Contact's customer exodus resumes as electricity competition remains intense

Thursday 13th May 2010

Contact Energy's recovery in electricity customer numbers has stalled, with the company losing 4,500 customers in the past two months, and a total of 44,000 electricity customers since the peak in September 2008.

Monthly operational data, released this morning to the NZX, shows total electricity customer numbers stood at a new seven-year low of 476,500, down 2,000 from the end of March, and a 4,500 drop since February, when customer numbers had rebounded over Christmas/New Year to 481,000. The previous low-point had been 478,000, reported in December.

The latest results continue to reflect what Goldman Sachs JB Were analyst Matt Henry says is intense retail electricity market competition, which is seeing higher-priced Contact and its listed competitor TrustPower shed customers to state-owned competitors MightyRiverPower and Meridian.

"Churn in April of 30,600 customers was up 37% year on year and 97% above April 2008. Churn over the past 12 months is up 31% year on year," Henry said in a client note analysing the most recent customer figures from the Electricity Commission. "The ‘winner-loser’ trends remained unchanged with Mighty River Power and Meridian (more than 100% from Powershop) adding 3000 and 1800 customers respectively."

The largest state-owned retailer, Genesis, and TrustPower, both lost customers, along with Contact.

Using Electricity Commission customer numbers, which show a September 2008 high-point of 529,106 customers for Contact, the largest listed electricity generator-retailer has now lost more than 52,600 customers since simultaneously raising tariffs and the size of the directors' fee pool at its annual meeting in 2008.

That event provoked an initial flood of losses, as other power retailers saw an opportunity to grab disgruntled Contact customers, and heralded a new era of retail electricity market competition that has been spurred since then by the government's electricity reforms, announced last December.

The Contact share price rose marginally this morning to $6.15 and Henry rates the stock a "hold" with a target share price of $6.70, despite revising earnings expectations down by 7.5% to net profit after tax of $173 million for the year to June 30 because of the recent drop in wholesale electricity prices after heavy rain in South Island hydro catchments.

Lower wholesale prices would add to retail competition by "increasing the opportunity cost of losting retail customers and expanding near-term retail margins for those wholesale exposure through hedge contracts" (Powershop and MRP in the South Island).

MightyRiverPower, in particular, has moved on Contact's customers in the lucrative dual-fuel (gas and electricity) market and in the South Island, where Contact and its listed competitor TrustPower have traditionally enjoyed higher retail margins than in the north. Genesis Energy has also recently entered the South Island market, targeting Contact customers in Christchurch and Dunedin in particular.

MRP has increased its retail customer base by 10% in the last nine months, with a total of 407,000 customers at the end of March, having crossed the 400,000 customer mark in December last year, a year after Contact dropped back below 500,000 electricity customers.

Some 70 back-office workers have been informed in the last fortnight that their jobs will transfer to India from Lower Hutt, in a move linked to customer servicing changes driven by Contact's Australian majority shareholder, Origin Energy.

Businesswire.co.nz

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