Mercury Quarterly Operational Update

Mercury Quarterly Operational Update Three months ended 31 March 2020

MERCURY TRANSITIONS TO OPERATING UNDER LOCKDOWN; COVID-19 IMPACTS PROJECT WORKS, DEMAND

Mercury's robust business continuity planning enabled a smooth transition to operating under the COVID-19 lockdown. The safety and wellbeing of our people continues to be a priority with almost all office-based staff now working from home. Work at the Turitea Wind Farm and geothermal drilling is on hold pending the easing of restrictions. The lockdown is impacting electricity demand which decreased by 15% in the two weeks from 26 March 2020 versus the same period last year.

HIGH STORAGE POSITION ENABLES INCREASED HYDRO GENERATION DESPITE LOW INFLOWS

Mercury's high Taupo storage position at the start of the period enabled increased hydro generation despite significantly below-average inflows. Hydro generation of 839GWh was 77GWh higher than the prior comparable period, despite Waikato catchment inflows at the 2nd percentile1, with geothermal generation slightly lower at 658GWh in the quarter versus 660GWh in FY2019-Q3. Due to low inflows over the quarter, Mercury's mid-point FY2020 hydro forecast has been reduced by 100GWh to 3,800GWh.

HIGH SOUTH ISLAND STORAGE MODERATES SPOT PRICES DESPITE HVDC OUTAGE; ISLAND PRICE SEPARATION WIDENS

Spot prices decreased compared to FY2019-Q3 as high national storage at the start of the quarter was supplemented by 93rd percentile1 South Island inflows in February, maintaining national hydro storage well above average across the quarter and mitigating the effect of HVDC and thermal fuel supply outages. Prices decreased from record highs in FY2019-Q3, going from $162/MWh at Otahuhu and $145/MWh at Benmore to $82/MWh and $52/MWh respectively. Mercury's portfolio of North Island generation was able to benefit from price separation between the North and South Islands (basis) resulting in the LWAP/GWAP ratio decreasing favourably to 1.00 from 1.04 in the prior comparable period.

Futures prices decreased significantly in the quarter reflecting the impact of the COVID-19 lockdown with prices for FY2021 decreasing from $123/MWh to $96/MWh at Otahuhu and from $96/MWh to $79/MWh at Benmore. FY2022 futures also decreased in the quarter by $2/MWh at Otahuhu (from $96/MWh to $94/MWh) and by $15/MWh (from $85/MWh to $70/MWh) at Benmore with a significant increase in basis spread likely driven by the pending Rio Tinto review of continued operations at the Tiwai aluminium smelter.

SALES PORTFOLIO PERFORMANCE REFLECTS CONTINUED FOCUS ON CUSTOMER VALUE

Mercury's continued focus on customer value resulted in the Commercial & Industrial average sales yield (including both physical and financial sales) increasing by 12.7%, from $82/MWh in the same quarter in FY2019 to $92/MWh in the current quarter. Sales volumes in the channel also increased by 82GWh from 657GWh in FY2019-Q3 to 739GWh in FY2020-Q3. Other CFD volumes and yields were up reflecting increased trading activity.

The yield on Mass Market sales also increased by 2.8% from $125/MWh in FY2019-Q3 to $129/MWh in the most recent quarter. Mercury's portfolio management strategy, which included the exit of Farm Source contracts, resulted in sales volumes in the Mass Market channel decreasing by 77GWh from 679GWh in FY2019-Q3 to 602GWh in FY2020-Q3.

1 For quarters ended 31 March since 1927

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