Consumers face higher bills as AGL feels pinch

Sydney Morning Herald
Thursday 16/10/2008 Page: 31

THE country's largest gas and electricity retailer yesterday warned consumers that energy prices would have to rise in the face of increasing costs caused by climate change and higher financing charges. AGL, which is also a major energy producer, is to press regulators to allow it to charge more for the currently price-capped sources of power it supplies as it prepares to deal with the Federal Government's planned carbon pollution reduction scheme due to start in 2010.

The emissions trading plan which is the central plank of the Rudd Government's environmental agenda, will have a "material impact" on AGLs cost structure and those of other energy suppliers, the company's chairman Mark Johnson warned shareholders yesterday. Speaking at AGL's annual meeting, Mr Johnson said the regulatory risks facing the group were more significant than ever before even when taking into consideration the existing price controls that limit what the company can charge its customers.

The bill that AGL faces for implementing the new carbon reduction measures will only add to the costs to business caused by the global credit crunch that will push up the interest charge on the debt it is looking to refinance over the coming year. "It is crucial that governments [federal and state] and regulators recognise this," said Mr Johnson.

"It is imperative that the regulators allow increases in the regulated prices of gas and electricity in line with the increased costs energy retailers will continue to face." Underlining the argument that the energy industry needs to take long-term investment decisions - such as AGL's plan to source 20 per cent of its electricity need from renewable energy such as wind by 2020 - Mr Johnson said governments had signalled that these were best done by the private sector.

"But the private sector can only invest if it has the confidence that governments and regulators will make decisions on a consistent and transparent basis... None of us like the prospect of paying more for our energy but short term decisions to keep prices artificially low will prove to be more disruptive and more expensive over the long term." Mr Johnson's comments came as AGL confirmed it was on target to meet its existing profit guidance for its 2009 financial year of net earnings of between $360 million and $390 million.

That compares to the net profit of $355 million it declared for the year to June 30, which itself was 8 per cent up on the previous 12 months. Michael Fraser, AGL's chief executive who replaced his controversial predecessor, Paul Anthony, exactly a year ago, said the company had enjoyed a "solid" first quarter, a period that covers most of the winter months. Mr Anthony's 17-month reign saw him earn $17 million before he left the company. AGL's shares rose 16c yesterday to $13.60.