New research based on the annual reports of AGL and Origin Energy claims to reveal a “clear case of price gouging” by Australia’s two biggest energy retailers, where households pay more than double the price of big business for the same amount of electricity.
The Australia Institute research delves into the data behind the profits from the retailing businesses of the two “Big Three” gentailers, to get to the bottom of what consumers are paying for – and how much of this goes towards the companies’ billion-dollar profits.
On the latter mark, TAI finds that $755 of what an average AGL residential electricity customer pays each year goes directly to profit for the company, which made more than a billion dollars last year.
Origin electricity customers, meanwhile, contributed $595 a year into the company’s annual profit, which was more than $2 billion last year. For gas, add another $414.04 of profit per AGL customer, per year, and $417.57 profit per customer, per year for Origin.
Breaking this down further, the report says that for every $100 of an AGL customer’s electricity bill $35 is profit, $34 goes to “network costs” (including the cost to use poles and wires), $15 goes to “other costs” (such as advertising) and just $12 is spent generating electricity. $4 covers “depreciation and amortisation”.
TAI notes that AGL’s annual report refers to “increased campaigns and advertising activity” as one of the cost drivers, with the company spend on marking totalling $125 million in 2023-24.
“Companies are waging an expensive war to encourage you to buy exactly the same thing from them and not a competitor – but it all goes onto the costs which are passed on to consumers,” the report says.
For Origin, the network costs component of consumer electricity bills are slightly higher that AGL, but sum of the other costs – which in Origin’s data are all lumped in together and “supported by less information” – is slightly lower.
But one of the more shocking revelations from TAI’s research is that households are paying more than double what AGL and Origin charge big business for the same unit of electricity.
David Richardson, the author of the discussion paper, says this becomes clear when looking at each gentailer’s retail profit before interest and tax, which he says is revealed to be “dramatically different” for consumer and business customers.
As illustrated in the chart below, AGL reports operating profits of $132.80/MWh for consumers compared to just $9.9/MWh for large business, putting profit per unit of electricity at 13.4 times higher for consumers than business.
For Origin, there is a profit of $100.9/MWh for residential customers versus a small loss, minus $0.7/MWh for business.
Richardson says it is profit on sales to consumers that dominates the high prices they pay.
“[Around] $755 of what an average AGL electricity customer forks out each year goes directly to profit for the company, which made more than a billion dollars last year,” he says.
“Origin electricity customers pump $595 a year into the company’s annual profit, which was more than $2 billion last year.”
“These calculations for retail profit per electricity customer show that the annual charge is very high for consumers. Indeed, the size of this rip off exceeds the federal government’s $300 subsidy for electricity consumers which is expected to cost taxpayers $3.5 billion over the forward estimates,” the report says.
“That total includes small businesses, however, it indicates the orders of magnitude of the amount that could have been saved by tackling price gouging directly to achieve an equivalent reduction in retail prices.
Ultimately, says Richardson, it is “difficult to avoid the conclusion” that the two big gentailers are “ripping off” residential customers through price gouging.
“There is a lot of activity that lies behind the retail supply of electricity and gas, but it is the retailer that faces the customer and can price gouge.
“While there is a consistent theme of rip offs in this discussion, the other theme to emerge is that consumers are heavily subsidising business. High consumer prices allow AGL to make a loss on gas sales to business and Origin to make a loss on electricity sales to business.”
AGL says that contracts between residential and large business customers are set up differently.
“Large business customers are provided bespoke pricing based on their individual customer profile. The energy consumption of different businesses varies significantly when compared to residential customers,” a company spokesperson said in an emailed response to Renew Economy on Thursday.
The gentailer also points to rising network costs – a big contributor to the consumer bill – as driving up the cost burden on households.
“While there has been an easing of wholesale electricity prices from the extreme peaks of 2022 during the energy crisis, there has been marked increases to network costs.
“Network costs are associated with the distribution and transmission of electricity to customers and can generally represent more than 40% of a customer’s bill.
“We are acutely aware of cost-of-living pressures, and this year we increased our two-year Customer Support package by $20 million to $90 million and have delivered $63 million to customers in the first year of the program,” AGL said.
A statement from Origin says that making direct comparisons of the charges for residential and business customers is problematic.
“Any attempt to make direct comparisons between commercial and residential customer prices is meaningless given there are fundamental differences in the input costs and the nature of contracts with those customers,” an Origin spokesperson told Renew Economy.
According to Origin, commercial and industrial customers pay around half the network charges that residential customers incur, while the cost to serve for residential customers is higher.
Origin also notes that the wholesale energy cost varies significantly due to the different load profiles, and some business customers do not pay any green schemes charges.
“The ACCC undertakes intense scrutiny of the electricity market, including through its electricity market inquiry which monitors and reports on retailer prices, profits and margins every six months,” the spokesperson says.
“The ACCC’s December 2023 report showed that in financial year 2023, energy retailers recorded an average margin of $34 per year per residential customer.
“The Australian Energy Regulator and Victoria’s Essential Services Commission set a regulated default price for standing offer customers every 12 months, with our current policy being that no Origin residential customer should be paying above the relevant default market offer.”
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