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Tuesday 11

December, 2018 2:35 AM



Australian ministers blast profit levels of power companies

Australian ministers blast profit levels of power companies

The big Australian power companies came under fire from senior ministers over the weekend as the government considers introducing stricter regulations and frameworks to reduce the amount of profit that these companies are allowed to make.

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By Thomas Hudson 03.12.2018

The big Australian power companies came under fire from senior ministers over the weekend as the government considers introducing stricter regulations and frameworks to reduce the amount of profit that these companies are allowed to make.

Such companies have received criticism for turning excessive profits while performance and price availability for consumers have not gotten any better.

The new laws rumored at present would allow the federal government to introduce price caps on energy prices as well as have the scope to break up the bigger businesses that control vertical markets. This is a relatively unusual step for the leading Liberal party, which has admitted that is has no strong desire to interfere in the market unless it is completely necessary.

Federal Energy Minister Angus Taylor spoke on Sunday of having totaled up the figures coming from the accounts of Origin, AGL and EnergyAustralia. He said that when measuring these figures alongside analyst expectations, the companies would see collective profits increase almost twofold in the second half of this decade.

Prices for the average Australian have long been a stick to beat politicians who tried to introduce any sort of energy guarantee and indeed ended up being the reason for former leader Malcolm Turnbull's ousting earlier this year.

However, the government is now preparing to take matters into its own hands. The next election, scheduled for May 2019, already appears to be drawing battle lines around the future of energy generation in Australia, and both parties are taking their positions on the matter.

According to Bloomberg, if current trends continue, profits for the big three power companies will reach $2.87bn by 2020, a significant increase from the $1.46bn in profits seen in 2015. This year, they reached a staggering $2.6bn, which shows the sharp rise that occurred in the last three years.

Taylor said that the power companies "have been taking record profits from the wallets of hardworking Australians for years – and they don’t want it to end." He also remarked: "It is no wonder the big energy companies are pushing back against the big stick legislation we are introducing to parliament."

The power companies were quick to respond, and Origin said that it has not paid out any dividends to shareholders since 2016. The company added that the figures used in the analysis were unfair, as they did not account for how the market has changed in recent years.

An Origin spokeswoman commented that the company has been "unable to earn a sufficient return on billions of dollars invested in power generation" over the last few years and that volatile wholesale prices and failed gas generation profits are making it difficult to guarantee stable returns.

She called the data "cherry-picked" and added that it "does not provide an accurate reflection of returns over time. There should be nothing wrong with companies earning a fair return on their investment."

AGL Chief Executive Brett Redman also criticized potential government intervention in the market, saying that this would only make prices go higher and limit the amounts of capital currently invested.

Adrian Merrick, a former EnergyAustralia executive who now heads the smaller power company Energy Locals, said that these figures suggest that "all the various threats of a big stick aren’t going to throw these guys off the course." With just a few months until the election and both major parties appealing to voters, it could be interesting to see how this situation develops.

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