Clash with investors on the cards over what firm should do $1 billion pot of cash.

Contact Energy could be heading for a showdown with minority shareholders over what to do with a $1 billion pot of cash.

The company announced yesterday it was considering investing in geothermal projects in countries on the Pacific's "ring of fire" rather than return excess cash to shareholders, which was what most investors had been expecting.

The company's share price had risen strongly in the past six weeks largely on expectations details of a long-awaited capital return would be revealed at the release of its half-year result. Instead, Contact announced it was looking overseas to spend its free cash flow estimated at $1 billion over the next five to six years. Shares tumbled nearly 9 per cent to $6.30, wiping about $450 million off the value of the company.

One analyst said the plans were scary and a fund manager, Salt managing director Paul Harrison, said he feared Contact's majority shareholder, Australia's Origin Energy, appeared to be exerting its influence.

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"As a minority shareholder you're open to having Contact do Origin's bidding and investing in areas that you didn't think you originally were."

Harrison said Origin had geothermal interests in Indonesia and if Contact became involved there that would ring alarm bells for investors who had seen a New Zealand venture fail there in the past when the Indonesian government changed the rules.

Contact said it was holding its interim dividend steady at 11c a share, and if this was to continue Harrison said this was looking "light" compared with other electricity companies.

Craigs Investment Partners head of research Grant Swanepoel said the market was taken by surprise.

"All the other energy companies are giving cash back to investors, Contact had promised to give cash back to investors but when push comes to shove [it says] it's better to keep the potential for further investment by having another project. Investors showed very quickly what they thought of that by knocking 7 per cent off the share price. At this stage I'm getting the view that they don't want to give the cash back - that scares me no end."

Fellow geothermal expert Mighty River Power has had mixed success overseas, last year pulling out of geothermal ventures in Germany and Chile. Swanepoel said MRP had never fully identified the benefits for investors and the ventures had overly complex financial structures.

"If Contact can define the opportunity we could support it. They haven't pulled the trigger on it so let's wait and see."

Contact Energy chief executive Dennis Barnes said his company would make a decision on whether to invest or return capital within the next six months.

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Any investment would be funded by excess cash, would not result in cuts to dividends and must not affect the company's credit rating, he said.

Contact geothermal experts had been in Indonesia, Chile and the United States assessing opportunities, which would need to be areas where there was a proven resource, he said. It would be a different approach compared with MRP.

"I think the big difference is that we'll have a long-term vision and an executable plan that has scale. That's the big difference."

The company was looking at expanding overseas because of stagnant or falling demand growth in New Zealand which could be exacerbated by the wind down of the Tiwai Point aluminium smelter, he said.

Contact's half-year profit was hit by billing system problems and strong competition which resulted in a 54 per cent drop compared with the same period last year.

Earnings before net interest expense, tax, depreciation, amortisation, change in fair value of financial instruments and other significant items fell, down 3 per cent to $257 million for the six months ended December 31 last year.

"The first half of the 2015 financial year was a transitional period for Contact as the Te Mihi geothermal power station and the new retail system were integrated into the business," Barnes said.

After the commissioning of a new retail customer billing and service system the company had made considerable progress in "stabilising the system and the processes that support it".

"A system change of this size always creates challenges," he said.

The company had been forced to can call centre sales activity for four months when up to 6500 customers were swooped on by competitors and billing system glitches meant there was about $25 million in "back billing".

Underlying earnings after tax was $76 million, $21 million (22 per cent) lower than the first half of the 2014 financial year reflecting lower retail margins and the impact of plant outages reducing earnings before interest, tax, depreciation, amortisation and financial instruments by more than the increased depreciation and interest costs after the completion of the significant capital programme.

Operating cash flow after tax was $227 million, up $54 million or 31 per cent. "The retail electricity market remains highly competitive with discounting dominating the market."

See Contact's latest investor presentation here: