Origin to benefit from electricity price increase

Regulators help electricity retailers to boost their profits.

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Electricity retailer Origin Energy (ASX: ORG) is expected to boost its profits thanks to the NSW Independent Pricing and Regulatory Tribunal’s (IPART) decision to raise power prices further.

According to a report in The Sydney Morning Herald, IPART’s decision to raise prices is partially based upon a belief that increasing the profitability of the electricity sector will lead to more competition and ultimately drive down prices. The logic is hard to follow given that IPART has the power to set prices and hence could force down pricing itself.

With the new pricing due to come into force on 1 July, it won’t just be Origin benefiting from an increase. Competitor AGL Energy (ASX: AGK) will also boost its pricing. Exactly how re-sellers such as Australian Power and Gas (ASX: APK) fare from the pricing changes remains to be seen.

Foolish takeaway

The allure of regulated higher profits for incumbent electricity retailers may certainly be tempting for investors. The IPART is obviously hoping it will be tempting for disruptive competitors too! Investors will need to be aware of competitive threats and keep an eye on the market place should new retailers be encouraged to enter.

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Motley Fool contributor Tim McArthur has no financial interest in any company mentioned in this article.

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