2 ASX listed Energy Players under Regulatory Radar – ASX: AGL, ASX: ORG

  • Jul 25, 2018 AEST
  • Team Kalkine
2 ASX listed Energy Players under Regulatory Radar – ASX: AGL, ASX: ORG

According to competition tsar Rod Sims leading the regulator Australian Competition and Consumer Commission (ACCC), investors are rightly worried in AGL Energy Limited and Origin Energy Limited about the prospects for their electricity retail business. Mr. Sims has announced another instance of penalties for misleading discounting for the customers. The regulatory radar is completely in favor of consumers over the shareholders, but the consumers always end up loosing faith in the system in such situations.

Mr. Sim said that there will be a push in default tariff which will set a base to measure offers of discount and address the high standing offers by the major players, if implemented. Energy Australia is among the big three in the sector. The suggestion to create a default tariff is seen as among those to be implemented out of the 56 proposals of ACCC’s to lead in the electricity prices. While the smaller retailers are in favor, the majors had more to lose and it was taken a note of that they generally oppose the recommendations.

The combined market value of AGL and Origin was initially wiped off by $1.7 billion as at the release of July 11, 2018 proposal. The penalty paid by the 1.7 million customers with their existing retailer on higher tariffs and pay who have never shopped for a competitive offer, was referred to as, by some market experts comparing ACCC’s recommendation to a cut to the loyalty tax rate.

Driven by the large number of customers paying above average prices and never engaging with the supplier is what generates the retail profitability. Disengaged customers pay a loyalty tax versus customers who shop around. AGL Energy Limited (ASX: AGL) and Origin Energy Limited (ASX: ORG) are the only incumbent retailers that have bought out state-owned retailers and have loyal customers that have never switched, and these are expected to feel most of the impact.

ASX listed AGL Energy Limited (ASX: AGL) is under the utilities sector and was trading at a market price of $21.49 (as at market open on July 25, 2018) and saw a daily price change of -$0.070 or a percentage decline of -0.323% as at July 24, 2018. This stock under the utilities sector has a market capitalization of $14.15 billion. The performance change for the stock has been -11.2% over the past 12 months. While ASX listed Origin Energy Limited (ASX: ORG) was trading at a market price of $9.380 (as at market open on July 25, 2018), it has seen a decline of -$0.040 and a percentage change of -0.424% a day before. With a market capitalization of $16.52 billion, the stock has seen a performance change of positive 36.68% over the past 12 months.

Out of the people who are disengaged the large retailers make a lot of their money and for people who are not switching it means that the longer is the stay the more you pay, thus paying a loyalty tax. Energy Minister has said to respond before the year end and carefully consider the recommendations.

In other words, the loyalty tax changes and regulated pricing can impact the groups’ earnings for the financial year, if introduced soon. While AGL and ORG are trading at higher levels, AGL might be watched out while ORG can be a hold looking at oil price scenario and exposure to renewable energy.

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