Power on with an eye to the future

WELLINGTON, NEW ZEALAND - Mr Lusk is seen as a safe pair of hands guiding the $6 billion state-owned business and is well-liked and highly regarded in both the power and telecommunications sectors, after four years as a senior executive at Telecom.

Before Telecom, he was an executive at national power grid company Transpower.

But whereas former Meridian boss Keith Turner encouraged staff to use public transport or bicycles, Mr Lusk probably has one of the longest commutes to Wellington city, driving in from Martinborough.

And though Meridian's past advertising proudly said that its power was "carbon-neutral", the company has been buying large amounts of power on the wholesale market recently from North Island thermal stations because of the severe drought choking its hydro production.

But Mr Lusk says he is just as passionately green as his predecessor. Meridian is "absolutely committed" to a renewable power strategy and would not consider building gas-fired power stations, he says.

"Our mission statement is to be a global reference company in renewable energy.

"It is pretty hard to see how we would move into gas, because it would not do a lot for our brand."

Meridian's claims of being carbon-neutral by not adding to greenhouse gases are the subject of a Fair Trading Act complaint to the Commerce Commission that is still to be resolved.

National MP Nick Smith has claimed about 30 per cent of its power comes from thermal stations.

Mr Lusk says Meridian's core skills are in renewable energy such as hydro and wind power and it would probably stick with the next wave of that rather than switching "180 degrees".

"We are totally passionate about renewables. That's what we are good at and that's what we want to do."

The Government's 90 per cent renewable-power target for New Zealand by 2020 is achievable, he says. "If anyone is going to make a big contribution to that stuff, we will."

Without doubt Mr Lusk, 64, has inherited a much tougher business to run than the one visionary Dr Turner left behind, as Meridian faces the impact of severe drought in the South Island.

The drought has cut Meridian's generation capacity and driven up wholesale electricity prices horrendously in recent months. Meridian has been forced to buy large amounts of power on the spot market, though it is not saying at what cost.

And expect retail power prices to keep rising as a result of high spot prices and the trend to more renewable power. "You do what you can to insulate customers, but at the end of the day you are a business," Mr Lusk says. "If this (drought) continues we are quite highly exposed to spot prices."

Though he is not directly saying what price rises are likely, he acknowledges suggestions by others in the sector that prices could rise 10 per cent to 20 per cent.

"I could understand where that would come from."

Meridian has raised prices roughly in line with inflation in the past couple of years. Other power firms have raised their prices much more than that, and nationally residential prices have gone up about 50 per cent since 1999.

"Meridian does tend to be at the lower end of retail prices," Mr Lusk says. "It could be we don't have the same buffer as others. We've been lagging, but we know that."

The trend in prices is "certainly upwards" as more renewable power comes into the system.

Mr Lusk was Telecom's wholesale division general manager from 2002 till 2006 and was thought to have moved to "semi-retirement" before he took the top post at Meridian, after stepping down from its board.

He shifted to a "little place" in Martinborough a few years back and is reluctant to return to Wellington and live in an apartment.

The Martinborough home started out as a weekender, "but it became the place we wanted to be", he says. He enjoys Wellington, but he and his wife, Lesley, "love the simplicity and genuineness of a small country town".

His hobby is "small-time property development", he says with a laugh. "We tend to buy small properties, landscape and do them up. My wife and I love to do that.

"I'm the labourer really, though it's hardly relaxation."

Though he may do the labouring and wallpapering at weekends, Mr Lusk is an electrical engineer by training.

And he has been confident that the power system will produce enough to get through the winter.

As he had expected, the drought is reversing with lake storage now rising. He says the situation was "manageable", helped by Contact Energy's bringing on 100 megawatts of power from the previously mothballed New Plymouth power station.

Just how tough the past few months have been for Meridian will be clear when it announces its June-year annual results. Meridian made a December half-year profit of almost $94 million.

Dr Turner was on $1 million a year and it would be surprising if Mr Lusk's salary package is far from that.

Recent South Island rain pushing average storage levels back to about 58 per cent of average from less than half is making the power industry more comfortable about the future.

The storage graphs are holding up rather than continuing the decline to the lows seen in 1992.

With low rainfall, Meridian had to buy more on the wholesale market, Mr Lusk says. "It is emerging as a significant issue, but a bit of rain would turn that around."

Some energy industry experts say the country has been short of power this year and in three other years since 2001 because not enough has been spent building new power generation, especially gas-fired.

But Mr Lusk advocates letting the market work it out rather than a return to some form of central planning.

"If you are investing in generation, you need to know you are going to get a reasonable return on it," he says. That reflects the power price path, the cost of fuel and "general economics".

"If you allow the market to work and prudent investors can make their choices (then) that is the way it should work."

He admits the power system picture would "look quite different" if Meridian's Project Aqua had gone through several years ago.

Meridian called off the planned $1.2 billion power scheme on the Waitaki River in 2004. It would probably have been producing hundreds of megawatts by now.

Instead, Meridian moved on quickly to Te Apiti wind farm in the Tararua Range.

The West Wind project at Makara near Wellington took several years to get consents, but he says it is important for everyone to get a chance to have a say, and it is a reality that some people do not want power stations in their backyard.

"The nimbys are alive and well. They challenge us, but that is right. We think we are good at this, but we must listen and learn."

The groundwork is well under way at the West Wind site, which Mr Lusk says is one of the best wind-farm sites in the world. "It is quite stunning."

Power from its turbines should start to flow next year.

In the South Island, Meridian's Project Hayes is going through Environment Court hearings, but it is unclear how long that process will take.