Meridian Energy Limited
Annual Report 2021

Plain-text annual report

Generating change: Changing generation Meridian Energy Limited. Integrated Report 2021. Change needs energy. Menu 02 11 12 15 16 21 22 28 32 36 38 48 49 51 53 53 56 56 58 59 60 62 63 64 Introduction Change needs energy A material difference Our process Reducing our material topics We are one of New Zealand’s largest organisations What drives us Directors’ statement Our commitment to effective governance Chair and CEO’s report Pushing forward with change Market leadership Taking care of our own backyard Working with our suppliers Contribution to public policy Energy wellbeing Putting customers first Green financing Building sustainable relationships NZAS extended exit agreement Challenging hydrology Relationships with local communities and iwi Impact on water Impact on biodiversity 66 67 69 69 69 71 71 72 75 76 78 78 81 82 84 95 112 114 161 165 167 173 Meeting changing needs of our customers Healthy customer growth Flux growth underpins our success Work on Harapaki wind farm begins Pipeline of generation options Distributed energy Shining examples of solar Equipping our people for changes ahead Future of work More work needed to increase safety Supporting the work of others Stronger sense of belonging Keeping our technology systems safe Rewarding energy Our approach to remunerating our people Further disclosures Generating returns Financial statements Financial auditor’s report Global Reporting Initiative (GRI) Standards assurance report GRI Content Index Directory 1 MERIDIAN INTEGRATED REPORT 20211 2 0 2 T R O P E R D E T A R G E T N I N A I D I R E M I N O T C U D O R T N I This needs to change Extreme weather events are one of the effects of climate change that directly affect Meridian. Our commitment to decarbonisation is about limiting the changes New Zealand faces. This needs to change 3 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION1 2 0 2 T R O P E R D E T A R G E T N I N A I D I R E M I N O T C U D O R T N I 4 This will change Our contract with New Zealand’s Aluminium Smelter (NZAS) runs until the end of 2024. We are looking at new ways to maximise the use of Aotearoa’s renewable energy advantage to make the most of this power. 5 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONThis is changing Our partnerships focus on how we can help people and our planet. 6 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION7 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION This isn’t changing fast enough Australia’s dependence on fossil fuels is holding back the adoption of renewables. This year we grew our customer base, but low wholesale prices and the uncertain policy environment are potentially stifling incentives to innovate. 8 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION9 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION1 0 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION Change needs energy Big challenges and opportunities are here right now – and more are on their way. We are excited and committed to shaping the journey to a net zero world. As Aotearoa’s largest renewable electricity generator and a sustainability pioneer in Australia, Meridian has the scale and the resources to help secure a clean energy future, where all New Zealanders thrive. Generating affordable, clean, renewable power is key to a more equitable and sustainable future and our goal is to make the renewable energy we generate as accessible as possible to households, businesses and industries. The immediate challenges of a dry year, decisions around Tīwai Point, a downward-sliding trading situation in Australia and regulator rulings have been complemented by the commencement of our Harapaki wind farm, a positive trading year in New Zealand, growth in our Australian customer base and a financial result that reflects the hard work and commitment of our team. Meridian is set on shaping a clean energy future that our customers, communities and country can be proud of. It’s about working together for the long term, caring about the big things and the small things; it’s in the actions we take today and how we plan for and invest in our future. Clean energy for a fairer and healthier world. 11 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION A material difference We rely on the effective management of a wide range of resources, including our physical assets, our technology platforms, our financial capital, our people and their knowledge, our many relationships and the natural resources we use to generate electricity and value. We are committed to providing transparent, evidence-based information in a way that is simple to digest and is consistent with best practice. 1 2 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION1 3 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION14 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONOur process This year we conducted a materiality assessment with key stakeholders through an independent consultant. This included reviewing the Global Reporting Initiative topics and material topics regularly reported on by electricity generators and retailers in New Zealand and Australia. We asked our stakeholders to identify Meridian’s most material topics and what we should be reporting on and addressing. We applied the outputs from this process to help develop a stakeholder strategy and inform the material topics for this annual report. As in previous years, we also examined Board papers, assessed our risk register and reviewed issues that had received media coverage. In FY18 we identified the United Nations Sustainable Development Goals (SDGs) that we believe are most relevant to our business. Our commitment to making a renewable difference for the future led us to focus on two SDGs – SDG7 Affordable and Clean Energy and SDG13 Climate Action – as these apply to areas where we believe we can make the biggest difference. I N O T C U D O R T N I 1 5 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONReducing our material topics This year we reduced our material topics to 12 from 16 based on the materiality assessment completed with our stakeholders. In this report, we focus on: 1. Pipeline of generation options 2. Electricity pricing 3. Sustainability leadership 4. Action on climate change 5. Support for vulnerable customers 6. Distributed energy resources 7. Good governance, ethical behaviour and reporting 8. Impact on water 9. Contribution to public policy 10. Financial impacts of climate change 11. Cybersecurity 12. Impact on biodiversity Our key stakeholders are those who can have a significant impact on our business, or on whom we can have a significant potential impact through our activities. • Investors • The Crown • Ngāi Tahu and other iwi • Shareholders • Customers • New Zealand public (and their elected officials) • Regulators • The electricity sector • Asset communities Local government • Employees • • Suppliers 1 6 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONI N O T C U D O R T N I 17 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION1 8 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONAuthenticity in reporting In FY20 we were assessed for and included in the Asia Pacific Dow Jones Sustainability Index (DJSI), which adopts a robust and structured Environmental, Social, and Governance framework to assess performance. We also were assessed in FY20 under the Carbon Disclosure Project (CDP), a global environmental disclosure system, and were proud to receive an increased rating of A- for climate change in FY20. We submitted again in FY21 for inclusion in the Asia Pacific DJSI and to be assessed under the CDP framework. We’ve entered our third year of completing a voluntary Climate Change Disclosure report, in accordance with the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD). Our annual Climate Risk Disclosure report has again been prepared in accordance with the recommendations of the TCFD. This report describes the financial impacts of climate-related risks and opportunities – including how these are governed, how risks are managed, any impacts or influences of these on our strategy and what associated metrics and targets we set for ourselves. Our FY21 Climate Change Disclosure is available at www.meridianenergy.co.nz/ who-we-are/sustainability/climate-disclosures. We also prepare our annual report to meet integrated reporting standards to ensure we communicate concisely how our strategy, governance and performance, in the context of our external environment, seek to cause balanced, sustainable value creation. 1 9 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONThis is our business 2 0 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONWe are one of New Zealand’s largest organisations Up $5b NET ASSETS This is our business $4bUp FY21 REVENUE Up $13b TOTAL MARKET CAPITALISATION NZ MAJORITY OWNED BY THE NZ GOVERNMENT 10% LEGISLATED MAXIMUM NON-CROWN OWNERSHIP LISTED ON BOTH THE NZX + ASX $729mDown FY21 EBITDAF* 100% RENEWABLE ENERGY GENERATOR – FROM WIND, WATER AND SUN * EBITDAF is a non-GAAP financial measure of earnings before interest, tax, depreciation, amortisation, changes in fair value of hedges, impairment and gains or losses on sales of assets. 2 1 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONWhat drives us Our purpose of clean energy for a fairer and healthier world is at the centre of everything we do. To deliver on our purpose we have focused on areas in which we can make a meaningful difference, and that also align with our values and goals of climate action, putting our customers first, and being a great place to work and our role as a responsible generator. We strive to achieve these goals by ‘being gutsy’, ‘being in the waka’ and ‘being a good human’ to ensure that we are able to deliver positive outcomes for New Zealand and our shareholders. 2 2 D e l i v e r i ng on our purpose n : C o m p e t i t i v e markets, Sustainability, Climate actio O u r behaviours n a m p i o h C Be gutsy O u r v a l ues and goals C li m a t e action SDG13 G15 D n S io t a r e n e g e l b i s n o p s e R Our purpose: Cleaner energy for a fairer and healthier world. Great place to w o r k S D 5 G G r o w : N Z r e t a i l , A U r e t a i l , N Z g e n e r a t i o B e i n t h e w a k a n , A U g e n e r a tio n, Flux earnings P u t t i n g c u s t o m e r s f i r s t S D G7 O p g n i c n a n i F , g n i t n e s n o c - e nt, R e m e g n a m u d h Be a goo t i m is e : T r a din g, Asset mana MERIDIAN INTEGRATED REPORT 2021INTRODUCTION 5 offices 869 employees (94 at our power stations) AU 1 office 88 employees (17 at our power stations) FLUX Remote-first workforce spread across 3 countries. 131 employees NZ CUSTOMERS 346K Customer connections ~15% national retail volume1 Retailing as: Meridian Energy Powershop GENERATION 5 185K Customer connections (incl gas) Retailing as: Powershop, and providing energy services to Kogan Energy Licensing the Flux platform 7 2 ~30% national electricity generation 1 Excludes Tīwai Point aluminium smelter 2 3 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONKey changes this year Environment Performance • Climate Change Commission report released, sets policy direction for decarbonisation of the economy • Launched Process Heat Electrification Programme to electrify process heat • Launched AC EV charging network • 60,000 stems planted to date under Forever Forests programme • Group retail electricity sales volumes for FY21 were 14% higher than last year • 7% growth in New Zealand customer numbers • Powershop passed 100,000 customers • 4% growth in Australian electricity customer numbers • 500,000 customers migrated to Flux 2 4 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONCommunity & people Looking ahead • Issued first Modern Slavery Statement • Arrangements with NZAS finalised • Reaffirmed our commitment to support KidsCan • Harapaki wind farm consented, construction commenced • 92% positive staff safety, health • New demand opportunities identified and wellbeing sentiment • Launched a Future of Work initiative to help future-proof our workforce 2 5 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONSizing up our risks 26 MERIDIAN INTEGRATED REPORT 2021INTRODUCTIONThe Board sets Meridian’s overall The risks identified are: • demand risks • market supply • adverse hydrological conditions • • catastrophic event critical equipment or technology failure • • • • • regulatory risk of access to water legislative and regulatory risk competitor behaviour information technology security substantial changes in the costs of different generation technologies • transmission pricing methodology appetite for risk and its approach to risk management. A summary of Meridian’s key risks can be found in the FY21 Corporate Governance Statement, available at www.meridianenergy. co.nz/assets/Investors/Governance/ Meridian-Energy-Corporate- Governance-Statement.pdf. The three risks identified as priorities are: • demand risks – there is a risk that new electricity demand will not • health and safety • COVID-19. • market supply – there is a risk • In response, Meridian has adapted regulation of wholesale market of a disorderly transition to 100% its underlying assumptions to trading or from initiatives such emerge to offset the reduction renewable electricity generation. the market position, updating its as the NZ Battery project which in electricity use caused by the One key risk is the premature strategy. This flows through to the may result in the Crown having expiry of our contract with NZAS retirement of thermal generation preparation for and accelerated a direct stake in pumped hydro and potential closure of Tiwai prior to new renewable electricity delivery of new generation generation), changes in policies Point aluminium smelter in being in place – specifically the and flexible demand response to support renewable energy, and December 2024. The key mitigation risk of the early retirement of investments, such as options like new or amended environmental here is Meridian’s project to find gas generation given its role as hydrogen and the role it could play, regulations. Meridian engages new sources of demand, which a transition fuel. Another key risk in a dry year scenario, operating with Government and industry includes projects such as process is that market interventions practices and how the company regulators and is involved in heat electrification, data centres will affect the potential returns engages with stakeholders and relevant regulatory processes. and green hydrogen production. from new renewable electricity the messages it shares. Meridian’s 2021 Climate Related projects, which would likely Disclosure (our TCFD report) have a detrimental impact on also captures the opportunity investment in new generation. for new electricity demand, the In addition, Meridian’s 2021 TCFD electrification of industrial heat report identifies the potential for and transport. an increase in electricity spot price volatility as a result of the increased proportion of renewable generation. • legislative and regulatory risk – changes in public policy that lead to changes in legislation or regulation, including electricity regulation (i.e. change to market regulation and potentially market structures resulting from ongoing scrutiny and evolving attitudes to Meridian actively supports work on climate change, including the Government’s sustainable 2030 future of New Zealand. As such, we were the first New Zealand listed company to meet TCFD reporting requirements. We have mitigation plans in place for all these risks. 2 7 MERIDIAN INTEGRATED REPORT 2021INTRODUCTION2 8 MERIDIAN INTEGRATED REPORT 2021DIRECTORS’ STATEMENTDirectors’ statement 2 9 MERIDIAN INTEGRATED REPORT 2021DIRECTORS’ STATEMENTAbout this report This integrated report reviews our financial, economic, social and environmental performance for the year ended 30 June (FY21). It has been prepared using the Value Reporting Foundation’s integrated reporting framework. 3 0 MERIDIAN INTEGRATED REPORT 2021DIRECTORS’ STATEMENTThe report covers the performance of all members of the Meridian Group, About the Meridian Group including our Meridian Energy and Powershop brands in New Zealand and Australia, Dam Safety Intelligence in New Zealand and Flux Federation (Flux), our electricity retailing software business that operates in New Zealand, Australia and the United Kingdom. The Meridian Group is listed on the New Zealand Stock Exchange (NZX) and the Australian Stock Exchange (ASX). It is one of New Zealand’s largest companies on the NZX, with a total market capitalisation in excess of $13 billion, operating revenue in FY21 of $4 billion, EBITDAF of $729 million and net assets of $5 billion. For the most part, the focus is on Group performance, although many of the Our workforce of around 1,088 people is directly employed by or contracted to us. topics discussed centre primarily on the parent company because the other Third parties provide us with ICT, facilities’ management and meter-reading services. businesses are smaller (less than 10% of Group revenue). We are majority owned by the New Zealand Government. Legislation specifically The report reflects the responsibility we feel throughout the Group for Meridian precludes our having any other significant shareholders (i.e. more than a 10% holding). to make best use of the natural forces at its disposal and to take care of its customers, our people, our local communities, iwi and the environment. We believe this approach strengthens Meridian’s ability to continue to deliver both attractive shareholder returns and value to all our stakeholders. 31 MERIDIAN INTEGRATED REPORT 2021DIRECTORS’ STATEMENTHow we prepared this report Our commitment to effective governance Our Board structure The role of committees Meridian recruits Board members with Committees support the Board by The Board has established processes to Our Board closely monitors how a range of skills and experience. There providing detail on specific issues and ensure the quality and integrity of this the company is managing long-term are currently four female members having subject matter experts provide integrated report and has entrusted drivers of value, such as retaining and four male members, bringing insights and advice. The Committees, Management with preparing and access to water, building employee gender balance to our Board as well as and the Board as a whole, cover the presenting it accordingly. engagement, investing in new assets, contributing to the Board’s expertise. spectrum of resources on which we To ensure all data is as accurate as possible, the financial information has been prepared in accordance enhancing environmental performance, satisfying customers and building our reputation and brand. While the company’s constitution does not specifically require it, Meridian’s Board has a collective with appropriate financial reporting Strategy days and regular meetings view that Ngāi Tahu, which has mana depend for our business success, feed in to the company’s overall strategy and direction and keep the Board well informed of day-to-day operations. standards (see page 119) and audited allow Board members to share their whenua (authority over the land) over The Board and Committees also by Mike Hoshek for Deloitte Limited thoughts and challenge Management the majority of the South Island where oversee progress on our SDGs. The on behalf of the Auditor-General on the direction in which they wish most of Meridian’s assets are located, Safety and Sustainability Committee (see the Independent Auditor’s to take the business. is such an important stakeholder that has responsibility for our progress on Report on page 161). The Board also sets Meridian’s overall The non-financial information has appetite for risk and approach to risk been prepared in accordance with management. Our FY21 Corporate the GRI Standards: Core option Governance Statement summarises requirements of the Global Reporting our key risks. You can find a copy of this Initiative’s (GRI Standards) Sutainability Statement at www.meridianenergy. Reporting Standards. This sustainability co.nz/assets/Investors/Governance/ a position on the Board for someone SDG7 Affordable and Clean Energy with connectivity to Ngāi Tahu should and SDG13 Climate Action. always be considered. This role is currently undertaken by Anake Goodall, the former Chief Executive Officer of Te Rūnanga o Ngāi Tahu (Ngāi Tahu’s governing body). The Board as a whole oversees our progress as a responsible generator, particularly as it pertains to the Waitaki reconsenting process. Our People and Remuneration Committee content has received a limited assurance Meridian-Energy-Corporate- Biographies of our directors and oversees Meridian’s maintenance engagement from Deloitte Limited Governance-Statement.pdf. We have the Executive Team are available at and development of being a great (see the Independent Accountant’s also included information on our risks www.meridianenergy.co.nz/who- place to work. Our Audit and Risk Assurance Report on page 165). and how we manage them in this report. we-are. All directors are independent Committee assists the Board in fulfilling The Meridian Group Greenhouse Meridian complies with the NZX Gas Inventory Report FY21 is Corporate Governance Code summarised on pages 50 and 51 recommendations in all material of this report. It has received a respects (with the exception of reasonable assurance engagement recommendation 3.6 – see from Deloitte Limited. page 110 for more details). 3 2 directors. its responsibilities in matters related to risk management and financial accounting and reporting. MERIDIAN INTEGRATED REPORT 2021DIRECTORS’ STATEMENTOur Board Nagaja Sanatkumar Anake Goodall Julia Hoare Peter Wilson Mark Cairns Jan Dawson Michelle Henderson Mark Verbiest Independent Director Independent Director Independent Director Deputy Chair Independent Director Independent Director Independent Director Chair Diversity of perspective is important. Meridian recruits Board members with a range of skills and experience. View director biographies at: www.meridianenergy.co.nz/who-we-are/about-meridian/board-of-directors. 3 3 MERIDIAN INTEGRATED REPORT 2021DIRECTORS’ STATEMENTResources Board oversight Financial and manufactured capital (our cash and assets) Audit and Risk Committee The role of people and culture If you would like further information Our people are critical to the successful As a business with a significant retail delivery of our strategic goals, policies shareholder base, we want to be as Full Board and processes. Technology Human capital — Our people and expertise People and Remuneration Committee — Health and safety Safety and Sustainability Committee Relationships and reputation — Our people and expertise People and Remuneration Committee The Board has approved a wide range of policies that Management are required to adhere to and incorporate in the company’s operations, including a Code of Conduct, the content of which all employees agree to honour. accessible and open as possible. If you are a shareholder, please feel free to ask questions, request information or comment on this report via Meridian’s website or by directly contacting the Investor Relations Manager at investors@meridianenergy.co.nz. — All other groups Natural resources Significant risks around resources, including risks due to climate change Safety and Sustainability Committee and full Board The Code provides guidance to staff We hope you will be able to attend Safety and Sustainability Committee Audit and Risk Committee on the behaviours that are expected the 2021 annual shareholder meeting and how to handle the issues and in person. The Board has a policy of challenges they may face. Our rotating the location of the meeting approach to remunerating our between Auckland, Wellington and people is on page 84. Christchurch, and our 2021 meeting will be held in Auckland. We will provide you with more information closer to the time in the Notice of Meeting. If you can not attend, there will be a link to a live webcast on the Meridian website. 3 4 MERIDIAN INTEGRATED REPORT 2021DIRECTORS’ STATEMENT Our Executive Team Chief Executive Chief People Officer Chief Financial Officer Chief Customer Officer Neal Barclay Tania Palmer Mike Roan Lisa Hannifin Guy Waipara General Manager, Generation and Natural Resources Jason Woolley General Counsel and Company Secretary Claire Shaw Jason Stein General Manager, Corporate Affairs and Sustainabillity Chief Executive, Meridian Energy Australia Pty Limited, Powershop Australia Pty Limited Chief Executive, Flux Federation Limited General Manager, Wholesale Nic Kennedy Chris Ewers 3 5 MERIDIAN INTEGRATED REPORT 2021DIRECTORS’ STATEMENTLeadership means speaking up when it counts ’ T R O P E R S O E C D N A R I A H C 3 6 vtMERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORT ’ T R O P E R S O E C D N A R I A H C 37 vtMERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORT Pushing forward with change This has been perhaps the most challenging year for Meridian since the company was listed. The announcement very early in the year of the planned closure of NZAS at Tīwai Point in Southland, the prolonged drought through the second half of the year and of course from COVID-19, all required close and careful management. Despite the challenges we were very pleased that our underlying business performance remained strong. And the opportunities for the future that are starting to take shape appear promising. 3 8 MERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORTUltimately, we believe our company is exceptionally well placed for the future, In essence, the expiry of the supply contract with NZAS in late 2024 has created as is the electricity sector as a whole. The expiry of the NZAS contract in a ‘once in a generation’ opportunity to help grow Aotearoa and decarbonise our December 2024 and the Government’s commitment to combating climate economy. Meridian’s strategy to take advantage of the 5,000 GWh per annum change have accelerated the opportunity to transition to a more sustainable of energy that will become available when NZAS closes is multi-faceted and can energy sector at a much faster rate than previously imagined possible. We be summarised as follows: have an immense opportunity in front of us, and a tailwind of climate activism and global investor support for companies like Meridian that are committed to sustainability and climate action. An exit becomes an opportunity NZAS accounts for 13% of our country’s electricity demand and is a large employer in Southland. So the quick exit of the smelter by August 2021, originally proposed by the owners, would have been very disruptive for the Southland community and the electricity sector. Consequently, we negotiated a discounted price with the smelter’s owners in exchange for an extension to our fixed-price contract to December 2024. The revised pricing reflects a ‘cents in the dollar’ deal that was designed to buy time and does not represent pricing that is sustainable for the long term. The contract extension was critical to soften the blow on the Southland community and allow it time to transition away from a major employer in the area. The additional time will also allow the electricity sector to adapt to the loss in demand by enhancing the transmission network in the lower South Island and working with alternative industries that value • We have supported and appreciate Transpower’s agreement to speed up the upgrade of the lower South Island grid to ensure any surplus energy in the region can be exported to the rest of New Zealand. That work should be complete by May 2022. • We are exploring the feasibility of a grid-scale battery, located in the North Island. The battery will provide reserve energy and therefore increase the effective capacity of the Cook Strait cable and allow a greater flow of power from the South Island to the North Island. • We continue to grow our retail customer base to, in part, offset the loss of our largest customer, NZAS. • We have developed and launched a Process Heat Electrification Programme to support industrial customers in converting their fossil-fuel-based processes to electricity. • We are exploring new demand opportunities that will grow economic value and jobs for the country, including green data centres and the production of green hydrogen for both export and domestic use. renewable energy to establish new demand in the lower South Island. We believe all these opportunities have the potential to not only enhance the value of our business, but also create long-lasting value for New Zealand. 3 9 MERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORTFocusing on our customers Our focus on delivering great value and billing platform. We believe Flux impaired credit situations and we for our customers continued to pay off provides a world-class, integrated provide products such as Level Pay in FY21, and at a headline level we saw platform and it will enhance our ability and Shopper to help customers strong growth in our customer numbers to delight our customers with best- manage their energy bills. on both sides of the Tasman. in-class products and services. In New Zealand, our dual-brand strategy We remain very conscious of the need and focus on customer satisfaction continued to resonate, reaching a wide group of New Zealanders by offering products for different market segments and making it easier to work with us. Powershop led the industry in engaging with customers, as was evidenced in its winning the Canstar and Consumer New Zealand awards for customer satisfaction and trust. In Australia we continued to set the benchmark for a great customer proposition. Powershop Australia was once again recognised by Canstar Blue, Finder and Roy Morgan for customer satisfaction and market- leading products and service. to support those customers facing hardship. During the lockdown in 2020 we increased our contribution to KidsCan by $1 million as we were concerned about its sources of funding drying up. In FY21 we matched that and are now working with KidsCan to leverage our contribution through its fundraising activities. We are very proud of our relationship with KidsCan as it does an amazing job in supporting under-privileged children in our society. We continued our support of the EnergyMate programme (run by the Electricity Retailers’ Association of The very high wholesale prices experienced during the year created challenges for some customers, particularly those who chose to take exposure to spot market prices. The high prices were driven by a combination of low hydro inflows and some, yet to be resolved, supply constraints in the gas market that first emerged during 2018. We believe our Wholesale Team managed our hydro storage exceptionally well as they progressively layered in hedge positions to allow us to conserve water while still meeting customer needs. Most pundits expect the gas deliverability issues to take another year or two to resolve, so relatively high wholesale prices could New Zealand) and were a big advocate be a feature of the market for some of the introduction by the Electricity time to come. Fortunately, the vertically Authority of consumer care guidelines integrated business model Meridian We made very good progress on our to ensure the industry adopted a has adopted means we have been digitalisation journey and around 95% of consistent approach to supporting our able to shield most of our customers, customers’ accounts were successfully most vulnerable customers. We play particularly retail customers, from migrated to our Flux customer care our part with customers who have those high wholesale prices. 4 0 MERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORTThe regulatory environment signalled increased monitoring of for the last few years, began to ease. offers and a desire to test the new Recently, Australian wholesale prices rules. More positively, the EA has have lifted from the low levels during made good progress on the suite of the 2021 financial year. Early in the year the Electricity Authority (EA) decided that an Undesirable Trading Situation (UTS) occurred during the large flood events in the South Island in December 2019. While we did not necessarily agree with the Authority’s finding, we acknowledge its authority as an independent regulator to make that decision and we also acknowledge that it did consult extensively with the industry on the issue. We were pleased that the Authority cleared Meridian of the alleged breach of High Standard of Trading Conduct rules that were in place at the time. recommendations from the Electricity Price Review that was concluded in 2019. Progress has included the development of a commercial market-making framework for the exchange-traded electricity futures product in New Zealand. For the next financial year, we expect a continued focus on security of electricity supply following the forced outages on the evening of 9 August 2021. Reviews have been initiated by the Minister of Energy The remedial action decided by and Resources and the EA. the EA was to reset wholesale prices during December 2019. While the implementation of that reset is yet to take place, it will be completed by the end of the 2021 calendar year and the financial impact Meridian is likely to be immaterial and within the amount we provided for in last year’s financial statements. Difficult operating conditions in Australia While our retail sales volume increased, wholesale prices in the Australian market fell to unsustainably low levels and this impacted the performance of our generation assets. Overall, the Meridian Energy Australia This year the EA also implemented Group result was down on the prior changes to the trading conduct rules year even though we had more hydro The strategic rationale for investing in renewable energy in Australia is still sound, and given that only around 30% of Australia’s electricity is generated by renewable sources, the potential for growth in renewables is large as Australia looks to decarbonise its economy. But the energy market in Australia is highly politicised, and government and regulatory interventions at both State and Federal levels are creating significant uncertainty for our business. Accordingly, towards year end we announced we would be revisiting our growth strategy and our ownership of Meridian Energy Australia. This review will consider a full range of options, including accelerated growth as well as partial or full divestment. The ownership review is expected to take a number of months and no decision will be made on the future direction of or options for Meridian for generators offering into the generation available as the drought Energy Australia until the completion whole-sale spot market. The EA has conditions, that had been a feature of that process. 41 MERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORTThe road to decarbonisation We are supportive of the direction and operate a new renewable generator of travel in the Climate Change than operate an existing coal- or gas- Commission’s final advice to the fired generator. And there is presently Government. If adopted, the measures more than $2 billion of announced could help enable Aotearoa to change new renewable generation projects course with sufficient pace and scale in Aotearoa that should be producing to set us on a path to achieving our power well before the expected climate commitments. We are also significant growth in demand occurs. supportive of the Government’s recent announcements, such as the introduction of a clean car standard and the Clean Car Discount for electric vehicles (EVs). Ideally we’d like to see a fully developed and all-encompassing Emissions Trading Scheme as the key policy tool to support New Zealand’s decarbonisation journey, but we also acknowledge that additional policies will be necessary to build momentum. It goes without saying that the effectiveness of policies like the EV feebate scheme should be measured and adjusted over time to ensure they are achieving the outcomes envisioned. Electrification is critical to the delivery of a net-zero carbon economy in New Zealand, so a massive amount of electricity infrastructure will need to be built in the next 30 years. The good news is, the cost of new renewable generation has come down to a point where it is cheaper to build The economics are driving us toward a more renewable future, and we expect the electricity grid in New Zealand to be transporting more than 90% renewable electricity on average by 2025. The Harapaki wind farm is Meridian’s contribution to the nation’s current build programme, and we are working hard to grow our pipeline of additional renewable generation options. Harapaki itself is a significant investment on a New Zealand scale as it will produce enough energy to power around 70,000 Kiwi homes. It is expected to start producing that power from as soon as 2023. New Zealand’s existing hydro power stations are the foundation for the massive amount of new renewable projects that will need to be built in the next three decades. Flexible hydro is the perfect complement to more intermittent renewables like wind and 4 2 MERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORTsolar. But across all New Zealand there Hydrogen production can be a very At Meridian we are very aware of the ammonia as that demand grows. And is limited hydro storage available, so flexible process. If a hydrogen producer need to show leadership and we have thirdly, as discussed it can provide a Aotearoa currently relies on coal- and is willing to reduce production and its made a commitment to halve our gross demand response to the electricity gas-fired generation to meet consumer demand on the electricity system at operational emissions by 2030. We have market that will help balance demand demand when rainfall into the hydro times when the hydro lakes are low, made good progress in electrifying and supply over the entire system. lakes is below average. it helps balance supply and demand our vehicle fleet and now all our light Aotearoa currently generates around 80–85% of its electricity from renewable sources, and as we move toward a coal or gas. across the whole system without passenger vehicles are electric. We have introducing carbon emissions from a range of other initiatives in play and fully renewable future and we reduce We believe this type of demand the amount of coal- and gas-fired response is likely to be commercially generation available, we will need viable for flexible processes like to find alternative ways to meet hydrogen production, and would New Zealand’s demand for electricity deliver a very cost-efficient outcome when the hydro lakes run low. for the electricity system as a whole The Government is pursuing the NZ Battery project, which is testing and ultimately the end consumers of electricity. the feasibility of a massive pumped On the demand side, our sense is that hydro scheme in Central Otago as a New Zealand business is buying in to potential means of storing water for the need to decarbonise and is getting hydro generation when we experience on with it. Meridian is a member of a dry year. While the outcome of the the Climate Leaders Coalition, which feasibility work is not yet known, other represents 105 large New Zealand innovative ideas that could also help businesses that account for 38% of solve this problem are starting New Zealand’s GDP and 59% of our to emerge. The work that Meridian and Contact are jointly leading on the opportunity to establish a large-scale green hydrogen production facility based in Southland is a good example of these. greenhouse gas emissions. The Coalition members are, in total, planning to invest more than $9.5 billion in initiatives to reduce their emissions in the next five years. Each of the members is committed to playing its part in our transition away from fossil fuels in a way that is equitable and achievable. are confident we can reach our 2030 goal. But we also have a strong part to play in supporting our customers to achieve their carbon-abatement targets. Our Process Heat Electrification Programme is aimed at supporting industrial customers to decarbonise and electrify their industrial plant. We can offer customers a long-term commercial package that supports their business cases for change. The reality is that these packages are enabled by the renewable energy freed up with the expected closure of NZAS. If built, the green hydrogen opportunity referred to above would be the largest facility of its type in the world and powered by genuine renewable energy with a very high capacity factor. The potential benefits to Aotearoa are three-fold. Firstly, it will create export dollars for our renewable energy and high-value jobs in Southland. Secondly it can be scaled to meet New Zealand’s domestic demand for hydrogen or The electrification of the transport sector received a leg-up this year with the introduction of EV feebates. These should encourage more businesses and individuals to go electric. This year we started building our own public charging network to support more EVs on the road. Our intermediate aim is to establish a network of 200 AC chargers in the South Island and then extend that reach to the North Island, while also supporting business customers requiring fleet charging solutions. Research done in New Zealand and offshore shows that ultimately ceasing import-intensive petrol and diesel transport should result in higher employment, earnings, productivity and average wages. And as we electrify more of our economy, we are likely also to see lower wholesale electricity and transmission costs, alongside climate benefits as modern, lower-cost renewable generation makes up more of the supply mix. Decarbonisation for Aotearoa is an opportunity we must grasp. 4 3 MERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORTAotearoa’s natural resources are our competitive advantage Meridian welcomed the Government’s plan to reform the Resource Management Act 1991 to ensure that new renewable projects of significance are supported through a swifter consenting process. This reform will be instrumental in Aotearoa meeting its decarbonisation goals. We support the Government’s plan to provide better guidance on balancing the national importance of renewable projects with local environmental impacts. We will play our part in helping communities understand why more clean energy is good for New Zealand and ensure communities realise the benefits of having a renewable project in their backyard. We are also highly conscious of the absolute need to take New Zealanders with us on this journey. We are committed to continuing our work with communities and local bodies to ensure our renewable projects mitigate any environmental impacts they cause and bring benefits to local communities beyond just the renewable energy they produce. 4 4 We specifically acknowledge iwi seizing opportunities, looking after rights under the Treaty of Waitangi our customers and doing right by Changes at Executive and Board level and the importance for us, as a large each other. user of natural resources, to partner with iwi in finding ways to deliver improved environmental, commercial and cultural outcomes. Our people have done great work We want to pay tribute to the hard work and successes of all our people this year. Our teams responded positively and quickly to the demands of working with COVID-19 restrictions, and our business never missed a beat. We would like to acknowledge our teams based in Victoria who have endured more than a year of COVID-19- related restrictions – their commitment and resilience have been amazing. Also, many of our people are in frontline roles either maintaining our large generation fleet or servicing our customers, and they have stepped up and adapted seamlessly to new ways of operating so that our service levels remained strong. Our team’s overall engagement scores have remained high, and we know we have a committed, resilient team who are up for This year we appointed a Future of Work lead to help us develop strategies that will support our people to learn, grow and adapt to new technology and ever more agile ways of working, as well as transition to other roles more easily as circumstances change. Our vision is to be an organisation that lives and breathes learning and we have committed to double our investment in training and development by 2025. We are executing our strategy through: better learning technology; educating, motivating and changing mindsets about how people learn; equipping our leaders to be learning champions; and managing learning more holistically (beyond eLearning and formal courses). Disappointingly, our health and safety statistics slipped, with an increase in our reportable injuries, more injuries overall and more time off work due to injuries. While none of the injuries suffered by our people was serious or long lasting in nature, the Board and Management are not accepting our level of performance and we continue to have an absolute focus on keeping During the year we announced one change to our Executive Team. Jason Stein signalled his intention to step away from the role of Chief Executive of Meridian Energy Australia and Powershop Australia in December 2021. Jason had done an exceptional job of steering our Melbourne-based team through a prolonged lockdown and difficult trading conditions. We thank Jason for his hard work and look forward to working with him through to the end of his time with us. The Board too worked hard during the year to oversee our strategy and provide guidance in testing times. Two members of our Board will be retiring at our Annual Shareholder Meeting (ASM) in October. Peter Wilson, Deputy Chair, and Anake Goodall, have both served on the Board since 2011 and steered us through becoming a listed company on the NZX and several wind farm developments. Peter and Anake have been strong supporters of our sustainability leadership position and we thank them for their significant contributions and guidance in the our people safe from harm. past decade. MERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORTFinancial results The previous two years saw record results powered by strong generation and growing retail sales volumes. This year we maintained that strong retail sales growth with New Zealand volumes up 14% on the prior year. Drought conditions during the second half of the financial year dampened our cash Noting that the last financial year the market price. The programme will was a record year for earnings through enable investors to invest effortlessly generation, Group EBITDAF decreased in our future at the same time as it will by 15% to $729 million. Net profit enable us to reduce our debt position after tax was impacted by fair value and manage our debt more prudently. movements on its hedge instruments, increasing 145% to $428 million. An exciting new context Under-lying net profit after tax decreased 27% to $232 million. The Board will appoint Tania Simpson as an independent director effective from the date the Electricity Authority’s approval is Gazetted. Tania will bring extensive governance experience in many industries, including Tainui Group Holdings, Ngāi Tahu Tourism and Auckland International Airport. She will be standing for election at the ASM in October along with Mark Cairns, who will stand for re-election for a further two-year term. earnings by reducing generation and Our balance sheet is resilient. Last increasing hedge costs – that is just the year the smelter decision saw rating nature of our business and the variable agency Standard & Poor’s change New Zealand weather. The price we Meridian’s credit rating outlook from negotiated with the owners of Tiwai stable to negative. However, on the Point Aluminum Smelter to extend first day of the new 2022 financial operations to 2024 reduced during the year, S&P Global Ratings reaffirmed second half of the year. Whilst both Meridian’s corporate credit rating as events impacted financial performance, BBB+/Stable/A-2. the underlying drivers of future business value remained strong, in particular growth in customer sales and our commitment to build the Harapaki The Board has declared a final ordinary dividend of 11.20 cents per share, unchanged from the previous year. This brings the total ordinary dividends declared in FY21 to 16.90 cents per share, also unchanged Operating cash flow wind farm. 635 604 As discussed, we are actively 427 431 managing these issues and have a from the previous year. This year, for range of mitigations in place to improve the first time, we are introducing a Meridian’s position progressively as dividend reinvestment programme we approach the end of the contract and the Board has determined that with NZAS and potential closure date shares issued under the Plan in respect in 2024. We are also reviewing our of the 2021 final ordinary dividend 2018 2019 2020 2021 strategy in Australia. will be issued at a discount of 2.0% to 700 600 500 400 300 200 100 0 $M Aotearoa’s imperative to decarbonise the economy and the expiry of our contract to supply the aluminium smelter at Tīwai Point in late 2024 have reset the playing field for Meridian and the electricity sector as a whole. We believe our brands, our people and our renewable asset base serve as strong sources of competitive advantage for Meridian. Leveraging these advantages while staying true to our sustainability values means Meridian can execute our customer and renewable-generation growth strategies and continue to deliver value for all our stakeholders.    Finally, a sincere thank you, on behalf of the Board and the Executive Team, to everyone we work with or are our customers, those who invest in us and everyone in our teams for helping us to continue delivering cleaner energy for a fairer and healthier world. 4 5 MERIDIAN INTEGRATED REPORT 2021CHAIR AND CEO’S REPORT4 6 MERIDIAN INTEGRATED REPORT 2021CHAMPIONChampion I N O P M A H C 47 MERIDIAN INTEGRATED REPORT 2021CHAMPIONMarket leadership We are actively involved in a wide range of initiatives and engagements to transform our business, our society and our economy in response to the climate emergency facing us all. 4 8 MERIDIAN INTEGRATED REPORT 2021CHAMPIONTaking care of our own backyard We have an ambitious target to halve our operational emissions by 2030 from a 2019 baseline, which we describe as ‘Half by 30’. In the meantime, we continue to offset our emissions via the purchase and surrender of Gold Standard Verified Emission Reductions (VERs) to ensure our operations are carbon neutral. For FY21, these VER credits have been retired from two wind farms projects in India. In this decade, we will displace the use of Gold Standard VERs and through our Forever Forests programme create our own carbon sink and offset those emissions we have not been able to remove through our Half by 30 work. Forever Forests will create a carbon sink here in Aotearoa and involves planting over 1.5 million native and exotic trees over approximately 1,100 hectares. To date our Forever Forests work resulted in 60,000 trees being planted over approximately 45 hectares of our own land representing about 4% of our total target. Our focus now is on scaling up our planting effort to date and securing access to land. We will plant another 80,000 trees in 2021. We will also look to partner with other landowners to get the rest of the stems in the ground. One partnership involves the Christchurch Foundation and Sustainable Coastline in creating the ‘Tūī Corridor’ initiative. This project will welcome tūī back to Christchurch by planting a corridor of tūī tucker (their favourite native plants) across the city. 24 ha 22 ha 24 ha 130 ha 14 ha 30 ha 80 ha P l a n n i n g I n v e s t i g a t i n g R e g i s t e r i n g w i t h M P l I / p a n t i n g 37 ha 49 MERIDIAN INTEGRATED REPORT 2021CHAMPION Progress towards our Half by 30 target 2050. We focused on and prioritised having a high risk of modern slavery has this year focused on reducing our supplier engagement based on amongst our Tier 1 suppliers were Total operational greenhouse gas emissions by scope (tCO2e) our light vehicle fleet and electrifying criticality (risk/spend), the ability to with our cleaning and security service the balance, resulting in a 100% light influence and the materiality of the providers, which are all are located in vehicle fleet and 195 tonnes of carbon relevant greenhouse gas footprint. New Zealand and Australia. To assess abatement every year from here. In the coming financial year we these potential risks accurately, Meridian We are now investigating electric will take this further and develop a issued a self-assessment questionnaire alternatives for the utility vehicles Group Half by 2030 roadmap, which to each associated supplier as well as a used by our hydro and wind asset we will then execute and against request for supporting documentation. maintenance teams, one third of which which we will report progress. Our Based on these further actions, we is already electric. We aim to complete Greenhouse Gas Inventory for this did not identify any modern slavery that conversion by 2025. We are also year, with a breakdown on category practices in our suppliers within the actively assessing options to electrify movements from FY20, is available at reporting period. our Mararoa ferry, which enables our www.meridianenergy.co.nz/who-we- staff to get to and from the Manapōuri are/sustainability/greenhouse-gas- Power Station each day. emissions. We have also been encouraging other companies to reduce carbon emissions from their businesses. One way we are Tackling the challenge of Half by 30 Also connected to our Half by 30 doing that is through a collaborative will require a deliberate effort across supplier engagement conversation, partnership4 creating a climate action the Group and in particular include a we are ensuring our suppliers meet toolbox. The Toolbox targets small to sharp focus on our supply chain, which the requirements of modern slavery medium businesses (SMEs) with offers is where over 95% of our operational legislation. In FY21 Meridian released of practical advice on five areas where emissions lie. Achieving this will see us its first Modern Slavery Statement3. they can make a difference and reduce continue to engage and collaborate For the purposes of the Australian emissions: moving people; moving with our suppliers. In FY20 we Modern Slavery Act 2018, both Meridian goods; office operations; site operations commenced a supplier engagement Energy Limited and Powershop Australia and equipment; and designing plan, building on foundations set Pty are considered ‘reporting entities’. products. We look forward to enabling out in our Supplier Code of Conduct2, The 2020 Modern Slavery Statement is a scale-up of this initiative and ensuring investigating how our suppliers can for the Meridian Group, both reporting that SMEs in Aotearoa have easy access take climate action in ways that work entities (under the Act) and all Group to practical advice and are empowered for their businesses and get us on our operational subsidiaries. In FY21 two to take climate action. way to a net-zero-carbon Aotearoa in areas that were identified as potentially 5 0 2 www.meridianenergy.co.nz/assets/Investors/Governance/Policies/Supplier_Code_of_Conduct_Rev2.pdf. 3 www.meridianenergy.co.nz/assets/Sustainability/MER0117-Modern-Slavery-Statement-8_0.pdf. 4 Created in collaboration with seven leading organisations, see more at www.tools.business.govt.nz/climate. Scope 1: 1,376 (4%) Scope 2 (market based): 14 (0.0%) Scope 3: 31,085 (96%) MERIDIAN INTEGRATED REPORT 2021CHAMPIONWorking with our suppliers The bulk of our carbon footprint is in needed to build and maintain our or contracted to us. The majority of by national and local lines and our supply chain. This makes our work generation assets, as well as a mix of our work is conducted by permanent metering companies. Our retail to engage our suppliers crucial if we’re general engineering consumable and employees, not contractors. In our operation requirements are similar to achieve our reduction targets. In specialist parts’ suppliers, and service retail businesses we have very short to those of many corporate offices. the generation side of our business we providers including ICT and facilities’ supply chains because the physical They include physical facilities and have local and global suppliers provide management providers. More than assets used to distribute electricity ICT, sales and marketing, billing us with the parts and components 1,000 people are employed directly and meter its use are managed and governance functions. Progress against our Half by 2030 goal (tCO2e) Meridian Group greenhouse gas emissions 5 6 4 6 4 , 4 4 4 3 4 , 5 7 4 2 3 , 60,000 50,000 40,000 30,000 20,000 10,000 0 9 1 Y F 0 2 Y F 1 2 Y F 2 2 Y F 3 2 Y F 4 2 Y F 5 2 Y F 6 2 Y F 7 2 Y F 8 2 Y F 9 2 Y F 0 3 Y F l a u t c A t e g r a T tCO2e Scope 1 Scope 2 FY19 1,099 1,605 FY20 1,177 17 FY21 1,376 14 Scope 3 operational 43,761 42,250 31,085 Total Group operational emissions* 46,465 43,444 32,475 Scope 3 energy purchased and onsold** New Zealand electricity 0 0 0 Australian electricity and gas 611,822 813,054 881,461 Scope 3 one-time construction and upgrades 68 32 285 Total Group value chain emissions 658,355 856,530 914,221 * Emissions from our electricity purchased and onsold are calculated using market-based methodologies. In New Zealand we use the annual netting off methodology. In Australia we use the National Carbon Offset Standard (NCOS) administered by the Austrailan Government. ** Group operational emissions are offset using Gold Standard Voluntary Emission Reductions and credits purchased by Powershop Australia as part of NCOS, and taking into account credits cancelled by suppliers against their own emissions. In FY21 we applied inflation adjustments to our purchased goods and services emission factors to align with Scope 3 calculation guidance. To be consistent we also applied these adjustments to FY19 and FY20, resulting in restatements. The restated figures are used here. 51 MERIDIAN INTEGRATED REPORT 2021CHAMPION Our Process Heat Electrification tonnes per annum (the carbon Programme is designed to help emissions equivalent of more than customers who rely on fossil fuels, 50,000 cars every year) and add 250 mostly old coal boilers, to decarbonise GWh to 500 GWh to our demand in their businesses by electrifying their sectors like food manufacturing, dairy, heat processes. chemical and wood processing. The opportunity is significant. Our first three projects include ANZCO, Fossil-fuel-fired industrial boilers WoolWorks and Meadow Mushrooms are the second-largest source of as pilot customers. Together we aim energy-related greenhouse gas to remove more than 15,000 tonnes emissions, while process heat of carbon emissions every year – the accounts for 34% of New Zealand’s equivalent of removing more than total energy consumption and 8,000 cars from the road. Meridian’s generates 8.5 million tonnes of carbon assistance will support Meadow emissions every year. Through 10-year Mushrooms, for example, to reduce contracts, highly competitive electricity its carbon emissions by 1,300 tonnes pricing and a capital contribution towards per year by decommissioning and conversion costs, we can potentially replacing an existing diesel-fired reduce carbon emissions by 100,000 boiler with an electric alternative. 5 2 MERIDIAN INTEGRATED REPORT 2021CHAMPIONContribution to public policy Energy wellbeing We actively contribute to public generation and works well because on total emissions and price signals to We believe in a world where all people policy, legislative and regulatory the Government has largely stayed ensure businesses are incentivised to have access to the energy they need for developments5. We do so to share out of operations. Wholesale make the transition to a low-emissions wellbeing in their lives. We also believe our perspective, ensure that decision- electricity prices in New Zealand have future successfully. Complementary that achieving wellbeing requires an makers are fully informed, and been high for much of the year due policies may be needed in addition to appreciation of a range of factors such ensure that decisions are made in to below-average hydro inflows and the Emissions Trading Scheme, and for as housing quality, financial hardship, the best interests of our customers gas shortages. While these prices us priority actions include increasing and electricity pricing. We have and all New Zealanders.  This year are challenging for larger consumers the number of EVs on our roads and initiatives in place to maximise energy we provided submissions to a wide exposed to the wholesale market, increasing total renewable energy use, wellbeing while taking into account range of organisations, including they reflect supply and demand and particularly in heating for industrial this wide set of considerations, and the Climate Change Commission, are encouraging further investment processes. It is also important that the continually strive to do more. the Electricity Authority, the Ministry in renewable electricity generation.   transition happens in an equitable and for the Environment, the Ministry of Business, Innovation and Employment, the Infrastructure Commission, the Commerce Commission and Transpower. We are supportive of having a inclusive way. New Zealand’s electricity retail prices remain among the lowest in the OECD, policy framework in place that enables It is vital for the country that current and data from the Ministry of Business, Aotearoa to change course and sets us and future governments deliver policy Innovation and Employment shows up to deliver our climate commitments. stability, transparency and continuity on that the real average annual household The Government’s key role in our view climate change. We look forward to the bill in 2020 was $140 lower than in In our assessment, intervention is to put in place conducive regulatory Government’s first emission-reductions 2014, and the real price per kilowatt in the Australian electricity market environments and guidelines. To that plan due to be published later in 2021 hour was at its lowest level since 2012. and a lack of emissions pricing have end, we remain supportive of the work and expect to see a strong commitment This suggests that the healthy degree led to spiralling and unintended of the Climate Change Commission, to deliver on the recommendations of competition and choice that comes consequences that will hinder which has demonstrated how Aotearoa of the Climate Change Commission.  with having more than 40 retailers investment in renewable generation can viably achieve our emission- A response that closely aligns with the competing across the market is and limit the overall ability of reductions targets while continuing Commission’s recommendations will working for customers. Australia’s energy sector to mitigate to grow as a country. climate change. By contrast, the New Zealand electricity market continues to incentivise the construction of renewable electricity The Emissions Trading Scheme with its recent improvements will play a critical role in the transition to a low-emissions future. It now provides a sinking cap establish expectations of the weight that future governments will give to the Commission’s advice in the years to come. 5 www.meridianenergy.co.nz/investors/reports-and-presentations/submissions. 5 3 MERIDIAN INTEGRATED REPORT 2021CHAMPIONNew Zealand disconnections* % 9 3 . 0 % 5 2 . 0 % 3 1 . 0 % 1 3 . 0 % 3 2 . 0 % 0 1 . 0 0.4% 0.3% 0.2% 0.1% 0.0% i n a d i r e M e g a r e v a Z N Z N p o h s r e w o P % 2 2 0 . % 8 0 . 0 % 5 0 . 0 % 7 1 . 0 % 8 0 . 0 % 0 . 0 FY18 FY19 FY20** FY21*** Our ambition is to achieve a world with no disconnections. We continue to focus on lowering our disconnection rates, and during lockdown adopted a policy of no disconnections. We offer customers products like LevelPay and have a trained Credit team to support customers in need with alternative payment options and access to support with a range of agencies. * Data from the Electricity Authority (emi.ea.govt.nz/Datasets/Retail/Disconnections). ** FY20 restated with four quarters of data. ** Showing as 0% due to decimal place rounding. *** Does not include Q4 data as unavailable. Energy retailers also have an ongoing EnergyMate programme, which responsibility to ensure that in provides free in-home coaching and situations where consumers become community hui workshops to help vulnerable, there are safeguards in Kiwis in need manage their energy use place to protect them. Vulnerable are proud to see that this programme Consumer and Medically Dependent has now enabled support for more Consumer guidelines have been than 150 families and an expansion is around since the mid-2000s and were planned this year to reach more than introduced in collaboration with the 1,500 families. industry and stakeholders including Meridian. The Electricity Authority said these guidelines had “generally served New Zealand consumers well, and electricity system stakeholders could be proud of their shared commitment to implementing them.” However, the Authority said that after more than 10 years the guidelines needed updating and a review. Meridian supported the review and the resulting Consumer Care Guidelines – in fact we think the Authority should now go further and make mandatory rules for all retailers to follow. We will fully align our practices with the new guidelines. We have a trained Credit Team to support customers in need, with support that includes alternative payment options (such as our LevelPay product), and plans and support with Work and Income and FinCap. In addition, we support the funding of the Electricity Retailers’ Association In Australia, retail prices have followed wholesale prices down to, in our view, unsustainable lows, while prolonged lockdowns have had pronounced effects on people’s mental health and their ability to earn. (On the face of it, low pricing overall may seem a good thing for consumers. Our concern with the wholesale situation in Australia is that, unless prices lift, there will be no incentives to introduce new generation and the country will continue struggling to decarbonise.) In FY21, we banded together with others to offer Australian consumers a range of supports. These included work by the Energy Cluster and campaigns to publicise the COVID-19 Support Hub. We also created a new Usage Specialist role in our Contact Centre to encourage customers to talk about minimising their usage, especially gas customers in Victoria. 5 4 MERIDIAN INTEGRATED REPORT 2021CHAMPION Meanwhile, our Power It Forward campaign asked those Australian business customers who could afford it to pay a little more so that we could distribute the proceeds to smaller businesses affected by COVID-19. Our Switch Your Mates campaign also encouraged our current customers to refer their friends to us, with each party getting a $100 credit and $100 going to Foodbank Australia. We are proud to have raised $50,000 for Foodbank Australia to feed vulnerable people. All up, through our various initiatives for vulnerable customers in Australia this year, we raised and contributed more than $250,000. We are also planning a new Community Energy partnership in FY22. 5 5 MERIDIAN INTEGRATED REPORT 2021CHAMPIONPutting customers first Green finance programme Ultimately, our retail businesses judge absolute competitiveness of this brand In August 2020 Meridian announced and hydro projects and assets that their success by our collective ability that we have won this prestigious a Green Finance Programme, which meet the following market standards: to secure and retain the loyalty of award five times in the past six years. covers both existing and future customers. In Aotearoa we monitor Powershop also won two Finder issuances of debt instruments. The our Meridian Energy and Powershop awards, Gentailer and Overall, for Programme recognises Meridian’s brands using customer satisfaction and Greenest Energy Retailer. To quote commitment to and leadership compare our brands to the average Finder: “Powershop once again showed investment in renewable energy score for gentailer brands (generators why it tops the leaderboards when it generation and will be used to • The International Capital Market Association Green Bond Principles. • The Climate Bonds Standard. • The Asia Pacific Loan Market Association Green Loan Principles. and retailers combined), challenger comes to green energy in Australia. finance or refinance sustainable Further information on the Green brands and the category as a whole. Zero emissions electricity generation, projects and assets such as new and Finance Programme, including the We have been very pleased to see carbon-neutral plans for all customers existing renewable energy assets. Programme framework document, both our brands holding their own, and innovative efforts to support which highlights the effectiveness of clean technology helped Powershop the customer focus and service ethos differentiate itself.” The brand also won we have been building steadily in the Roy Morgan Customer Satisfaction recent years. Powershop New Zealand won the 2021 Consumer People’s Choice Award and the 2021 Canstar Blue Most Satisfied Customers Award. It is a sign of the award – Electricity Provider of the Year 2020. It was the second year in a row that we had won this award. The breadth of awards shows Powershop leading the way in caring for both the planet and customers. The Programme enables Meridian to connect its company strategy and vision to its financing requirements, and provides investors with an opportunity to invest in a range of accredited debt instruments. The proceeds of these have been allocated (directly or notionally) to refinance eligible wind opinions from DNV GL Business Assurance Pty. Limited, Climate Bonds Standard Certification and Green Asset and Debt registers, is available on Meridian’s website at www.meridian energy.co.nz/investors/reports-and- presentations/green-finance. Page 140 also provides detailed information on the Green Debt included in the Programme for FY21. Customer satisfaction – brand monitor NZ Meridian Energy Gentailer average Powershop Challenger average Category average June 2020 June 2021 7.40 7.34 8.03 7.66 7.53 7.49 7.40 8.04 7.57 7.57 * Data is collected through brand tracking and results reported on a 12-month moving average. 5 6 MERIDIAN INTEGRATED REPORT 2021CHAMPIONOur customers NZ Meridian 241K Customer connections residential business corporate agri-business Powershop NZ 105K Customer connections residential business AU Powershop AU 142K Electricity customer connections 43K Carbon-neutral gas customer connections ~15% national retail volume Available in four Australian states. All on the Flux platform. NZAS A large financial contract with NZAS at Tīwai Point that accounts for the equivalent of 38% of Meridian’s generation 57 MERIDIAN INTEGRATED REPORT 2021CHAMPIONBuilding sustainable relationships Relationships underpin our ability to operate. This year, while the extension of NZAS’s exit arrangement may have dominated headlines, we continued conversations with a wide range of groups on subjects as important as water, biodiversity and helping communities to prosper that will enable us to continue to generate 100% renewable energy. 5 8 MERIDIAN INTEGRATED REPORT 2021CHAMPION2025 Waitaki reconsenting NZAS extended exit agreement The water resource consents for the Waitaki chain of power stations are Deliberations on the aluminium smelter at Tīwai Point took the better part due for reconsent by 2025. This is a major catchment. 18% of New Zealand’s of six months to resolve. power is generated here and we are engaging with Ngāi Tahu and a full range of stakeholders. On 9 July 2020, NZAS gave notice terminating the existing electricity agreement with effect from the end of August 2021. An offer allowing for a longer exit Last year, new clean-water regulations sought to prioritise healthy water ahead period up to the end of 2024 was put to NZAS. Terms for an extended closure of human and commercial needs and explicitly recognised the importance were agreed in January 2021. These give NZAS a lower price over the remaining of maintaining flexibility at and output from the five largest hydro schemes in contract and the option to reduce the contract volume from 572 MW to 400 MW New Zealand, including our Manapōuri and Waitaki schemes. Keeping climate with effect from 1 July 2022. NZAS consumes around 40% of Meridian’s generation change front and centre is part of the context for the National Policy Statement output in any year, depending on generation output and demand, so this for Freshwater Management 2020 and we acknowledge the vital role that hydro negotiation was significant. Its potential exit from the market and the expiry schemes play in allowing Aotearoa to maintain renewable electricity generation, of our contract with NZAS in four years represents a significant reduction in ensure security of supply and enable and accelerate decarbonisation. demand and will likely result in a near-term reduction in Meridian’s revenue. Meridian will be applying to reconsent on the basis of the current arrangements for the use and storage of water for hydro-electricity generation, such that we can retain the benefits our hydro assets provide Aotearoa. We remain However, once NZAS leaves, more renewable energy will be available to potentially displace fossil fuel use and this will make a noticeable difference to the percentage of renewable electricity on the grid. strongly committed to working in good faith with all those involved to resolve We have been working closely with Transpower, along with Contact Energy, this large, complex and public process. on the Clutha Upper Waitaki Lines Project as part of preparing the expiry of our contract with NZAS in December 2024 and their potential exit. This project is now due to be completed by May 2022. We are exploring the feasibility of a grid scale battery, located in the North Island. The battery will provide reserve energy and therefore increase the effective capacity over the Cook Strait Cable and allow a greater flow of power from the South Island to the North Island. 59 MERIDIAN INTEGRATED REPORT 2021CHAMPIONHydrology this year has been challenging Recent good hydrological years were such a notice, NZAS must manage its Plant availability followed this year by a record-setting electricity consumption to achieve a drought. About mid-November, the reduction in electricity consumption La Niña climate pattern took hold and of 250 GWh in 130 days. At the end of April 2021 we agreed an electricity swap to assist NZAS to Hydro New Zealand % FY16 FY17 FY18 FY19 FY20 FY21 Wind Australia Wind New Zealand Hydro Australia 91.0 88.9 93.4 92.6 85.4 93.4 83.9 91.3 90.4 85.8 88.6 83.3 91.6 80.1 89.0 89.8 88.9 92.2 89.0 91.1 68.0 70.9 Outages for FY21 – maintenance 12,160 hours, planned 9,608 hours, forced 2,991 hours. coal, resulting in increased carbon The dry conditions were part of the dioxide emissions. We will continue to reason for spot prices in the wholesale look for a replacement of the Genesis market and near-future prices on the swaption from 2023 onwards with a ASX climbing during the financial year. range of parties. voluntarily reduce its consumption of electricity by up to 30.5 MWh through to 31 May 2021 to assist with managing the dry hydrology conditions the country was experiencing. The arrangement compensated NZAS for any load it voluntarily decided to reduce as a means of supporting us to manage the dry period. This new arrangement did not override our ability to call a continued throughout summer. As a result we experienced above- average temperatures and lower- than-average rainfall across much of Aotearoa, reducing inflows to their lowest levels on record for 88 years and taking our main storage lakes to 800 GWh below average. Meanwhile in Australia, wind generation was 5% lower than at the same time in the previous year and at a 49% lower average price. Australian hydro generation improved as drought conditions eased during the second half of 2020. Smelter Demand Response if the dry- We envisage that load management year trigger level in our main electricity (controlling how we deal with periods contract was reached. An extension to of peak demand) will form a key part Meridian is well prepared operationally the electricity swap was agreed again of the arrangement going forward. to ride significant droughts, with in late May, to 30 June 2021. Since the Genesis swaption was arrangements and contingencies in place to help us conserve our hydro storage, continue to support our customers and manage the financial impacts of this challenge. Meridian has a swaption arrangement agreed, we have overcome the with Genesis for up to 150 MW (three engineering and operational issues tranches of 50 MW each) until the end that previously prevented us accessing of 2022. This financial arrangement the full range of Lake Pūkaki contingent locks in a fixed price for the volume storage. This has given us additional Under our contract with NZAS we can called. The climatic downside of the flexibility to use Lake Pūkaki down to require a Smelter Demand Response swaption is that Genesis can hedge 513.0 m in some circumstances, and if hydro storage is less than the Dry its own exposure under the swaption our operations recognise the potential Year Trigger Level. When we issue using thermal generation including to utilise this additional water. 6 0 But they were not the only reason. The market also factored in a loss of gas field production because there is less gas coming off New Zealand’s gas fields, and there are concerns about the implications for supply caused in part by the gas industry responding to zero- carbon policy settings. This sentiment around gas supply resiliency saw the longer-term demand curve rise. MERIDIAN INTEGRATED REPORT 2021CHAMPIONGeneration (GWh) Capacity (MW) Z N o r d y H Z N d n W i U A d n W i U A o r d y H 203 525 1,244 12,326 113 528 1,465 12,758 236 502 1,395 11,297 28 553 1,263 11,265 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 3,500 3,000 2,500 2,000 1,500 1,000 500 0 92.4 201 416 2,353 92.4 201 416 2,353 92.4 201 416 2,353 99.2 201 416 2,353 FY18 FY19 FY20 FY21 FY18* FY19 FY20 FY21** * Waitaki Power Station total generation capacity updated following restoration. ** Approval has been received for operational improvements to increase Burrinjuck capacity from 27.2 MW to 34 MW. 61 MERIDIAN INTEGRATED REPORT 2021CHAMPION Relationships with local communities and iwi Building long-term relationships with communities close to the assets we operate is an important part of what we do. Our community fund Power Up continues to support local projects in Te Āpiti, Mill Creek, Manapōuri, West Wind, White Hill, Te Uku and Waitaki. In the 14 years that we have offered this fund, we have been able to undertake a range of projects that are important to locals, and have invested more than $8.5 million back into these local communities through 1,161 projects. We engage with our asset communities in various ways, including via dedicated Community Relationship Managers across the country. We want people, groups and communities to feel included and consulted, and that we have worked with them to understand any concerns they might have. We also recognise the mana whenua of Ngāi Tahu, particularly in relation to our hydro schemes in the Ngāi Tahu takiwā, and engage with Ngāi Tahu and other iwi in several ways. We recognise and respond to the kaupapa of ki uta ki tai (from the mountains to the sea) and work closely with local rūnaka (Arowhenua, Awarua, Hokonui, Moeraki, 62 MERIDIAN INTEGRATED REPORT 2021CHAMPIONImpact on water Water use in both New Zealand consent conditions and subject to In Australia we operate the hydro Ōraka Aparima, Waihao and Waihōpai) and Australia continues to be a annual reporting to Environment stations but we do not own the dam through Te Ao Marama and the Waitaki highly emotive and important issue, Southland. Potential for erosion in the structures. The environmental impacts Governance Group, as well as trusts, to enhance mahinga kai and native fish in particularly in relation to quality and Lower Waiau and Lower Waitaki rivers of these dam structures and the water access. As water and waterways are is subject to stakeholder agreements use are the responsibility of WaterNSW. When the Manapōuri Power Station was commissioned 51 years ago, the tailrace began discharging freshwater to Deep Cove. All of the fiords in Fiordland have a low salinty layer, a function of the shape of the landscape and very high rainfall levels. The ecology of all the fiords is unique due to the naturally low salinity layer and is one of the reasons why black coral grows at shallower depths here than is common in other marine settings. the Waitaki and Waiau catchments. At fundamental elements in our business, with Environment Southland and Harapaki we are working with two iwi we are acutely aware of their value Environment Canterbury respectively, in the region,the Ngāti Hineuru Trust and role. We actively work with as with powers for the councils holding and the Maungaharuru Tangitu Trust, to many parties as we can to collaborate Meridian resource consents to determine how we can be a good long- and reach agreements on the use of review our operations in the event term partner, and work together to fulfil water. We are committed to working of unexpected impacts; risks of what is culturally appropriate to iwi and in good faith with all regulatory contaminants from the stations good for the broader community. authorities involved in water access, entering water ways is protected We recognise the need to strengthen water purity and water rights. through requirements in resource our iwi partnerships and have been Hydro generation does not primarily talking with people about how they change the chemical composition of would like those arrangements to water where it’s used in our power look. Over many years, together with stations. Where there are potential ngā rūnaka (Arowhenua, Waihao, and consequential impacts on fresh water consents to operate oil interceptors with standards for contamination levels being set conservatively and with annual reporting requirements with councils. Moeraki) and landowners Jan and Geoff quality, these are managed through Water quality on the Waiau and Waitaki Keeling, we have been developing our resource consent conditions and river systems can be compromised by a mahika kai project (gathering of stakeholder agreements. The discharge the activities of other users, potentially food and resources) focused on the of fresh water from Manapōuri Power boosting the chances of algal growth restoration of the Takiroa Stream and Station into a marine environment at and weeds. Our preference is for the wetland complex in the Waitaki Valley. Deep Cove is undertaken in accordance water in these catchments to be as The wetlands and the associated rock with resource consent conditions and clean as possible. While we can release art at Takiroa were once a seasonal annual marine environment monitoring more water into waterways to dilute settlement or nohoanga area, with rich and reporting; potential risks of the effects of these contaminants, resources of mahika kai such as raupō sediment laden and turbid water such actions affect the amount of (bulrush), harakeke (flax), waterbirds, entering Lake Manapōuri is managed in renewable energy we can deliver to ducks and tuna (freshwater eels). accordance with our resource meet New Zealand’s power needs, and our profitability. 6 3 MERIDIAN INTEGRATED REPORT 2021CHAMPIONImpact on biodiversity Projects like the Takiroa Stream catchment through predator and ‘trap and transfer’ programmes in complement our extensive and ongoing weed eradication. This has helped both our hydro catchments, ensuring work to minimise our impacts on water to protect the endangered black- that as many elvers and migrant eels and biodiversity in our catchments. fronted tern/tarapirohe and kakī/ as possible are transported across They include our funding of Project black stilt colonies and increase their the dam structures every year. River Recovery (PRR), Aotearoa’s populations, as well as significantly longest-running conservation/business increase the wetland areas. We are achieving co-benefits of stronger biodiversity outcomes and partnership, and the Waiau Fisheries and Wildlife Habitat Enhancement Trust (the Waiau Trust). For 30 years PRR, in partnership with habitats for fisheries and wildlife. to enhance stream and wetland In our Waiau catchment we continue growing our own carbon sink through to work closely with the Waiau Trust our Forever Forests programme. the Department of Conservation, has been working to preserve and restore braided river habitats in the Waitaki We acknowledge that hydro generation remove wilding pines and replace them does have impacts on native fish such with a mixture of sterile pinus radiata as tuna (eels). We support and fund and natives endemic to the area. We have been working with local performance and compliance with authorities in the Waitaki District to resource consent conditions. We are No serious environment breaches All our hydro operations are governed by resource consents, and in the case of Manapōuri specific legislation, supported in many cases by agreements with groups connected with the waterways. We work closely with local bodies, particularly during planning and consenting, and we report regularly on our environmental again pleased to report there were no prosecutions in FY21. While we did record eight breaches of environmental compliance in New Zealand, none was serious and there were no significant adverse effects. There were no breaches in Australia. Water consumption* Mm3 New Zealand FY18 FY19 FY20 FY21 Fresh surface water (lakes, rivers) 65,562 74,183 85,339 66,434 Water returned to the source of extraction at similar quality 53,823 61,832 72,994 54,769 Total net freshwater consumption** 11,739 12,351 12,345 11,665 Australia Fresh surface water (lakes, rivers) 3,696 2,574 3,832 Water returned to the source of extraction at similar quality 3,696 2,574 3,832 * Municipal water consumption not reported as minimal and not metered. While in New Zealand we have no exposure to water-stressed areas, in Australia our power stations are operating in areas that can suffer from drought. Note we only hold the right to generate electricity from water passing through the dams associated with our Australian hydro power stations; we do not hold the water rights themselves. ** Fresh water taken from Lake Manapōuri is released into Doubtful Sound, and is not altered in terms of water quality. 6 4 MERIDIAN INTEGRATED REPORT 2021CHAMPIONNZ AU NZ’s largest electricity generator Generating <1% of the National Energy Market ~30% national electricity generation Enough electricity for about 167,000 homes yearly White Hill West Wind Mill Creek Te Āpiti Te Uku Harapaki – under development Waitaki and Manapōuri generate around 50% of NZ’s total hydro 200K Equivalent to the power needs of around 200,000 NZ homes yearly Hume Burrinjuck Keepit 1.7M Equivalent to the power needs of around 1.7 million NZ homes yearly Mt Millar Mt Mercer Long-term power purchase agreements with two other wind farms 46K Equivalent to the power needs of around 46,000 Australian homes yearly 190K Equivalent to the power needs of around 190,000 Australian homes yearly 6 5 MERIDIAN INTEGRATED REPORT 2021CHAMPIONMeeting the changing needs of our customers We are the largest generator of renewable energy in Aotearoa. Our hydro dams and wind farms generate around a third of the country’s energy. In Australia our market share is much smaller, and we are seen as a challenger brand providing conscientious consumers with the ability to offset the carbon emissions associated with their energy usage, and innovative products that allow them to engage with their energy use. 6 6 MERIDIAN INTEGRATED REPORT 2021CHAMPIONHealthy customer growth across our three brands Net double-digit growth in all segments – most notably in the Commercial and Our Powershop brand in Australia focuses on sustainability. While the business Industrial segment for Meridian and Residential and Small Business market share is a small player in the Australian market overall, it continues to grow rapidly as for Powershop – means Meridian is now the third-largest retailer in New Zealand. more and more Australian consumers look for cleaner options. New Zealand retail sales volumes for FY21 were 14% higher than last year. Sales The requirement to pass on lower wholesale and input costs coupled with increased in all segments; by 4% in residential, 24% in SME, 9% in agricultural, market/default offer prices has led to continued margin pressure in retail in 13% in large business and 18% in corporate. Customer numbers were also up – Australia. Nevertheless, Powershop has continued to grow its customer base increasing by 7% from the previous year. in a very competitive market, and our Net Promoter Score, which measures Our New Zealand and Australian retail businesses, with their three distinctive customer brands, continued to deliver sustained customer growth this year. customer satisfaction, remains very high against the market. Given the erosion of margins, our strategic focus going forward will be to lower our cost to serve without compromising quality, and offering the best range of products, Our Meridian brand appeals to New Zealand customers looking for a priced competitively. renewable energy generator that is deeply connected to the environment and New Zealand. The brand achieved profitable growth through good volume and margin management. Financial performance also improved despite increased competition and pressure on retail margins. Powershop in New Zealand uses innovative marketing communications to offer By year end, Australian electricity customer numbers were 4% higher than in the same time last year. In the same timeframe, Australian retail sales volumes were 15% higher at an 8% lower average price. Our certified carbon-neutral retail gas product, which is currently available in Victoria (and soon to be released in New South Wales), had 43,905 customer connections as at 30 June 2021, up customers greater personal control with its ‘shop’ proposition. This year the brand from 37,878 the previous year. hit a significant milestone – surpassing 100,000 customer accounts for the first time thanks to a service proposition, pricing and brand positioning that stood out in a bustling retail energy sector. 67 MERIDIAN INTEGRATED REPORT 2021CHAMPIONp o h s r e w o P e t a r o p r o C – n a d i r e M i E M S , i r g A , s e R – n a d i r e M i 5 0 4 8 , 1,075 4,130 3,200 Customer connections* (ICPs) Customer sales volume (GWh)* 500,000 450,000 400,000 350,000 3 00,000 250,000 2 00,000 150,000 100,000 50,000 0 6 5 7 , 0 9 2 1 4 2 7 9 , 7 7 2 , 2 0 3 4 0 8 9 0 1 , , 3 5 2 4 2 3 2 0 2 6 3 1 , 0 3 8 6 4 3 , 105,804 29,262 211,764 4 3 9 5 8 1 , 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 6 7 3 7 , 1 8 9 5 , 0 4 2 6 , 9 4 5 3 5 5 3 8 6 5 8 7 NZ AU** FY18 NZ AU FY19 NZ AU FY20 NZ AU*** FY21 NZ AU NZ AU NZ AU NZ AU FY18 FY19 FY20 FY21 * Excludes the Tīwai Point aluminium smelter; <10 of the above ICPs are connected to the transmission network; around 4,700 customer connections have distributed generation metering. ** Powershop Australia FY18 figure restated to correct value of 97,241. *** Also 43,905 gas customer connections in Australia with a total of 1,711 TJ in volume. Switching rates* Customer satisfaction* FY18 FY19 FY20** FY21 Net Promoter Score (NPS)** FY18 FY19 FY20 FY21 Powershop New Zealand 33.63% 30.35% 24.97% 25.81% Powershop Australia Meridian 17.63% 16.94% 14.18% 14.45% Australian industry average*** New Zealand combined 21.16% 20.08% 16.98% 17.76% Powershop New Zealand 53 (14) 55 New Zealand industry 20.95% 20.64% 18.91% 20.77% Meridian 53 (18) 61 28 18 57 18 64 30 22 46 N/A 66 28 N/A * Data from the Electricity Authority (emi.ea.govt.nz) and Meridian analysis. Switching rates are not published by the market operator in Australia. ** Data restated based on final figures from the Electricity Authority. 6 8 New Zealand industry average*** 14 * Australia surveys both residential and business customers (with exception being customers who opted “do not contact”). Powershop New Zealand and Meridian New Zealand residential customers only. ** Calculated from a survey asking customers using a 0–10 scale “How likely is it that you would recommend Meridian/Powershop to a friend or colleague?” and then subtracting the percentage of detractors from the percentage of promoters. A positive value indicates that more customers are promoters versus detractors (and vice versa). All results are a 12-month moving average from July to June each financial year. *** Perceptive Group Limited: New Zealand and Australia NPS Industry Benchmarks. FY21 data currently unavailable. MERIDIAN INTEGRATED REPORT 2021CHAMPION Flux growth underpins our success Work on Harapaki wind farm begins A pipeline of generation options Flux is helping Meridian to lead Most of Meridian’s customer base Construction has begun on our new, Our analysis suggests New Zealand the energy transition with flexible, has been successfully migrated to $395 million wind farm in Hawke’s needs approximately 12 TWh of new innovative software that changes the Flux platform under Project Bay; it will be our sixth wind farm in grid generation by 2030 to meet the way we produce, sell and use Momentum, with the remainder Aotearoa. New Zealand’s second- its 100% renewable energy target. energy. The platform assists retailers due for completion during 2021. largest wind farm will have 41 turbines A third of that growth (our current with energy retail best practice, This exciting achievement will enable generating up to 176 MW of renewable market share) equates to at least operational improvements, cost Meridian to grow customer numbers energy and will increase our wind seven Meridian generation projects savings, risk reductions, digital with a scalable and modern platform, assets by 40% at a time when the by 2035. Longer-term analysis suggests transformations and change bringing to life new products and market is building. Construction further system demand growth of at management, and data insights. enabling greater innovation for will take around three years and is least approximately 10 TWh between Flux’s suite of market-leading the Group. expected to create 260 new jobs. 2035 and 2050. software products allows energy The platform is now ready for the Our investment in Harapaki will not Our current development pipeline retailers to move faster, offer more global market, with Flux confident only boost our wind farm portfolio by amounts to 1.9 GW (4,400 GWh), pricing options and integrate with of impressive results as it looks to 542 GWh per annum, but support our and development challenges a wide range of chosen partners. acquire new clients in its three focus plans for greater existing flexibility and include the likelihood of needing The products, which include an markets before expanding to Asia continued retail customer growth. to re-consent consented sites for industry-leading complex billing and the United States. engine, are backed by bespoke customer service and comprehensive privacy and security tooling. In the past year client satisfaction with the products has improved by 30%, lifting the performance of teams like Meridian and reducing the cost to serve customers. Harapaki will boost New Zealand’s Since March 2020 Flux has transitioned overall ability to take action on to remote-first working, empowering climate change, help accelerate the its 200+ staff to work from anywhere transformation of the economy to clean in New Zealand, Australia and the UK. energy sources, and encourage the This has seen significant reductions retirement of aging thermal plant. Five in costs and carbon emissions, thanks big projects currently underway by better technology fit and the reality that design, development and construction timeframes are all subject to site complexity. Inevitably, some opportunities will not crystalise, meaning more development options will be needed. to reduced commuting and increased various energy companies will take the While the Government is proposing staff satisfaction due to flexible country from 85% to 90% renewable the Onslow-Manorburn pumped working arrangements. energy by 2023, putting New Zealand storage scheme as a key plank towards ahead of the 90% by 2025 target. its 100% renewable system goal, the Tīwai Point smelter closure could see 5 TWh of excess Southland-Otago 69 MERIDIAN INTEGRATED REPORT 2021CHAMPIONThrough integrated marketing strategies and campaigns for our brands, we successfully grew awareness, consideration and business performance across our portfolio. We also invested in our cornerstone partnerships with the Department of Conservation for the Kākāpō Recovery Programme, and KidsCan. In total, we spent $19.5 million on marketing activities. 70 generation attempting to flow The second is engaging with northward by as soon as the end of potential developers on a green 2024. In response, we are currently data hub in Southland that connects investigating three initiatives. First, we are working with South Island industrial customers to assist with the decarbonisation and electrification of industrial plant. We estimate that the potential new demand opportunity here is 250 GWh to 500 GWh each year. New Zealand to the east coast of Australia. With the Australian data centre market forecast to grow from 500 MW in 2021 to 2,200 MW in 2026, we believe Southland could have a hyperscale data centre in place in the medium term that can service Australia at significant discounts to its domestic green options. The third is the development of green hydrogen for global industries like steel manufacturing, fertiliser manufacture and heavy transport (trucks, trains and shipping), which are traditionally carbon intensive and difficult to abate. At year end we are preparing a feasibility study to examine potential markets, the technology and engineering required and how we can incorporate dry-year flexibility. It could provide a large amount of New Zealand’s dry- year reserve at a fraction of the cost of building new power stations. Having a large amount of demand with the flexibility to turn it down or turn it off during a dry year could add a huge benefit to New Zealand in managing the security of our energy supply. That study is due to be completed in August 2021. MERIDIAN INTEGRATED REPORT 2021CHAMPIONSignificant progress was made on the Hume Battery Energy Storage System (BESS) project this year, with the Board creating a subcommittee to monitor progress and ultimately drive the project to final approval. What is unique about the Hume BESS project is it will be the first pairing of a hydro and battery storage system in the Southern Hemisphere, and the only known combination project that dispatches into multiple regions (New South Wales and Victoria). We continue to look for new wind and solar sites to enable us to meet the expected increase in demand for renewable generation. Distributed energy Shining examples of solar We have been working to identify and respond to distributed energy opportunities, in particular rooftop and small-scale solar, and storage batteries. We continue to look at how we Impact, ChargeForce, our ‘Curb can introduce large-scale solar Your Power’ demand response in the medium term to build out programme in Victoria and the New Zealand’s energy portfolio. ‘Better Solar’ advisory service. While the electrification of transport is one of the biggest ways that we can help combat climate change, New Zealand needs a more extensive charging infrastructure to help build real momentum for the switch to electric. This year we committed $4 million to roll out a new network of at least 200 EV chargers in the next three years. In Australia we have been encouraging In New Zealand we have completed the use of solar energy residentially four significant commercial solar for some time. Through Powershop projects and contracted two more Australia we have already successfully under standard power purchase introduced a range of initiatives to agreements that will total 720 kWp. help reduce demand on the electricity All of these are with either Kiwi grid and help customers save on their Property or Lincoln University. energy bills. These include Grid The AC chargers we are rolling out NZ SOLAR INSTALLATIONS Northlands Mall, Kiwi Property Te Kete Ika, Lincoln University The Plaza, Kiwi Property RFH Building, Lincoln University Rec Centre, Lincoln University Science South, Lincoln University Total YTD Perf against forecast +8% +4% +1% +5% Completion date June 2019 October 2019 January 2020 July 2020 May 2021 June 2021 Size 185 kWp 102 kWp 111 kWp 94 kWp 168 kWp 60 kWp +5% 720 kWp are ideally suited to shopping malls, retail and business parks and community facilities and will complement the existing DC fast chargers that are available for those who need to charge quickly and travel long distances. Twelve chargers have been installed to date. In Australia, we have encouraged investment in battery installations through our Charge Force Virtual Power Plant programme. Through the programme we have created a battery offer for customers to cater for this distributed energy resource. We are also providing shared learnings from the programme to the industry. 7 1 MERIDIAN INTEGRATED REPORT 2021CHAMPION Equipping our people for the changes ahead We are very proud of our people and their contributions to our success. This year, while operations returned pretty much to normal in New Zealand, our Australian team endured a severe and prolonged lockdown that saw them working out of the office for much of the year. 7 2 MERIDIAN INTEGRATED REPORT 2021CHAMPIONBy the time the team in Melbourne returned to the office, they had developed We have continued to train our people in tikanga and proper pronunciation new ways of working that were more effective and more connected with our of te reo to reflect our commitment to respecting Te Ao Māori and connecting Contact Centre (based in Masterton) and our customer base. Once they could with our stakeholders. We have undertaken cultural training as a part of National return, from late March, we took the opportunity to re-order the office space Reconciliation Week in Australia to recognise Indigenous people’s rights. to incorporate more remote working and lots of breakout areas. It is a tribute to our Australian team’s resilience that they continued to work effectively and enabled us to continue growing our Australian customer base across four states. With the ongoing challenges COVID-19 continues to bring around the world, we are particularly mindful of the wider impacts this may be having on our people. Our Healthy Minds programme launched its second evolution during the year, We think that helping teams perform well means making sure everyone feels providing support, guidance and understanding to those dealing with mental included, welcomed and valued for their experiences and perspectives. Getting health issues. This included workshops and seminars for all staff. that mix right is important to us because it equips us to better understand and meet the needs of our changing demographics in the countries and markets in which we compete. In the case of our Flux team, adopting a remote-first approach, for example, has enabled us to source highly skilled professionals who see the offices as hubs for connection and collaboration. Fitting our work around people’s lives is part of giving them the flexibility to work in ways that are best for them and their circumstances. Overall our employee engagement held up well across the Group, with engagement scores in Meridian, Powershop and our Australian companies at 78%. This year, to help round out our understanding of overall cultural commitment, we included Employee Net Promoter Score elements that asked things like “would you recommend Meridian to your friends?”. 100% of our people said they would (NPS of 100, with >50 being best practice). 73 MERIDIAN INTEGRATED REPORT 2021CHAMPIONEmployee engagement* % 0 6 8 . % 0 0 8 . % 0 3 7 . % 0 8 7 . % 0 0 8 . % 0 5 8 . % 0 5 8 . % 0 . 1 8 % 0 0 8 . % 0 8 7 . % 0 6 7 . % 5 2 p o t Z N t e k r a m l a t o T % 5 2 p o t l a b o G l * * Z N n a d i r e M i Z N p o h s r e w o P * * * a i l a r t s u A n a d i r e M i 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% * Measured by ‘level of agreement’ – the percentage of staff who ‘agree’ or ‘strongly agree’ with the five questions that collectively determine our Engagement Index (previously calculated as a weighted mean). From FY19 onwards Powershop New Zealand is reported as part of Meridian New Zealand. Dam Safety Intelligence is included but does not include Flux. *** Meridian and Powershop Australia plus the Powershop ** Call Centre in Masterton are all included in Australian engagement numbers. FY18 FY19 FY20 FY21 Dec Y21 F May Meridian Group Workforce New Zealand** Australia*** Permanent employees Female Male Female Male Total Permanent full time* 438 481**** Permanent part time 23 4 Temp/Fixed-term employees Temp/fixed-term full time Temp/fixed-term part time 24 8 14 8 25 0 1 1 57 1 3 0 1,001 28 42 17 Flux has a remote-first workforce and takes a weekly ‘pulse check’ of all staff to gain insights into how people at Flux are feeling at work, and to enable fast action for any areas of concern. This score is currently at 4.1 (an average rating out of 5 as at 30 June 2021). Additionally and on a fortnightly basis, we ask two engagement-related questions – A significant percentage of our experienced staff may soon be considering retirement. To help ensure that their skills are passed on, we have actively encouraged young professionals to join our teams Total 493 507 27 61 1,088 our average score is 8.2 (scale of Two of these employees are based in the UK. Both are male. 131 of these employees work for Flux New Zealand. * ** *** 3.41% of these staff are covered by collective bargaining agreements. **** The Meridian Australia Chief Executive is included in New Zealand as part of the Group Executive Team. 1–10) for the 12 questions asked since November 2020. 74 MERIDIAN INTEGRATED REPORT 2021CHAMPION Future of work Succession planning Recognising that the future of work leadership), technology, digitisation, Succession planning is a key aspect at Meridian will be very different from automation and outward thinking, of ensuring that we are a successful what has been expected of a large such as the external and global forces business for years to come. Along gentailer, this year we introduced that will lead us to a new future or with our Future of Work strategy the role of a Future of Work lead to study force change (sustainability as we continue to build our talent Generation and wholesale staff turning age 65 A significant percentage of our experienced staff may soon be considering retirement – especially those in our generation team. To pending disruptions across our business an example). and succession strengths with the successfully ensure that skills are and to plan how we might respond. Also, as part of future-proofing our The Future of Work is about more than workforce, we rolled out a bold new just looking at our new, flexible way recruitment, onboarding and core of working. It is about ensuring our people data platform that will give us people have the opportunity to learn much deeper insights into key first new skills for future roles. Roughly experiences and how our expectations 40–55% of our people will need to of the people we hire compare with be upskilled or reskilled into new or their actual performance. Tracking existing roles in the next five years. and adjusting how we look for people Our Future of Work strategy will look and how they perform inside our culture at the work we do today and how it will will provide us with a much more be completed in the future, including evidence-based approach to appraising how we create an engaging workplace performance both initially and for the experience for our people, how we longer term. Next year we will add to take a lifelong learning approach the resources we make available to our and what is needed in our workplace people with a new Learning Hub that, environment to ensure we are set up for the first time, will put everything implementation of Talent Pools for passed on, we are encouraging young hard-to-fill roles, along with new- professionals to join our business and skilling existing employees with skills providing opportunities for people to that will be more in demand in the complete their trade apprenticeships future. We are building frameworks with us. Our goal is to ensure that, as and success profiles for an executive people consider retirement, they are development pool that, once it is supported to transition out of work operational, we will look to use through all levels of leadership. smoothly (for example, through part-time arrangements) and that we have clear succession plans for their areas of expertise. Generation and Wholesale staff turning age 65 FY18 FY19 FY20 FY21 to collaborate, innovate and create learning and development in one In five years 9.1% 10.9% 12.5% 13.3% together. The initiative also involves place, meaning we can directly and looking at things like psychological easily access and align learning In 10 years 20.3% 22.5% 23.9% 24.3% safety (remote and face-to-face content and records. The common retirement age in New Zealand and Australia is 65. 75 MERIDIAN INTEGRATED REPORT 2021CHAMPIONTotal recordable injury frequency rate (TRIFR*) Lost time injury frequency rate (LTIFR*) 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2 8 . 1 8 8 . 0 0 7 . 0 6 4 . 5 6 6 2 . 1 4 2 . 9 9 . 3 2 7 . 1 4 3 . 1 4 9 . 2 3 2 . 1 3 0 . 1 5 9 4 1 . 3 6 . 3 1 8 1 . 4 4 7 . 1 16 14 12 10 8 6 4 2 0 0 1 . 3 9 0 8 . 6 3 . 7 4 4 . 3 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21 * The TRIFR is calculated per 200,000 hours and includes all lost time, medical treatment and restricted work injuries for Meridian New Zealand employees and contractors only. While we have incident numbers for Powershop New Zealand, Powershop Australia and offsite contractors, the TRIFR cannot be calculated as the number of hours worked for those periods has not been recorded. * FY21 data excludes Meridian Australia, Flux and offsite contractors. * The LTIFR is calculated per 1,000,000 hours and includes all lost time work injuries for Meridian New Zealand employees and contractors only. While we have incident numbers for Powershop New Zealand, Powershop Australia and offsite contractors, the LTIFR cannot be calculated as the number of hours worked for those periods has not been recorded. * FY21 data excludes Meridian Australia, Flux and offsite contractors. l s e e y o p m e n a d i r e M i s r o t c a r t n o c e t i s n o n a d i r e M i l s e e y o p m e ( e t i s n o n a d i r e M i ) i d e n b m o c s r o t c a r t n o c d n a More work needed to increase safety Safety is our greatest priority. Our environments are technically challenging with extremely large hydro structures and close to large There is a structured health and safety management that we build into our volumes of water. For those who training plan for all employees relative daily operations reflect our concern predominantly work from home, risks to their job, almost always to NZQA for everyone who works with us. include mental health and trip hazards. standards. The management system For example, we have site-specific Because of the risk of incidents, we is accredited to NZS7901 to meet the Health and Safety Committees that electrical and mechanical assets, and are always evolving our health and requirements of the Electricity Act. represent all employees on our sites, our people work in locations that range safety culture to keep our people We’re focussed on developing and including contractors, and our Learning from home to underground, inside as safe as possible and to manage maintaining an empathetic, caring Teams are effective in responding large structures, on tall wind and wellbeing through pace and change. culture – and the levels of safety to events, creating an environment 76 MERIDIAN INTEGRATED REPORT 2021CHAMPION where speaking up without fear or We are an active member of Stay Live, blame is encouraged, and improving an electricity industry forum focusing our opportunities to gather better on working together across the sector operational information and increase to improve safety. Our Head of Safety worker engagement. More detail can is Deputy Chair of the forum. be found in our Health and Safety Policy at www.meridianenergy.co.nz/ investors/governance/policies. Regrettably, despite all our efforts, there was an increase in our reportable injuries this year, with more injuries These Committees meet every month overall and more time off work due to to identify hazards and review incidents injury recorded. In FY21 our calculated that have occurred. The Committee total recordable injury frequency rate representatives are freely elected by for employees and contractors per their colleagues and receive regular 200,000 hours worked (TRIFR) was training in risk identification and 2.66 (compared with 1.23 in FY20), controls. They are further supported representing 18 people hurt (three by dedicated business unit safety contractors and 15 employees). The specialists who provide extensive main types of injury in FY21 were technical expertise and support. All sprains, strains and superficial injuries; our people are required to log any no serious injuries were reported. incidents or near misses directly into our Safety Manager system. We have a stop work policy, which includes mental health risk, and all corrective actions are implemented as per our Health and Safety Policy at www.meridianenergy. co.nz/investors/governance/policies. We apply this approach to safety across our Australian and New Zealand assets, including Flux and our contractors. 7 7 MERIDIAN INTEGRATED REPORT 2021CHAMPIONSupporting the work of others A stronger sense of belonging Two key reasons for people being drawn Despite some good progress in working groups have initiatives to to Meridian are that they perceive us as a attracting and appointing more help with the retention of women and force for good through our commitment female candidates this year, we still embedding gender and non-binary to renewable energy, and they consider do not have a good gender balance in practices wherever possible to assist us a good corporate citizen. the engineering parts of our business in achieving our goals. We have been a National Partner of the Department of Conservation’s or in leadership and senior-level roles throughout the business. In FY21, our average level of gender pay equity was similar to that of FY20 Kākāpō Recovery Programme for five Currently 37.2% of our staff in people (96.7% compared with 96.3%). years now, contributing to vital research leadership and senior specialist to help these precious native parrots positions below Executive Team level to increase in numbers. Many of our are women. This is a positive lift from people are involved in helping change the 34.3% achieved on this measure in the future for the kākāpō through 2020, but still means we have missed volunteering and raising awareness our target of 40% by year-end 2021. of the plight of these beautiful birds. To address this we are working on KidsCan is another organisation close to our hearts. This amazing charity provides essentials to children affected initiatives to deepen our understanding of the drivers for women’s aspirations to leadership within our company. To address this, our recruitment team will build and maintain an internally run Māori and Pacifika internship programme, leverage our relationships with iwi to promote work opportunities within our company and use opportunities such as our Harapaki wind farm development to improve our relationships with iwi and promote scholarships, upskilling by poverty so they can participate in We also continue to deepen our and job opportunities. learning. As Principal Partner, we work commitment to developing staff, with KidsCan to provide thousands of with a particular focus on women, to Kiwi kids with basics such as food, reach their full potential as leaders. raincoats, shoes and socks and basic hygiene and healthcare items. This year, we contributed more than $1 million to help KidsCan to help young New Zealanders in need and we have committed to doing this every year for at least the next three years. The Board has agreed a new gender-diversity, which is to achieve a gender balance in leadership and senior roles. In order to achieve this, we will strive for recruitment to result in appointments that are 45% men, 45% women and 10% any gender, by 2023. Our Gender and Team Rainbow 7 8 MERIDIAN INTEGRATED REPORT 2021CHAMPIONDiversity by gender (headcount) Women remain underrepresented in the engineering parts of our business, and in leadership and senior-level roles throughout the business. Currently 37.2% of our staff in people leadership and senior specialist positions below Executive Team level are women, against a target of 40% by year- end 2021. Traditionally, generation, with its 80% male workforce, has had the biggest gender gap. Includes Dam Safety Intelligence. * ** Includes Flux-UK staff. 500 450 400 350 300 250 200 150 100 50 0 % 0 0 5 . % 0 0 5 . d r a o B % 2 8 6 . % 8 . 1 3 T C I % 6 3 6 . % 4 6 3 . e v i t u c e x E % 8 9 2 . % 2 0 7 . e r t n e C e t a r o p r o C % 1 . 7 7 % 9 2 2 . d n a n o i t a r e n e G * s e c r u o s e R l a r u t a N % 0 5 7 . % 0 5 2 . l e a s e o h W l % 3 6 3 . % 7 3 6 . m a e T r e m o t s u C e h T l e a M l e a m e F % 5 6 5 . % 5 3 4 . * * Z N x u F l % 3 9 6 . % 7 0 3 . a i l a r t s u A We strive to build a culture where Female representation everyone is welcome. Our people identify themselves in a range of ways. Female share of total workforce (%) Females on the Board FY18 FY19 FY20 FY21 41.8% 45.3% 46.2% 47.8% 25.0% 28.6% 50.0% 50.0% Females in management positions (as % of total management workforce) 33.6% 37.2% 37.4% 36.1% Females in junior management positions, i.e. first level of management (as % of total junior management positions) 36.3% 40.8% 40.0% 40.1% Females in top management positions, i.e. maximum two levels away from the Chief Executive or comparable positions (as a % of total top management positions) 30.7% 33.6% 34.8% 32.4% Females in management positions in revenue-generating functions (e.g. sales) as a % of all such managers (i.e. excluding support functions such as HR, IT, and Legal) 29.4% 33.7% 34.0% 33.3% Percentage of women in senior roles at 30 June* 32.8% 35.2% 34.3% 37.2% * Parent company only, women in people leadership and senior specialist roles, excluding the Executive Team. 7 9 MERIDIAN INTEGRATED REPORT 2021CHAMPION Diversity by age (headcount) 260 240 220 200 180 160 140 120 100 80 60 40 20 0 % 5 . 1 5 % 9 7 3 . % 0 0 0 . % 5 2 1 . % 5 7 8 . % 5 5 4 . % 5 4 5 . % 0 % 3 4 5 . % 7 7 2 . % 0 8 1 . % 4 0 7 . % 3 7 2 . % 3 2 . % 6 0 1 . % 3 8 5 . % 3 3 3 . % 3 8 . 0 5 – 0 3 0 5 r e v O 0 3 r e d n U % 3 4 5 . % 7 . 1 3 % 1 . 4 7 % 0 4 1 . % 7 2 7 . % 6 2 1 . % 3 3 1 . % 2 8 1 . % 1 . 9 * Includes Dam Safety Intelligence ** Includes Flux-UK staff Board Executive Corporate Centre ICT Generation and Natural Resources* Wholesale The Customer Team Flux NZ** Australia We are committed to achieving pay Group % ratio female salary to male salary Percentage of women by salary band equity for all employees in similarly sized roles and with similar skills, experience and accountabilities. In FY21 the average level of gender pay equity was similar to that in FY20 (96.3 compared with 96.7). The average G–H K–L I–J E–F C–D A–B salary for men across the organisation remains higher than the average salary for women. There are still more men than women at senior levels. What we are seeing is a healthy increase in the proportion of females at mid- senior levels. 8 0 by salary band* FY19 FY20 FY21 by salary band* FY19 FY20 FY21 91.5% 89.9% 88.7% 98.1% 95.8% 98.4% 95.4% 96.1% 96.1% 99.2% 98.3% 95.4% 96.9% 97.9% 100.6% 99.7% 99.0% 100.8% K–L I–J G–H E–F C–D A–B 18.5% 24.1% 28.6% 27.0% 32.0% 31.0% 30.8% 32.9% 33.2% 43.2% 43.3% 48.7% 59.7% 55.4% 54.8% 61.6% 70.8% 72.7% Average of averages 96.8% 96.3% 96.7% Average of averages 40.1% 43.1% 44.8% * K and L are our highest salary bands and A and B are our lowest. * K and L are our highest salary bands and A and B are our lowest. MERIDIAN INTEGRATED REPORT 2021CHAMPION Keeping our technology systems safe, stable and secure Increasing digitalisation, a reliance on fora to collaborate with government, ICT systems, and flexible approaches business partners and industry peers to working throughout the COVID-19 in understanding and responding to pandemic have made managing cyber new and emerging threats. risk an even greater priority for many industries, including our own. A failure to protect our technology systems, information and people from cyber In the past year we have continued to invest in and strengthen our cybersecurity capabilities, particularly threats could have adverse impacts on in terms of embarking on ‘zero both our company and our customers. trust’ architecture that includes: Across the business, we apply a range of measures to manage our cyber risk, including policies and procedures, cybersecurity capabilities, continuous threat monitoring and event-detection capabilities. To equip our people with the knowledge and skills to combat cyber threats, we have developed a security training and awareness programme covering topics such as network segregation; identity and access management; monitoring and reporting; third-party risk management; and training and awareness for our people. We remain focused on continually improving our security capabilities to counter dynamic and advanced cyber threats through an outcome-driven approach. By managing and securing our digital phishing, incident reporting, passwords environment, our goal is to give our and keeping information and devices people the confidence to understand safe. We also conduct regular exercises and manage cyber risk, realise new to test our cyber resilience and business opportunities, unlock value business continuity processes. We and continue to provide essential are a contributing member of several services to our customers. 81 MERIDIAN INTEGRATED REPORT 2021CHAMPIONRewarding energy 8 2 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGY8 3 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYOur approach to remunerating our people Attracting, retaining and motivating talented people, and rewarding them for delivering desired business performance and long-term shareholder value, are key to Meridian’s success. 8 4 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYOur remuneration philosophy is guided by the principles that remuneration will: Fixed remuneration is benchmarked to market remuneration data, and permanent • be clearly aligned with our company values, culture and strategy • support us to attract, retain and engage employees • be fair, equitable and flexible • appropriately reflect market conditions and the organisational context • recognise and reward high performance • align with creating shareholder value. The People and Remuneration Committee regularly reviews remuneration policy and practice and provides recommendations to the Board. The Board approves the executive balanced scorecard objectives, and company financial performance targets and outcomes on an annual basis. employees may participate in a short-term incentive (STI) scheme at the discretion and invitation of the Board. As a minimum, Meridian pays the Living Wage for all permanent and fixed-term employees. A range of benefits is provided, including employee insurance, enhanced parental leave provisions, the ability to purchase additional leave, and access to purchasing discounts. The Executive Team and Chief Executive also have the opportunity to participate in a long-term incentive (LTI) plan. Both the STI scheme and LTI plan are variable, performance-based incentives, awarded only if specific financial and non-financial performance hurdles are met, and at the discretion of the Board. 8 5 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYFixed remuneration Long-term incentive (LTI) Fixed remuneration includes An LTI plan is offered at the discretion base salary and matched KiwiSaver of the Board to the New Zealand contributions of up to 4%. Salaries Executive Team, to align executives’ and are reviewed annually. shareholders’ interests and optimise Short-term incentive (STI) The STI is an at-risk incentive that may be offered for a specific year, by invitation from the Board. Potential STI payments reflect the achievement of predetermined company profit levels and individual performance objectives aligned to business strategies and goals, and are wholly discretionary. An STI may be paid subject to a behaviour gate and company financial performance hurdles, and at the discretion of the Board. long-term shareholder returns. The LTI opportunity is 40% of salary for the Chief Executive, and 30% of salary for the Executive Team. Vesting of the LTI is contingent on their meeting both absolute and relative Total Shareholder Return (TSR) performance hurdles at the conclusion of a three-year period. Further details of the LTI plan are provided on pages 156-157. Employee share ownership Employees are invited to join Meridian’s employee share ownership plan, The STI opportunity within total MyShare. Under MyShare, Meridian remuneration reflects the complexity shares are purchased for participating and level of the roles. In FY21 the employees, funded by monthly pay Chief Executive had an STI opportunity deductions of between $500 and of 50% of his salary, and the Executive $5,000 per annum. After three years Team STI opportunity was 30%. participants may be eligible for award shares subject to ongoing employment (Tenure Award Shares) and the company TSR outperforming a peer group of competitors (Performance Award Shares). In FY21, 58.5% of employees participated in MyShare, and this has increased to 60% for FY22. 8 6 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYEmployee remuneration range The number of employees and former employees of Meridian and its subsidiaries (not including directors) who during the year ended 30 June 2021 received cash remuneration and other benefits (including at-risk performance incentives, KiwiSaver contributions and redundancy compensation) exceeding $100,000 is outlined opposite: Band Total Group 100,000 – 109,999 110,000 – 119,999 120,000 – 129,999 130,000 – 139,999 140,000 – 149,999 150,000 – 159,999 160,000 – 169,999 170,000 – 179,999 180,000 – 189,999 190,000 – 199,999 200,000 – 209,999 210,000 – 219,999 220,000 – 229,999 230,000 – 239,999 240,000 – 249,999 250,000 – 259,999 260,000 – 269,999 270,000 – 279,999 280,000 – 289,999 290,000 – 299,999 97 64 68 56 43 38 26 300,000 – 309,999 310,000 – 319,999 330,000 – 339,999 340,000 – 349,999 350,000 – 359,999 360,000 – 369,999 370,000 – 379,999 30 380,000 – 389,999 390,000 – 399,999 490,000 – 499,999 520,000 – 529,999 530,000 – 539,999 610,000 – 619,999 820,000 – 829,999 830,000 – 839,999 2,030,000 – 2,039,999 Terminated employees 19 19 14 7 8 6 3 2 3 6 1 1 3 3 1 2 1 2 3 1 5 1 1 1 1 2 1 1 540 42 8 7 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYChief executive remuneration for performance periods ending 30 june 2021 and 30 june 2020 Year FY21 FY20 Base salary Taxable benefits6 Fixed rem7 MyShare8 Pay for performance Total rem STI9 LTI10 Subtotal $1,071,125 $42,845 $1,113,970 $2,500 $527,910 $664,066 $1,191,976 $2,308,446 $1,071,125 $42,845 $1,113,970 $2,500 $517,216 $406,155 $923,371 $2,039,841 The Chief Executive is entitled to receive a matching employer KiwiSaver contribution of 4% of gross taxable earnings. The company’s KiwiSaver contributions for the Chief Executive, paid within the FY21 period were $78,459. Five-year remuneration summary Year FY21 FY20 FY19 FY18 FY17 Single figure rem % STI against maximum % vested LTIs against maximum Span of LTI Performance Period $2,308,446 $2,039,841 $1,695,195 $2,156,484 $2,379,768 66.75% 78.69% 90.91% 72.8% 79.29% 100% 100% 100% 75% 100% FY19–FY21 FY18–FY20 FY17–FY19 FY16–FY18 FY15–FY17 Neal Barclay was appointed as Chief Executive effective from 1 January 2018. Chief Executive remuneration for FY18 therefore reflects the sum of Chief Executive remuneration for Neal Barclay and previous Chief Executive Mark Binns. Notes The FY21 MyShare figure is the $2,500 award shares related to participation in the MyShare plan for FY19, which vested in FY21. The FY21 LTI figure is payment relating to the vesting of the FY19 LTI plan. It is higher than the payment received in FY20 given the FY18 offer (which vested in FY20) was adjusted to reflect the fact that the Chief Executive had been appointed to that role partway through FY18. 6 Taxable benefits are 4% company KiwiSaver contributions on salary. 7 Fixed remuneration is salary plus company KiwiSaver contributions. 8 MyShare is gross value of award shares received in the applicable period. 9 STI is the potential payment based on performance achieved for the applicable period and includes 4% company KiwiSaver contributions. 10 LTI is grossed up for PAYE, and in FY19 included 4% company KiwiSaver contributions. The LTI plan changed in FY20. 8 8 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYBreakdown of Chief Executive pay for performance (FY21) Description Performance measures STI LTI 50% of base salary. Combination of company result and a scorecard of financial and non-financial company measures Conditional awards of shares under LTI plan. 40% of base salary 60% weighting on company performance (company profit, which comprises Group EBITDAF minus capital charge) 40% weighting on performance against a Board-approved scorecard comprising financial and non-financial objectives, as shown in the table below % achieved 111.3% 70% Absolute TSR over the relevant assessment period: Hurdle met • must be positive and >50th percentile/median TSR of the peer group11 Relative TSR – if positive and: 100% • >50th percentile TSR of peer group, at least 50% vests • ≥75th percentile TSR, 100% vests • between the 50th and 75th percentile TSRs of peer group, progressively vests on a straight-line basis Pay for Performance Scorecard Measures for FY21 For FY21, the Board-approved scorecard comprising up to 40% of the Chief Executive’s STI was measured as follows: Performance area Measures Weighting Employees Customer Risk Trend in engagement score and TRIFR Customer growth Australian customer numbers and assets Successful transition to accommodate significant market changes Future development Migration to single customer platform 20% 20% 20% 20% 20% 11 The peer group comprises AGL Energy, Origin Energy, Contact Energy, Mercury NZ, Trustpower and Genesis Energy. 8 9 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYFive-year summary – TSR performance (Meridian Energy vs peer group) Chief Executive remuneration performance pay for FY21 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% % 5 8 i n a d i r e M i n a d e m p u o r g r e e P 58% % 9 5 43% % 7 1 18% % 4 1 9% % 9 -8 % FY17 FY18 FY19 FY20 FY21 3,000 2,500 2,000 1,500 1,000 500 0 $(000) I T L l e b a i r a v l a u n n A n o i t a r e n u m e r d e x i F 27% 30% 43% 18% 25% 57% 100% Fixed Remuneratio n Meets Expectations Maximum The TSR summary above illustrates the performance of Meridian’s The chart above depicts elements of the Chief Executive’s shares against a peer group of companies between 1 July 2017 remuneration design under various scenarios for the year ended and 30 June 2021. TSR performance outcomes are independently 30 June 2021, as a proportion of total remuneration. validated by external experts. 9 0 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGY Other remuneration report components LTIS The number of Share Rights that the company’s TSR is equal to or lower In August 2019 the Board approved vest is dependent on the following than the Absolute TSR Benchmark, a new LTI plan to replace Meridian’s Vesting Conditions: • Meridian’s TSR over a three-year performance period (Performance Period) relative to Meridian’s cost of equity and the TSR over the Performance Period of a defined group of NZX Main Board and ASX listed peer companies (Performance Hurdles). no Absolute Share Rights will vest. If the company’s TSR is greater than the Absolute TSR Benchmark, 100% of the Absolute Return Share Rights will vest. The number of Relative Return Share Rights that vest is determined by the company’s TSR in the Performance Period relative to the peer group. For any of the Relative Return Share • If the participant continues to Rights to vest, the company’s TSR be employed by Meridian during must be greater than or equal to the the vesting period (Employment Condition). Under the new LTI plan, the company issues rights to acquire ordinary shares Performance hurdles in the company (Share Rights) to Share Rights are granted in two eligible participants who accept the tranches: • Absolute Return Share Rights. • Relative Return Share Rights. For Absolute Return Share Rights to vest, the company’s TSR must be greater than the absolute TSR 50th percentile/median TSR of the peer group. 100% of the Share Rights will vest on meeting the 75th percentile TSR of the peer group, with vesting on a straight-line basis between these two points. For each three-year plan, an independent external expert measures the TSRs of Meridian and the peer group of companies along with the outcome on the progressive vesting scale. previous LTI plan. Set out below is a summary of the new LTI plan, which was first offered in FY20 (for the period commencing on 1 July 2019 and ending on 30 June 2022). A summary of the previous LTI plan, which was last offered in FY19 (for the period commencing on 1 July 2018 and ending on 30 June 2021) is also included below. New LTI plan offer to participate in the LTI plan. Each Share Right entitles the holder to one ordinary share in the company and an additional number of shares equal to the value of gross cash dividends per share that would have been paid to a New Zealand tax resident who held a share for the duration of the vesting period, calculated using a 10-day, volume-weighted average price. benchmark that is set at the beginning Share Rights will lapse if the Vesting of the vesting period with regard to the Conditions are not satisfied (although company’s cost of equity (Absolute TSR Benchmark) on a compounding annual basis over the Performance Period. If this is subject to the Board’s discretion in relation to the Employment Condition). 9 1 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYPrevious LTI plan Other information The previous LTI plan was a share If the performance hurdles have For each three-year plan, an Meridian has a policy to ensure that loan and cash bonus scheme, where been achieved, a progressive vesting independent external expert the participants of the executive LTI executives purchased Meridian shares scale is applied to determine how measures the TSRs of Meridian and plan are not permitted to enter into via an interest-free loan from the many shares vest: the peer group of companies along transactions (whether through the company, with the shares held on trust by the LTI plan trustee. Any shares awarded depend on whether the following performance hurdles are met over a three-year period: • If the company’s TSR over the three-year period exceeds the 50th percentile TSR of the benchmark peer group, at least 50% of an executive’s • The company’s absolute TSR, shares will vest. which must be positive. • 100% shares will vest on meeting • The company’s TSR compared the 75th percentile TSR of the to a benchmark peer group. peer group, with vesting on a straight-line basis between these two points. • No shares will vest if the company’s TSR is less than the 50th percentile TSR of the peer group. Over the three-year period, any dividends paid on the shares are applied to the executive’s loan balance. Once the vesting level has been confirmed, a cash amount (after the deduction of tax, but before other applicable salary deductions) is used to repay the executive’s outstanding loan balance. with the outcome on the progressive use of derivatives or otherwise) vesting scale. If a TSR is not positive that limit the economic risk of (i.e. in absolute terms is less than participating in the plan. Meridian has written agreements with the Chief Executive and executives setting out the terms of their employment. Neal Barclay will be employed as Chief Executive until his employment is terminated in accordance with his employment agreement. Pursuant to the employment agreement, the Chief Executive and Meridian have mutual rights of termination on the provision of six months’ written notice. Meridian may also terminate the Chief Executive’s employment on the grounds of redundancy or serious misconduct or where an act of bankruptcy is committed. zero), or if a TSR does not meet the peer group relative TSR hurdle of 50th percentile, the shares are forfeited to the trustee and the relevant executive receives no benefits under the LTI plan. Where the TSR is greater than the 50th percentile of the benchmark peer group, but below the 75th percentile, shares that have not vested will also be forfeited. For the LTI plan that vested at the end of 2021, the level of vesting was 100% (2020: 100%). Therefore, the outstanding balance of the interest-free loans at 30 June 2021 of $0.65 million (2020: $0.5 million) has now been repaid. A total amount of 238,725 shares has been transferred to the eligible participants (2020: 208,707) and 96,173 shares forfeited for executives who are no longer employed by Meridian (2020: 154,388). 9 2 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYApproved director remuneration for FY21 Director remuneration is paid from the total director fee pool that was approved by shareholders at the Annual Meeting of 28 October 2016. Shareholder-approved annual director fee pool Board fees Committee fees Total pool Individual Board-approved annual fee breakdown Position held Chair Deputy Chair Director FY20 FY21 $1,000,000 $1,000,000 $100,000 $100,000 $1,100,000 $1,100,000 FY20 FY21 $200,000 $196,500 $140,000 $137,550 $110,000 $108,075 Audit and Risk Committee Chair $22,500 $ 22,106 Audit and Risk Committee member $10,000 $9,825 Safety and Sustainability Committee Chair $15,000 $14,738 Safety and Sustainability Committee member $9,200 $9,039 People and Remuneration Committee Chair $15,000 $14,738 People and Remuneration Committee member $9,100 $8,941 For FY21, director remuneration for each position decreased from that payable in FY20, as the total number of directors on the Board increased, and directors also served on additional committees. However, the total director fee pool remained unchanged from the amount approved by shareholders at the Annual Meeting of 28 October 2016. 9 3 MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYDirector remuneration received in FY21 Name of director Board fees Audit & Risk Committee People & Remuneration Committee Safety & Sustainability Committee Total remuneration Mark Verbiest12 (Chair) $196,500 – Peter Wilson (Deputy Chair) $137,550 $9,825 Mark Cairns $108,075 – Jan Dawson $108,075 $9,825 Anake Goodall $108,075 – Michelle Henderson $108,075 $9,825 Julia Hoare $108,075 $22,106 (Chair) – – – $14,738 (Chair) – – – Nagaja Sanatkumar $108,075 – $8,941 – $196,500 $9,039 $156,414 $14,738 (Chair) $122,813 – $132,638 $9,039 $117,114 $9,039 $126,939 – – $130,181 $117,016 Total $982,500 $51,581 $23,679 $41,855 $1,099,615 Directors are reimbursed for all reasonable and properly documented expenses incurred in performing their duties as Meridian directors. No additional payments or benefits were received by directors in FY21. Meridian employees appointed as directors of Meridian subsidiaries do not receive any directorship fees. 94 12 Does not receive additional fees for Committee membership. MERIDIAN INTEGRATED REPORT 2021REWARDING ENERGYFurther disclosures Further disclosures required by the NZX Listing Rules, the Companies Act 1993 and other legislation and rules 9 5 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESMeridian Energy The table opposite outlines the current directors of Meridian Energy Limited. There were no changes among the Company name Directors Meridian Energy Limited Mark Cairns, Jan Dawson, Anake Goodall, Michelle Henderson, Julia Hoare, Nagaja Sanatkumar, Mark Verbiest, Peter Wilson people who held office as directors of The Board has determined that as at 30 June 2021, all Meridian directors are Meridian Energy Limited during FY21. independent. The factors relevant to this determination are that no director: • has, within the past three years, been employed in an executive role by Meridian or any of its subsidiaries • has held, within the past 12 months, a senior role in a provider of material professional services to Meridian or its subsidiaries • has had, within the past three years, a material business relationship with Meridian or its subsidiaries • is a substantial product holder of Meridian, or a senior manager of, or a person otherwise associated with a substantial product holder of Meridian • has had, within the past three years, a material contractual relationship with Meridian or any of its subsidiaries • has close family ties with anyone in the categories listed above • has been a director of Meridian for a length of time that may compromise independence. Current Board and Executive team gender composition In accordance with NZX Listing Rules, the gender make-up of Meridian’s directors and officers as at 30 June 2021 is: Number of directors Percentage of directors Number of officers Percentage of officers As at 30 June 2021 As at 30 June 2020 Female Male Female Male 4 50% 4 36% 4 50% 7 64% 4 50% 4 40% 4 50% 6 60% 96 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESMeridian subsidiaries New Zealand subsidiaries The opposite and following tables list Company name Company number Directors Further information the subsidiaries of Meridian Energy Limited during the accounting period, Dam Safety Intelligence Limited 6152623 Neal Barclay, Tania Palmer No changes and any changes to those subsidiaries Flux Federation Limited 6292491 Neal Barclay, Michael Roan No changes and among the people who held office as directors. Meridian Energy Captive Insurance Limited 1612020 Neal Barclay, Michael Roan No changes Meridian Energy International Limited 1114014 Neal Barclay, Michael Roan No changes Meridian Limited 863312 Neal Barclay, Michael Roan No changes Meridian LTI Trustee Limited 4644639 Anake Goodall, Jan Dawson No changes Powershop New Zealand Limited 1978930 Neal Barclay, Michael Roan Amalgamated with Meridian Energy Limited on 30 April 2021 and has been removed from the Companies Office register Powershop New Zealand Limited 8184062 Neal Barclay, Michael Roan Incorporated on 7 May 2021 Three River Holdings No. 1 Limited 1920517 Neal Barclay, Michael Roan No changes Three River Holdings No. 2 Limited 1920515 Neal Barclay, Michael Roan No changes 9 7 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESAustralian subsidiaries Company name Directors Further information Meridian Australia Holdings Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Meridian Energy Australia Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Meridian Energy Markets Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Meridian Finco Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Meridian Wind Australia Holdings Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Meridian Wind Monaro Range Holdings Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Meridian Wind Monaro Range Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Mt Millar Wind Farm Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Mt Mercer Windfarm Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Powershop Australia Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein GSP Energy Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Rangoon Energy Park Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein Wandsworth Wind Farm Pty Limited Neal Barclay, Tony Sherburn, Mike Roan, Jason Stein No changes No changes No changes No changes No changes No changes No changes No changes No changes No changes No changes No changes No changes UK subsidiaries Company name Flux-UK Limited Directors Further information Tania Palmer, Guy Waipara No changes 9 8 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESParticulars of entries in the interests register made during the accounting period Shareholders can review Meridian Energy Limited’s full interests register on request. In accordance with sections 140 and 211(e) of the Companies Act 1993, the table opposite lists the general disclosures of interest by directors of Meridian Energy Limited and its subsidiaries. Name Position Disclosures Mark Cairns Director, Meridian Energy Limited and Meridian LTI Trustee Limited Coda GP Limited, Director** Freightways Limited, Director* Northport Limited, Director** Port of Tauranga, Employee** Port of Tauranga Trustee Company Limited, Director** Quality Marshalling Limited, Chair** Sanford Limited, Director* Jan Dawson Director, Meridian Energy Limited and Meridian LTI Trustee Limited AIG Insurance New Zealand Limited, Director Air New Zealand Limited, Bondholder** Anake Goodall Director, Meridian Energy Limited and Meridian LTI Trustee Limited Air New Zealand Limited, Director and Shareholder Mercury NZ Limited, Shareholder Westpac New Zealand Limited, Chair Ekos, Chair** Impax Environmental Markets, Shareholder Moreton Resources Limited, Shareholder Seed the Change – He Kākano Hāpai, Chair Michelle Henderson Director, Meridian Energy Limited Cycling New Zealand Incorporated, Board Member* Fulton Hogan Australia (Management) Pty Limited, Director* Fulton Hogan Australia Pty Limited, Director* Fulton Hogan Construction Pty Limited, Director* Fulton Hogan Industries Pty Limited, Director* Fulton Hogan Land Development Limited, Director* Fulton Hogan Limited, Director* Fulton Hogan Quarries Pty Limited, Director* Fulton Hogan Transport Pty Limited, Director* Fulton Hogan Utilities Pty Limited, Director* Southern Institute of Technology Engineering and Trades Advisory Committee, Member Youthline Southland Charitable Trust, Trustee Julia Hoare Director, Meridian Energy Limited Auckland International Airport Limited, Director and Shareholder AWF Madison Limited (now known as Accordant Group Limited), Director** External Reporting Advisory Panel, Member** Institute of Directors, Vice President Mercury NZ Limited, Shareholder Port of Tauranga, Director and Shareholder* Sustainable Finance Forum, Leaders’ Group, Member The a2 Milk Company Limited, Deputy Chair and Shareholder Watercare Services Limited, Deputy Chair** 9 9 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESName Position Disclosures Nagaja Sanatkumar Director, Meridian Energy Limited Amazon.com, Inc, Shareholder Cawthron Institute, Director* First Fibre Bidco NZ Limited, Director* First Fibre Midco Limited, Director* Imagen8 Limited, Director Mediaworks Investments Limited, Director* Mercury NZ Limited, Shareholder* New Zealand Post Limited, Director Nova Digital Consulting Limited, Director and Principal Trustpower Limited, Bondholder* UFF Holdings Limited, Director* Ultrafast Fibre Limited, Director* Vector Limited, Bondholder* Z Energy Limited, Bondholder* Mark Verbiest Director, Meridian Energy Limited ANZ Bank New Zealand Limited, Director Freightways Limited, Chair and Shareholder Infratil Limited, Shareholder Mycare Limited, Shareholder NZ Treasury Advisory Board** Southern Alps Rescue Trust, Trustee Southern Lakes Art Festival Trust, Trustee Willis Bond Capital Partners Limited, Chair and Shareholder** Willis Bond General Partner Limited, Chair** Peter Wilson Director, Meridian Energy Limited Arvida Group, Chair Contact Energy Limited, Shareholder Genesis Energy Limited, Shareholder and Bondholder Infratil Limited, Shareholder Mercury NZ Limited, Shareholder and Bondholder * Entries added and effective during the year ended 30 June 2021. ** Entries removed during the year ended 30 June 2021. 1 0 0 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESDuring FY21, the disclosures opposite were made in accordance with section 148 of the Companies Act 1993. Director Nature of relevant interest Date Michelle Henderson Beneficial interest 1) 22 March 2021 2) 21 April 2021 Acquisition/ Disposal Acquisition Julia Hoare Beneficial interest 22 March 2021 Acquisition Mark Verbiest Beneficial interest 7 April 2021 Acquisition Class Shares Shares Shares Number acquired Consideration received per share 1) 1,781.7857 2) 1,742.882 1) $5.550 2) $5.725 4,000 $5.375 10,000 $5.266 Director indemnity and insurance Pursuant to section 162 of the Companies Act 1993, as permitted by Meridian’s constitution, Deeds of Indemnity have been given to directors for potential liabilities and costs they might incur for actions or omissions in their capacity as directors. From 1 May 2021, Meridian’s directors’ and officers’ liability insurance was renewed to cover risks normally covered by such policies. Insurance is not provided for dishonest, fraudulent, malicious or wilful acts or omissions. Donations The Meridian Energy Group made donations totalling $0.3 million during FY21. Meridian does not make donations to political parties. All donations must be approved by the Board. Auditor Interests in Meridian securities Senior managers’ equity holdings The Auditor-General has appointed In accordance with NZX Listing As at 30 June 2021, the following Mike Hoshek of Deloitte Limited as Rule 3.7.1(d), as at 30 June 2021 senior managers had relevant interests auditor of the company. Meridian Meridian Energy Limited directors in Meridian Energy Limited shares. and its subsidiariets paid $0.8 million had the following relevant interests (2020: $0.8 million) to Deloitte Limited in Meridian Energy Limited Quoted as audit fees in FY21. Financial Products. The fees for other services under- taken by Deloitte Limited during FY21 totalled $0.1 million (2020: $0.1 million). These related to other assurance activities, including reviews of carbon emissions, securities registers, vesting of the executive LTI plan, the solvency return Director Number of shares* Number of bonds Mark Cairns 235,000 Jan Dawson 51,300 Anake Goodall 60,000 of Meridian Energy Captive Insurance Michelle Henderson 3,525 Limited and trustee reporting. Meridian has also paid $14,000 (2020: $14,000) to Deloitte Limited Julia Hoare 4,000 Nagaja Sanatkumar 3,723 for administrative and other advisory Mark Verbiest 45,000 services to the Corporate Taxpayers Group (CTG), of which Meridian, along- side a number of other organisations, is a member. In addition to this, Meridian has paid $5,000 (2020: nil) to Deloitte Limited for consultancy services relating to the CFO Vantage Programme. Peter Wilson 99,170 * Rounded to the nearest whole number. – – – – – – – – Senior manager Neal Barclay Chris Ewers Mat Bayliss Lisa Hannifin Mike Roan Jason Stein Guy Waipara Number of shares 725,752 91,959 12,850 68,675 318,999 344,281 388,174 1 01 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESTwenty largest registered holders of quoted financial products as at the balance date The table opposite lists the company’s 20 largest registered shareholders as at 30 June 2021. Names Number of shares % of issued shares Her Majesty the Queen in Right of New Zealand Acting by and Through Her Minister of Finance and Minister for SOEs HSBC Nominees (New Zealand) Limited HSBC Nominees (New Zealand) Limited A/C State Street* J.P. Morgan Chase Bank Na NZ Branch-Segregated Clients Acct* Citibank Nominees (New Zealand) Limited* Accident Compensation Corporation* National Nominees Limited* HSBC Nominees A/C NZ Superannuation Fund Nominees Limited* BNP Paribas Nominees (NZ) Limited* Custodial Services Limited BNP Paribas Nominees (NZ) Limited* JBWere (NZ) Nominees Limited Custodial Services Limited Forsyth Barr Custodians Limited HSBC Custody Nominees (Australia) Limited* BNP Paribas Nominees (NZ) Limited* TEA Custodians Limited Client Property Trust Account* New Zealand Depository Nominee Limited Custodial Services Limited ANZ Wholesale Australasian Share Fund* 1,307,586,374 131,033,565 113,085,329 91,811,900 89,840,670 52,164,972 34,622,131 31,667,841 29,950,059 28,771,467 25,301,457 24,059,850 23,098,774 18,451,631 18,162,568 18,141,529 17,514,992 17,104,009 16,025,175 14,455,001 51.01 5.11 4.41 3.58 3.50 2.03 1.35 1.23 1.16 1.12 0.98 0.93 0.90 0.72 0.70 0.70 0.68 0.66 0.62 0.56 * Held through New Zealand Central Securities Depository Limited (NZCSD). NZCSD provides a custodial service that allows electronic trading of securities by its members. 1 0 2 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESThe table opposite lists the company’s 20 largest registered Names holders of MEL030 retail fixed-rate BNP Paribas Nominees (NZ) Limited* bonds as at 30 June 2021. BNP Paribas Nominees (NZ) Limited* FNZ Custodians Limited Forsyth Barr Custodians Limited Citibank Nominees (New Zealand) Limited* Mt Nominees Limited* Investment Custodial Services Limited Ning Gao Custodial Services Limited TEA Custodians Limited Client Property Trust Account* Southern Cross Medical Care Society* Custodial Services Limited Hobson Wealth Custodian Limited ANZ Custodial Services New Zealand Limited* Custodial Services Limited Custodial Services Limited JBWere (NZ) Nominees Limited FNZ Custodians Limited University of Otago Foundation Trust Custodial Services Limited Number of shares % of issued shares 23,047,000 21,605,000 14,557,000 11,941,000 9,552,000 4,000,000 3,566,000 3,331,000 3,132,000 3,035,000 3,000,000 2,769,000 2,733,000 2,638,000 2,451,000 2,139,000 2,100,000 1,709,000 1,400,000 1,268,000 15.36 14.40 9.70 7.96 6.37 2.67 2.38 2.22 2.09 2.02 2.00 1.85 1.82 1.76 1.63 1.43 1.40 1.14 0.93 0.85 1 0 3 * Held through New Zealand Central Securities Depository Limited (NZCSD). NZCSD provides a custodial service that allows electronic trading of securities by its members. MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESThe table opposite lists the company’s 20 largest registered Names holders of MEL040 retail fixed-rate BNP Paribas Nominees (NZ) Limited* bonds as at 30 June 2021. Citibank Nominees (New Zealand) Limited* BNP Paribas Nominees (NZ) Limited* Custodial Services Limited FNZ Custodians Limited Custodial Services Limited HSBC Nominees (New Zealand) Limited* Forsyth Barr Custodians Limited Custodial Services Limited Custodial Services Limited Hobson Wealth Custodian Limited TEA Custodians Limited Client Property Trust Account* NZPT Custodians (Grosvenor) Limited* Custodial Services Limited BNP Paribas Nominees (NZ) Limited* Adminis Custodial Limited Forsyth Barr Custodians Limited ANZ Custodial Services New Zealand Limited* FNZ Custodians Limited Woolf Fisher Trust Incorporated Number of shares % of issued shares 21,149,000 13,940,000 11,450,000 8,980,000 8,048,000 7,349,000 7,060,000 6,700,000 4,818,000 3,956,000 3,810,000 3,446,000 3,000,000 2,636,000 2,500,000 2,357,000 1,842,000 1,789,000 1,321,000 1,300,000 14.10 9.29 7.63 5.99 5.37 4.90 4.71 4.47 3.21 2.64 2.54 2.30 2.00 1.76 1.67 1.57 1.23 1.19 0.88 0.87 * Held through New Zealand Central Securities Depository Limited (NZCSD). NZCSD provides a custodial service that allows electronic trading of securities by its members. 1 0 4 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESThe table opposite lists the company’s 20 largest registered Names holders of MEL050 retail fixed-rate ANZ Custodial Services New Zealand Limited* bonds as at 30 June 2021. Number of shares % of issued shares 39,603,000 19.80 FNZ Custodians Limited Forsyth Barr Custodians Limited HSBC Nominees (New Zealand) Limited A/C State Street* BNP Paribas Nominees (NZ) Limited* Hobson Wealth Custodian Limited Custodial Services Limited ANZ Custodial Services New Zealand Limited* HSBC Nominees (New Zealand) Limited* Investment Custodial Services Limited Citibank Nominees (New Zealand) Limited* Custodial Services Limited Mint Nominees Limited* Mt Nominees Limited* Custodial Services Limited Custodial Services Limited JBWere (NZ) Nominees Limited NZPT Custodians (Grosvenor) Limited* TEA Custodians Limited Client Property Trust Account* Custodial Services Limited 18,517,000 18,364,000 11,900,000 10,083,000 9,190,000 8,545,000 6,708,000 5,177,000 4,784,000 4,400,000 4,331,000 4,138,000 4,000,000 3,946,000 3,812,000 2,831,000 2,570,000 2,390,000 1,950,000 9.26 9.18 5.95 5.04 4.60 4.27 3.35 2.59 2.39 2.20 2.17 2.07 2.00 1.97 1.91 1.42 1.29 1.20 0.98 * Held through New Zealand Central Securities Depository Limited (NZCSD). NZCSD provides a custodial service that allows electronic trading of securities by its members. 1 0 5 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURES Substantial security holder The information opposite is given Name pursuant to section 293 of the Financial Markets Conduct Act 2013 (FMCA). Ordinary shares Relevant interest in number of shares % of shares held at the date of notice Date of notice According to notice given pursuant to Her Majesty the Queen in Right of New Zealand 1,353,786,550 52,820 6 July 2015 section 280 of the FMCA, the substantial security holder in the company and its relevant interests as at the date of the notice are noted opposite. The total number of voting products in the class as at 30 June 2021 was 2,563,000,00013. Distribution of shareholders and holdings as at 30 June 2021 Size of holding Number of holders % Number of shares Holding quantity % The table opposite provides information 1–1,000 on the distribution of shareholders and holdings of Meridian Energy Limited ordinary shares as at 30 June 2021. 1,001–5,000 5,001–10,000 10,001–50,000 50,001–100,000 100,001–500,000 500,001 and over Total 9,225 21,882 8,370 6,096 436 175 74 46,258 19.94 47.3 18.09 13.18 0.94 0.38 0.16 100 7,134,926 62,894,346 65,601,744 123,431,771 30,513,812 33,352,802 2,240,070,599 2,563,000,000 0.28 2.45 2.56 4.82 1.19 1.30 87.4 100 1 0 6 13 As at 30 June 2021, the total number of ordinary shares was 2,563,000,000, which included 885,842 ordinary shares held by Meridian as treasury stock. MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESDistribution of bondholders and holdings as at 30 June 2021 Size of holding The table opposite provides information on the distribution of MEL030 retail 1,001–5,000 fixed-rate bonds as at 30 June 2021. 5,001–10,000 The table opposite provides information on the distribution of MEL040 retail fixed-rate bonds as at 30 June 2021. 10,001–50,000 50,001–100,000 100,001–500,000 500,001 and over Total Size of holding 1,001–5,000 5,001–10,000 10,001–50,000 50,001–100,000 100,001–500,000 500,001 and over Total Number of bondholders % of bondholders Number of bonds % of bonds 73 168 364 31 43 28 707 10.33 23.76 51.49 4.38 6.08 3.96 100 365,000 1,601,000 10,096,000 2,601,000 8,945,000 126,392,000 150,000,000 0.24 1.07 6.73 1.73 5.96 84.26 100 Number of bondholders % of bondholders Number of bonds % of bonds 36 104 404 66 31 29 670 5.37 15.52 60.30 9.85 4.63 4.33 100 177,000 973,000 10,770,000 5,090,000 7,432,000 125,558,000 150,000,000 0.12 0.65 7.18 3.39 4.95 83.71 100 1 07 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESThe table opposite provides information on the distribution of MEL050 retail fixed-rate bonds as at 30 June 2021. Size of holding 1,001–5,000 5,001–10,000 10,001–50,000 50,001–100,000 100,001–500,000 500,001 and over Total Number of bondholders % of bondholders Number of bonds % of bonds 30 91 323 73 28 32 577 5.20 15.77 55.98 12.65 4.85 5.55 100 150,000 849,000 8,785,000 5,610,000 6,140,000 178,466,000 200,000,000 0.08 0.42 4.39 2.81 3.07 89.23 100 Waivers from NZX Non-standard designation Registration as a foreign company On 31 January 2020, NZX Regulation In New Zealand, Meridian Energy Meridian has registered with the published a waiver decision in respect Limited has a ‘non-standard’ (NS) Australian Securities and Investments of Listing Rules 5.2.1 and 8.1.5, which designation on the NZX Main Board. Commission as a foreign company re-documented a prior waiver decision This is due to particular provisions of and has been issued with the Australian dated 18 September 2013. A copy of this the company’s constitution, including Registered Body Number of 151 800 396. waiver decision and a summary of all requirements that regulate the waivers granted and published by the ownership and transfer of Meridian ASX disclosures NZX or relied on by Meridian during securities. The NS designation is also Meridian holds a foreign exempt the 12 months preceding 30 June 2021 required as a condition of any NZX listing on the ASX. As a requirement is available on Meridian’s website at: waivers and approvals. www.meridianenergy.co.nz/investors/ governance/nzx-waivers. Credit rating as at 30 June 2021 S&P Global Ratings reaffirmed Meridian Energy Limited’s credit rating of BBB+/stable/A-2 on 30 June 2021. of admission Meridian must make the following disclosures: • Meridian’s place of incorporation is New Zealand. • Meridian is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations Act 2001 dealing with the acquisition of shares (including substantial holdings and takeovers). 1 0 8 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURES Shareholding restrictions 10% limit The Public Finance Act 1989 was No person (other than the Crown) may amended in June 2012 to include have a ‘relevant interest’14 in more than Determining whether a breach has occurred Effect of exceeding the 10% Limit A person who is in breach of the 10% restrictions on the ownership of 10% of the shares on issue (10% Limit). The company has the power to Limit must: certain types of security issued by each mixed-ownership-model company (including Meridian) and the consequences of breaching those restrictions. The constitution incorporates these restrictions and mechanisms for monitoring and enforcing them. A summary of the restrictions on the The company must not issue, acquire, redeem or transfer any shares if it has actual knowledge that such issue, acquisition, redemption or transfer will result in any person other than determine whether a breach of the 10% Limit has occurred. In broad terms, if: • the company considers that a person may be in breach of the 10% Limit; or the Crown exceeding the 10% Limit. • a holder of shares fails to lodge Ascertaining whether a breach has occurred a statutory declaration when required to do so or lodges a declaration that has not been ownership of shares under the Public If a holder of shares breaches the completed to the reasonable Finance Act and the constitution is set 10% Limit or knows or believes that a satisfaction of the company, out below. If in the future the company person who has a relevant interest in issues any other class of shares, or other shares held by that holder may have securities confer voting rights, the a relevant interest in shares in breach restrictions summarised below will of the 10% Limit, the holder must also apply to those other classes of notify the company of the breach shares or voting securities. or potential breach. Meridian is required to determine whether or not the 10% Limit has been breached and, if so, whether or not that breach was inadvertent. The company must give the affected shareholder the opportunity to make representations 51% holding The Crown must hold at least 51% of the shares on issue. The company must not issue, acquire or redeem any shares if such issue, acquisition or redemption would result in the Crown falling below this 51% holding. Meridian may require a holder of to the company before it makes a shares to provide the company with determination on these matters. a statutory declaration if the Board knows or believes that a person is, or is likely to be, in breach of the 10% Limit. That statutory declaration is required to include, where applicable, details of all persons who have relevant interests in shares as a result of the shares held by or on behalf of that holder. • comply with any notice that they receive from the company requiring them to dispose of shares or their relevant interest in shares, or take any other steps that are specified in the notice, for the purpose of remedying the breach and reducing their holding below the 10% Limit • ensure that they are no longer in breach within 60 days after the date on which they became aware, or ought to have been aware, of the breach. If the breach is not remedied within that timeframe, the company may arrange for the sale of the relevant number of shares on behalf of the relevant shareholder. In those circumstances the company will pay the net proceeds of sale, after the deduction of any other costs incurred in connection with the sale (including brokerage and the costs of investigating the breach of the 10% Limit), to the relevant shareholder as soon as practicable after the sale has been completed. 14 In broad terms, a person has a ‘relevant interest’ in a share if the person (a) is the registered holder or beneficial owner of the share; or (b) has the power to exercise, or control the exercise of, a right to vote attached to the share or has the power to acquire or dispose of, or to control the acquisition or disposition of, that share. A person may also have a ‘relevant interest’ in a share in which another person has a ‘relevant interest’ depending on the nature of the relationship between them. 1 0 9 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESIf a relevant interest is held in any The Board may refuse to register shares in breach of the 10% Limit then, a transfer of shares if it knows or Trustee corporations and nominee companies NZX Corporate Governance Code for as long as that breach continues: believes that the transfer will result Trustee corporations and nominee Meridian complied with the NZX in a breach of the 10% Limit or where companies (that hold securities on Corporate Governance Code the transferee has failed to lodge a behalf of a large number of separate recommendations in all material statutory declaration requested from underlying beneficial holders) are respects during FY21 other than it by the Board within 14 days of the exempt from the 10% Limit provided in respect of recommendation date on which the company gave that certain conditions are satisfied. 3.6 as the Board has determined, notice to the transferee to provide such statutory declaration. Share cancellation given Meridian’s status as a mixed- ownership model company, that it Crown directions In certain circumstances shares can is not appropriate or necessary for be cancelled by Meridian through a Meridian to adopt a takeover protocol, The Crown has the power to direct reduction of capital, share buyback although there are protocols to ensure the Board to exercise certain of the or other form of capital reconstruction compliance with the constitution. powers conferred on it under the approved by the Board and, where Meridian has a separate Corporate constitution. For example, where the applicable, shareholders. Crown suspects that the 10% Limit has been breached but the Board has not taken steps to investigate the suspected breach, the Crown may require the company to investigate whether a breach of the 10% Limit has occurred or to exercise a power of sale of the relevant share that has arisen as described under the heading ‘Effect of exceeding the 10% Limit’ above. Governance Statement available on its website at www.meridianenergy. co.nz/investors/governance. The Corporate Governance Statement outlines in detail Meridian’s compliance with the NZX Corporate Governance Code and is current as at 24 August 2021. • no votes may be cast directly by a shareholder in respect of any of the shares in which a relevant interest is held in excess of the 10% Limit • a registered holder of shares in which a relevant interest is held in breach of the 10% Limit will not be entitled to receive, in respect of the shares in which a relevant interest is held in excess of the 10% Limit, any dividend or other distribution authorised by the Board in respect of the shares. However, if the Board determines that a breach of the 10% Limit was not inadvertent, or that it does not have sufficient information to determine that the breach was not inadvertent, the restrictions on voting and the entitlement to receive dividends and other distributions described in the preceding paragraphs will apply in respect of all the shares (as applicable) held by the relevant shareholder or holder (and not just the shares in which a relevant interest is held in excess of the 10% Limit). 11 0 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESTrade associations Largest contributions Value to electricity customers • Electricity Retailers’ Association of New Zealand • Australian Energy Council Sustainable business • Sustainable Business Council • Sustainable Business Network • The New Zealand Initiative Clean energy advocacy • Melbourne Energy Institute • Clean Energy Council • New Zealand Wind Energy Association • New Zealand Hydrogen Association • Electricity Engineers’ Association • Drive Electric Other large business expenditure • BusinessNZ • The Hugo Group • New Zealand Shareholders’ Association 111 MERIDIAN INTEGRATED REPORT 2021FURTHER DISCLOSURESGenerating returns 11 2 MERIDIAN INTEGRATED REPORT 2021FINANCIALS11 3 MERIDIAN INTEGRATED REPORT 2021FINANCIALSGroup financial statements Notes to the Group financial statements 115 Income Statement The income earned and operating expenditure incurred by the Meridian Group during the financial year. 115 Comprehensive Income Statement Items of income and operating expense, that are not recognised in the income statement and hence taken to reserves in equity. 119 121 123 About this report Significant matters in the financial year A. Financial performance A1. Segment performance A3. Expenses A2. Income A4. Taxation 129 B. Assets used to generate and sell electricity B1. Property, plant and equipment B2. Intangible assets 116 Balance Sheet 134 C. Managing funding A summary of the Meridian Group assets and liabilities at the end of the financial year. 117 Statement of Changes in Equity Components that make up the capital and reserves of the Meridian Group and the changes of each component during the financial year. 118 Statement of Cash Flows Cash generated and used by the Meridian Group. Key 114 Subsequent event Key judgements and estimates Risks C1. Capital management C6. Trade receivables C2. Share capital C7. Borrowings C3. Earnings per share C8. Green financing C4. Dividends C9. Lease liabilities C5. Cash and cash equivalents C10. Commitments D. Financial instruments used to manage risk D1. Financial risk management E. Group structure E1. Subsidiaries F. Other 143 155 156 F1. Share-based payments F4. Contingent assets and liabilities F2. Related parties F5. Subsequent events F3. Auditors remuneration F6. Changes in financial reporting standards 161 Signed report Independent auditor’s report MERIDIAN INTEGRATED REPORT 2021FINANCIALS Income Statement For the year ended 30 June 2021 Comprehensive Income Statement For the year ended 30 June 2021 Note A2 A3 A3 A3 A3 D1 A3 A2 D1 A4 Operating revenue Operating expenses Earnings before interest, tax, depreciation, amortisation, changes in fair value of hedges and other significant items (EBITDAF) Depreciation and amortisation Reversal of previous impairment of assets Gain/(loss) on sale of assets Net change in fair value of energy hedges Operating profit Finance costs Interest income Net change in fair value of treasury hedges Net profit before tax Tax expense Net profit after tax attributed to the shareholders of the parent company Earnings per share (EPS) attributed to ordinary equity holders of the parent 2021 $M Restated* 2020 $M 4,296 3,405 Net profit after tax (3,567) (2,552) Other comprehensive income Items that will not be reclassified to profit or loss: Asset revaluation Deferred tax on the above item Items that may be reclassified to profit or loss: Net (loss)/gain on cash flow hedges Exchange differences arising from translation of foreign operations Income tax on the above items Other comprehensive income for the year, net of tax Total comprehensive income for the year, net of tax attributed to shareholders’ of the parent company 729 (303) 6 (1) 169 600 (84) – 79 595 (167) 853 (312) (58) – (113) 370 (85) 1 (48) 238 (63) 428 175 Cents Cents Note B1 A4 A4 2021 $M 428 Restated* 2020 $M 175 202 (58) 144 6 2 (2) 6 150 (22) 7 (15) 2 11 (1) 12 (3) 578 172 Basic and diluted earnings per share C3 16.7 6.8 * Refer to Significant matters section for details on 2020 restatement. The notes to the Group financial statements form an integral part of these financial statements. 11 5 MERIDIAN INTEGRATED REPORT 2021FINANCIALSBalance Sheet As at 30 June 2021 Current assets Cash and cash equivalents Trade receivables Customer contract assets Financial instruments Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Deferred tax Financial instruments Other assets Total non-current assets Total assets Note 2021 $M Restated* 2020 $M Note 2021 $M Restated* 2020 $M C5 C6 D1 B1 B2 A4 D1 148 491 25 192 61 917 176 323 24 100 42 665 8,598 8,594 84 35 214 8 8,939 9,856 64 34 265 – 8,957 9,622 Current liabilities Payables and accruals Employee entitlements Customer contract liabilities Current portion of term borrowings Current portion of lease liabilities Financial instruments Current tax payable Total current liabilities Non-current liabilities Term borrowings Deferred tax Provisions Lease liabilities Financial instruments Term payables Total non-current liabilities Total liabilities Shareholders’ equity Share capital Reserves Total shareholders’ equity Total liabilities and shareholder’s equity C7 C9 D1 C7 A4 C9 D1 C2 577 25 23 378 7 63 37 364 24 23 88 7 63 79 1,110 648 1,298 1,940 23 90 131 40 3,522 4,632 1,595 3,629 5,224 9,856 1,600 1,850 17 97 279 49 3,892 4,540 1,598 3,484 5,082 9,622 For and on behalf of the Board of Directors who authorised the issue of the financial statements on 24 August 2021. Mark Verbiest, Chair, 24 August 2021 Julia Hoare, Chair, Audit and Risk Committee, 24 August 2021 * Refer to Significant matters section for details on 2020 restatement. 11 6 The notes to the Group financial statements form an integral part of these financial statements. MERIDIAN INTEGRATED REPORT 2021FINANCIALSStatement of Changes in Equity For the year ended 30 June 2021 $M Balance at 1 July 2019 Net profit for the 2020 financial year Other comprehensive income Asset revaluation Net gain on cash flow hedges Exchange differences from translation of foreign operations Income tax relating to other comprehensive income Total other comprehensive income, net of tax Total comprehensive income for the year, net of tax Share-based transactions Dividends paid Balance at 30 June 2020 and 1 July 2020 (Restated)* Net profit for the 2021 financial year Other comprehensive income Asset revaluation Transferred to retained earnings on disposal Net loss on cash flow hedges Exchange differences from translation of foreign operations Income tax relating to other comprehensive income Total other comprehensive income, net of tax Total comprehensive income for the year, net of tax Share-based transactions Dividends paid Balance at 30 June 2021 Note B1 A4 C2,F1 C4 B1 A4 C2,F1 C4 Share option reserve Revaluation reserve Foreign currency translation reserve Cash flow hedge reserve 1 5,068 (37) – – – – – – – – – – (22) – – 7 (15) (15) – – – – – 11 – 11 11 – – (3) – – 2 – (1) 1 1 – – Share capital 1,599 – – – – – – – (1) – Retained earnings Total equity (1,171) 5,457 175 175 – – – – – 175 – (546) (22) 2 11 6 (3) 172 (1) (546) 1,598 1 5,053 (26) (2) (1,542) 5,082 – – – – – – – – (3) – – – – – – – – – – – – 202 1 – – (58) 145 145 – – – – – – 2 – 2 2 – – 1,595 1 5,198 (24) – – – 6 – (2) 4 4 – – 2 428 – (1) – – – (1) 427 – (433) 428 202 – 6 2 (60) 150 578 (3) (433) (1,548) 5,224 * Refer to Significant matters section for details on 2020 restatement. The notes to the Group financial statements form an integral part of these financial statements. 117 MERIDIAN INTEGRATED REPORT 2021FINANCIALSS L A I C N A N I F Statement of Cash Flows For the year ended 30 June 2021 Operating activities Receipts from customers Interest received Payments to suppliers and employees Interest paid Income tax paid Operating cash flows Investing activities Sale of property, plant and equipment Purchase of property, plant and equipment Purchase of intangible assets Purchase of subsidiary Investing cash flows Financing activities Term borrowings drawn Term borrowings repaid Lease liabilities repaid Dividends paid Shares purchased for long-term incentive Financing cash flows Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of exchange rate changes on net cash Cash and cash equivalents at end of year C5 Note 2021 $M Restated* 2020 $M 4,164 3,375 – 1 (3,472) (2,520) C5 E1 C7 C7 C7, C9 C4 C2, F1 (82) (179) 431 – (76) (38) – (114) 108 (10) (7) (433) (3) (345) (28) 176 – 148 (79) (173) 604 – (43) (19) (2) (64) 172 (60) (7) (546) (2) (443) 97 78 1 176 * Refer to Significant matters section for details on 2020 restatement. 11 8 The notes to the Group financial statements form an integral part of these financial statements. MERIDIAN INTEGRATED REPORT 2021About this report In this section The notes to the financial statements Meridian Energy Limited is dual listed on include information which is considered the New Zealand Stock Exchange (NZX) relevant and material to assist the and the Australian Securities Exchange reader in understanding changes (ASX). As a mixed ownership company, in Meridian’s financial position majority owned by Her Majesty the or performance. Information is Queen in Right of New Zealand, it is considered relevant and material if: bound by the requirements of the • the amount is significant because Public Finance Act 1989. of its size and nature; These financial statements have • it is important for understanding been prepared: the results of Meridian; • it helps to explain changes in Meridian’s business; or • it relates to an aspect of Meridian’s operations that is important to future performance. • in accordance with Generally Accepted Accounting Practice (GAAP) in New Zealand and comply with International Financial Reporting Standards (IFRS) and the New Zealand equivalents (NZ IFRS), as appropriate for a for-profit entity; Meridian Energy Limited is a for- • in accordance with the requirements profit entity domiciled and registered of the Financial Markets Conduct under the Companies Act 1993 in Act 2013; New Zealand. It is an FMC reporting entity for the purposes of the Financial Markets Conduct Act 2013. Meridian’s core business activities are the generation, trading and retailing of electricity and the sale of complementary products and services. The registered office of Meridian is Level 2, 55 Lady Elizabeth Lane, Wellington. • on the basis of historical cost, modified by revaluation of certain assets and liabilities; • in New Zealand dollars (NZD), with all values rounded to millions ($M) unless otherwise stated; and • using accounting policies as provided throughout the notes to the financial statements. Key judgements and estimates In the process of applying the Group’s accounting policies and application of accounting standards, Meridian has made a number of judgements and estimates. The estimates and underlying assumptions are based on historical experience and various other factors that are considered to be appropriate under the circumstances. Actual results may differ from these estimates. Judgements and estimates which are considered material to understanding the performance of Meridian are found in the following notes: Note A2 Income B1 Property, plant and equipment D1 Financial risk management 11 9 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021Basis of consolidation Foreign currency The Group financial statements Transactions denominated in foreign comprise the financial statements currencies are converted at the exchange of Meridian Energy Limited and its rates at the date of the transactions. subsidiaries and controlled entities, Foreign currency monetary assets as contained in Note E1 Subsidiaries. and liabilities are translated at the rate The financial statements of members of prevailing at balance date, 30 June 2021. the Group are prepared for the same The assets and liabilities of international reporting period as the parent company, subsidiaries are translated to NZD at the using consistent accounting policies. closing rate at balance date. The revenue In preparing the Group financial statements, all material intra-group transactions, balances, income and expenses have been eliminated. and expenses of these subsidiaries are translated at rates approximating the exchange rates at the dates of the transactions. Subsidiaries are consolidated from When the financial statements of the date on which control is obtained subsidiaries are translated into NZD, to the date on which control is lost. exchange differences can arise. These are recorded in the foreign currency translation reserve (within equity). If an international subsidiary is disposed of, these cumulative translation differences are recognised in the income statement in the period in which that occurs. The principal functional currency of international subsidiaries is Australian dollars; the closing rate at 30 June 2021 was 0.9311 (30 June 2020: 0.9349). A full list of international subsidiaries and their functional currencies are provided in Note E1 Subsidiaries. 1 2 0 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021Significant matters in the financial year In this section Significant matters which have impacted Meridian’s financial performance and an explanation of non-GAAP measures used within the notes to the financial statements. New Zealand Aluminium Smelter (NZAS) Exit inflows dried up. The inflows from COVID-19 1 December 2020 to 30 April 2021 On 9 July 2020, the New Zealand were extremely low in the Waitaki River Aluminium Smelter (NZAS) announced and below average in the Waiau. From plans to wind-down its operation May a series of fronts returned to the at Tiwai Point. NZAS terminated its region and as a result Meridian finished 572MW electricity supply agreement the year with near normal storage. with Meridian, giving a 14-month notice period through to 31 August 2021. Generation structures and plant revaluation In light of the continuing uncertainty around the economy Meridian continues to hold a higher provision for credit losses in the short to medium term. Meridian will continue to assess the level of the provision at each reporting date to ensure it reflects current economic conditions. On 14 January 2021 NZAS accepted At 30 June 2021, a valuation of Meridian’s offer of an amended contract Meridian’s generation structures and covering an extended exit period and plant assets has been undertaken, to Meridian has also considered the potential impact of COVID-19 as part of our key assumptions when valuing would continue operating through to determine the fair value of the assets as our property plant and equipment and 31 December 2024. As such, Meridian’s at this date. The valuation has resulted Group financial statements have been in a net increase of $202 million from prepared based on an extended NZAS 30 June 2020. Meridian uses an financial instruments. However, there was no impact when taking this into consideration. Refer to Note B1 Property, exit date of 31 December 2024. independent valuer to determine a plant & equipment and D1 Financial risk Hydro inflows Meridian started the financial year with below average storage in our main hydro storage lake, Pūkaki. A series of large inflow events in September and October lifted storage to average at Lake Pūkaki and to spill levels in the Waiau. However, from mid November valuation range on which the Board’s management for further detail. ultimate valuation decision is based. The valuation range is set using discounted cash flows (DCFs) and an income approach based primarily on capitalisation of earnings. For more information refer to Note B1 Property, plant and equipment. 1 2 1 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021Significant matters continued Implementation of IFRIC Agenda Decision for an intangible asset. These costs Non-GAAP measures are recognised as intangible software During the year, the Group revised its assets and amortised over the useful accounting policy in relation to upfront life of the software on a straight-line configuration and customisation costs basis. The useful lives of these assets incurred in implementing Software are reviewed at least at the end of as a Service (SaaS) arrangements in each financial year, and any change response to the IFRS Interpretations accounted for prospectively as a Committee (IFRIC) agenda decision change in accounting estimate. Meridian refers to non-GAAP financial measures within these financial statements and accompanying notes. The limited use of non-GAAP measures is intended to supplement GAAP measures to provide readers with further information to broaden their understanding of Meridian’s financial performance and position. They are not a substitute for GAAP measures. depreciation, amortisation, fair value movements of hedging instruments and other one-off or infrequently occurring events and the effects of Meridian’s capital structure and tax position. This allows a better comparison of operating performance with that of other electricity industry companies than GAAP measures that include these items. Energy margin clarifying its interpretation of how current accounting standards apply to these types of arrangements. The new accounting policy is presented below: SaaS SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application software over the contract period. Costs incurred to configure or customise, and the ongoing fees to obtain access to the cloud provider’s application software, are recognised as operating expenses when the services are received. Some of these costs incurred are for the development of software code that enhances or modifies, or creates additional capability to, existing on-premise systems and meets the definition of and recognition criteria 1 2 2 Historical financial information has been restated to account for the impact of the change in accounting policy, as follows: Financial Statement Item As these measures are not defined Energy margin provides a measure of by NZ GAAP, IFRS, or any other body financial performance that, unlike total 2020 $M of accounting standards, Meridian’s calculations may differ from similarly revenue, accounts for the variability of the wholesale electricity market and the Statement of Financial Position titled measures presented by other broadly offsetting impact of wholesale Intangible assets Total assets Retained earnings Total equity Income Statement Operating expenses Profit before tax Statement of cashflows Payments to suppliers and employees Net cash generated by operating activities Payments to acquire intangible assets Net cash used in investing activities (1) (1) 1 1 (1) (1) (1) (1) 1 1 companies. The measures are described below, including note references for reconciliations to the financial statements. EBITDAF Earnings before interest, tax, prices on the cost of Meridian’s retail electricity purchases and revenue from generation. Meridian uses the measure of energy margin within Meridian’s segmental financial performance in Note A1 Segment performance. depreciation, amortisation, change Net debt in fair value of hedges, impairments and gains or losses on sale of assets. EBITDAF is reported in the income statement, allowing the evaluation of Meridian’s operating performance without the non-cash impacts of Net debt is a metric commonly used by investors as a measure of Meridian’s indebtedness that takes account of liquid financial assets. Meridian uses this measure within its capital management and this is outlined in Note C1 Capital management. MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021A Financial performance In this section This section explains the financial additional information about individual items in the income statement, including: a. accounting policies, judgements and estimates that are relevant for understanding items recognised in the income statement; and b. analysis of Meridian’s performance for the year by reference to key areas including: performance by operating segment, revenue, expenses and taxation. performance of Meridian, providing performance of each segment for the A1 Segment performance New Zealand retail Australia The Chief Executive (the chief operating decision-maker) monitors the operating • Retailing of electricity and • Generation of electricity from complementary products through Meridian’s two wind farms and three two brands (Meridian and Powershop) hydro power stations, and acquired purpose of making decisions on resource in New Zealand. allocation and strategic direction. Electricity sold to residential, business under power purchase agreements, for sale into the Australian wholesale The Chief Executive considers the business according to the nature of the products and services and the location of operations, as set out below: New Zealand wholesale • Generation of electricity and its sale into the New Zealand wholesale electricity market. • Purchase of electricity from the wholesale electricity market and and industrial customers on fixed electricity market. price variable volume contracts • Retailing of electricity and gas, is purchased from the Wholesale mainly through the Powershop segment at an average annual brand in Australia. fixed price of $88 per megawatt hour (MWh) and electricity sold to business and industrial customers on spot (variable price) agreements is purchased from the Wholesale segment at prevailing wholesale spot market prices. • Development of renewable electricity generation options in Australia. Other and unallocated • Other operations, that are not considered reportable segments, include licensing of the Flux developed electricity and gas retailing platform. • Activities and centrally based costs that are not directly allocated to its sale to the NZ Retail segment Agency margin from spot sales is and to large industrial customers, included within “Contracted including New Zealand Aluminium sales, net of distribution costs”. Smelter (NZAS) representing the equivalent of 40% (30 June 2020: 38%) of Meridian’s New Zealand generation production. • Development of renewable electricity generation opportunities in New Zealand. • Meridian provides front line customer other segments. and back office services for Powershop The financial performance of the Australia from New Zealand based operating segments is assessed offices. Revenue of $3 million has using energy margin and EBITDAF been recorded in ‘other revenue’ and (a definition of these measures is is eliminated on Group consolidation. included within significant matters in the financial year) before unallocated central corporate expenses. Balance sheet items are not reported to the Chief Executive at an operating segment level. 1 2 3 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 A A1 Segment performance continued Contracted sales, net of distribution costs Cost to supply customers Net cost of hedging Generation spot revenue Inter-segment electricity sales Virtual asset swap margins Other market revenue/(costs) Energy margin Other revenue Dividend revenue Energy transmission expense Electricity metering expenses Gross margin Employee expenses Other operating expenses EBITDAF Depreciation and amortisation Impairment of assets Gain/(Loss) on sale of assets Net change in fair value of energy hedges Operating profit Finance costs Interest income Net change in fair value of treasury hedges Net profit before tax Tax expense Net profit after tax Reconciliation of energy margin NZ Wholesale 2021 $M 489 2020 $M 531 (3,020) (1,558) NZ Retail 2021 $M 944 (782) 2020 $M 796 (625) 271 2,193 906 (3) (5) 11 1,266 697 9 (6) 831 950 3 – (82) – 752 (29) (59) 664 – – – – – – – – – – – 3 – (116) – 837 (32) (61) 744 – – – – – – – – – – – – – – – 1 163 14 – – (39) 138 (32) (33) 73 – – – – – – – – – – – – – – – 1 172 13 – – (36) 149 (32) (34) 83 – – – – – – – – – – – Australia 2021 $M 172 (115) (9) 50 – – (1) 97 2 – (5) – 94 (15) (41) 38 – – – – – – – – – – – 2020 $M 182 (139) (9) 89 – – (1) 122 3 – (7) – 118 (13) (39) 66 – – – – – – – – – – – Energy sales revenue, net of hedging 3,178 2,271 1,663 1,453 Energy expenses, net of hedging Energy distribution expenses Energy margin (2,347) (1,320) – 831 (1) 950 (914) (586) 163 (714) (567) 172 332 (130) (105) 97 351 (142) (87) 122 1 2 4 Other and Unallocated 2020 $M 2021 $M – – – – – – – – 55 52 – – 107 (36) (34) 37 – – – – – – – – – – – – – – – – – – – – – – 32 27 – – 59 (38) (23) (2) – – – – – – – – – – – – – – – – Inter-segment 2021 $M – 906 – – 2020 $M Total 2021 $M 2020 $M – 1,605 1,509 697 (3,011) (1,625) – – 262 2 2,243 1,355 (906) (697) – – – (45) (52) – – (97) – 14 (83) – – – – – – – – – – – – – – (24) (27) – – (51) – 13 (38) – – – – – – – – – – – – (3) (5) – 9 (6) 1,091 1,244 29 –` (87) (39) 994 (112) (153) 729 (303) 6 (1) 169 600 (84) – 79 595 (167) 428 27 – (123) (36) 1,112 (115) (144) 853 (312) (58) – (113) 370 (85) 1 (48) 238 (63) 175 (906) 906 – – (697) 4,267 3,378 697 (2,485) (1,479) – – (691) (655) 1,091 1,244 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021A A2 Income Operating revenue Energy sales to customers Generation revenue, net of hedging Energy related services revenue Other revenue Total revenue by geographic area New Zealand Australia United Kingdom Total operating revenue Interest income Operating revenue Energy sales to customers Generation revenue, net of hedging Revenue received or receivable from Revenue received from: residential, business and industrial • electricity generated and sold into customers. This revenue is influenced the wholesale markets; and by customer contract sales prices and their demand for electricity and gas. • net settlement of energy hedges sold on futures markets, and to generators, retailers and industrial customers. This revenue is influenced by the quantity of generation and the wholesale spot prices. It is recognised at the time of generation. 2021 $M 2,165 2,102 10 19 2020 $M 1,994 1,384 10 17 Key judgements and estimates – Revenue Electricity consumption Supply contract with NZAS Meridian exercises judgement in The agreement with New Zealand 4,296 3,405 estimating retail electricity sales, Aluminium Smelters (NZAS) has 2021 $M 2020 $M 3,948 3,039 333 15 353 13 4,296 3,405 2021 $M – 2020 $M 1 where customer electricity meters been recognised in these financial are unread at balance date. These statements in a manner consistent estimates of customer electricity with fixed price supply agreements usage in the unread period are with other industrial customers. based on the customers’ historical Revenue is recognised as electricity consumption patterns. sales revenue in the income Revenue is recognised at the time of supply and customer consumption. Elements of the sale price such as discounts and credits given to statement and the estimated future cash flows are included in the fair value of generation structures and plant assets on the balance sheet. customers and any incremental Discounts and payment terms costs incurred obtaining or retaining a customer contract are deferred to customer contract assets on the balance sheet on a portfolio basis and released to the income Where a discount is offered, revenue is initially recognised net of estimated discount based on accumulated experience used to estimate the amount of discounts statement over the contract tenure. taken by customers. There are no significant differences between the payment terms and this policy. 1 2 5 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 Note B1 B2 Note C7, C9 Note B1 2021 $M 285 18 303 2021 $M 78 1 5 84 2021 $M – (6) 1 2020 $M 288 24 312 2020 $M 77 2 6 85 2020 $M 58 – – A A3 Expenses Operating expenses Energy expenses, net of hedging Energy distribution expenses Energy transmission expenses Employee expenses Energy metering expense Other expenses Operating expenses 2021 $M 2,485 691 87 112 39 153 2020 $M 1,479 655 123 115 36 144 Depreciation and amortisation Depreciation Amortisation of intangibles Finance costs Interest on borrowings 3,567 2,552 Interest on electricity option premium Interest on lease liabilities Energy expenses, net of hedging Energy metering expenses The cost of: • energy purchased from wholesale markets to supply customers; • net settlement of buy-side energy hedges; and • related charges and services. The cost of electricity meters, meter reading and data gathering of retail customer electricity consumption in New Zealand. Metering expenses in Australia are bundled with electricity distribution costs. Energy expenses are influenced by Employee expenses quantity and timing of customer consumption and wholesale spot prices. Energy distribution expenses The cost of distribution companies transporting energy between where energy is transmitted/stored and customers’ properties. Energy transmission expenses Meridian’s share of the cost of the Provisions are made for benefits owing to employees in respect of wages and salaries, annual leave, long service leave and employee incentives for services rendered. Provisions are recognised when it is probable they will be settled and can be measured reliably. They are carried at the remuneration rate expected to apply at the time of settlement. Impairment and gain on sale of assets Impairment of property, plant and equipment Remeasurement of Australian remediation assets and liabilities (Gain)/Loss on sale on disposal of assets Impairment of non-financial assets Meridian reviews the recoverable In 2020, $57 million of the impairment is amount of its tangible and intangible a result of the revaluation of our Australia assets at each balance date. They are generation structures and plant. Refer to grouped into cash-generating units Note B1 Property, plant and equipment with separately identifiable cash flows. for further detail. The recoverable amount is the higher of an asset’s fair value less costs to sell, and present value of future cash flows expected to be generated by the assets (also known as value in use). If the carrying value of an asset exceeds the recoverable amount, an impairment The Group recognises an asset and liability for decommissioning its Australian wind farm assets when they reach the end of their useful lives. Because of the long term nature of these, there is considerable uncertainty in estimating the costs that will be incurred. In 2021, a $6 million gain was recorded from changes in the assumptions used to calculate this estimate. high voltage direct current (HVDC) link Contributions to defined contribution expense is recognised in the income between the North and South Islands of plans (largely KiwiSaver) were $5 million statement. For assets that are revalued New Zealand and the cost of connecting in 2021 (30 June 2020: $5 million). refer to Note B1 Property, plant and Meridian’s generation sites to the national grid by grid providers. 1 26 equipment for specific treatment. MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021A A4 Taxation Tax expense Current income tax expense Adjustments to tax of prior years Total current tax expense Deferred tax Other Total tax Reconciliation to profit before tax Profit before tax Income tax at applicable rates Expenditure not deductible for tax Income tax (over)/under provided in prior year Other Tax expense 2021 $M 137 – 137 30 – 167 595 166 2 – (1) 2020 $M 169 (1) 168 (106) 1 63 238 65 – (1) (1) 167 63 Current tax expense Tax expense components are current income tax and deferred tax. Current income tax expense is the income tax assessed on taxable profit for the year. Taxable profit differs from profit before tax reported in the income statement as it excludes items of income and expense that are taxable or deductible in other years, and also excludes items that will never be taxable or deductible. Meridian’s liability for current tax is calculated using tax rates enacted at balance date, being 28% for New Zealand and 30% for Australia. 1 2 7 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021A A4 Taxation continued Deferred tax assets and liabilities Balance at beginning of year Temporary differences in income statement: Depreciation/amortisation Term payables Financial instruments Australia tax losses utilised Customer contract assets Other – payables & receivables Temporary differences in other comprehensive income: Revaluation reserve movements Other Balance at end of year Made up of: Property, Plant and Equipment Term payables Financial instruments Customer contract assets Other – payables & receivables Deferred tax liability Carried forward unused tax losses Deferred income Deferred tax asset Total deferred tax 1 2 8 Deferred tax assets and liabilities Unused tax losses Deferred tax is income tax which is The deferred tax asset relates to expected to be payable or recoverable unused tax losses from our Australian in the future as a result of the unwinding operations and will be utilised against of temporary differences. These arise future taxable income from retail and from differences in the recognition generation activities in that country. 2021 $M 1,816 2020 $M 1,928 (52) 9 70 (1) – 3 29 58 2 (69) 5 (45) 7 1 (5) (106) (7) 1 of assets and liabilities for financial reporting and from the filing of income tax returns. Deferred tax is recognised on all temporary differences, other than those arising: • from goodwill; and • from the initial recognition of assets and liabilities in a transaction (other 1,905 1,816 than in a business combination) that affects neither the accounting nor taxable profit or loss. 1,941 1,935 (13) 6 7 (1) (22) (64) 7 (6) The majority of Meridian’s deferred tax balance is made up of temporary differences on the revaluation of property, plant and equipment. This 1,940 1,850 balance will only reverse if the fair (33) (2) (35) (32) (2) (34) 1,905 1,816 value of these assets declines back to their original historical cost. Deferred tax is calculated at the tax rates that are expected to apply to the year when the liability is settled or the asset realised, based on tax rates and tax laws that have been enacted or substantively enacted at balance date. Deferred tax asset is recognised to the extent it is probable that future taxable profit will be available to use the asset. This is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available in the future to utilise the deferred tax asset. Offsetting deferred tax balances Deferred tax assets and liabilities are offset only if there are legally enforceable rights to set off current tax assets against current tax liabilities and when they relate to the same taxable entity and taxation authority. MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021B Assets used to generate and sell electricity In this section This section shows the assets Meridian uses in the production and sale of electricity to generate operating revenue. In this section of the notes there is information about: a. property, plant and equipment; and b. intangible assets. B1 Property, plant and equipment $M Cost or fair value Less accumulated depreciation Net book value at 30 June 2019 Additions Transfers – work in progress Lease assets transferred on implementation of NZ IFRS 16 Lease assets recognised on implementation of NZ IFRS 16 Adjustment of Right of Use lease assets Decommisioning Asset – remeasurement Foreign currency exchange rate movements15 Generation structures and plant revaluations: Decrease taken to revaluation reserve Decrease taken to income statement Depreciation expense Net book value at 30 June 2020 Cost or fair value Less accumulated depreciation16 Net book value at 30 June 2020 Additions Transfers – work in progress Adjustment of Right of Use lease assets Decommisioning Asset – remeasurement Disposals Foreign currency exchange rate movements15 Generation structures and plant revaluation: Increase taken to revaluation reserve Depreciation expense Net book value at 30 June 2021 Cost or fair value Less accumulated depreciation16 Net book value at 30 June 2021 Generation structures and plant at fair value Land and buildings at cost Other plant and equipment at cost Right of Use Lease Assets Work in progress at cost 8,655 (1) 8,654 – 24 – – 6 14 (21) (57) (275) 8,345 8,593 (248) 8,345 – 4 – 11 (1) 4 202 (268) 8,297 8,314 (17) 8,297 20 (5) 15 – – – – – – – – – 15 20 (5) 15 – 1 – – – – – – (1) 15 21 (6) 15 160 (97) 63 – 5 (27) – – 1 – – (7) 35 130 (95) 35 – 17 – – (4) – – (9) 39 143 (104) 39 – – – – – 27 75 1 – – – – (7) 96 111 (15) 96 1 – 1 – (4) – – – (6) 88 109 (21) 88 96 (3) 93 38 (29) – – – – – – 1 103 105 (2) 103 79 (22) – – – – – – (1) 159 162 (3) 159 Total 8,931 (106) 8,825 38 – – 75 1 6 15 – (21) (57) (288) 8,594 8,959 (365) 8,594 80 – 1 11 (9) 4 – 202 (285) 8,598 8,749 (151) 8,598 15 Through the foreign currency translation reserve in other comprehensive income. 16 Includes the reversal of accumulated depreciation on generation structures and plant at revaluation date. 1 2 9 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021B B1 Property, plant and equipment continued At 30 June 2021, had the generation earnings to establish a valuation Meridian engaged an independent structures and plant not been carried range on which the Board’s ultimate valuer to assess its generation structures at historical cost less accumulated valuation decision is based. and plant assets at 30 June 2021. At this depreciation and accumulated impairment losses, their carrying amount would have been approximately $2.0 billion (30 June 2020: $2.3 billion). Any increase arising on revaluation is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset date an independent valuer assessed values using DCFs and capitalisation of earnings when determining a valuation range. Recognition and measurement previously recognised in the income At 30 June 2021, the revaluation Generation structures and plant assets (including land and buildings) are held on the balance sheet at their fair value at the date of revaluation, less any subsequent depreciation and impairment losses. All other property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Fair value and revaluation of generation structures and plant Revaluations are performed with sufficient regularity to ensure that the carrying amount does not differ statement. In that case the increase is resulted in a net increase of $202 million credited to the income statement to (2020: net decrease of $78 million) in the extent of the decrease previously the carrying value of our generation charged. A decrease in carrying structures and plant assets. The impact amount arising on revaluation is of the revaluation was recognised as a charged to the income statement to increase of $202 million (2020: decrease the extent that it exceeds the balance, of $21 million) in the revaluation reserve if any, held in the revaluation reserve and a nil impairment expense (2020: relating to a previous revaluation of impairment expense of $57 million) that asset. Accumulated depreciation at of generation assets recognised in the income statement. revaluation date is eliminated against As a consequence of this revaluation, the gross carrying amount so that accumulated depreciation on most the carrying amount after revaluation generation assets is reset to nil. represents the revalued amount. Accumulated depreciation of two sites materially from that which would be Subsequent additions to generation determined using fair values at structures and plant assets are recorded balance date. Meridian uses an independent valuer, who uses an income valuation approach based primarily on discounted cash flows (DCFs) and capitalisation of at cost, which is considered fair value, including costs directly attributable to bringing the asset to the location and condition necessary for its intended purpose, and financing costs where appropriate. 1 3 0 (Mt Millar and Mt Mercer) are not reset to nil, as their current carrying value was the same as the estimated fair value at 30 June 2021. There was no depreciation impact of this revaluation in the income statement. MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 B Key judgements and estimates – Generation structures and plant valuation techniques and key inputs The Meridian Board uses its judgement to decide on the appropriateness of key valuation techniques and inputs for fair value measurement. Judgement is also used in determining the estimated remaining useful lives of assets. As the valuation of generation structures and plant does not fully use observable market data, it continues to be fair value hierarchy defined in Note D1 future cashflows expected to be which to capitalise Meridian’s historical Financial risk management. produced over a projection period and forecast earnings is determined. As discussed above, the independent valuer uses an income approach which including forecast revenues and forecast future generation output. In determining the maintainable earnings, observable wholesale involves incorporating two techniques The capitalisation of earnings electricity prices extracted from in establishing a valuation range being methodology calculates value by the ASX have been used. DCF and capitalisation of earnings. reference to an assessment of future The fair value adopted aligns closely maintainable earnings and capitalisation with the DCF and capitalisation of multiples as observed from market earnings value. The DCF methodolgy involves prices of listed companies with broadly comparable operations to Meridian. In preparing the capitalisation of earnings valuation, an EBITDAF multiple range at The impact of COVID-19 has been considered as part of our key assumptions when preparing this years valuation however there was no impact on the valuation when taking this into consideration. classified as Level 3 under Meridian’s calculating the present value of Key input to measure fair value Description Range ofunobservable inputs Sensitivity Impact on valuation Future NZ wholesale electricity prices The price received for NZ generation $42MWh to $118MWh by 2035 (in real terms) Future Australia wholesale electricity prices The price received for Australian generation, A$31MWh to A$104MWh by 2035 (in real terms) inclusive of LGCs Weighted Average Cost of Capital (WACC) The discount rate takes into account the time 6.25% to 7.90% value of money and relative risk of achieving the cash flow forecast New Zealand generation volume Annual generation production 13,059GWh p.a. to 14,024GWh p.a. Australian generation volume Annual generation production 762GWh p.a. to 579GWh p.a. Operating expenditure (excluding electricity Meridian’s cost of operations $280M p.a. related expenditure – refer Note A3 Expenses) EBITDAF earnings multiple Valuation multiple (including control premium 14 x EBITDAF of 20%) derived from earnings and valuations of comparable companies Sensitivities show the movement in fair value as a result of a change in each input (keeping all other inputs constant). + $3MWh - $3MWh + 5% - 5% + 0.5% - 0.5% + 250GWh - 250GWh + 5% - 5% + $10M - $10M + 0.5x - 0.5x $442M ($442M) A$31M (A$31M) ($693M) $810M $234M ($234M) A$33M (A$33M) ($124M) $124M $360M ($360M) 1 31 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 B B1 Property, plant and equipment continued Depreciation Disposals or retirement Depreciation of property, plant and The gain or loss arising on the disposal equipment assets, other than freehold or retirement of an item of property, land, is calculated on a straight-line plant and equipment is determined basis. This allocates the cost or fair as the difference between the sale value amount of an asset, less any proceeds and the carrying amount residual value, over its estimated of the asset and is recognised in remaining useful life. the income statement. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to retained earnings. Right of Use Assets are depreciated over the term of their underlying lease arrangement. Useful lives Meridian uses its judgement in determining the remaining useful lives and residual value of assets, which are: • generation structures and plant – up to 80 years; • buildings – up to 67 years; • other plant and equipment – up to 20 years; and • right of use lease assets – up to 27 years. The residual value and useful lives are reviewed, and if appropriate adjusted, at each balance date. 1 3 2 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021v B B2 Intangible assets $M Cost or fair value Less accumulated amortisation Net book value at 30 June 2019 Additions Amortisation expenses Expensed to Income Statement17 Net book value at 30 June 2020 Cost or fair value Less accumulated amortisation Net book value at 30 June 2020 Additions Expensed to Income Statement17 Amortisation expenses Net book value at 30 June 2021 Cost or fair value Less accumulated amortisation Net book value at 30 June 2021 17 Adjustment for SaaS costs transferred to Income Statement Goodwill Software – – – 5 – – 5 5 – 5 – – – 5 5 – 5 158 (99) 59 25 (24) (1) 59 182 (123) 59 40 (2) (18) 79 220 (141) 79 Total 158 (99) 59 30 (24) (1) 64 187 (123) 64 40 (2) (18) 84 225 (141) 84 Software Useful lives Acquired computer software licences Meridian uses its judgement in (that are not considered an integral part determining the remaining useful of related hardware) are capitalised on lives and residual value of intangible the basis of the costs incurred to acquire assets, which are: and bring to use the specific software. • electricity and gas retail platform Additionally, costs directly associated – up to 5 years; with the production of identifiable and unique software products that will generate economic benefits beyond one year are also recognised • generation control – up to 10 years; and • other software – up to 3 years. as intangible assets. These are reviewed, and, if appropriate, adjusted at each balance date. All these costs are amortised over their useful lives on a straight-line basis. Costs associated with maintaining computer software programs are recognised as an expense as incurred. Goodwill Goodwill represents the excess of The goodwill recognised related the cost of a business acquisition to the acquisition of two wind farm over the fair value of the identifiable development sites in Australia. As these assets and liabilities at the date of are development sites, the impairment acquisition. Goodwill is assessed as test is based on comparing the carrying having an indefinite useful life and is value to the expected recoverable not amortised. Instead, it is subject to value of each site. Key inputs into the impairment testing at each reporting expected recoverable amount include date or whenever there are indications the potential generation capacity of of impairment. Goodwill has been each site, and a market value allocated to the following business units: multiple per unit of generation capacity $M 2021 2020 Rangoon Energy Park Pty Ltd Wandsworth Wind Farm Pty Ltd 4 1 5 4 1 5 ($/MW). Potential capacity is revisited as the development of each wind farm site progresses. The market value multiple is reassessed by analysing other similar purchase transactions, where available. 1 3 3 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021C Managing funding In this section This section explains how Meridian manages its capital structure and working capital, the various funding sources and how dividends are returned to shareholders. In this section of the notes there is information about: a. equity and dividends; b. net debt; C1 Capital management Capital risk management objectives Share capital Meridian’s objective when managing Retained earnings capital is to provide appropriate returns Other reserves to shareholders whilst maintaining a capital structure that safeguards its ability to remain a going concern and optimise the cost of capital. Drawn borrowings Lease liabilities payable Less: cash and cash equivalents Capital is defined as the combination of shareholders’ equity, reserves and Net capital c. receivables and payables; and net debt. d. leases and commitments. Meridian manages its capital through various means, including: • adjusting the amount of dividends paid to shareholders; Net debt to EBITDAF Drawn borrowings Lease liabilities • raising or returning capital; and Less: cash and cash equivalents • raising or repaying debt. Add back: restricted cash Add back: cash buffer18 Meridian regularly monitors its capital requirements using various measures Net debt (A) EBITDAF (B) which consider debt facility financial Net debt to EBITDAF (times) (A/B) covenants and credit ratings. The key measures are net debt to EBITDAF and interest cover. The principal external measure is Meridian’s credit rating from Standard & Poor’s. Meridian is in full compliance with EBITDAF Interest cover EBITDAF (B) Interest on borrowings Interest on lease liabilities debt facility financial covenants. Interest (C) EBITDAF interest cover (times) (B/C) Note C2 C7 C9 C5 Note C7 C9 C5 C5 Note A3 A3 2021 $M 1,595 (1,548) 5,177 5,224 2020 $M 1,598 (1,542) 5,026 5,082 1,589 1,491 97 (148) 1,538 6,762 104 (176) 1,419 6,501 2021 $M 2020 $M 1,589 1,491 97 (148) 97 13 1,648 729 2.3 2021 $M 729 78 5 83 8.8 104 (176) 67 27 1,513 853 1.8 2020 $M 853 77 6 83 10.3 1 3 4 Standard & Poor’s rating BBB+ BBB+ 18 The cash buffer is calculated as 25% of unrestricted cash and cash equivalents. MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 C C2 Share Capital C4 Dividends Share capital Shares issued Shares 2021 $M Shares 2,563,000,000 1,600 2,563,000,000 Treasury shares held (1,359,011) (5) (1,212,448) Share capital 2,561,640,989 1,595 2,561,787,552 2020 $M 1,600 (2) 1,598 Dividends declared and paid Interim ordinary and special dividend 2021: 5.7cps (cents per share) (2020: 8.14cps) Final ordinary and special dividend 2020: 11.2cps (2019: 13.16cps) Total dividends paid 2021 $M 146 287 433 2020 $M 209 337 546 All shares issued are fully paid and have equal voting rights. All shares participate equally in any dividend distribution or any surplus on the winding up of the company. Dividends declared and not recognised as a liability Final ordinary dividend 2021: 11.2cps (2020:11.2cps) 287 287 The movement in Treasury shares relates to the purchase of shares by participants and held on trust as part of a long-term equity settled incentive plan for New Zealand- Imputation credit balance based senior executives (refer to Note F1 Share-based payments) and to hedging Imputation credits available for future use 89 94 of the new long term incentive scheme. C3 Earnings per share Basic and diluted earnings per share (EPS) Profit after tax attributable to shareholders of the parent company ($M) Weighted average number of shares used in the calculation of EPS Dividend policy Meridian’s dividend policy considers free cash flow, working capital requirements, the medium-term 2021 428 Restated* 2020 investment programme, maintaining a BBB+ credit rating and risks from 175 short and medium-term economic, market and hydrology conditions. Subsequent event – dividend declared On 24 August 2021 the Board declared a partially imputed final ordinary dividend of 11.20 cents per share. Basic and diluted EPS (cents per share) 16.7 6.8 * Refer to Significant matters section for details on 2020 restatement. 2,563,000,000 2,563,000,000 On 30 March 2021, the Board approved a dividend reinvestment plan offering shareholders the Imputation credit balance opportunity to reinvest the net proceeds of their dividends from Meridian shares into additional, fully paid shares. This will apply from the payment of the 30 June 2021 final dividend on 15 October 2021. Imputation credits allow Meridian to pass on to its shareholders the benefit of the New Zealand income tax it has paid by attaching imputation credits to the dividends it pays, reducing the shareholders’ net tax obligations. The imputation credits available for future use reflect the balance available on 24 August 2021, therefore recognising any tax payments between balance date and 24 August 2021. 1 3 5 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 C C5 Cash and cash equivalents Cash and cash equivalents Current account Money market account Cash and cash equivalents 2021 $M 148 – 148 2020 $M 154 22 176 Cash and cash equivalents are made up of cash on hand, on-demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are not subject to a significant risk of change in value. Restricted cash Reconciliation of net profit after tax to cash flows from operating activities Net profit after tax Adjustments for operating activities’ non-cash items: Depreciation and amortisation Movement in deferred tax Net change in fair value of financial instruments Electricity option premiums Share-based payments Meridian trades electricity hedges on the ASX using Macquarie as a broker. Items classified as investing activities: As a result, a proportion of the funds it holds on deposit are pledged as Remeasurement of Australian remediation assets and liabilities margin which varies depending on market movements and contracts held. (Gain)/Loss on sale of assets At 30 June 2021, this collateral was $97 million (30 June 2020: $67 million). All other cash and cash equivalent balances are available for use. Changes in working capital items: (Increase) in accounts receivable (Increase) in customer contract assets (Increase) in other assets (Decrease)/increase in payables and accruals/employee entitlements Increase in customer contract liabilities Increase/(decrease) in current tax payable Working capital items in investing activities Working capital items in financing activities and other non-cash items 2021 $M 428 303 29 (248) (21) 2 65 (6) 1 (5) (168) (1) (19) 214 – (42) (17) (24) (57) 2020 $M 176 312 (106) 161 (22) 1 346 58 – 58 (31) (3) (8) 68 7 (1) (21) 14 25 Cash flow from operating activities 431 605 1 3 6 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021C C6 Trade receivables Trade receivables Accrued receivables Current billed Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due greater than 90 days Less: credit loss allowance Total trade receivables 2021 $M 429 50 14 3 1 3 (9) 491 2020 $M 262 57 10 3 1 6 (16) 323 Accounts receivable past due but not impaired 12 10 Movement in provision for credit loss allowance Opening provision Provision released (created) in the year Provision used in the year Closing provision for credit loss allowance (16) 3 4 (9) (5) (14) 3 (16) Trade receivables, measurement and recognition Trade receivables are measured on initial recognition at fair value, and are subsequently carried at amortised cost. The overdue amounts are largely related to energy sales to retail customers in New Zealand and Australia. Credit losses The allowance for credit losses are an estimate of the Group’s expected credit losses over the lifetime of the current amounts receivable. Or rather, it is the difference between the face value of trade receivables and the future cash flows we expect to receive. Additions Trade receivables written off during to the provision are recognised in the the year were $4 million (30 June 2020: income statement. $3 million). We estimate collective future cash flows Receivables are written off at the point by considering customer credit history, where Meridian believe there is no historical recovery performance and reasonable expectation of recovery, trends, through which we build default which is typically a combination of an matrices that apply a probability of overdue amount, no communication default given the ageing of debtors. or response from the debtor, and no Forward-looking employment statistics payments received. Receivables written are also monitored for both New Zealand off are handed to collection agencies and Australia, with a large rise in forecast for enforcement. unemployment acting as a trigger for us to reconsider the probability rates in our matrices. As noted in the Significant matters section, Meridian continues to hold a higher provision for credit losses in light of continuing economic uncertainty in response to COVID-19. 1 37 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021C C7 Borrowings $M Current borrowings Unsecured borrowings Unsecured borrowings Total current borrowings Non –current borrowings Unsecured borrowings Unsecured borrowings Total non –current borrowings Total borrowings Currency borrowed in Drawn facility amount Transaction costs paid Fair value adjustment Carrying amount Drawn facility amount Transaction costs paid Fair value adjustment Carrying amount 2021 2020 NZD USD NZD USD 321 47 368 665 556 1,221 1,589 (1) – (1) (1) (1) (2) (3) – 11 11 – 79 79 90 320 58 378 664 634 1,298 1,676 89 – 89 800 602 1,402 1,491 (1) – (1) (2) (1) (3) (4) – – – – 201 201 201 88 – 88 798 802 1,600 1,688 2020 $M Fair value 558 51 64 Borrowings, measurement and recognition Borrowings are recognised initially at effect is included in the “Fair value the fair value of the drawn facility adjustment” column in the table, along amount (net of transaction costs paid) with any amounts relating to fair value and are subsequently held at amortised hedge adjustments. Fair value of items held at amortised cost Retail bonds Floating Rate Notes Unsecured term loan (EKF facility) 2021 $M Carrying value 2021 $M Fair value 2020 $M Carrying value 500 540 500 50 50 51 52 50 60 Meridian uses cross-currency interest rate swap (CCIRS) hedge contracts to manage its exposure to interest rates and borrowings sourced in currencies Within term borrowings there are The Retail Bonds are listed instruments; longer dated instruments which are however, a lack of liquidity on the NZX not in hedge accounting relationships. precludes them from being classified different to that of the borrowing entity’s The carrying values and estimated fair as Level 1 (a definition of hierarchy levels reporting currency. More information on values of these instruments are noted is included in Note D1 Financial risk Meridian’s risk management and hedge in the table above. management). accounting practices can be found in Section D Financial instruments used to manage risk. Fair value is calculated using a Carrying value approximates fair value discounted cash flow calculation and for all other instruments within term the resultant values would be classified borrowings. as Level 2 within the fair value hierarchy. cost using the effective interest method. Any borrowings which have been designated as hedged items (USD borrowings) are carried at amortised cost plus a fair value adjustment under hedge accounting requirements – refer to Note D1 Hedge accounting section for further detail on this. Any borrowings denominated in foreign currencies are retranslated to the functional currency at each reporting date. Any retranslation 1 3 8 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021C C7 Borrowings continued Reconciliation of liabilities arising from financing activities The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. $M Unsecured borrowings – NZD Unsecured borrowings – USD Lease Liabilities Total $M Unsecured borrowings – NZD Unsecured borrowings – USD Lease Liabilities Total Sources of funding – $M Bank facilities New Zealand bank funding19 EKF funding20 Total bank facilities Other sources of borrowing Retail bonds21 Floating rate notes19 Fixed rate bonds22 Commercial paper23 Total other sources of borrowing Total sources of funding 2021 Balance at 30 June 2020 Term borrowings drawn Term borrowings repaid Valuation adjustments Foreign Exchange Transaction costs paid & accrued Lease liabilities recognised Lease liabilities paid Lease derecognition Unwind of discounting Balance at 30 June 2021 886 802 104 108 – – 1,792 108 (10) – – (10) – (58) – (58) – (52) – (52) – – – – – – 1 1 – – (7) (7) – – (5) (5) – – 5 5 984 692 97 1,773 2020 Balance at 1 July 2019 Term borrowings drawn Term borrowings repaid Valuation adjustments Foreign Exchange Transaction costs paid & accrued Lease liabilities recognised Lease liabilities paid Lease derecognition Unwind of discounting Balance at 30 June 2020 775 695 32 1,502 172 – – 172 (60) – – (60) – 80 (1) 79 – 27 (1) 26 (1) – – (1) – – 75 75 – – (7) (7) – – – – – – 6 6 886 802 104 1,792 2021 2020 Currency borrowed in Facility amount Drawn facility amount Undrawn facility amount Facility amount Drawn facility amount Undrawn facility amount NZD NZD NZD NZD USD NZD 770 50 820 500 50 603 225 1,378 2,198 161 50 211 500 50 603 225 1,378 1,589 609 – 609 – – – – – 609 600 60 660 500 50 602 79 1,231 1,891 200 60 260 500 50 602 79 1,231 1,491 400 – 400 – – – – – 400 19 Funding bears interest at the relevant market floating rate plus a margin. 20 EKF facility is an unsecured amortising term loan, provided by the official export credit agency of Denmark, for the construction of Te Uku wind farm. 21 Retail Bonds are senior unsecured retail bonds bearing interest rates of 4.53%, 4.88% and 4.21%. 22 USD fixed rate bonds are unsecured fixed rate bonds issued in the United States Private Placement Market. 23 NZD commercial paper comprises senior unsecured short-term debt obligations paying a fixed rate of return over a set period of time. 1 3 9 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021C C8 Green Financing To recognise Meridian’s commitment, (CBS); and Asia Pacific Loan Market Green Debt Instruments under Meridian’s Green Finance Programme Green Debt allocated to the Hydro Pool24 30 June 2021 leadership and investment in renewable Association Green Loan Principles energy, Meridian has designed a Green (GLP), (together the Market Standards). Finance Programme which covers both existing and future issuances of debt instruments (Programme). The proceeds of Meridian’s debt instruments, outlined in the following tables, have been allocated (directly The Programme Framework or notionally) to refinance eligible (Framework) sets out the process, wind and hydro projects and assets criteria and guidelines under which that meet the market standards. Type – $M USPP Series 2014-1 Tranche A25 USPP Series 2014-1 Tranche B25 USPP Series 2019-1 Tranche A25 USPP Series 2019-1 Tranche B25 USPP Series 2019-1 Tranche C25 Total USPP Meridian intends to issue and/or manage existing and future bonds and loans under the Programme which contribute towards achieving Meridian’s sustainable objectives. The Framework is aligned with the following market standards as at the date of the Framework: Further information on the Green Wholesale FRN – 10yr Finance Programme, including the Bank Facilities26 Programme framework document, Commercial Paper27 opinions from DNV GL Business Assurance Pty. Ltd, Climate Bonds Standard Certification and Green Asset and Debt registers are available on Meridian’s website at CUSIP/NZX Code Currency borrowed in Facility amount Drawn facility amount Q5995*AA6 Q5995*AB4 Q5995#AE4 Q5995#AF1 Q5995#AG9 USD USD USD USD USD NZD NZD NZD 47 117 183 183 73 603 50 770 225 47 117 183 183 73 603 50 161 225 Total Green Debt allocated to the Hydro Pool 1,648 1,039 Green Debt allocated to the Wind Pool28 30 June 2021 Type – $M Retail Bond (Mar-23) Retail Bond (Mar-24) Retail Bond (Mar-25) Total Domestic Bonds EKF Amortising Facility CUSIP/NZX Code Currency borrowed in Facility amount MEL030 MEL040 MEL050 NZD NZD NZD NZD 150 150 200 500 50 Drawn facility amount 150 150 200 500 50 Total Green Debt allocated to the Wind Pool Total Green Debt 550 2,198 550 1,589 24 Verified as meeting the criteria established for Meridian by DNV GL which align with the stated definition of Green Bonds and Loans within the Green Bond/Loan Principles. 25 United States private placement (USPP) Notes are included as the NZD equivalent under the Cross-Currency Interest Rate Swaps related to the Issue. 26 Committed Bank facilities are included at the face value of the facilities. 27 Commercial Paper is included as the amount on issue. 28 Climate Bonds Standard Certified International Capital Markets www.meridianenergy.co.nz/ Association (ICMA) Green Bond investors/reports-and- Principles (GBP); Climate Bonds presentations/green-finance. Standard currently version 3.0 14 0 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021C C9 Lease Liabilities Lease liabilities analysis Minimum lease payments Not later than 1 year Later than 1 year and not later than 3 years Later than 3 years and not later than 5 years Later than 5 years Gross future lease payables Less future finance costs Present value of lease liabilities Analysed as: Not later than 1 year Later than 1 year and not later than 3 years Later than 3 years and not later than 5 years Later than 5 years Present value of lease liabilities Comprising: Current Non-current Lease details Meridian’s leases relate to office spaces, transmission connection assets at Mill Creek and Mt Mercer, and land access arrangements at our Australian generation and development sites. Meridian reported interest expense on lease liabilities of $5 million (30 June 2020: $6 million) in the income statement. Refer to Note B1 Property, plant and equipment for details of the related right of use lease assets. 2021 $M 2020 $M Lease liabilities, measurement and recognition 10 19 18 99 146 (49) – 97 7 13 12 65 97 7 90 97 10 20 19 109 158 (54) 104 7 14 13 70 104 7 97 104 Meridian recognises the present value of expected lease payments under lease arrangements as lease liabilities payable. Subsequent repayments are split between principal and interest expense. The interest reflects a constant periodic charge over the expected term of the lease. A number of our lease arrangements contain options to extend. Where we are reasonably certain of taking up those options, they are included in the lease liability. If there is any uncertainty around whether a lease extension will be taken up, it is excluded from the liability value. Lease liabilities are classified as financial liabilities at amortised cost. The weighted average discount rate applied in the calculation of lease liabilities is 3.10% (30 June 2020: 3.11%). 141 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021C C10 Commitments Capital expenditure commitments Property, plant and equipment Software Total capital expenditure commitments Guarantees Group 2021 $M 328 1 329 2020 $M 8 – 8 Various entities within the Group provide guarantees to external counterparties, with these mostly relating to security for energy market clearing and lines companies. The maximum liability under these guarantees is $166 million (30 June 2020: $75 million). In addition to the above Meridian Energy Limited has provided parent guarantees for various construction and grid connection obligations of Mt Mercer Windfarm Pty Limited. The maximum liability under these guarantees is $29 million (30 June 2020: $30 million). 14 2 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021D Financial instruments used to manage risk In this section This section explains the financial risks Meridian faces, how these risks affect Meridian’s financial position and performance, and how Meridian manages these risks. In this section of the notes there is information: a. outlining Meridian’s approach to financial risk management; and b. analysing financial (hedging) instruments used to manage risk. D1 Financial risk management Financial instrument recognition Meridian’s activities expose it to a variety of financial risks. Its financial risk management framework focuses on the unpredictability of financial markets and wholesale energy markets. The Meridian designates or classifies financial hedging instruments as: Calculation of fair value for financial instruments Meridian uses quoted prices and/or • Fair value hedge, hedges of the fair a discounted cash flows approach in value of recognised assets or liabilities order to calculate fair values for financial or a firm commitment; or instruments. Fair value measurements Board approves policies including Group • Cash flow hedge, hedges of a Treasury, Energy Hedging and Credit Policies which set appropriate principles and risk tolerance levels to guide particular cash flow associated with a recognised asset or liability or a highly probable forecast transaction; or process: are grouped within a three-level fair value hierarchy based on the observability of inputs to the valuation management in carrying out financial risk management activities to minimise • Held for trading, financial instruments which have not been designated in a potential adverse effects on the financial hedging relationship. performance and economic value of the Group. The key risks managed are discussed further below. Meridian accounts for derivative and certain designated financial instruments as fair value through In order to help balance certain risk the income statement. exposures, Meridian uses a variety of financial instruments (hedges). Hedges are categorised as either “Treasury” or “Energy” related, based on their underlying nature. A small number of Treasury hedges are designated in hedge accounting relationships (refer to Hedge accounting section for further detail). Meridian does not enter into speculative trades. Hedges are initially recognised at fair value on the dates the contracts are agreed, and are subsequently remeasured on a periodic basis. Remeasurement is recognised in the income statement. Realised flows on hedges are recognised in the income statement within EBITDAF, in the same line as the underlying business/transactions being hedged. Fair value (or unrealised) changes are recognised in “Net change in fair value of energy hedges” or “Net change in fair value of treasury hedges”, depending on the underlying business nature of the hedge. • Level 1 Inputs: quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at reporting date; • Level 2 Inputs: either directly (i.e. as prices) or indirectly (i.e. derived from prices) observable inputs other than quoted prices included in Level 1; or • Level 3 Inputs: inputs that are not based on observable market data (i.e. unobservable inputs). Meridian has a number of energy hedges that require management estimation and judgement in order to generate a fair value at each reporting date. These estimates can have a significant risk of material adjustment in future periods. This is discussed in more detail later in this section. 14 3 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021D D1 Financial risk management continued Credit risk Meridian is exposed to the risk of default in relation to energy sales to wholesale and retail customers, hedging instruments, guarantees and deposits held with banks and other financial institutions. For wholesale customers, individual credit limits are set based on internal or external credit ratings in accordance with limits set by the Board. Where customers are not independently credit rated, an assessment of credit quality is made, taking into account financial position, past experience and other relevant factors. If appropriate, letters of credit/guarantees are obtained from Liquidity risk Meridian is exposed to the dynamic nature of energy markets and weather patterns, which can affect liquidity. counterparties to reduce credit risk to Meridian ensures flexibility in funding acceptable levels. These assessments by maintaining committed surplus credit In addition to borrowings, Meridian has entered into a number of letters of credit and guarantee arrangements which provide credit support of $166 million for Meridian’s general operations (30 June 2020: $75 million). Meridian indemnifies the obligations of the bank in respect of the letters of credit and performance guarantees issued by the bank to counterparties of Meridian. For retail customers, credit checks and the utilisation of credit limits are carried out before new customers and security provided by wholesale are accepted. The credit team oversees customers are reviewed and monitored the collection of receivables and works with customers to minimise the chances of bad debts occurring. Management monitors the size and nature of retail customer exposures on a regular basis and acts to mitigate the risk if deemed to exceed acceptable levels. For banks and financial institutions, lines available of at least $200 million (refer to Note C7 Borrowings for details of undrawn facilities). This helps ensure Meridian has sufficient headroom under both normal and abnormal hydrological by the Chief Financial Officer. The carrying amounts of financial assets recognised on the balance sheet conditions. best represent Meridian’s maximum Meridian manages its term debt likely exposure to credit risk at the date requirements on a portfolio basis. To of this report. Refer to Note C6 Trade reduce concentration risk on any one receivables for a description of how we lender or funding type, Meridian uses provide for any credit losses. Meridian a range of different funding sources does not have any significant credit risk and currencies. Meridian also monitors only independently related parties with concentrations. a minimum rating of ‘A’ are accepted. contractual maturities and ensures these are well spaced (or laddered) so that refinancing risks are manageable. 14 4 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021D D1 Financial risk management continued Liquidity Risk – Contractual maturities The following tables are an analysis of the contractual undiscounted cash flows (settlements expected under the contracts) relating to financial 2021 $M Borrowings Lease liabilities Payables, accruals, provisions and option premiums liabilities and a reconciliation from total Treasury hedges undiscounted cash flows to carrying Energy hedges amounts. Meridian expects to meet its future obligations from operating cash flows and debt financing. 2020 $M Borrowings Lease liabilities Payables, accruals, provisions and option premiums Treasury hedges Energy hedges Due within 1 year 475 10 626 40 27 Due in 1 to 2 years Due in 3 to 5 years Due after 5 years Total undiscounted cash flows Impact of other non-cash items Impact of interest/FX discounting 2021 carrying value 207 19 40 30 7 554 18 – 57 15 650 99 35 34 – 1,886 146 701 161 49 (3) – – – – (207) (49) (13) (16) – 1,676 97 688 145 49 1,178 303 644 818 2,943 (3) (285) 2,655 Due within 1 year 144 10 410 43 27 634 Due in 1 to 2 years Due in 3 to 5 years Due after 5 years Total undiscounted cash flows Impact of other non-cash items Impact of interest/FX discounting 174 20 42 42 21 778 19 9 92 31 753 109 24 75 29 1,849 158 485 252 108 299 929 990 2,852 (4) – – – (1) (5) 2020 carrying value 1,688 104 477 238 104 (157) (54) (8) (14) (3) (236) 2,611 14 5 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021D Market risk Foreign exchange risk Interest Rate risk Meridian is involved in both the energy Meridian is exposed to foreign Meridian is exposed to interest rate risk and financial markets and as such is exchange risk arising from sales and arising from its funding portfolio, which exposed to rises and falls in those procurement of goods and services is a mix of fixed and floating rate debt. markets and the subsequent income denominated in foreign currencies statement volatility this can cause. The and also from term debt raised in main sub-types of market risk that we foreign currencies. are exposed to are discussed below. Commodity price risk Meridian trades in the wholesale energy markets and so is exposed to volatility in forward energy prices. Being both a generator and a retailer of energy means that Meridian has a natural hedge for most of the exposure to future energy prices. Meridian also uses derivatives to help manage its net energy position, some of which are traded in quoted markets, and some of which are traded directly with other energy market participants. Energy hedges are not placed in hedge accounting relationships. For exposures resulting from Meridian’s general operations, foreign exchange spot or forward contracts are used to fix the value in reporting currency terms. Material items may be placed in hedge accounting relationships and can be either fair value hedges or cash flow hedges, depending on the nature of the transaction/underlying exposure. For term debt raised in US dollars, cross currency interest rate swaps (CCIRS) are used to convert the proceeds back to functional currency. These derivatives minimise foreign exchange risk on both the notional and the coupon flows over the life of the debt. CCIRS are placed in both fair value and cash flow hedge accounting relationships. Meridian issues debt on both a fixed and a floating basis and is thus exposed to changes in interest rates over time. A portfolio of interest rate swaps (IRS) is then used to manage the net exposure to interest rate risk, in line with a Board approved hedging policy and profile. Please also refer to the Foreign exchange risk section for derivatives used for term debt raised in foreign currencies. Meridian swaps a significant portion of its borrowings to floating rates at loan inception, and hedges the resulting interest rate exposure over a tenure based profile of fixed IRS. This is achieved using a combination of CCIRS and IRS hedges. Where Meridian borrows in foreign currency it uses CCIRSs to swap all foreign currency denominated interest and principal repayments to the reporting currency. This results in floating rate borrowings in the entity’s reporting currency. Meridian uses IRS hedges to fix floating interest rates in line with the Board approved hedging policy and profile. 14 6 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 Meridian groups its financial instrument into two categories – Treasury hedges and Energy hedges. $M Treasury hedges Energy hedges of which Current Non Current Fair value on the balance sheet 2021 2020 Assets Liabilities Assets Liabilities 106 300 406 192 214 406 (145) (49) (194) (63) (131) (194) 223 142 365 100 265 365 (238) (104) (342) (63) (279) (342) Further disclosure and analysis of these two categories are noted on the following pages. 147 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021D D1 Financial risk management continued Treasury hedges Treasury hedges – sensitivity analysis Hedges in the Treasury category generally relate to management of the interest The table below summarises the impact of changes in significant inputs (assuming rate risk and foreign exchange risk that arise from Meridian’s funding activities all other variables are held constant) on the valuation of Treasury hedges and and from general Group operations. therefore on Meridian’s after tax profit and equity. The instruments used are CCIRS, IRS and forward exchange contracts (FX). Note that changes in the fair value of the CCIRS are fully offset by opposite impacts Fair value on the balance sheet Fair value movements in the income statement Outstanding aggregate notional principals34 2021 $M 2020 $M 2021 $M 2020 $M 2021 $M 2020 $M Treasury hedges Level Assets Liabilities Assets Liabilities from hedge accounting entries and the FX retranslation of the USD debt. Therefore, the CCIRS P&L sensitivity is nil and is not shown in the below table. The majority of the FX portfolio are designated in cash flow hedge relationships. Changes in spot exchanges rates are fully offset by opposite impacts from hedge accounting entries in the P&L. For these contracts the P&L sensitivity is nil. CCIRS – Interest Rate Risk29 – Basis and Margin Risk30 – Foreign Exchange Risk31 IRS32 FX33 62 (6) 28 84 16 6 2 2 2 – – – – 118 (4) 80 194 – – – – (1) (2) – – – – (1) (2) 602 602 Interest rates Impact on after tax profit & equity 2021 $M 2020 $M Sensitivity (145) 29 (238) 80 (46) 1,502 1,427 New Zealand benchmark bill rate -100 basis points (bps) – – – – – 165 16 +100 bps -100 bps +100 bps -20% +20% (38) 38 (3) 3 (1) 1 (40) 44 (4) 4 – – Treasury hedges 106 (145) 223 (238) 79 (48) Australian benchmark bill rate Meridian uses CCIRS to hedge risks involved with long term debt issued in USD. In the above table the CCIRS are separated into component parts as follows: Foreign Exchange Rates Effect of movement in foreign exchange rates on foreign exchange contracts 29 Interest rate risk: this is the movement in value of the CCIRS due to changes in benchmark interest rates. The other side of this movement is recorded in the income statement in the “Net change in fair value of treasury instruments”, together with changes in the fair value hedge adjustments on the designated USD borrowings. 30 Basis and margin risk: this is the movement in the value of the CCIRS due to changes in basis (excluding foreign exchange) and credit margin. The other side of this movement is recorded in the income statement in the “Net change in fair value of treasury instruments”, together with cash flow hedge accounting adjustments that transfer effective hedge portions to the Cash Flow Hedge Reserve within Equity. 31 Foreign Exchange Risk: this is the movement in value of the CCIRS due to changes in spot foreign exchange rates. The impact of retranslation is recorded in the income statement in “Net change in fair value of treasury instruments” and is offset by equal and opposite retranslation effects on the related borrowings. 32 Changes in fair value of IRS are recognised in the income statement within “Net change in fair value of treasury instruments”. 33 Changes in fair value of FX contracts are recognised in the income statement within “Net change in fair value of treasury instruments”, together with cash flow hedge accounting adjustments that transfer effective hedge portions to the Cash Flow Hedge Reserve within Equity. 34 These cover multiple legs including offsetting legs and maturities out to 2036. In the table above, fair value movements in the income statement are shown net of any related hedge accounting adjustments and retranslation of foreign currency borrowings. Refer to the Hedge Accounting section of Note D1 Financial risk management for further detail on fair value and cash flow hedge relationships. 14 8 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 D D1 Financial risk management continued Energy hedges Hedges in this category relate to Meridian’s management of risk arising from Meridian’s hedging strategy focuses on its net exposure by estimating both the generation, purchase and sale of energy. expected generation and energy purchases required to support contracted sales. Meridian is exposed to changes in the spot price of electricity it receives for electricity generated, or pays to buy electricity and gas to supply customers. Additionally, inflows into Meridian’s storage lakes are variable, therefore the volume of electricity required to supply customers may exceed (or fall short of) generation production. Execution of this strategy is guided by Board approved parameters. Changes in the fair value of energy hedges are recognised in the income statement within “Net change in fair value of energy hedges”. Hedge accounting is not applied to Energy hedges. Fair value on the balance sheet 2021 $M 2020 $M Fair value movements in the income statement 2021 $M 2020 $M Outstanding aggregate notional volumes35 2021 2020 Energy hedges Market traded electricity hedges Market traded gas hedges Other electricity hedges Other gas hedges Electricity options Large Scale Generation Certificates (LGCs) LGC – Holdings created from wind farm generation LGC – Hedges Energy related hedges 35 These cover multiple legs including offsetting legs and maturities out to 2030 Level Assets Liabilities Assets Liabilities 1 1 3 2 3 1 2 149 – 113 3 29 5 1 6 300 (21) – (14) – – – (14) (14) (49) 57 – 27 – 50 6 2 8 (16) (2) (65) (10) – – (11) (11) 47 2 132 13 (21) (1) (3) (4) 142 (104) 169 (23) (2) (34) (10) (20) 1 (25) (24) (113) 20,158 GWh 16,982 GWh 322 TJ 549 TJ 13,734 GWh 21,086 GWh 3,749 TJ 3,678 TJ 1,722 GWh 2,855 GWh 0.2 million 0.1 million 2.2 million 2.1 million The “Market traded electicity hedges” and “Market traded gas hedges” categories The LGCs category has two sub-components. The first represents the Renewable contain instruments that are traded on various exchange-based markets. Energy Certificates (RECs) that Meridian’s Australian wind farms earn in the form The “Other electricity hedges” and “Other gas hedges” categories contain over-the- counter derivatives, where counterparties include customers, other energy market participants and financial institutions. These hedges are generally longer-term, larger volume contracts that manage specific risks that can not be managed through exchange-based markets. Meridian trades electricity options with other generators. These are used to support the management of inflow and storage variability in the catchments where it generates electricity. of LGCs. Additionally, Powershop Australia is required to purchase and surrender RECs. The second represents the derivatives used to firm prices received for LGCs generated and consequently reduce the profit volatility of each wind farm. At the time of generation, LGCs are recognised as income in energy margin at the prevailing spot price. LGC holdings and hedges are all recognised as financial instruments on the balance sheet at their fair value. 149 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021D D1 Financial risk management continued Energy hedges – sensitivity analysis The table below summarises the impact of changes in significant inputs (assuming all other variables are held constant) on the valuation of Energy hedges and therefore on Meridian’s after tax profit and equity. Energy hedges Energy prices Discount rates Call volumes LGC prices Impact on after tax profit & equity 2021 $M 2020 $M (75) 76 1 (1) (2) 2 2 (2) (53) 55 (2) 2 (3) 3 2 (2) Sensitivity -10% +10% -100 bps +100 bps -10% +10% -10% +10% Settlements of energy hedges The following provides a summary of the settlements through EBITDAF for Energy hedges: 2021 2020 Market- traded electricity hedges Market- traded gas hedges Other electricity hedges Other gas hedges Electricity Options LGC related Market- traded electricity hedges Market- traded gas hedges Other electricity hedges Other gas hedges Electricity Options LGC related Total (126) 341 19 (16) 24 (50) 3 215 (26) – – – (14) 69 55 – – – – 4 4 38 (15) 23 Total 48 8 56 Operating revenue Operating expenses Total settlements in EBITDAF (47) 58 11 – (2) (2) (98) 225 127 – 1 1 – 75 75 1 5 0 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021D Fair value technique and key inputs inputs and assumptions are used by the • calibration factor applied to forward In estimating the fair value of an asset valuation technique. These are: price curves as a consequence of or liability, Meridian uses market- • forward price curves referenced to initial recognition differences; observable data to the extent that it is the ASX for electricity, published • NZAS continues to operate; and available. The Audit and Risk Committee market data on gas/oil prices, • contracts run their full term. of Meridian determines the overall published market interest rates and appropriateness of key valuation published forward foreign exchange techniques and inputs for fair value rates; measurement. The Chief Financial Officer explains fair value movements in his report to the Board. • Meridian’s best estimate of electricity volumes called over the life of electricity options; Where the fair value of a financial • discount rates based on market instrument is calculated as the present wholesale interest rate curves, value of the estimated future cash flows adjusted for counterparty credit risk; of the instrument (DCFs), a number of The impact of COVID-19 has been considered as part of the assumptions when determining the fair value of our financial instruments. However, there was no impact on fair value when taking this into consideration. The table below describes any additional key inputs and techniques used in the valuation of Level 2 and 3 energy hedges. Financial asset or liability Description of input Range of significant unobservable inputs Relationship of input to fair value Other electricity Price, where quoted prices are not available or not relevant $26/MWh to $98/MWh An increase in the forward hedges, valued (i.e. for long-dated contracts), Meridian’s best estimate of (in real terms), excludes wholesale electricity price using DCFs long-term forward wholesale electricity price is used. This is observable ASX prices. increases the fair value of buy based on a fundamental analysis of expected demand and the cost of new supply and any other relevant wholesale market factors. LGD forward Price, based on a forward LGC price curve from a third party A$8 to A$39 contracts & options broker, and benchmarked against market spot prices. valued using DCFs / Black Scholes Other factors, include: • Calibration factor applied to forward price curves as a consequence of initial recognition differences. hedges and decreases the fair value of sell hedges. A decrease in the forward wholesale electricity price has the opposite effect. An increase in the forward LGC price decreases the fair value of sell hedges and increases the fair value of buy hedges. A decrease in the forward LGC price has the opposite effect. 1 51 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 D D1 Financial risk management continued Level 3 financial instrument analysis The following provides a summary of the movements through EBITDAF and movements in the fair value of level three financial instruments: 2021 2020 Reconciliation of Level 3 fair value movements $M Other electricity hedges Electricity options Energy hedges settled in EBITDAF: Operating revenue Operating expenses Total settlements in EBITDAF Net change in fair value of energy hedges: Remeasurement Hedges settled Total realised and unrealised losses on energy hedges Balance at the beginning of the period Fair value movements Balance at the end of the year (98) 225 127 264 (127) 137 (38) 137 99 – 75 75 54 (75) (21) 50 (21) 29 Other electricity hedgess Electricity options Total (14) 69 55 21 (55) (34) (4) (34) (38) – 4 4 (16) (4) (20) 70 (20) 50 (14) 73 59 5 (59) (54) 66 (54) 12 Total (98) 300 202 318 (202) 116 12 116 128 Fair value movements of Level 3 energy hedges in 2021 which are held at balance date total $85 million (30 June 2020: $52 million). Movements in recalibration differences arising from energy hedges Opening difference Initial differences on new hedges Volumes expired and amortised Recalibration for future price estimates and time Closing difference Initial recognition difference 2021 $M 2020 $M An initial recognition difference arises when the modelled value of an energy (1) – – (1) (2) (3) hedge differs from the transaction price (which is the best evidence of fair value). – 1 1 (1) This difference is accounted for by recalibrating the valuation model by a fixed percentage to result in a value at inception equal to the transaction price. This recalibration is then applied to future valuations over the life of the contract. The resulting difference shown in the table reflects potential future gains or losses yet to be recognised in the income statement over the remaining life of the contract. 1 5 2 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 D D1 Financial risk management continued Hedge accounting risk on USD borrowings in fair value This means that: Foreign exchange risk Meridian makes use of hedge hedge accounting relationships. • the CCIRS are revalued to the accounting for USD borrowings, certain This means that highly probable forecast transactions and the financial instruments that are used to economically hedge these exposures. Refer to the start of the Risk Management section for a description of the key risks Meridian manages. • the carrying value of the USD borrowings are adjusted for changes in the fair value of the hedged risk – noted as “hedge accounting adjustments” in Note C7 Borrowings; and • the CCIRS are revalued to the Meridian only designates hedge income statement for this same risk. income statement for basis risk and margin risk; and Meridian has hedged highly probable forecast capital expenditure denominated in currencies other than • the effective portions of the NZD using forward exchange contracts. hedge are moved from the income The foreign currency exposures give statement to the Cash Flow Hedge rise to the risk of variability to future Reserve within Equity. cashflows. To mitigate this risk forward accounting relationships where the underlying exposure and the hedge are eligible for hedge accounting and are an economic match, where credit risk is not expected to dominate the fair value of the hedge, and where we expect the hedge relationship to remain effective over its life. The USD borrowings (hedged items) and the CCIRS (hedging instruments) present Meridian with risks which we account for in the following ways: Interest rate risk The USD borrowings are fixed rate liabilities and thus present interest rate risk, should benchmark interest rates change. This risk is neutralised by receiving the same fixed rate on the USD leg of the matching CCIRS. Meridian designates the interest rate As noted earlier, there may be small differences between the above entries which result in hedge ineffectiveness in the income statement. As long as the hedge accounting relationships remain effective, the revaluations of both the hedged item Refer to: and hedging instrument should net to a minimal amount in the income statement. This residual difference is • Note C7 Borrowings for the carrying value of the hedged items (USD borrowings); referred to as hedge ineffectiveness. • Note D1 Treasury hedges for foreign exchange contracts have been entered into. The cash flows associated with these contracts are timed to mature when the payment for the capital expenditure is made. For contracts designated as cash flow hedges for accounting purposes, when the cash flows occur Meridian adjusts the carrying value of the asset acquired. The accumulated life to date hedge accounting adjustments on the USD borrowing total $56 million (2020: $114 million). Basis and margin risk further information on the hedging Hedge ineffectiveness instruments (CCIRS), including The table below summarises hedge notionals and changes in fair ineffectiveness. This is included within value during the period; and “Net change in fair value of Treasury • the Statement of Changes in Hedges” in the income statement. Equity for the balance of the Impact on income statement The combination of USD borrowings Cash Flow Hedge Reserve and and CCIRS economically results in movements during the period. Meridian having floating rate NZD borrowings. This presents a risk of variability in future cash flows. As such, Meridian designates basis risk (excluding FX) and margin risk into cash flow hedge relationships. On the balance sheet, USD borrowings are included within Term Borrowings and CCIRS are included within Financial Instruments. Hedge Ineffectiveness 2021 $M – 2020 $M (2) Ineffectiveness is primarily caused by credit counterparty risk on CCIRS. This risk is part of the CCIRS fair value but is not included in the hedge accounting entries. 1 5 3 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021D D1 Financial risk management continued Future cash flows The table below estimates the contractual undiscounted future cash flows that we expect on hedge accounted items. Amounts noted include coupons and repayment/ exchange of notionals on maturity. Currency as indicated below USD Borrowings (shown in USD) CCIRS – USD leg (coupons and maturity flow – shown in USD) – Functional currency leg (coupons and maturity flow – shown in NZD) Foreign Exchange Contracts – Foreign currency leg (shown in NZD) – Functional currency leg (shown in NZD) 2021 $M 2020 $M Due within 1 year Due within 1–2 years Due within 2–5 years Due after 5 years Due within 1 year Due within 1–2 years Due within 2–5 years Due after 5 years (56) (16) (47) (454) (17) (56) (47) (469) 56 (58) 12 (11) 16 (13) 95 (90) 47 (53) 62 (59) 454 (638) – – 17 (11) – – 56 (57) – – 47 (34) 469 (627) – – – – Functional currency coupons are set quarterly based on NZ and AU benchmark rates. They are shown in this table based on market forward interest rates and translated to NZD equivalent using spot AUD/NZD exchange rates at reporting date. The foreign currency leg of foreign exchange contracts is translated to NZD using spot exchange rates at reporting date. Financial instruments which are offset In certain circumstances Meridian offsets the fair value of financial instruments where it has legal agreements in place that permit netting of positions and net settlement. 2021 $M 2020 $M Gross Value Value Offset Carrying Value Gross Value Value Offset Carrying Value Financial instrument assets – Energy hedges – Treasury hedges Total financial instrument assets Financial instrument liabilities – Energy hedges – Treasury hedges Total financial instrument liabilities Net financial instruments 1 5 4 505 106 611 (254) (145) (399) 212 (205) – (205) 205 – 205 – 300 106 406 (49) (145) (194) 212 205 223 428 (167) (238) (405) 23 (63) – (63) 63 – 63 – 142 223 365 (104) (238) (342) 23 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021E Group structure In this section Name of entity Meridian Energy Limited36 Principal activity Functional Currency 2021 2020 Interest held by the group Powershop New Zealand Limited37 Electricity retailing New Zealand dollar This section provides information to Flux Federation Limited Software development New Zealand dollar help readers understand the Meridian Group structure and how it affects the financial position and performance of the Group. In this section of the notes there is information about Meridian’s Subsidiaries. E1 Subsidiaries The consolidated financial statements include the financial statements of Meridian Energy Limited and the subsidiaries listed below. They all have share capital consisting solely of ordinary shares that the Group holds directly, and the proportion of ownership interests held equals the Group’s voting rights. Meridian Energy Limited provides support to its subsidiaries where necessary in order to ensure they meet their obligations as they fall due. Flux-UK Limited Licence holder British pounds Three River Holdings No. 1 Limited36 Holding company New Zealand dollar Three River Holdings No. 2 Limited36 Holding company New Zealand dollar Meridian Energy Australia Pty Limited36 Management services Australian dollar GSP Energy Pty Limited Electricity generation Australian dollar Meridian Finco Pty Limited36 Financing Australian dollar Rangoon Energy Park Pty Limited38 Wind farm development Australian dollar Wandsworth Wind Farm Pty Limited38 Wind farm development Australian dollar Meridian Energy Markets Pty Limited36 Non-trading entity Australian dollar Meridian Wind Monaro Range Holdings Pty Limited36 Holding company Australian dollar Meridian Wind Monaro Range Pty Limited36 Holding company Australian dollar Mt Millar Wind Farm Pty Limited36 Electricity generation Australian dollar Meridian Australia Holdings Pty Limited36 Holding company Australian dollar Meridian Wind Australia Holdings Pty Limited36 Holding company Australian dollar Mt Mercer Windfarm Pty Limited36 Electricity generation Australian dollar Powershop Australia Pty Limited Electricity retailing Australian dollar Dam Safety Intelligence Limited Professional services New Zealand dollar Meridian LTI Trustee Limited Meridian Energy Captive Insurance Limited Trustee Insurance New Zealand dollar New Zealand dollar Meridian Limited Non-trading entity New Zealand dollar Meridian Energy International Limited Non-trading entity New Zealand dollar Powershop New Zealand Limited37 Non-trading entity New Zealand dollar 36 Members of guaranteeing group. 37 On 30 April 2021, Powershop New Zealand Limited was amalgamated into Meridian Energy Limited. The Powershop entity was removed from the companies office register and a new entity created (under the same name) for copyright purposes. 38 On 3 March 2020, Meridian Energy Australia Pty Ltd acquired 100% shareholdings in Rangoon Energy Park Pty Limited and Wandsworth Wind Farm Pty Limited. – 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – 1 5 5 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021 F Other In this section F1 Share-based payments If the performance hurdles have is less than zero), or if TSR does not meet This section includes the remaining Long term incentive (LTI) information relating to Meridian’s financial statements which is required to comply with financial reporting standards. In August 2019, the Board approved a new LTI plan to replace Meridian’s previous LTI plan. Set out below is a summary of the previous LTI Plan which was last offered in FY19 (for the period commencing on 1 July 2018 and ending on 30 June 2021). Also set out below is a summary of the new LTI plan which was first offered in FY20 (for the period commencing on 1 July 2019 and ending 30 June 2022). Previous LTI Plan The previous LTI is a share loan and cash bonus scheme, where executives purchase Meridian shares via an interest-free loan from the company, with the shares held on trust by the LTI plan trustee. Any shares awarded depend on whether the following performance hurdles are met over a three-year period: • the company’s absolute total shareholder return (TSR) must be positive; and • the company’s TSR compared to a benchmark peer group. been achieved, a progressive vesting the peer group relative TSR hurdle of scale is applied to determine how 50th percentile, all of the shares are many shares vest: forfeited to the trustee and the relevant • if the company’s TSR over the executive receives no benefits under the three-year period exceeds the 50th LTI. Where the TSR is greater than the percentile TSR of the benchmark peer 50th percentile of the benchmark peer group, at least 50% of an executive’s group, but below the 75th percentile, shares will vest. • 100% shares will vest on meeting the 75th percentile TSR of the peer group, shares are allocated on a percentage basis and any that have not vested will also be forfeited. with vesting on a straight-line basis For the LTI plan that vested at the between these two points. end of 2021, the level of vesting was • no shares will vest if the company’s 100% (2020: 100%). Therefore, the TSR is less than the 50th percentile outstanding balance of the interest free TSR of the peer group. loans at 30 June 2021 of $0.7 million has now been repaid (2020: $0.5 million). A total amount of 238,724 shares have been transferred to the eligible participants (2020: 208,707). In 2020 154,388 shares were forfeited which are now held in trust by Meridian LTI Trustee Limited until reallocation. Once the vesting level has been confirmed, a cash amount (after the deduction of tax), but before other applicable salary deductions, is used to repay the executive’s outstanding loan balance. For each three-year plan, an independent external expert measures TSR of Meridian and the peer group of companies along with the outcome on the progressive vesting scale. If TSR is not positive (i.e. in absolute terms 1 5 6 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021F F1 Share-based payments continued New LTI Plan Performance Hurdles For each three-year plan, an independent external expert measures the TSR of Meridian and the peer group of companies along with the outcome on the progressive vesting scale. Share Rights will lapse if the Vesting Conditions are not satisfied (although this is subject to the Board’s discretion in relation to the Employment Condition). In the current financial year, 476,168 share rights were issued to eligible staff, 238,084 being ABS Rights and 238,084 being REL Rights. Under the new LTI plan, the company Share Rights are granted in two tranches: issues rights to acquire ordinary shares • Absolute Return Share (ABS) Rights; in the company (Share Rights) to eligible and participants who accept the offer to participate in the LTI plan. Each Share Right entitles the holder to one ordinary share in the company and an additional number of shares equal to the value of gross cash dividends per share which would have been paid to a New Zealand tax resident who held a share for the duration of the vesting period, calculated using a 10-day volume weighted average price. The number of Share Rights that vest is dependent on: • Meridian’s total shareholder return over a three-year performance period (Performance Period) relative • Relative Return Share (REL) Rights. For ABS Rights to vest, the company’s TSR must be greater than the absolute TSR benchmark which is set at the beginning of the vesting period with regard to the company’s cost of equity (Absolute TSR Benchmark) on a compounding annual basis over the Performance Period. If the company’s TSR is equal to or lower than the Absolute TSR Benchmark, no ABS Rights will vest. If the company’s TSR is greater than the Absolute TSR Benchmark, 100% of the ABS Rights will vest. to Meridian’s cost of equity; The number of REL Rights that vest is • Meridian’s total shareholder return over the Performance Period relative to a defined group of NZX Main Board and ASX listed peer companies (Performance Hurdles); and • if the participant continues to be employed by Meridian during the vesting period (Employment Condition). determined by the company’s TSR over the Performance Period relative to the peer group. For any of the REL Rights to vest, the company’s TSR must be greater than or equal to the 50th percentile / median TSR of the peer group. 100% of the REL Rights will vest on meeting the 75th percentile TSR of the peer group, with vesting on a straight-line basis between these two points. 1 57 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021F F1 Share-based payments continued Movement in zero-priced share options Grant date Vesting date LTI Scheme & Type Weighted average fair value of option Balance at start of the year Granted during the year Vested during the year Forfeited during the year Balance at the end of the year Number of options – – 238,084 238,084 204,834 204,834 238,724 648,392 – – 334,897 266,922 601,819 – – – 476,168 204,834 204,834 – – – – – – (238,724) (238,724) – – – (208,707) – – – – – – – (96,173) (58,215) 238,084 238,084 204,834 204,834 – 885,836 204,834 204,834 238,724 – 409,668 (208,707) (154,388) 648,392 2021 9/03/21 9/03/21 7/10/2019 & 28/2/20 7/10/2019 & 28/2/20 22/08/2018 Total 2020 7/10/2019 & 28/2/20 7/10/2019 & 28/2/20 22/08/2018 07/09/2017 Total 30/06/23 30/06/23 30/06/22 30/06/22 30/06/21 30/06/22 30/06/22 30/06/21 30/06/20 New – ABS New – REL New – ABS New – REL Previous New – ABS New – REL Previous Previous $3.53 $3.75 $3.54 $3.36 $1.78 $3.54 $3.36 $1.78 $1.61 1 5 8 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021F F2 Related parties F3 Auditors remuneration Meridian transacts with other Government-owned or related entities independently and on an arm’s-length basis. Transactions cover a variety of services including trading energy, transmission, postal, travel and tax. Directors of the Group may be directors or officers of other companies or organisations with which members of the Group may transact. Compensation of key management personnel The remuneration of directors and other members of key management during the year was as follows: Auditors remuneration to Deloitte Limited for: Audit and review of New Zealand-based companies’ financial statements Audit of overseas-based companies’ financial statements Total audit fees Other assurance fees Total auditor remuneration Group 2021 $M 0.6 0.2 0.8 0.1 0.9 2020 $M 0.6 0.2 0.8 0.1 0.9 Directors' Fees Chief executive officer, senior management team and subsidiary chief executives Salaries and short-term benefits Long-term benefits Group 2021 $M 1 7 1 8 2020 $M 1 8 1 9 The Board has adopted a policy to maintain the independence of the Company’s external auditor, including a review of all other services performed by Deloitte Limited and recommending to the Office of the Auditor-General that there be lead partner rotation after a maximum of five years. The Auditor-General has appointed Mike Hoshek of Deloitte Limited as auditor of the company. The audit fee includes Office of the Auditor-General overhead contribution of $37,000 (30 June 2020: $33,300). Other assurance services undertaken by Deloitte Limited during the year included reviews of greenhouse gas inventory and sustainability reporting assurance, review of the interim financial statements, audit of the securities registers, vesting of the executive long-term incentive plan, the solvency return of Meridian Energy Captive Insurance Limited and supervisor reporting. Meridian has also paid $14,000 (2020: $14,000) to Deloitte Limited for administrative and other advisory services to the Corporate Taxpayers Group, of which Meridian, alongside a number of other organisations, is a member. In addition to this, Meridian has paid $5,000 (2020: nil) to Deloitte Limited for consulting services relating to the CFO Vantage Programme. 1 59 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021F F4 Contingent assets and liabilities F6 Changes in financial reporting standards There were no contingent assets or liabilities at 30 June 2021 (2020: Nil). All mandatory amendments and interpretations have been adopted in the current F5 Subsequent events year. None have had a material impact on these financial statements. Refer to Significant Matter section for details regarding the 2020 restatement as a result of the IFRIC Agenda Decision. In August 2021, the directors of Meridian Energy Limited released an Information Meridian is not aware of any standards issued but not yet effective that would Memorandum to interested parties for the sale of its investment in Meridian Energy materially affect the amounts recognised or disclosed in the financial statements. Australia (“MEA”) which is held by Three River Holdings No. 2 Limited (a 100% owned subsidiary of Meridian Energy Limited). The MEA investment includes the ownership and operation of wind and hydro assets and retail activities under the Powershop brand. If we proceed, any potential transaction will likely be confirmed before the end of December 2021. The financial performance of the MEA business is presented in the Australia segment in Note A1 Segment performance. The carrying value of the assets and liabilities of the MEA investment as at 30 June 2021 was $778 million and $416 million respectively. A significant amount of uncertainty surrounds the amount of any sale proceeds and therefore it is not possible to accurately estimate the financial effect of the transaction if it proceeds. In August 2021, the Electricity Authority (EA) released its final decision on actions to correct the December 2019 Undesirable Trading Situation. This decision relates to the floods of December 2019 when hydro generators were managing record breaking inflows and spill past hydro power stations was inevitable. Meridian’s financial statements have been prepared on the basis of the final EA decision which resets prices during the trading periods concerned. The impact on the financial statements by making this adjustment was insignificant. There are no other subsequent events other than dividends declared on 24 August 2021 (refer to Note C4 Dividends for further details) 1 6 0 MERIDIAN INTEGRATED REPORT 2021NOTES TO THE FINANCIALS — FOR THE YEAR ENDED 30 JUNE 2021Independent auditor’s report To the shareholders of Meridian Energy Limited for the year ended 30 June 2021 The Auditor-General is the auditor 30 June 2021 and its consolidated New Zealand Auditing and Assurance course of trading activities of the Group. of Meridian Energy Limited and its financial performance and its Standards Board, and we have fulfilled These services have not impaired our subsidiaries (the Group). The Auditor- consolidated cash flows for the our other ethical responsibilities in independence as auditor of the Group. General has appointed me, Mike year then ended in accordance accordance with these requirements. Other than these engagements and arm’s Hoshek, using the staff and resources with New Zealand equivalents to of Deloitte Limited, to carry out the International Financial Reporting audit of the consolidated financial Standards and International statements on his behalf. Financial Reporting Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. length transactions, and in our capacity as auditor acting on behalf of the Auditor- General, we have no relationship with, or interests in, the Group. Opinion We have audited the consolidated financial statements of the Group on pages 115 to 160, that comprise the consolidated balance sheet as at 30 June 2021, the consolidated income statement, consolidated comprehensive income statement, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date and the notes to the consolidated financial statements including a summary of significant accounting policies and other explanatory information. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at Basis for our opinion Other than the audit, our firm carries Audit materiality We conducted our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in out other assurance assignments for the Group in the areas of greenhouse gas inventory assurance, limited assurance of the sustainability content in the integrated report, review of the interim financial statements, audit of the securities registers, vesting of the executive long-term incentive plan, the solvency return of Meridian Captive Insurance Limited and supervisor reporting. We also carried out non- assurance assignments for the Group relating to the Corporate Taxpayers Group and the CFO Vantage Programme, accordance with the Auditor-General’s Auditing Standards, which incorporate which are compatible with those independence requirements. Professional and Ethical Standard 1: In addition, principals and employees International Code of Ethics for of our firm deal with the Group on Assurance Practitioners issued by the arm’s length terms within the ordinary We consider materiality primarily in terms of the magnitude of misstatement in the consolidated financial statements of the Group that in our judgement would make it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced (the ‘quantitative’ materiality). In addition, we also assess whether other matters that come to our attention during the audit would in our judgement change or influence the decisions of such a person (the ‘qualitative’ materiality). We use materiality both in planning the scope of our audit work and in evaluating the results of our work. We determined materiality for the Group consolidated financial statements as a whole to be $16 million. 1 61 MERIDIAN INTEGRATED REPORT 2021INDEPENDENT AUDITOR’S REPORT Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters Valuation of Generation Structures and Plant As explained in note B1 in the Group financial statements, generation structures and plant are carried at fair value less any subsequent accumulated depreciation and impairment losses at balance sheet date. The net book value of generation structures and plant as reflected in note B1 is $8,297 million (2020: $8,345 million). The Group obtains an independent valuation every year to ensure that the carrying value does not differ significantly from the fair value at balance date. As a result of this independent valuation, generation structures and plant have been revalued this year as at 30 June 2021. The revaluation resulted in an increase in value by $202 million. The impact of the revaluation is recognised as an increase of $202 million in the revaluation reserve with no income statement impact in the current period (2020: decrease of $21 million in the revaluation reserve and $57 million impairment in the income statement was recorded). The valuation methodology determines an enterprise value range by considering a primarily discounted cashflow (DCF) approach, supported by a capitalisation of earnings approach. This is with reference to a) a discounted cash flow valuation, which primarily focuses on free cash flows of business units such as estimated future earnings before interest, tax, depreciation, amortisation, changes in fair value hedges, impairments, and gains or losses on sale of assets (‘EBITDAF’), as well as capital expenditure, working capital movements and cash tax amounts, as well as the discount rate used within the model, and b) a capitalisation of earnings approach.The inputs do not fully use observable market data and require significant judgement and estimates to be made by the valuer. As outlined in note B1 the valuer has considered the impact of COVID-19 on the valuation. We include valuation of generation structures as a key audit matter because of the inherent technical and judgemental complexity associated with determining the fair value. Specifically, the determination of the expected cashflows, in particular the determination of forward price paths, as well as the appropriate discount rate. Valuation of Level 3 Electricity Derivatives As explained in note D1, the Group’s activities expose it to commodity price, foreign exchange and interest rate risks which are managed using derivative financial instruments. These instruments are carried at their fair value as at 30 June 2021. At 30 June 2021, level 3 electricity derivative assets totalled $142 million (2020: $77 million) and level 3 electricity derivative liabilities were $14 million (2020: $65 million). We include valuation of level 3 electricity derivatives as a key audit matter for the following reasons: • The price used in the valuation of electricity hedges is based on the Group’s best estimate of the long-term forward wholesale electricity price, which involves significant judgement and estimates regarding discount factors, expected demand, cost of new supply, and other relevant market factors; and • The complexity and judgement involved in the valuation techniques and the judgement involved in evaluating the long-term expected call volumes and discount factor used to determine the fair value of electricity options and swaps. How our audit addressed the key audit matters Our audit procedures focused on: • The reasonableness of the key assumptions used in the discounted cash flow (DCF) model, specifically the reasonableness of the WACC rate used, and of the price paths utilised in the models; • The reasonableness of other free cash flows inputs such as estimates of EBITDAF and capital expenditure; and • The impact of COVID-19 on the estimates used within the valuation. Our procedures included: • Evaluating the Group’s processes for the independent valuation of the generation structures and plant; • Reviewing the valuation methodology and the reasonableness of the significant underlying assumptions; • Assessing the competence, objectivity and integrity of the independent registered valuer. We assessed their professional qualifications and experience. We also obtained representation from them regarding their independence and the scope of their work; • Meeting with the valuer to understand the valuation process adopted to identify and challenge the critical judgement areas in the valuation; • Utilising our in-house valuation specialists to assess the appropriateness of the valuation methodology and the reasonableness of the valuation range determined by the independent valuer, including WACC rates, forward price path, and reasonableness of earnings multiples applied; • Evaluating the adequacy of the Group’s disclosures in respect of the valuation of generation structures and plant. Our audit procedures focused on: • The appropriateness of the valuation techniques ; • The reasonableness of the wholesale electricity price path; • The reasonableness of the underlying assumptions and inputs in the valuation models; • The impact of COVID-19 on the estimates used within the valuation. Our procedures included: • In conjunction with our internal experts, evaluating the appropriateness of the methodology applied in the valuation models for these electricity hedges, options and swaps and ensuring that the methodology has been consistently applied with the prior year where appropriate; • Challenging the key assumptions applied, including the long-term forward wholesale electricity price, long-term expected call volumes, day one adjustments and discount rates; • Agreeing underlying data to contract terms, specifically the contract term, price and volumes; and • Evaluating the adequacy of the Group’s disclosures in respect of the valuation of level 3 electricity derivatives. 1 62 MERIDIAN INTEGRATED REPORT 2021INDEPENDENT AUDITOR’S REPORT Directors’ responsibilities for the consolidated financial statements Auditor’s responsibilities for the audit of the consolidated financial statements The Directors are responsible on Our objectives are to obtain We also: behalf of the Group for the reasonable assurance about whether • Identify and assess the risks of preparation and fair presentation of the consolidated financial statements, material misstatement of the the consolidated financial statements as a whole, are free from material consolidated financial statements, in accordance with New Zealand misstatement, whether due to fraud whether due to fraud or error, design Equivalents to International Financial or error, and to issue an auditor’s report and perform audit procedures Reporting Standards and International that includes our opinion. Other information The Directors on behalf of the Group are responsible for the other information. The other information comprises the information included on pages 1 to 114, and 167 to 174, but does not include the consolidated financial statements, and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon. In connection with our audit of the consolidated financial statements, Financial Reporting Standards and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried out in accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud our responsibility is to read the other or error. information and in doing so, we consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. In preparing the consolidated or error and are considered material financial statements, the Directors if, individually or in the aggregate, are responsible on behalf of the they could reasonably be expected to Group for assessing the Group’s influence the economic decisions of ability to continue as a going concern, shareholders taken on the basis of disclosing, as applicable, matters these consolidated financial statements. related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. The Directors’ responsibilities arise from the Financial Markets Conduct Act 2013. As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 1 6 3 MERIDIAN INTEGRATED REPORT 2021INDEPENDENT AUDITOR’S REPORT • Conclude on the appropriateness • Obtain sufficient appropriate consolidated financial statements of of the use of the going concern audit evidence regarding the the current period and are therefore basis of accounting by the directors financial information of the entities the key audit matters. We describe and, based on the audit evidence or business activities within the these matters in our auditor’s report obtained, whether a material Group to express an opinion on the unless law or regulation precludes public uncertainty exists related to events or consolidated financial statements. disclosure about the matter or when, conditions that may cast significant We are responsible for the direction, in extremely rare circumstances, we doubt on the Group’s ability to supervision and performance of determine that a matter should not be continue as a going concern. If we the group audit. We remain solely communicated in our report because conclude that a material uncertainty responsible for our audit opinion. the adverse consequences of doing exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit so would reasonably be expected to outweigh the public interest benefits of such communication. and significant audit findings, including Our responsibilities arise from the any significant deficiencies in internal Public Audit Act 2001. control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other Mike Hoshek, Partner for Deloitte Limited On behalf of the Auditor-General matters that may reasonably be thought Wellington, New Zealand to bear on our independence, and where applicable, related safeguards. 24 August 2021 whether the consolidated financial From the matters communicated statements represent the underlying with the Directors, we determine transactions and events in a manner those matters that were of most that achieves fair presentation. significance in the audit of the 1 6 4 MERIDIAN INTEGRATED REPORT 2021INDEPENDENT AUDITOR’S REPORT Independent accountant’s assurance report To the directors of Meridian Energy Limited Report on sustainability content within the 2021 Integrated Report Conclusion Basis for Conclusion This conclusion has been formed on the Our engagement has been conducted Our Independence and Quality Control Meridian Energy Limited (‘Meridian) basis of, and is subject to, the inherent in accordance with International We have complied with the and its subsidiaries’ (the ‘Group’) limitations outlined elsewhere in this Standard on Assurance Engagements independence and other ethical Integrated Report for the year ended independent assurance report. (New Zealand) 3000 (Revised): requirements of Professional and 30 June 2021 (the ‘Integrated Report’) includes sustainability content on pages 2 to 81, 111 and 167 to 170 (‘Sustainability Content’) prepared in accordance with the Global Reporting Initiative Sustainability Reporting Standards (the ‘GRI Standards’): Core option. The subject of our limited assurance engagement is the information included on pages 2 to 81, 111 and 167 to 170 of the integrated report, prepared in accordance with Reporting Principles of the GRI Standard 101 for defining report content and report quality; and the disclosures listed in the GRI index on pages 167 to 170 prepared in accordance with the GRI standards as referenced in the GRI index on page 167 to 170. Our report does not cover forward looking statements or online supplements. Based on the evidence obtained from the procedures we have performed, nothing has come to our attention that causes us to believe that: • the Sustainability Content on pages 2 to 81, 111 and 167 to 170 of the Integrated report for the year ended 30 June 2021, has not been prepared, in all material respects, in accordance with the Reporting Principles of GRI Standard 101 for Defining the Report Content: materiality, stakeholder inclusiveness, sustainability context and completeness and for Defining Report Quality: balance, comparability, accuracy, timeliness, clarity and reliability; and • the disclosures listed on the GRI index on pages 167 to 170 has not been prepared, in all material respects, in accordance with the GRI Standards referenced in the GRI index on pages 167 to 170. Assurance Engagements Other than Ethical Standard 1 International Code Audits or Reviews of Historical Financial of Ethics for Assurance Practitioners Information (‘ISAE (NZ) 3000 (Revised)’) (including International Independence issued by the New Zealand Auditing Standards) (New Zealand) issued by the and Assurance Standards Board. New Zealand Auditing and Assurance We believe that the evidence we have Standards Board, which is founded on obtained is sufficient and appropriate fundamental principles of integrity, to provide a basis for our conclusion. objectivity, professional competence Board of Directors’ Responsibility The Board of Directors is responsible for: • ensuring that the Sustainability Content is prepared in accordance with the GRI Standards: Core option and specifically those GRI Standards set out in the GRI Index; • determining Meridian Energy Limited’s objectives in respect of sustainability reporting; • selecting the material topics; and • establishing and maintaining appropriate performance management and internal control systems in order to derive the Sustainability Content. and due care, confidentiality and professional behaviour. Other than this engagement and our role as auditor of the statutory financial statements on behalf of the Auditor- General, our firm carries out other assurance assignments for the Group in the areas of greenhouse gas inventory assurance, review of the interim financial statements, audit of the securities registers, vesting of the executive long- term incentive plan, the solvency return of Meridian Captive Insurance Limited and supervisor reporting. We also carried out non-assurance assignments for the Group relating to the Corporate T R O P E R E C N A R U S S A S ’ T N A T N U O C C A T N E D N E P E D N I 1 6 5 MERIDIAN INTEGRATED REPORT 2021 Taxpayers Group and the CFO Vantage come to our attention that causes us to Programme, which are compatible with believe that the Sustainability Content those independence requirements. has not been prepared, in all material In addition, principals and employees of our firm deal with the Group on respects, in accordance with the GRI Standards: Core option. arm’s length terms within the ordinary We did not evaluate the security and course of trading activities of the Group. controls over the electronic publication These services have not impaired of the Integrated Report. our independence for the purposes In a limited assurance engagement, of this engagement. Other than the assurance practitioner performs these engagements and arm’s length procedures, primarily consisting transactions, we have no relationship of discussion and enquiries of with, or interests in, the Group. management and others within the The firm applies Professional and Ethical Standard 3 (Amended): Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance Engagements issued by the New Zealand Auditing and Assurance Standards Board, and entity, as appropriate, and observation and walk-throughs, and evaluates the evidence obtained. The procedures selected depend on our judgement, including identifying areas where the risk of material non-compliance with the GRI Standards is likely to arise. accordingly maintains a comprehensive Our procedures included: system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Independent Accountant’s Responsibility • Obtaining an understanding of the internal control environment, risk assessment process and information systems relevant to the sustainability reporting process; • A review of the materiality process followed to determine the material topics chosen for inclusion in the Sustainability Content; accordance with the GRI Standards: Core option; and primarily of the responsible party, and applying analytical and other review • Evaluating whether the information presented is consistent with our overall knowledge and experience of sustainability reporting processes at Meridian Energy Limited. procedures. The conclusion expressed in this report has been formed on the above basis. A limited assurance engagement does not provide assurance on whether The procedures performed in a compliance with the GRI Standards will limited assurance engagement vary continue in the future. in nature and timing from, and are less in extent than for, a reasonable assurance engagement. Consequently, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed. Accordingly, we do not express a reasonable assurance opinion about whether Meridian Energy Limited’s Sustainability Content has been prepared, in all material respects, in accordance with the GRI Standards: Core option. Inherent Limitations Because of the inherent limitations of any limited assurance engagement, it is possible that fraud, error or non-compliance may occur and not be detected. A limited assurance Use of Report Our assurance report is made solely to the directors of the Group in accordance with the terms of our engagement. Our work has been undertaken so that we might state to the directors those matters we have been engaged to state in this assurance report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the directors of Meridian Energy Limited for our work, for this assurance report, or for the conclusions we have reached. Chartered Accountants Auckland, New Zealand 24 August 2021 Our responsibility is to conduct a • Analytical review and other test engagement is not designed to detect limited assurance engagement in order checks of the information presented; all instances of non-compliance with to express an opinion whether, based on the procedures performed, anything has • Checking whether the appropriate indicators have been reported in the GRI Standards: Core option as it generally comprises making enquiries, T R O P E R E C N A R U S S A S ’ T N A T N U O C C A T N E D N E P E D N I 1 6 6 MERIDIAN INTEGRATED REPORT 2021 GRI standards content index This report has been prepared in accordance with the GRI Standards: Core option. The specific GRI Standards reported against are in italics below. GRI 101: Foundation 2016 GENERAL DISCLOSURES GRI 102: General Disclosures 2016 ORGANISATIONAL PROFILE 102-1 Name of organisation Front cover 102-2 Activities, brands, products, and services 22–23 102-3 Location of headquarters 102-4 Location of operations 102-5 Ownership and legal form 102-6 Markets served 173 22–23, 31 31 31 Pg # Comment 102-13 Membership of associations GENERAL DISCLOSURES Pg # Comment 102-12 External initiatives Climate Leaders Coalition NZ Initiative EU1* EU2* EU3* EU4* EU5* Installed capacity by primary energy source and regulatory regime Net energy output by primary energy source and regulatory regime 127 61 61 Number of customer accounts across segments 23, 67–68 Transmission and distribution lines (length of above and underground transmission and distribution lines by regulatory regime) Allocation of CO2e emissions allowances or equivalent broken down by carbon trading framework n/a Length insignificant n/a No emissions allowances received Scale of the organisation 21, 23, 31 STRATEGY 102-7 102-8 Information on employees and other workers 31, 74 102-9 Supply chain 51 102-10 Significant changes to the organisation and supply chain 24–25, 39–45 102-11 Precautionary principle or approach No seasonal variation. Data sourced from Payroll system. Includes MEL Group. All our energy retailing brands have very short supply chains because the physical assets used to distribute electricity and meter its use are managed by national and local lines and metering companies. Our retail operations’ requirements are similar to those of many corporate offices. They include physical facilities and ICT, sales and marketing, billing and governance functions. Relevant legislation takes a precautionary principle-based approach 102-14 Statement from senior decision-maker 30–45 ETHICS AND INTEGRITY 102-16 Values, principles, standards, and norms of behaviour 22 Also see our Code of Conduct Governance 102-18 Governance structure 32–35 Includes MEL Group STAKEHOLDER ENGAGEMENTS 102-40 List of stakeholder groups 102-41 Collective bargaining agreements 16 74 102-42 Identifying and selecting stakeholders 15–16 102-43 Approach to stakeholder engagement 15–16 102-44 Key topics and concerns raised 15–16 Also see our Stakeholder Engagement Guidelines See throughout report where relevant. We take a purpose- driven approach * Disclosures starting with “EU” are from the Electric Utilities G4 Sector Disclosure. 1 67 MERIDIAN INTEGRATED REPORT 2021GRI STANDARDS CONTENT INDEXGENERAL DISCLOSURES Pg # Comment MATERIAL TOPICS AND ASSOCIATED DISCLOSURES Pg # Comment Pipeline of generation options** GRI 103: Management Approach 2016* EU10*** Planned capacity against demand** ENVIRONMENTAL Action on climate change** Discussed throughout the report where relevant GRI 103: Management Approach 2016* 69–70 69–70 21, 49–51, 58, 70 REPORTING PRACTICE 102-45 Entities included in the consolidated financial statements 102-46 Defining report content and topic Boundaries 31, 97, 98, 120, 155 15, 16, 19, 23, 30–32, 57, 65 102-47 List of material topics 102-48 Restatements of information 102-49 Changes in reporting 102-50 Reporting period 102-51 Date of most recent report 102-52 Reporting cycle 102-53 102-54 Contact point for questions regarding the report Claims of reporting in accordance with the GRI Standards 16 16 30 34 32 26 August 2020 Annual 102-55 GRI content index 102-56 External assurance 167–170 165–166 MATERIAL TOPICS AND ASSOCIATED DISCLOSURES Pg # Comment ECONOMIC Financial performance** GRI 103: Management Approach 2016* Non-GRI** Various financial measures Financial impacts of hydrology** 45 45 GRI 103: Management Approach 2016* 46, 84 Non-GRI** Financial implications of variability in hydrology 45, 60 Financial impacts of climate change GRI 103: Management Approach 2016* GRI 201: Economic Performance 2016 201-2 Financial implications and other risks and opportunities due to climate change 19, 27 19, 27 See also Taskforce for Climate-related Financial Disclosures (TCFD) Report at www.meridianenergy.co.nz/ who-we-are/sustainability/ climate-disclosures. NZ only. Non-GRI** Proportion of Meridian Group generation 21, 58 from renewable resources Non-GRI** Support for customers’ climate actions 70 Non-GRI** Support for our people’s climate actions 49–51 Non-GRI** Operational emissions reduction target 51 Operational carbon emissions GRI 103: Management Approach 2016* 50–51 GRI 305: Emissions 2016 305-1 Direct (Scope 1) GHG emissions 50–51 305-2 Energy indirect (Scope 2) GHG emissions 50–51 See also Meridian GHG Inventory Report FY20.Includes MEL Group 305-3 Other indirect (Scope 3) GHG emissions 50–51 Impact on water GRI 103: Management Approach 2016* 59, 63, 64 GRI 303: Water and Effluents 2018 303-1 Interactions with water as a shared resource 59, 63, 64 303-2 Management of water discharge-related impacts 59, 63, 64 For both 303-1 and 303-2 and 303-5. Includes MEL Group 1 6 8 * Each Disclosure of Management Approach (DMA) includes “103-1 Explanation of the material topic and its Boundaries”, “103-2 The management approach and its components”, and “103-3 Evaluation of the management approach”, in accordance with GRI 103: Management Approach 2016 ** Non-GRI – some material topics and disclosures listed above are additional or alternatives to those covered in the GRI Standards. *** Disclosures starting with “EU” are from the Electric Utilities G4 Sector Disclosure. MERIDIAN INTEGRATED REPORT 2021GRI STANDARDS CONTENT INDEXMATERIAL TOPICS AND ASSOCIATED DISCLOSURES Pg # Comment MATERIAL TOPICS AND ASSOCIATED DISCLOSURES Pg # Comment 303-3 Water withdrawal 303-4 Water discharge 303-5 Water consumption Impact on biodiversity GRI 103: Management Approach 2016* GRI 304: Biodiversity 2016 304-2 Significant impacts of activities, products, and services on biodiversity Environmental compliance GRI 103: Management Approach 2016* GRI 307: Environmental Compliance 2016 Non-compliance with environmental laws and regulations 307-1 SOCIAL 64 64 64 64 64 64 64 Water stress not tested this FY. For NSW, storage release data sourced from Water NSW. In NZ, data is collected by Meridian and independently audited each month. There are no priority substances that are present in our water discharge. Total then spilt into water that re-enters the same river (nonconsumptive) and water that is consumed or diverted (consumptive). Breakdown of total water withdrawal and discharged not categorised by 1000 mg/L total dissolved solids. Includes MEL NZ and Australia. Excludes Flux 403-1 Occupational health and safety management system 77 403-2 Hazard identification, risk assessment, and incident investigation 403-3 Occupational health services 403-4 Worker participation, consultation, and communication on occupational health and safety 403-5 Worker training on occupational health and safety 403-6 Promotion of worker health 76–77 76–77 76 76 73 403-7 Prevention and mitigation of occupational health and safety impacts directly linked by business relationships 76–77 Excludes Australia and Flux 403-8 Workers covered by an occupational health and safety management system 403-9 Work-related injuries 44, 76–77 Excludes Flux and Powership AU as not generators The OHS System is not internally nor externally audited, however Meridian adheres to OSHA standards and guidelines, as well as adhering to NZS 7901:2014 Electricity and Gas Industries – Safety management systems for public safety 100% of NZ employees and contractors are covered by the OHS management system. Data sourced from Safety Manager database Excludes Australia and Flux. Contractors – 109,850.64 hours Employees – 1,245,374.64 hours Employee engagement** Includes MEL Group GRI 103: Management Approach 2016* Non-GRI** Employee engagement surveys 73, 74 74 Occupational health and safety Includes MEL Group GRI 103: Management Approach 2016* 76–77 GRI 403: Occupational Health and Safety 2018 Non-GRI** Total recordable injury frequency rate (TRIFR) 76–77 Diversity and equal opportunity GRI 103: Management Approach 2016* 77–80 GRI 405: Diversity and Equal Opportunity 2016 405-1 405-2 Diversity of governance bodies and employees Ratio of basic salary and remuneration of women to men Non-GRI** Women in people leadership and senior specialist positions 78, 80 Includes MEL Group Includes MEL Group 80 78 * Each Disclosure of Management Approach (DMA) includes “103-1 Explanation of the material topic and its Boundaries”, “103-2 The management approach and its components”, and “103-3 Evaluation of the management approach”, in accordance with GRI 103: Management Approach 2016 ** Non-GRI – some material topics and disclosures listed above are additional or alternatives to those covered in the GRI Standards. *** Disclosures starting with “EU” are from the Electric Utilities G4 Sector Disclosure. 1 69 MERIDIAN INTEGRATED REPORT 2021GRI STANDARDS CONTENT INDEXMATERIAL TOPICS AND ASSOCIATED DISCLOSURES Pg # Comment MATERIAL TOPICS AND ASSOCIATED DISCLOSURES Pg # Comment Access to water** Electricity pricing** GRI 103: Management Approach 2016* 53–54, 67–69 Non-GRI** Price of electricity in AU and NZ 53 compared to other OECD countries GRI 103: Management Approach 2016* Non-GRI** Strength of relationships with stakeholders interested in water 59–64 59–64 Contribution to local communities GRI 103: Management Approach 2016* 63 Includes central government, local government, Ngāi Tahu and other iwi, local community groups and the general public GRI 413: Local Communities 2016 413-1 Operations with local community engagement, impact assessments, and development programs 55, 62– 63 78 13 out of our 17 power stations have local community engagement programmes (Mt Millar and our Australian power stations don’t) – 95% by MW capacity. NZ only Non-GRI** Contribution to local communities in New Zealand and Australia 54–55, 62 Dedicated email and 0800 for community issues Non-GRI** Number of community fund grants 62–63 in New Zealand Contribution to public policy GRI 103: Management Approach 2016* 53–54 GRI 415: Public Policy 2016 415-1 Political contributions Support for vulnerable customers GRI 103: Management Approach 2016* Non-GRI** Disconnections Plant performance** GRI 103: Management Approach 2016* EU30*** Average plant availability factor by energy source and regulatory regime Process safety** GRI 103: Management Approach 2016* Non-GRI** Actions to improve process safety Dam safety** GRI 103: Management Approach 2016 Non-GRI** Actions to improve dam safety Meridian does not donate to any political parties (as specified in our Code of Conduct) Information security** Non-GRI** Expenditure on “lobbying” organisations 127 GRI 103: Management Approach 2016* such as trade associations Non-GRI** Key regulatory issues 41, 53 Customer satisfaction** GRI 103: Management Approach 2016* 54–57 Non-GRI** Level of Customer satisfaction – Brand monitor 54–57 NZ data only Non-GRI** Customer retention rates 68 Non-GRI** Actions to improve information security 53–54 54 60–61 60 76–77 76–77 80 80 TCFD report at www.meridianenergy.co.nz/ who-we-are/sustainability/ climate-disclosures Corporate Governance Statement www.meridianenergy. co.nz/investors/governance 170 * Each Disclosure of Management Approach (DMA) includes “103-1 Explanation of the material topic and its Boundaries”, “103-2 The management approach and its components”, and “103-3 Evaluation of the management approach”, in accordance with GRI 103: Management Approach 2016 ** Non-GRI – some material topics and disclosures listed above are additional or alternatives to those covered in the GRI Standards. *** Disclosures starting with “EU” are from the Electric Utilities G4 Sector Disclosure. MERIDIAN INTEGRATED REPORT 2021GRI STANDARDS CONTENT INDEX17 1 Generating change: Changing generation Change needs energy. Directory Registered office Meridian Energy Limited 55 Lady Elizabeth Lane Wellington Central Wellington 6011 New Zealand PO Box 10840 The Terrace Wellington 6143 New Zealand T +64 4 381 1200 F +64 4 381 1201 Offices Quad 7, Level 2 6 Leonard Isitt Drive Auckland Airport Auckland 2022 New Zealand PO Box 107174 Auckland Airport Auckland 2150 New Zealand T +64 9 477 7800 287-293 Durham Street North Christchurch Central Christchurch 8013 New Zealand PO Box 2146 Christchurch 8140 New Zealand T +64 3 357 9700 Corner of Market Place and Mackenzie Drive Twizel 7901 New Zealand Private Bag 950 Twizel 7944 New Zealand T +64 3 435 9393 Australian registered office Meridian Energy Australia Pty Limited Level 15 357 Collins Street Melbourne VIC 3000 Australia T +61 3 8370 2100 F +61 3 9620 5235 Flux Federation offices Level 11, NTT Tower 157 Lambton Quay Wellington 6011 PO Box 25-180 Wellington 6140 T +64 4 389 0859 Suite 1, Level 3 104 Fanshawe Street Auckland 1010 New Zealand 5th Floor 125 Colmore Row Birmingham B3 3SD United Kingdom Powershop 55 Lady Elizabeth Lane Wellington Central Wellington 6011 New Zealand PO Box 7651 Newtown Wellington 6242 New Zealand 427 Queen Street Masterton 5810 PO Box 392 Masterton 5810 T +64 0800 1000 60 Share Registrar New Zealand Computershare Investor Services Limited Level 2 159 Hurstmere Road Takapuna Auckland 0622 New Zealand Private Bag 92119 Victoria Street West Auckland 1142 New Zealand T +64 9 488 8777 F +64 9 488 8787 enquiry@computershare.co.nz investorcentre.com/nz Share Registrar Australia Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford VIC 3037 Australia GPO Box 3329 Melbourne VIC 3001 Australia T 1800 501 366 (within Australia) T +61 3 9415 4083 (outside Australia) F +61 3 9473 2500 enquiry@computershare.co.nz Auditor Mike Hoshek, Partner Financial audit on behalf of the Office of the Auditor-General Jason Stachurski GRI Standards limited assurance Deloitte Limited PO Box 1990 Wellington 6140 New Zealand Banker Westpac Wellington New Zealand Directors Mark Verbiest, Chair Peter Wilson, Deputy Chair Mark Cairns Jan Dawson Anake Goodall Michelle Henderson Julia Hoare Nagaja Sanatkumar Executive Team Neal Barclay, Chief Executive Chris Ewers Lisa Hannifin Nic Kennedy Tania Palmer Mike Roan Claire Shaw Jason Stein Guy Waipara Jason Woolley If you have any questions or comments, please email investors@meridianenergy.co.nz or service@meridianenergy.co.nz Image pages 4-5: LINZ Data Service and licensed by Invercargill City Council, CC BY 4.0. Image page 171: LINZ Data Service and licensed by Environment Canterbury, CC BY 4.0. Meridian.co.nz Integrated Report for the year ended 30 June 2021. Printed with mineral-oil-free, soy-based vegetable inks on paper produced using FSC® certified mixed-source pulp that complies with environmentally responsible practices and principles. Please recycle. ISSN 1173-6275 (print) ISSN 1173-6305 (online) 

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