Contact Energy's warning underlying profit this year could fall up to 33 per cent because of lower wholesale electricity prices came with a sting - those prices could stay low all year.

Contact Energy's shares fell 13c to $5.67 continuing a slide of more than 20 per cent this year.

The company's chief executive David Baldwin warned the outlook for wholesale prices remained low for the rest of the year because of high inflows recently into the southern hydro catchments which feed its Clutha dam system.

During May, the inflows into South Island hydro lakes were among the highest recorded and storage nationally was 1.36 times the historical mean, he said.

The oversupply - which has seen Contact and Meridian Energy spill water from dams - has been exacerbated by unscheduled potline shutdowns at the country's largest single consumer, the Rio Tinto-owned aluminium smelter at Tiwai Point. The smelter is only just moving towards stepping up production.

"The extremes we have seen in hydrology are reflected in low wholesale electricity prices," Baldwin said.

This could change given a change to more normal rainfall, given there was only storage to meet three months of electricity demand.

In the year to June 2008, Contact's underlying earnings after tax were $232.8 million.

The profit warning comes during a rough 12 months for the company, majority owned by Australia's Origin Energy. It has lost thousands of customers in the backlash against price rises just before an attempt to raise the pool of directors' fees, it was named as one of four generators in a Commerce Commission inquiry which found billions of dollars of windfall profits could have been pocketed from wholesale market sales. Last month it put on hold an application for a wind farm in Waikato.

In January, Contact warned the unusual mix of operating conditions would see earnings before interest, tax, deprecation, amortisation and financial instruments (ebitdaf) would fall by 20-23 per cent for the full year.

At the time the company said poor hydrology, transmission constraints and high wholesale power prices would hit profits.

Ebitdaf for the first six months was down 20.3 per cent to $224.7 million, from last year's $281.9 million.

With a market capitalisation of $3.4 billion, Contact is the third biggest listed company behind Telecom and Fletcher Building.

Forsyth Barr analyst Andrew Harvey-Green said the announcement was not a surprise given where wholesale prices had been tracking, although slightly worse than he was expecting.

"This is more of a one-off."

Increased demand through Tiwai Point coming back on line would push up prices and help the company in the 2009-10 year.

Major Electricity Users Group executive director Ralph Matthes said margins were getting thin for all generators with so much water "sloshing around".

Whether big users were benefiting from the low prices depending on how they were hedged.

ABN Amro Craigs analyst Rob Foster said Contact's position could change very quickly during the coming year. "This winter is going to be marked by low prices - they're not going to get off to a great start but it could change quickly. The loss of customers has not helped but still they have around 500,000 customers and the bigger issue has been the volatility of the system. It's conspired against them this year.