Moves from some state governments to set lower electricity prices will backfire over the long run leaving households worse off, Origin Energy managing director chairman Grant King says.
Mr King says the Queensland government’s decision to reduce energy prices and proposed similar actions by the South Australian government would be bad for consumers.
“If you underprice in the short term, you take that short-term view, you will end up paying more in the long term,” Mr King told reporters after Origin’s annual general meeting in Sydney on Monday.
“We will under invest in generation, prices will go up because supply is well-balanced in respect of demand and it will cost more and more to meet that demand.”
This was shown in NSW during the 1980s, Mr King said.
Origin Energy has called for a judicial review of the Queensland government decision, which would be heard in early December, Mr King said.
Instead, Origin advocated a deregulated market such as the one in Victoria to provide the best outcome for consumers.
Mr King said the rate of price increase in Victoria since it deregulated the state’s electricity market had been lower than in other states.
“With a history of deregulated pricing, the industry has to price both efficiently and competitively,” Mr King said.
“There are clearly better outcomes for consumers in Victoria.”
Origin was Australia’s largest electricity retailer and had about 4.4 million customers at the end of 2011/12.
Earlier, Origin chairman Kevin McCann told shareholders at the AGM the Queensland, New South Wales and South Australian governments were still regulating electricity prices “long after price controls were removed from other household staples such as milk and petrol”.
“Actions by state governments that seek to cap or hold retail prices artificially low will have unintended impacts, including stifling future investment in generation and significantly lessening competition for consumers,” Mr McCann said.
Consumers around the country have faced higher electricity prices in recent years, which Mr McCann said was due to investment in the networks by state-owned distribution companies, the introduction of the carbon price and federal and state green schemes.
“As shareholders, you will understand that Origin needs to pass these costs on to customers,” Mr McCann said.
Last week, Origin shares fell to their lowest level since early 2008 after the company said regulatory and pricing decisions would wipe between five and 10 per cent from underlying profit in 2012/13, compared with the prior corresponding period.
Origin’s credit rating was expected to be in the spotlight in the period ahead as it provided $A3.6 billion to the $US23 billion ($A22.2 billion) Australia Pacific LNG project, of which it is a 37.5 stakeholder.
“At the moment the preferred way of dealing with that is to restore that flexibility through dilution of our investment in APLNG,” Mr King said.
Origin shares closed Monday’s local session down 14 cents, or 1.34 per cent, to $10.28.
