Mercury issued an apology late yesterday for the campaign, which began with cold calls to Dunedin businesses last month.
Companies were offered, over the phone, large discounts to ditch their existing provider and agree to two-year contracts with Mercury.
However, those who signed up have been contacted again by Mercury representatives this week and told the deal was off because the discount was meant for Dannevirke, not Dunedin.
That was despite several business owners telling the Otago Daily Times they had verbal agreements and written confirmation from Mercury.
One business owner was offered a 30% discount, amounting to $16,000 a year, and promptly switched his business and home to the company's scheme. Another did the same after being offered a 45% discount, amounting to $1200 a year.
Consumer NZ adviser Maggie Edwards, of Wellington, said the company "has certainly got some explaining to do".
"This is a stuff-up of major proportions," she said.
Mercury Energy communications manager Marie Hosking issued a statement late yesterday, admitting a "pricing error" that failed to account for local line charges meant about 400 businesses were offered incorrect quotes.
"We deeply regret the error and apologise to those customers affected."
All affected customers were being contacted to advise them of the mistake, and those who would be better off remaining with their old provider would be automatically transferred back, she said.
Those who would still save money by remaining with Mercury would be given "the option of continuing with us".
Ms Hosking said Consumer NZ had been contacted in recent weeks by "a handful" of Dunedin residents asking about the offer.
The legality of withdrawing the offer would depend on the contract's terms and conditions, and she did not know if it breached the Fair Trading Act, she said.
However, the company's failure to pick up the mistake earlier "is a real surprise", she said.
"Words fail me."
Steve Wilson, the owner of Iconic Cafe and Bar, said the situation was "ridiculous" and the company should honour the deal.
"When you are talking hundreds of customers, they have got to come to the party."
He was contacted by phone and offered a 30% discount, saving more than $3000 a year, and was told no paperwork was necessary.
He had since received a letter confirming he was "part of the Mercury family", while Contact had confirmed he ceased to be one of their customers on May 27.
However, a Mercury representative contacted him again on Monday, saying the mistake meant the deal was off and claiming Mr Wilson was not one of Mercury's customers, he said.
"Are we going to have the power cut off? We are in limbo at the moment."
Other businesses had similar stories, with Kaan's Catering Supplies owner Lindsay Kaan receiving a 30% discount, saving $16,000 a year, and Otago Cleaning Supplies owner Peter de Clifford agreeing to a 45% discount, saving $1200 a year.
Both men received confirmation letters from Mercury.
Mr de Clifford said the company's attempts to withdraw the offer had gone down "like a lead balloon".
Electricity and Gas Complaints Commissioner Judi Jones, of Wellington, said customers who complained to Mercury, but were dissatisfied with the outcome, could seek a review from the commission.
"A verbal agreement could be just as binding as a written agreement," she said.
