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ACCC to probe gas retailers’ ‘excessive margins’

The competition watchdog will turn up its scrutiny of AGL Energy, Origin Energy and EnergyAustralia over concerns the trio are reaping excessive margins from their gas retailing businesses.

The Australian Competition & Consumer Commission yesterday released its latest interim report into the east coast gas market, with ACCC chairman Rod Sims flagging his concerns about the profitability of the dominant gas retailers.

The ACCC has already scrutinised gas exporters and pipeline operators as part of its inquiries into the east coast gas market, and has highlighted the role the Victorian and NSW governments played in creating the current situation when they effectively banned the development of their onshore gas reservoirs.

Gas retailers are in the watchdog’s sights after the ACCC’s preliminary analysis found the Australian-listed duo AGL and Origin, as well as the Hong Kong-listed CLP Group’s EnergyAustralia, were enjoying average earnings before interest, taxation, depreciation and amortisation margins of between 15 per cent and 21 per cent of the delivered price of gas.

Mr Sims told The Australian that the watchdog would carry out a deeper investigation into the rationale behind those margins: “The margins look way too high but we want to emphasise that it’s a preliminary analysis and we do find when we dig deeper, results can change. But if those numbers turn out to be the margins, they are way too high.”

All three of the retailers were contacted for comment.

Gas prices on the east coast have risen substantially in recent years, prompting the federal government to introduce tough new powers that can limit exports from Queensland’s three liquefied natural gas plants.

Gas producers have unveiled a host of investments in the past year aimed at unlocking more gas supply for the domestic market, but Mr Sims said gas prices on the east coast remained too high. He also said the governments of Victoria and NSW must wear some responsibility for creating the situation through their blanket bans on gas development.

“We’ve said to the governments ‘You make the decisions, they’re yours to make, but be aware you may drive some of your manufacturing industry out of your state’. They can’t survive at these prices, and only by getting more gas in the southern states will you get them to survive,” Mr Sims said.

Malcolm Roberts, chief executive of the Australian Petroleum Production and Exploration Association, said the ACCC’s latest report showed east coast gas prices were below their 2017 peaks due to new supply entering the market.

He said the report should prompt Victoria and NSW to rethink their blanket restrictions on new gas developments.

“Governments wanting lower gas prices, more investment and more diversity of supply have the solution to hand — follow the Northern Territory’s lead and support the safe, responsible development of the resources in their state,” Dr Roberts said.

“As we look to 2019 and beyond it is time to shift the focus back to where it belongs — the need to ensure more gas supply and more gas suppliers. This should be the focus of all governments.”

Gas prices on the east coast have eased slightly since the ACCC started investigating the sector and Mr Sims said the improved transparency the watchdog had brought to the market had helped take some heat out of prices.

However, he said getting more volumes of gas into the market was both the biggest and hardest step to take.

Source: The Australian