In this paper we have presented evidence that points to price gouging on the part of energy companies, AGL and Origin Energy, on their retail operations. The price gouging, or price discrimination, by the energy companies results in a massive cross-subsidisation from consumers to business.

The average AGL electricity consumer contributes $755 to AGL’s annual profit while at Origin the comparable figure is $595. The Federal Government’s $300 electricity subsidy barely makes up for half of Origin’s rip off and just 40% of AGL’s rip off.

AGL charges electricity consumers more than twice what it charges businesses, while businesses only pay $183.3/MWh, consumers pay $377.1/MWh. At most only about a third of this difference ($70.9/MWh) is warranted by the difference in network costs. On its retail sales, AGL makes profit (pre-tax and interest) of $132.8/MWh from consumers—35% of the retail price. By comparison pre-tax profit is only $9.9/MWh on business sales.

Origin’s consumer charges for electricity are $343.3/MWh, somewhat lower than AGL’s but still over twice what they charge business ($167.3/MWh). The result is that profit on sales to consumers is $100.9/MWh compared to a small loss on sales to business. In addition to contributing massively to Origin’s profit, electricity customers are subsidising Origin’s business customers.

The picture is similar with respect to gas; AGL charges consumers three times what businesses are charged. While consumers pay $38.1/GJ, businesses only pay $11.9/GJ. The difference in network costs for consumers and business is large but not enough to explain the difference, meaning AGL profits are $13.9/GJ for consumers while appearing to make a small loss on sales to business. Origin’s gas charges show a similar pattern with consumer prices being 2.5 times business prices. Origin’s retail profit appears to be $14.5/GJ for consumers and just $1.0/GJ for business.

AGL’s consumer markets segment, which includes both electricity and gas, appears to be generating a return on their net assets of over 100% per annum. These figures suggest AGL and Origin are ripping off Australian consumers through price gouging.