Origin and AGL shares topple as Canberra calls for power bill cuts

THE nation’s two biggest electricity retailers could face a combined $ 787 million whack to their profits under the Federal Government’s moves to drive down power bills, analysis reveals.

More than $ 1.5 billion has been wiped from the market value of Origin Energy and AGL Energy as investors wind back their expectations on what profit the sector will be able to deliver going forward.

Shares in the two energy giants continued to tumble yesterday with Origin down by close to 8 per cent over the past two days while AGL has lost 3.5 per cent.

The sell- off has stripped $ 1.1 billion from Origin’s market capitalisation while $ 450 million has been wiped from AGL.

Investment bank Morgan Stanley yesterday warned gov- ernment measures aimed at driving power prices down, such as introducing a default offer, were set to bite the two energy heavyweights.

AGL and Origin have 7.8 million electricity and gas customers. Earnings before interest, tax depreciation and amortisation ( a key measure of profit) could plunge by up to 16 per cent at AGL in 2019- 20, Morgan Stanley said.

AGL is expected to generate earnings of $ 2.29 billion in 2019- 20, meaning it faces a $ 361 million hit.

Morgan Stanley estimates that earnings at Origin could be hit by as much as 12 per cent in the same year. With analyst estimates of earnings of $ 3.5 billion at Origin, this equates to $ 426 million.

The Morgan Stanley number crunching by analyst Rob Koh examines the plans which would see reductions of elec- tricity company “standing offers” by January next year.

Customers that don’t sign up to a specific retail deal often lapse onto standard retail plans or standing offer.

While such offers are often set by the government – depending what state or territory a person is in – they are generally more expensive than offers provided to new customers by electricity retailers.

“While a standing offer re- duction would have a larger dollar impact for Origin compared to AGL, we estimate a lower percentage impact in view of Origin’s integrated gas division earnings,” Mr Koh said.

Both Origin and AGL have criticised the Government’s measures as increasing uncertainty at a time when stability is needed to promote investment in new generation as ageing coal- fired power stations near their end.