Debacles costing Contact Energy

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The fallout from last year's price rise and directors' fees debacle chopped $610 million from the value of Contact Energy, says an energy analyst.

First NZ Capital's Jason Lindsay said customer losses, using Electricity Commission data, had reached 27,451 by late February. He expects them to  reach 35,000, or 6.7 per cent of the total before last year's gaffes, before they flatten out. His claim comes as Genesis Energy  announced price rises in Waikato and central Auckland of  2.7 per cent to  3.8 per cent, citing rising energy and network costs.

The rises fly in the face of Government calls for restraint in pricing.

Contact's chief executive, David Baldwin, told an investor briefing last week that the company would find it hard to implement any tariff [price] rise for electricity this financial year.

Lindsay believes it will struggle to raise prices next year, too, although it has announced an increase of 13.5 cents a day for its gas customers nationwide from next month. ''Factoring in the loss of 35,000 customers and no tariff growth ... in 2010 reduces the company value of Contact [in our model] by $610m, making the tariff increase process and subsequent directors' fees/AGM debacle an expensive exercise,'' Lindsay said.

But another analyst, who declined to be named, said First NZ Capital's estimate was too high, although ''there's no doubt there's been a value loss from the loss of customers following the AGM''. He said it seemed unlikely the loss of 6.7 per cent of Contact's power customers could cause a 13 per cent fall in  its enterprise value.

Contact announced price increases of up to 10 per cent in Wellington and the South Island on September 30 last year. Soon after, it announced it would seek at the October annual meeting a doubling of the pool of directors' fees to $1.5m. Angry shareholders vented their spleen at the meeting and Contact lost 11,099 customers in October and November. Losses fell from 7990 in December to 3382 in January  possibly because  people were on holiday, Lindsay said  but rose again in February, to 4980.

Contact spokesman Jonathan Hill said it had two new offers in the market to try to turn things around. One  was a 12 per cent prompt payment discount for online customers (up from 10 per cent). The other was an increased dual-fuel offer for power and gas customers of 40c a day (up from 10c). Lindsay said  increasing  the dual-fuel discount would cost Contact $5.5m a year. But the benefits of  signing gas-only customers to electricity were likely to cover the cost. The prompt payment discount would cost $3m a year.

''In terms of pricing, over the last couple of months of 2008 and into 2009 we have also seen our competitors increasing their prices, as we did in the last quarter of last year,'' Hill said.

Genesis lifted power prices 9 per cent for residential users on Auckland's North Shore in December, and Meridian said last month that it would lift power bills for 180,000 users by an average 6.5 per cent, on top of 6 per cent last September.

- © Fairfax NZ News