David Penberthy: AGL whacks consumers with power price hike as it rakes in the profits

AGL is only interested in profits as it ramps electricity prices up, says David Penberthy

AGL boss Andy Vesey is paid an eye-watering base salary of $1.9 million a year.

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A FEW years ago while renting a small and modestly furnished flat in Sydney I received a bill from the good people at AGL which nudged $2000. Given that I was the proud owner of a toaster and a television at the time, I inquired with the electricity giant as to how they had come up with such an extravagant figure. Perhaps I had inadvertently bought a desalination plant or mistakenly left the air-conditioner on for 27 years.

AGL explained that they hadn’t been able to obtain access to the property and had instead done what is called an “estimated read”. What this means is that they had simply tried to guess how much power I had probably used and come up with a figure they were happy with, and which I was really unhappy with, given it almost forced me to live on porridge for the next three months.

It’s a novel way to run a business. If you applied it to other forms of customer service it would save a lot of hassle for the proprietors.

Thank you for dining here, sir. We think you had the filet mignon, the gruyere souffle and a bottle of Penfolds 389. That’ll be $180.

Much has been said this week about the background to the 12 per cent price hike announced by AGL, which will add some $230 to the average annual power bill.

AGL blames the “cost and availability of coal and gas supply for electricity generation as well as the changing mix of generation output’’. The Labor Government has been accused of artificially inflating the cost of power by requiring that energy providers draw on more expensive wind-generated power to take the pressure off mother Earth.

Premier Jay Weatherill with Air Liquide Australia managing director Michele Gritti (left), and AGL CEO Andrew Vesey during a tour of the Torrens Island power station last year. Picture: Campbell Brodie

Labor counters that it’s the Liberals who are to blame, saying that if they hadn’t deceitfully flogged off ETSA, with no mandate to do so, the people would not have lost control of what was once a state-owned, state-operated utility.

There is something in both arguments. I reckon a more compelling argument is that AGL are simply greedy. In the absence of a readily comprehensible explanation for the increase, it is fair for the public to conclude that AGL simply wants to make as much money as it can for its shareholders.

It’s an understandable position, given that the company pays its boss, the American businessman Andrew Vesey, an eye-watering base salary of $1.9 million a year, in addition to almost $1 million in shares, a one-off payment of $1 million for the sheer horror of having to move to Australia, not to mention other unspecified incentives and bonuses.

He’s probably in line for another performance bonus, given that AGL reported an underlying profit of $375 million last financial year, and is set to almost double that figure with a forecast profit for 2015-2016 of $720 million.

So why does a company that is so flushed with cash stump for a 12 per cent increase in charges more than six times South Australia’s rate of inflation? Because it can.

The State Government has admitted that, apart from a bit of public shaming from Treasurer Tom Koutsantonis, it has no policy or regulatory levers at its disposal to prevent the price hike from going ahead.

At the risk of sounding like an old-school socialist, it is a pity that this isn’t the case because you can mount a public safety argument for keeping it affordable.

Energy is clearly an essential part of life. Affluent people will be merely annoyed by this latest increase. For the poor, it could be life-changing or, as SACOSS has warned, probably not with an inflated sense of drama, even life-ending.

The use of solar is not an option for poorer people, either, as the prohibitive upfront cost of installing the panels means they will never have enough money to enjoy the longer-term savings. Renters will always be at the mercy of their landlords.

A company such as AGL would bristle at the suggestion of government oversight of its pricing

strategy. But when they are earning as much money as they are — and when upper management is collecting such obscene amounts of cash — they will only have themselves to blame if governments start casting around for ways to prevent this kind of gouging.

The real danger now for the public is that AGL has set the jack so far forward in terms of pricing that every other power company can easily follow suit.

Within hours of AGL’s announcement, energy retailer Origin Energy said that they too would increase power charges by 6.5 per cent, adding almost $120 a year to the average bill.

Compared to AGL, Origin look like paragons of generosity. But that increase is still more than three times the rate of inflation. At a time when prices have been coming down elsewhere — even water bills are finally scheduled to become cheaper — these power price hikes are running against the grain in this low-inflation environment.

Not only does it look like a cash grab. As the other companies start to follow AGL, it will inevitably make customers suspicious of a cosy gentleman’s arrangement where energy retailers across the land will be high-fiving each other into raking in more dough when their bottom lines confirm that no such gouging is warranted or necessary.

If someone in government could have a proper look into that, the public would be cheering them on.