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TrustPower latest power retailer to ditch customer service upgrade

Friday 5th February 2010

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Listed electricity generator and retailer TrustPower is preparing to write off a chunk of $9.5 million spent on a customer service software upgrade project whose costs started to blow out.

TPW announced the writedown of up to $9.5 million spent to date on its back-office operational customer service systems in quarterly operating statistics released to NZX this afternoon, to December.

As a result, TPW becomes the third of the "big five" power companies to either ditch or halt a customer service upgrade after cost escalations, and leaving Genesis Energy with the most sophisticated customer service hardware in the country. TrustPower has always made a virtue of having relatively simple customer service systems and relying on brand strength and good call centre experiences to control costs.

Contact Energy and Meridian Energy both reported major cost over-runs on proposed improvements to their "back-office" operations in the last year and abandoned or reviewed the projects.

TPW said both the duration and cost of the development have exceeded limits set when the project began.

"As a result, TrustPower has decided to pause further implementation of the project in order to establish possible ways of reducing the project's cost and duration."

TPW shares were unchanged at $7.32 after the announcement.

"It is likely that a proportion of these costs will be impaired onced a full review of available options has been completed over the next two to three months."

Contact now looks likely to contract some of its most complex billing functions to India, instead of New Zealand, and has not contradicted reports that as much as $20 million was spent on a customer systems upgrade project with IBM to install SAP software, with a total budget of $60 million, without progressing past a scoping study.

Meridian dropped its upgrade plans as part of a major internal review that has led to major restructurings and significant job losses.

Meanwhile, TPW expects greater volatility in wholesale electricity prices as a result of last month's announcement of electricity reforms by Energy Minister Gerry Brownlee.

"TrustPower will be well-placed to cope with this market dynamic as most of its hydro generation assets are fast start and capable of meeting electricity demand peaks."

The company is also investigating an irrigation development strategy, joint-venturing recently with Barhill Chertsey Irrigatiion Ltd and Electricity Ashburton to supply Rakaia River water via the Highbank generation facility.

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