Craigs Investment Partners' research said the proposed new single buyer electricity regime ''in effect transfers value from the owners of the assets to consumers''.
The research had three equally rated points prompting the downgrade, including estimates on lower future revenue for Contact, closure of the Tiwai Point aluminium smelter by owner Rio Tinto and the implementation of the single buyer proposal.
Craigs downgraded Contact's 12-month target price from $6.31 to $5.91, but maintained its `buy' recommendation on the stock.
''We have concerns over this recommendation. While we believe the current system isn't broken and doesn't need a change, we have to assess what the impact could be on Contact if it is implemented,'' the research said.
Contact shares closed up slightly at $5.38 on Wednesday, following last week's mauling when Contact and TrustPower collectively shed more than $640 million in value in spooked shareholder response to the Labour-Green proposal.
The 7% decline in the target value was driven by the key risks of electricity demand ''reducing drastically'' and also the proposed regulatory changes.
Contact was likely to be less affected by the proposed changes than other generators, in that its mix of generation types would dilute its expected 24% share of the overall cost, from $144 million, to about $114 million, the research said.
It highlighted findings from a 2006 Ministry of Economic Development report on the single buyer model that said with so many parties affected, all of whom had significant value involved, it created a ''high potential for disputes''.
Implementation costs were expected to be ''significant'', there were litigation risks and it would likely take more than two years to implement.
