There is no way to sugar coat this so you’re getting it straight today. These guys are incorrigible, at the AFR:
The chief executives of Origin Energy, AGL Energy and their smaller electricity retailing competitors look set to have a united and firm message for Energy Minister Angus Taylor at the “roundtable” he has convened on November 7: Don’t just pick on the easy targets in your quest to force down retail power tariffs.
Origin’s Frank Calabria, AGL’s Brett Redman and EnergyAustralia’s Catherine Tanna have all acknowledged that the retail industry is not blameless for the political heat it is copping over confusing market offers and less-than-ideal pricing and discounting practices.
But they and their peers across the sector are all expected to press on the “Minister for Lowering Electricity Prices” that to make any real progress on reining in prices he will have to look also to other parts of the supply chain, notably green costs and network charges.
OK, so let’s lay this out a little more clearly. All of these business are enjoying historic, rentier margins. They are just about the only ASX segment piling on huge EPS gains.
Origin Energy is a founding member of the east coast gas cartel. Its gas business has been profiteering by refusing to sell enough gas into the local market, instead shipping it offshore via its LNG plant. The resulting 300% gas price rises have driven electricity prices mad. This is because gas generation is the price setter in the wholesale electricity auction bid stack:
Remember than in the bidding process, everybody receives the highest bid price. That means that Origin’s non-gas power generating assets are receiving prices WAY above reasonable rates of return. After all, they were installed and profitable at wholesale prices 60% lower.
Now for AGL. It is enjoying exactly the same rentier margins on its legacy power assets as Origin, most of which are coal-fired. Moreover, to ensure nothing prevents this humungous gouge into the future, it has a plan to import LNG. That plan will destroy the domestic gas reservation mechanism that has dropped the gas price from $20Gj to $10Gj today (historically $3Gj). LNG imports would send it straight back up to $20Gj. And AGL could profit from the imports while enjoying even more gargantuan margins on its legacy power assets forever more.
Finally, Energy Australia. It, too, produces energy from legacy assets that are operating at margins that are spectacularly excessive. Moreover, CEO Catherine Tanna is the former CEO of BG which built the LNG export terminals that are exporting our cheap gas to Asia, the base of the entire catastrophe.
In short, these three firms and their personnel were at the heart of the outright collapse of the east coast gas market. Now they are at the heart of the collapse of the east coast power market. This is a rolling series of monopolists and oligarchs literally taking a giant shit on every business and household on the east coast with the help of the AFR.
ScoMo’s solution is the wrong one. It is another band aid on a gashed economic jugular that is hemorrhaging lifeblood. The only permanent solution is much tougher domestic gas reservation to crash the price of gas and, by extension, power.
But, until we get Labor to do that, the ScoMo band aid will force lower power prices and these huge rentier parasites can most definitely afford it.
