AGL from being a local NSW gas company has become the largest energy business in Australia. Having weathered a disastrous period when Welshman Paul Anthony was installed as CEO in the early 2000s, the firm went into rehabilitation under the leadership of CEO Michael Fraser between 2007 and 2015.
Fraser presided over a modest share price recovery. But his spectacular acquisitions of coal fuelled power stations have turbocharged value. Those acquisitions comprised Victoria’s 2200 MW Loy Yang A station and mine which cost $1.5 billion in 2012. The station is relatively new and was originally sold by the Kennett privatisation in 1997 for $4.9 billion. The Liddell and Bayswater NSW facilities, bought for $1.5 billion in 2014, are twice Loy Yang’s capacity but do not have their own coal (though much of their supply is under a long term contract at very advantageous prices).
Earnings from coal have come to dominate the firm’s balance sheet. They were $1.38 billion, 80 per cent of total profits in 2015/6, when the electricity spot price was less than half of that of today. Once contracts are fully renegotiated, the firm will therefore see windfall profit gains of over $1 billion a year.
Among the beneficiaries of this is the present CEO Andy Vesey who has taken the firm in a green-friendly direction.
If, as it said it will, AGL were to close the Liddell 2000 MW power station in 2022, it would expect the wholesale price to rise further and push up profits, without the need to invest maybe one billion dollars in refurbishment of Liddell.
Compared to such revenues, those irritating coal ads Let’s face it. Things are changing are mere bagatelle for a company the earnings of which are dominated by the product they denigrate.
The current CEO’s coalphobic policies have been married to agitation and funding of radical groups. Among Vesey’s appointments are Labor-Green former GetUP! Director Skye Laris, as head of AGL’s public advocacy. Laris had already had made a name for herself as a staffer then mistress of former Environment Minister Tony Burke. Under her guidance Burke introduced policies that have taken water from Murray irrigators and brought great distress to the province which is responsible for a third of the nation’s agricultural output.
Attacking rival businesses using green agitation brought a key scalp in the closure of Hazelwood, which led to the doubling of wholesale prices we have seen in the past year.
The green thrust of Australia’s biggest energy business is being further amplified by a new head of Government Relations, the Al Gore trained nominal Liberal Tony Chapel.
Nobody should begrudge a firm making money by innovating and taking risks as did AGL under CEO Michael Fraser. But AGL is taking entrepreneurship further by conscripting government policies to harm competitors and boost its profits with measures that include a narrative that falsely maintains that coal, notwithstanding over 1,500 new units under construction around the world, is finished as an energy source. For over 30 years, renewable energy boosters have been declaring that their product will be cheaper in the near future but it remains twice the cost of coal generation with none of its reliability.
AGL is not the only energy business that decries the fossil fuels on which its profits depend. However, its activities in nurturing government policies that force up prices and damage the economy, perhaps irreparably, make it an outfit verging on being a rogue firm.
Its threats to close Liddell, a plant which is critical to preventing further electricity price rises and instability, should perhaps be met with a government requiring the facility be sold to another competitor. Not exactly a policy of free market detachment but the denigration of fossil fuel energy has created conditions that are difficult for a free market to repair.