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Chief Executive's Report

Last year we described how the TrustPower culture gives us the power to make things happen. This year we have been delivering on the opportunities we have created with projects like the wind farm at Mahinerangi and the irrigation pumping scheme at Highbank.

Our people have also been focused on the opportunities that changes in the market are bringing. We are excited by the momentum we are building in the business.

Financial Performance

As described in the Directors' Report the Company delivered a creditable earnings performance in 2010/11, despite significant periods of low wholesale prices and intense retail competition.

The Company’s risk management approach and increased hydro inflows in the second half of the year allowed TrustPower to benefit from higher and more volatile prices. Our inherently conservative trading approach and attention to our risk exposure was demonstrated on March 26th 2011 when prices in the Upper North Island spiked to $20,000/MWh.

Our Customers

TrustPower had sales of 4,033GWh to electricity customers during the 2011 financial year, a fall of 70GWh from the previous year. TrustPower has also sold 35,000 telecommunication services through the Kinect brand. These numbers are pleasing as TrustPower has faced significant competition for retail electricity customers and has not entered “market share” pricing wars.

In the face of significant industry churn, with 18.5 per cent of customers changing suppliers in the year to March 2011, TrustPower has run a number of successful acquisition campaigns this year and trialled our first “bundled” product offering in Southland. This successful campaign resulted in a gain of almost 4,000 customers.

We expect to launch a number of further product enhancements in the coming year.

Our customer service team also maintained a high level of performance with 79 per cent of calls answered within 20 seconds.

It is because of our sustained success that TrustPower was recognised as Energy Retailer of the Year at the inaugural Deloitte Energy Excellence Awards.

Customer Information System Replacement

This year has seen significant progress in the process to replace our existing Customer Information System. 

Following the decision to re-evaluate the system options available to us we decided to proceed with the Gentrack Velocity solution. We believe that the current version of this product can meet our original objectives of improving efficiency and enhancing customer service.

In order to ensure successful implementation we have formed a project team consisting of our best internal staff, an experienced project delivery consultancy and key vendor staff.

We expect implementation of phase one to be completed in early 2012 and that this will provide a platform for further enhancements in subsequent phases to deliver on our multiproduct retail strategy.

Business Development and Growth

TrustPower recognises the importance of a pipeline of investment opportunities. Our pipeline was strengthened this year by the granting of resource consents for both the Arnold and Wairau Hydro schemes. Achieving the first new significant hydro power station consents since the introduction of the Resource Management Act is an important milestone. There is still considerable work to do before the company can commit to construction of these hydro projects and this work will progress in the 2011/12 year.

In Australia we have progressed the Snowtown Stage 2 Wind Farm project. There remains considerable uncertainty about the Australian Government’s policy response to climate change. Further resolution of the future carbon price and renewable energy certificate regime is required to complete off take agreements. Despite this we regard Snowtown Stage 2 as one of the best sites in Australia and we are in an advanced state of readiness when the timing is right.

Moving to Execution

Creating a pipeline of opportunities demands an ability to execute when the time is right. TrustPower continues to invest in projects that add value to our portfolio.

The 36MW Mahinerangi Wind Farm is an excellent example. This project was completed this year ahead of schedule and under budget. It is already making a valuable contribution to our portfolio alongside our Waipori and Deep Stream hydro power stations. This combination provides an excellent platform to generate locally and compete for local customers.

TrustPower recognises the potential for high priced peak events in the electricity market and the importance of prudent risk management responses. It is this deep understanding of market dynamics that led to the identification of the opportunity to develop a 9MW peaking diesel plant at Marsden Point near Whangarei.

The plant, which will consist of 5 x 1.8MW units, represents a low cost "cap option" when compared with other cap products available in the market. We expect the plant to be operational in July 2011.

In addition to our generation investments we have also progressed our multi-use irrigation and generation strategy. This year we completed the first phase with the installation of 5MW of pumping capacity at our Highbank power station that will enable water to be lifted from the Rakaia River into the Rangitata Diversion Race. This investment provides greater water reliability for the Barhill Chertsey irrigators and is a clear demonstration of hydro generation and irrigation objectives being achieved through commercial solutions.

High Performing Generation Assets

In this increasingly volatile market much of TrustPower’s success is due to the consistent performance of our generation assets.

This year we have started our machines 24,658 times, this compares with 26,539 last year. Once again our generation team can be proud of their performance, with only 59 failed starts.

Last year we reported that despite ten years of below average rainfall resulting in lower hydro generation production we did not believe this indicated a change to the long run average.

This year we have seen inflows increase with total hydro production being 6 per cent above the long term average whilst wind production was 11 per cent below the long term average.

In Australia our Snowtown 1 Wind Farm experienced reduced production as a result of a sustained period of low wind conditions. Review of the available wind data does not indicate any long term change in the wind resource.

Industry and Market Changes

Following the passage of the Electricity Industry Act 2010 the Electricity Authority was formed. The Electricity Authority replaces the Electricity Commission and has a more focused role with the statutory objective “to promote competition in, reliable supply by, and the efficient operation of the electricity industry for the long term benefit of consumers”.

TrustPower supports the overall objective and is an active participant in the working groups of the Electricity Authority.

We believe that the work on transmission pricing is correctly focusing on the charging regime for the HVDC (Cook Strait) cable. A charging regime that creates a level playing field for North and South Island projects will ensure that the most economically viable projects are developed in New Zealand.

TrustPower also supports the introduction of scarcity pricing to ensure appropriate price signals for efficient investments, however we remain concerned that prolonged periods of high price in the absence of a cumulative price threshold could result in unmanageable financial risks with little, 
if any, efficiency benefit.

The development of a liquid hedge market through the ASX has progressed and TrustPower has participated as both a buyer and seller.

The restructure by the Government 
of the SOE physical and virtual asset portfolios will be completed by mid year. As predicted the result of the changes to date is increased competition in the South Island. TrustPower has responded to this competition with targeted acquisition campaigns.

Community and the Environment

Being deeply involved in the communities where we have customers and power stations is part of the way we do business at TrustPower.

As in previous years a highlight of the year was the TrustPower Community Awards. The 25 regional awards winners were showcased at our National event and the overall winner was the Bay of Islands Vintage Railway Trust. This Kawakawa based trust has put in over 100,000 volunteer hours and $1.6 million of raised funds into restoring the vintage railway. This initiative has made a positive difference in the Far North community.

Another example of our relationships in the community was the blessing of the Mahinerangi Wind Farm site prior to the start of construction. At the blessing Te Runanga o Otakou named the Wind Farm Puke Kapo Hau, “the hill that catches the wind”.

Again it was pleasing to note that of the 3,000 resource consent conditions we monitor for compliance we had only a very small number of minor breaches.

Our People Our Future

TrustPower people are passionate about the Company and the role they play in our success. We are also responsive to the needs of our customers and communities. This was illustrated by the many kind acts and fundraising activities that our staff undertook in response to the tragedies at the Pike River Coal Mine and the Christchurch earthquakes.

TrustPower farewelled Mike Kedian this year from the role of Generation Division Manager. Mike joined TrustPower in 2003 and was a key part of the senior team. It was under Mike’s leadership that the company created a significant development pipeline. We wish Mike well in his retirement.

Just as successful organisations grow their business profitably, they also grow the capability in the business. TrustPower is committed to developing our people. We have reviewed our approach to development this year and will be introducing upgraded programmes in the coming months. This will ensure we continue to have the leading team in the industry.

Looking Ahead

TrustPower has demonstrated the resilience of our business and tenacity of our people over a number of years. It is these characteristics that mean we can feel confident in our ability to continue our success in the years ahead.

TrustPower is well positioned with options for growth. Our challenge is to execute so that we maximise value for shareholders, meet customer expectations and empower our staff to excel.

Vince Hawksworth
Chief Executive