Contact in Auckland stake deal

By FIONA ROTHERHAM

Electricity generator and retailer Contact has gained a foothold in the Auckland market with the $23 million buyout of independent retailer Empower.

The successful start-up retailer has gained more than 25,000 customers in the past two years through its commission-only sales force selling door to door.

It claimed to be signing up 1000 new residential customers a week nationwide, although its presence is strongest in Auckland.

Empower will continue to operate as a largely independent entity, with management agreeing to stay on for at least three years.

Contact is to pay $23 million - $6 million for 15,000 residential customers and $17 million for the 10,000 business customers and other assets.

Under this arrangement the average cost per customer for Contact is less than half the industry average. Natural Gas Corporation is thought to have paid around $900 a customer in its recent TransAlta acquisition.

Contact will make payments in future years tied to the net growth in customer numbers.

The amount of this payment has not been disclosed but it is slightly less than the acquisition price per customer in the first year and declining after that, said Contact chief executive Paul Anthony.

Contact, the country's second-largest electricity generator and retailer, had only around 2000 customers in Auckland, the largest growth market.

Having more customers close to its major Otahuhu power plant lowers Contact's risks although it already had a four-year contract with Empower for electricity supply.

Mr Anthony said the Empower brand would be retained because it had proven to be a "winning formula" and would be used to chase organic growth in Contact's retail business in other parts of the country. Contact is also considering using Empower's model to establish a presence in Australia's deregulated energy markets beyond its existing generation assets in Victoria.

"We're looking to gain a strong base in Australia and this may be just the vehicle we're looking for to build a retail and marketing presence within the next 18 months," Mr Anthony said.

Empower was set up in 1996 and spent two years investigating the deregulated energy market before targeting small and medium-sized business customers.

In September last year it expanded its marketing to residential customers.

Empower chairman Grant Baker, who was the major shareholder in the former private company, said the purchase by Contact would enable Empower to double its current 60-strong sales force.

"This is a good opportunity for us to be able to go a lot faster than we could have on our own."

Contact would handle the "backroom" support such as a call centre and billing systems that were getting more difficult for the small retailer to supply during rapid growth, Mr Baker said.

Long-term profits are made through lowering the cost of servicing each retail customer. Critical mass helps achieve this.

Mighty River Power, which lost a considerable number of Auckland customers to Empower, said Contact's purchase would have an impact on the national retail market.

But chief executive Dr Doug Heffernan said the Empower brand would find life tougher than it first did in Auckland.

"There was an opportunity here they took advantage of, but their door-to-door approach is not unique any more."