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Research by Craigs showed TrustPower had shed 7100 customers in the past three months, or 3.4% of its total. Those customers had been gained by Meridian and Genesis in the South Island and "other" smaller competitors who had been offering the cheapest contracts in the industry.
"TrustPower is losing mass-market customers at a rapid rate. This is due to its premium price points being exposed by a marketing campaign that has made the relative price positioning very visual to customers and encouraged them to switch to lower-priced offerings."
Added to that was the fall in usage per customer, putting the lucrative mass-market revenue under pressure, he said.
In the 2012 financial year, TrustPower had an estimated 8% fall in mass-market volume which resulted in between a $NZ6 million and $NZ8 million profit fall in that segment.
The 8% fall was not entirely under TrustPower's control as 5% was due to customer losses and the rest to falls in consumption per customer.
Mr McIntyre estimated $4 million of the profit fall was because of customer losses alone. A 1% price increase added $4 million.
"At the margin, customer declines don't materially hurt profits. However, when material chunks of your business model begin to go missing, it can structurally change your competitiveness over the longer term.
"We believe it is time that TrustPower follows Contact's lead from last year, introducing its 'on-line, on-time' discount initiative and revise its offering so as to be less obviously premium-priced."
The mass-market volume fall was more than offset in the first half of the 2012 financial year by the higher-than-average generation produced by the company, as well as retail price increases, he said.
The second half saw the mass-market volume fall more aggressively. That was offset by extra volume and price increases from the first half, and high wholesale prices in the final quarter.
Craigs was anticipating a better-than-current consensus for the second-half operating earnings but believed the customer slide could not continue unchecked, requiring the company to lag competitors in price increases.
Craigs had reduced its 2013 and 2014 earnings slightly, Mr McIntyre said.
TrustPower averaged 70% of its profits by hedging its generation portfolio with mostly mass-market customers; a further 15% came from Snowtown, telecommunications, metering, carbon and other business; and the last 15% came from generation unhedged and using peaking capability of its hydro assets to take advantage of wholesale-market volatility.
The problem with TrustPower was it was difficult to use its income statement and segmental reporting to assess how the drivers of profitability affected the earnings, he said.
"This makes it difficult to forecast the profitability driven off a model that attempts to use expected changes in drivers to calculate profits," Mr McIntyre said.