Once upon a time, Trustpower's retail electricity customer base was the envy of the ‘big four' power companies.

While it shared the same basic business model as Genesis Energy, Contact Energy, Mercury NZ and Meridian Energy – being both an electricity generator and a retailer – it used to enjoy far greater customer loyalty while charging consistently higher electricity tariffs.

Trustpower also tended to fly below the radar, copping less flak during the sector's habitual outbreaks of reputational self-immolation – ironically, usually related to raising power prices – and had a great reputation for customer service.

The Tauranga-based company was also a trailblazer for the tactic of ‘bundling' electricity not only with natural gas, but with telecommunications services, as a way to make customers less likely to leave. As of Dec. 31, 106,000 Trustpower customers were buying more than one product from the company, from a total electricity customer base of 246,000.

Its home town customers are especially loyal because of the symbiotic relationship between Trustpower and its 26.8 percent shareholder, the Tauranga Energy Consumer Trust.

Every year, TECT banks a substantial dividend from Trustpower and redistributes it to Trustpower customers inside TECT's boundaries.

This drove competitors mad – customers were effectively being bribed with their own money and underwriting Trustpower's uncompetitive electricity tariffs. Customers didn't care. They roundly rejected a lump sum payment to wind the trust up in 2018.

Now, as Trustpower investigates the sale of its retail customer base, potential buyers will know that preserving this annual payout is vital unless it wants to drive previously loyal customers away. Details on how TECT would achieve this will emerge in the coming weeks.

What's changed?

Why, then, does Trustpower want out of its retail customer business?

It has nothing to do with the attempt by Australian Super to take over Trustpower's 50.1 percent owner, Infratil. AusSuper has explicitly ruled Trustpower out of that deal.

Rather, two big things have changed.

Firstly, Trustpower's capacity to retain customers is not what it was. In the last five years, according to Electricity Authority figures, Trustpower has consistently lost more new electricity customers than it gained.

That puts it in the same bag as Genesis, Contact, and Mercury. Only Meridian Energy, of the big four, has been adding more customers than it's been losing over that time. A lot of smaller, sharply priced retail-only competitors have been nipping at the heels of the big players.

Meridian has bucked the trend because its customer base was always small compared to the size of its generating capacity. It produces far more electricity than its retail customers consume, whereas Trustpower's power stations produce only about half of total customer demand.

With wholesale electricity prices likely to be more volatile over coming years, Trustpower may be happy to shed a big part of its existing committed generation load by selling its retail customers elsewhere and no longer having to hedge its exposure.

It intends to keep its commercial and industrial electricity customers – large consumers – which account for about one-third of the electricity it sells each year.

Retailing is expensive

Meridian's success is also thanks to substantial investment not only in its renewable electricity brand, but in upgrading its customer management systems – a fraught and expensive exercise that can go horribly wrong. Just ask Contact, which massively over-ran both budgets and timelines on a customer systems upgrade last decade.

Trustpower says its current customer management platform, based on the Gentrack billing system plus add-ons, is 'fit-for-purpose” today.

But chief financial officer Kevin Palmer is frank that 'anyone who wants to become an ISP (internet service provider) or an electricity retailer needs to be wedded to the fact that they will have a perpetual IT spend in front of them. Our systems are fit-for-purpose, but in five years' time?”

Its 108,000 broadband customers are also a handy prize.

Vocus paid approximately $410 per customer last year when it purchased fledgling provider Stuff Fibre's 20,000 customers for A$7.7 million, but Trustpower broadbanders should be worth far more.

'Stuff Fibre was a very small customer base of recently acquired broadband customers and the seller (Nine Entertainment) was pretty enthusiastic to realise the sale proceeds. It's not really a useful comparator in our view,” said Palmer.

Renewables expansion

The second big change is in the outlook for new generation investment in NZ.

Now the life of the Tiwai Point aluminium smelter has been extended to mid-decade, the race is on again to build new wind, geothermal and possibly solar renewable electricity generation capacity.

Indeed, the Tiwai announcements almost certainly gave Trustpower the green light it needed to advance the latest plan.

After the 2016 demerger that created Tilt Renewables out of Trustpower's Australian power stations and its NZ generation development prospects, Trustpower is rebuilding its capability as a power station builder in its own right.

If that seems odd, the company is unapologetic. Tilt has been a money-spinner for investors and five years is a long time ago in corporate strategy terms.

Sale of the retail business was also in the works well before the recent burst of interest in NZ renewable generators, which have driven Meridian and Contact shares sky-high this year as international investors scrambled into global hedge fund BlackRock's ‘green' exchange traded funds.

Who might buy?

Of course, it's one thing to hang out a ‘For Sale' sign.

Someone has to want those customers.

Genesis might, but it already has the largest electricity customer base and might have to convince the Commerce Commission if it did.

Meridian and Mercury both had a look not long ago and passed.

Contact spent years thinking about it, but its current stance is unknown.

In that sense, the announcement of a ‘strategic review' to determine whether to sell is really more of a handwave to interested parties, to see who might turn up.

Pattrick Smellie worked in communications and brand management for Contact Energy between 2001 and 2008.

Business Desk.