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AGL promises 9% electricity price cut

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Energy giant AGL says it will cut electricity prices by around nine per cent following the scrapping of the carbon tax.

Chief executive Michael Fraser said the company would cut prices by between eight and nine per cent on average as it passes on savings from the removal of the tax.

“It’s good news for consumers … prices will be coming off,” he told AAP.

Meanwhile, the company recognises it has a problem with falling demand and consumer satisfaction.

AGL suffered a near eight per cent decline in electricity demand and a nine per cent fall in gas demand during the 2013/14 financial year.

Much of that was due to warmer than expected winters on the east coast both this year and last year, but increasing use of solar energy and the development of more energy efficient devices is also hurting demand.

The slide in demand helped push the company’s underlying net profit down 3.9 per cent to $562 million for the year.

In response, it is looking to increase profit margins, which means it needs to improve customer loyalty.

“The key focus is going to be on lifting gross margins while driving customer value and loyalty,” Fraser said.

To do that, AGL says it will look to tailor products to appeal to its highest value customers and focus more heavily on its loyalty rewards program.

It will also take more of its customer interactions online, which is expected to cut costs and help to improve satisfaction levels.

AGL says its customer satisfaction runs at about “seven out of ten”.

In December 2013 the Australian Competition and Consumer Commission took the AGL’s SA division to the Federal Court alleging false or misleading representations and engaging in misleading or deceptive conduct.

The alleged conduct related to representations made by AGL SA to residential electricity consumers in South Australia about the level of discounts off electricity usage charges that could be obtained by consumers under AGL SA’s energy plans.

“AGL SA represented to consumers that if they entered into an energy plan, they would receive a specified discount off the charges they would otherwise pay AGL SA. However, AGL SA later increased the rates charged to consumers under energy plans and, despite representing that the discounts would continue, the level of discounts that consumers had signed up to was eroded,” ACCC Chairman Rod Sims said.

The abolition of the carbon tax and associated falls in retail prices should create more competition in the market.

AGL, however, says it expects to take a $200 million hit to its earnings due to the abolition of the carbon tax and associated support payments and the shutting down of its Kurnell LPG extraction plant.

The abolition of the tax hurts the value of the company’s renewable energy assets and means AGL won’t receive $100 million in transitional assistance payments linked to its Loy Yang power station in Victoria.

AGL owns wind farms at Hallett and Wattle Point in South Australia.

However, Fraser said the end of the tax would ultimately lift the value of Loy Yang.

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