the project and through its 20% investment in EnergySource LLC,” said Mighty River Power Chief Executive, Doug Heffernan.

Through its investment in EnergySource, the GGE Fund will also have an ownership interest in any further development by EnergySource on the Salton Sea Reservoir, including the proposed 49.9MW Hudson Ranch Power II plant, adjacent to the John L Featherstone plant. Drilling on this project is expected to begin later this year.

The GGE Fund is currently seeking further capital to advance the development of its projects, and Mighty River Power is working with GGE to consider contributing further capital alongside new investors.

ENDS

Download a copy of Mighty River Power’s Annual Report for the Financial Year to 30 June 2012 from: http://www.mightyriver.co.nz/Results/Financial-Information.aspx

Factsheet – International Geothermal:
• The GGE Fund is an international geothermal investment fund, through which Mighty River Power’s offshore geothermal investments are developed
• In 2008, Mighty River Power made a strategic commitment to international geothermal development and subsequently became the cornerstone investor in, and 99.8% owner of the GGE Fund with a commitment of US$250 million.
• US based GeoGlobal Energy LLC (GGE), acts as manager to the GGE Fund. Mighty River Power owns 29% of GGE and has two Directors on its Board.
• The GGE Fund provided a capital injection of US$92 million into the EnergySource owned John L Featherstone development in May 2010, enabling its construction.
• In May 2010 the GGE Fund purchased a 20% investment in EnergySource, a geothermal development company with access to the significant Salton Sea geothermal resources in Southern California’s Imperial Valley – one of the largest and hottest geothermal resources in the United States.
• As part of the EnergySource transaction, the GGE Fund invested US$92 million into EnergySource’s US$400 million John L Featherstone project originally known as the Hudson Ranch Power project, facilitating commencement of project construction.
• The EnergySource owned 49.9MW John L Featherstone plant was successfully commissioned in March 2012, after a 21 month construction phase and achieved a capacity factor of over 99% in its first quarter of operation.
• This operational performance has supported EnergySource in successfully refinancing the project which has now returned capital back to the equity participants, including the GGE Fund. Under the GGE Fund structure, cash received by the Fund is paid to investors in the Fund, including Mighty River Power as the cornerstone and 99.8% owner.
• The John L Featherstone plant supplies renewable energy under a long-term contract to Salt River Project, an AA credit rated public power utility and water provider serving the greater Phoenix metropolitan area in Arizona.
• Mighty River Power is not able to disclose the detailed financial and economic returns of the EnergySource investment due to confidentiality restrictions between EnergySource and GeoGlobal Energy.

About Mighty River Power
Mighty River Power is one of New Zealand’s largest electricity companies – with its core business based on reliable, low fuel-cost electricity generation complemented by sales to businesses and homes, which account for about 18.5% of New Zealand’s total electricity consumption.

The Company operates nine hydro power stations, four geothermal plants and a multi-unit gas-fired station. More than 90% of its electricity production is from renewable sources. Mighty River Power sells electricity through multiple channels and retail brands, including Mercury Energy, GLO-BUG, Bosco Connect and Tiny Mighty Power.

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