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Energy Discounts to End, Warns Origin Chief


ENERGY bills are set to continue to rise as the nation’s largest electricity retailer’s boss says the industry can no longer afford the widespread discounting of recent years. Origin Energy chief executive Grant King said customers had done well out of the discounting, despite the fact electricity bills have already grown.

Rising bills have not benefitted the energy providers, with Origin’s underlying profit in the 2012/13 financial year falling 15 per cent to $760 million, at the bottom end of what it had forecast.

“The important point is it is a great time to be a customer in this business because of course all of the major competitors have been offering substantial discounts,” Mr King told reporters.

“It is a tough time to be a competitor in this area, which is reflective of the competitive environment in which we operate.

“I don’t think those discounts are sustainable going forward.”

He also said all of the large retailers had withdrawn from doorknocking to try and convert customers. Rival EnergyAustralia posted a $6.3 million loss last week, blaming a downturn in wholesale electricity prices. The major contributors to higher electricity prices are the owners of the power grid infrastructure – both government and private companies – who are charging more, according to the Energy Users Association of Australia.

Mr King blamed ongoing regulation in some states, including NSW and Queensland, but the impact would reduce if and when those states removed regulation. Carbon price and renewable energy prices were also driving the cost rises, he said.

Origin’s 2012/13 net profit fell 61 per cent to $378 million, due to falls in the value of hedging derivatives, restructuring spending on newly acquired NSW energy assets, and the weaker retail market. Origin lost 16,000 energy customers over the year but that was a better result than the 23,000 lost in the first half of the year.

The company declined to give any earnings guidance for 2013/14 due to the ongoing competitive discounting environment, and the fact that Mr King downgraded profit forecasts twice in the last year.

However Mr King was confident about the company’s future as a gas producer. He said the massive $24.7 billion Australia Pacific LNG (APLNG) in which it is an operating partner was on track to come online in 2015, which would double cashflow and revenue.

Origin also announced it had refinanced all of its existing debt with a $7.4 billion bank loan facility that takes advantage of low interest rates, and pushes out loan maturities to between four and five years away. The deal sent Origin shares higher, gaining 71 cents, or 5.8 per cent, to $12.98.

For more information about rising energy costs and the cost of renewables in Australia, check out our Renewable Focus in the new issue of PI Magazine Asia, out next week!

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