Australia’s Origin Energy on April 16 cut its annual earnings guidance for energy markets following an arbitration order to pay Beach Energy more for gas following a contract price review. 

Origin lowered its energy markets underlying Ebitda guidance for 2021 to A$940mn-1.02bn ($728mn-$791mn) from A$1bn-A$1.14bn. The arbitration order is expected to result in an increase in Origin’s cost of supply of A$30mn-A$40mn for 2021, increasing further to A$60mn-A$80mn in 2022 consistent with an expected increase in volume.  

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The pricing outcome is binding till 2023 with limited rights to appeal, the company said, adding it will now assess the timing and extent to which this increased cost of supply can be mitigated. 

“We are disappointed in this decision which we believe is wrong, and entirely inconsistent with our prior experience in the gas market.” Origin CEO Frank Calabria said. “This will result in a gas price that does not reflect market prices, and it is, therefore, a very poor outcome.” 

The dispute cropped up last year when the companies were unable to agree on pricing under a contract that is reviewed every three years and was part of the deal when Beach bought Origin’s Lattice Energy in 2017. 

In addition to the arbitration outcome, Origin said, continued subdued energy demand and wholesale pricing, along with a lower-than-expected contribution from Octopus Energy, have also affected the near-term outlook. Origin acquired a 20% interest in Octopus, a UK energy retailer in May last year. In December, it made further investments in Octopus.