Energy industry loses plot again as greed trumps strategy and regulator fails consumers

The applause was immediate, and somewhat deafening. Even before Australia’s biggest coal generator and biggest polluter had completed its Investor Day presentations, the most prominent column at the Australian Financial Review was gushing in its praise.

“Powered up AGL Energy gets its mojo back,” the headline said. And what precisely is this “mojo”. An acceleration of the green energy strategy that has been urged by its most famous shareholder, Mike Cannon-Brookes? The fast-tracking of the exit of coal, beefing up its wind and solar plans?

Not a bit of it. The next line made clear what was important to the AFR, its readers, and investors.

“AGL Energy is making money again, and that’s the main thing as far as investors are concerned.” In fact, AGL says it expects to at least double profits in the coming year, helped along by higher wholesale prices for its generation, and “higher customer margin”, which means making more money from its customers.

And that’s pretty much the main game for the whole industry right now. Consumers are being royally screwed by energy companies focused on short term profits and empowered by the country’s energy regulator to do exactly that.

The AER in its decision handed down in May on the so-called “default market offer” (DMO), justified the increases it waved through by saying it was protecting both consumers, and the industry that delivers this essential service.

“We know households and small businesses continue to face cost-of-living pressures on many fronts, and that’s why it’s important the DMO provides a safety net for those who might not have shopped around for a better power deal,” the AER chair Claire Savage wrote at the time.

“In setting the DMO price this year we have sought to protect consumers from unjustifiably high prices and at the same time allow retailers to offer consumers better deals than their standard plans.”

The DMO is set for customers who don’t have the resources, or can’t be bothered, to search out better deals. But this year it also seems to have been a catalyst for the energy companies to charge pretty much whatever they want across the board.

There’s not a lot of bargains to choose from. And the energy industry has gotten greedy beyond words.

One customer in South Australia received a letter this week from Simply Energy informing him that the cost of electricity in peak times would rise from an already sky-high 50c/kWh to the nose-bleed price of 73c/kWh for the first 10kWh and 82c/kWh after that.

Just to translate that into another formula, that is $820 per megawatt hour. Not just for a few random high priced events scattered throughout the year during weather and supply extremes, but for peak pricing every single day of the year. It’s beyond belief. Simply awful.

Little wonder then, that this customer took himself off to the local solar retailer and ordered a rooftop solar system and a household battery.

They will still pay $433 a year just to be connected to the grid. They can thank themselves lucky they are not in regional NSW, where Essential Energy now charges $1,083 a year just to have a connection, or $1,208 for controlled load.

That’s $3.80 a day before anything is switched on. It used to be that that was the sum total of an average electricity bill.

It’s not just network prices. The wholesale price under the DMO has been allowed to jump by around 50 per cent.

Has the cost of production of energy gone up? Does it cost more now to mine coal and extract gas? Not really, but the energy industry has discovered it can use its “market power” to jack up prices anyway – thanks to Covid, the invasion of Ukraine, and just because they can, and will.

Of course, the big retailers go out of their way to assure everyone that their business is all about the consumer, and that they have their interest at heart. The only thing that is truly visible is that they have their hands in their consumers’ wallets.

And that’s not such a great thing at a time when the long term future of big energy companies will depend on their ability to engage with their consumers. It will be the litmus test for their long term relevance and survival.

For some years now it has been obvious that the customers will no longer be someone just to send a bill to at the end of every quarter.

If the big utilities are to survive, they need to learn how to engage with them on the transition to electric appliances, the sharing and two way flow of energy, and the integration of household storage and batteries on wheels, in the form of electric vehicles.

This is the democratisation of energy. The decision by millions of households to install rooftop solar has spelled the end of coal fired generation in this country, the addition of more household storage will signal the demise of gas.

Across the world, big oil and gas have given up the pretence, effectively dumping their climate goals – such as they were, and they weren’t very much – and deciding to focus on short term profiteering and shareholder returns rather than the future of a decarbonised industry.

The big utilities that deal directly with customers have their own choice to make. If they are to prosper into the future, they need to find other ways to make money. The first test of that new relationship will be on the consumer perception of whether they are being ripped off, or not.

So far, the only jurisdiction where consumers can have faith that policy makers and utilities are doing the right thing is in the Australian Capital Territory, where the Labor-Greens government has protected the punters by neutralising the impact and the rampant greed of the fossil fuel industry.

They have done that by signing long term power purchase agreements with wind and solar farms that produce the equivalent of their annual electricity consumption. And they are expanding that by adding new wind and solar farms, and big batteries, to provide further protection.

The beauty of contracting with renewables is that the industry knows the cost of building their facilities, and the cost of running them. It doesn’t change – the fuel is free.

And if the fossil fuel industry gets greedy, as it will, then the ACT customers are protected because any high prices in the wholesale market are returned to the ACT and consumers by the renewable project owners who would normally be allowed to trouser the profits.

This is how it should be. The wind and solar and battery storage developers get enough to build their projects and get a decent return on their investment. The consumers get a better and cleaner service at a reasonable price.

The ACT is uniquely positioned to do this. Other governments have had to resort to dipping into the budgets and handing out rebates to offset some of the price hikes and mitigate the impact at the polls.

The ACT has taken on the fossil gas industry in new ways by banning new connections and announcing a gradual phase out on the way to becoming an all electric, renewable powered territory.

Other state governments are going to have to find a way to be just as courageous. There is no alternative but to have the guts to take on the fossil fuel industry. Any takers?