This has been the warmest winter on record in many markets in Australia, with heating degree days tracking below the 20-year average in all four states included in Australia’s National Electricity Market (NEM) since July 1, 2013.

The inevitable impact on energy demand has resulted in AE Portfolio Conservative Holding AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY) offering a rather subdued outlook for financial and operating results for fiscal 2014.

Management expects underlying net profit after tax (NPAT) for the 12 months from July 1, 2013, to June 30, 2014, to be between AUD560 million and AUD610 million. After adjusting for a change in accounting standards that came into effect on Jan. 1, 2013, this guidance compares with underlying NPAT of AUD585.4 million for fiscal 2013.

A change in the Australian accounting standard for defined benefit superannuation funds will reduce earnings by approximately AUD10 million; the comparable impact last year was AUD12.9 million.

Aggressive competition, including steep discounting to attract retail customers, although it’s subsiding as competitors experience consumer backlash due to their activities, including “door-knocking,” will flow through to the fiscal 2014 top and bottom lines.

And the record-warm July-to-September period will cut AUD25 million to AUD30 million off the bottom line.

AGL is a vertically integrated electric utility, one of two in Australia along with AE Portfolio Aggressive Holding Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY), with a transmission system designed to serve its own customers. It’s also Australia’s largest private owner, operator and developer of renewable generation assets.

AGL is well placed to benefit from an improvement over time in Australian retail gas and electricity markets through the process of ongoing deregulation and tightening in wholesale generation markets later in the decade.

Continued weakness in NEM electricity demand will clearly hit the bottom line, as would lower-than-forecast electricity and gas retail tariffs and lower-than-estimated wholesale electricity prices.

Despite a decline in retail switching activity in recent months, competition for market share continues to run hot. Management’s focus, however, has shifted from customer acquisition to retention, reflected in AGL’s fiscal 2013 results.

This effort to defend its turf involves matching or improving on an offer from a competitor. The response to deep discounting in Victoria by both AGL and Origin led to a sharp escalation in retention activity. And this resulted in deteriorating margins, which will persist into fiscal 2014.

AGL management did note that retention activity during the first quarter of fiscal 2014 was down compared to fiscal 2013. Funds spent on retaining customers was down 30 percent compared with the first quarter of fiscal 2013, while the “churn” rate–the percentage of customers changing suppliers–was down 14 percent.

After adjusting for significant items and changes in the fair value of certain derivatives included in the reported result, AGL’s underlying profit for fiscal 2013 AUD598.3 million, up 24 percent from AUD482 million for fiscal 2012. The total dividend for the year was AUD0.63, up 4.9 percent year over year.

AGL’s objective is to pay a progressively larger dividend each year while retaining an appropriate level of funds for reinvestment and maintaining its BBB credit rating. Since 2006 dividend payments have averaged around 60 percent of underlying profit. Absent extraordinary events you can expect this approach to continue, with growth driven by investment.

Growth in fiscal 2013 was driven by the Loy Yang coal-fired power station, which AGL acquired in June 2012. AGL also completed work on the AUD1 billion, 420 megawatt Macarthur wind farm, which reached full capacity for the first time at the end of March 2013.

Macarthur is the largest wind farm in the southern hemisphere.

At the right price, generation can increase financial returns and deliver significant vertical integration benefits. AGL continues to pursue opportunities to add to its generation base, as it’s up against domestic competitor ERM Power Ltd (ASX: EPW, OTC: None) and China-based Shenhua Group in the final stage of the bid process for New South Wales’ state-owned Macquarie Generation.

MacGen’s Bayswater and Liddell power plants in the Hunter Valley supplied about 30 percent of New South Wales’ 2012 electricity demand. The thermal-coal-fired power stations have a combined capacity of 4,640 megawatts. MacGen is the biggest power producer in the state.

Final bids, due at the end of January 2014, are expected to approach AUD2 billion.

Shenhua’s participation is the latest sign of growing Chinese interest in Australian energy and utility assets. Shenhua owns power plants around the world with combined capacity of 63,000 megawatts. Its major Australian asset is the Watermark thermal coal project in New South Wales.

The completion of the AUD118.2 million acquisition of Australian Power & Gas Co Ltd on Oct. 30, 2013, boosts AGL’s customer base by 10 percent to approximately 3.85 million. Management’s integration plan, which it should complete within 12 months, will focus on improving quality of service and the product offering to incoming APG customers.

Notably, AGL will cease APG’s practice of “door-knocking” to entice customers to its roll. There is also a substantial opportunity to reduce APG’s cost to serve, which was AUD132 per customer as of June 30, 2013.

As for bigger-picture items, Australia is gradually shaping up its regulatory profile. South Australia implemented price deregulation effective Feb. 1, 2013, and Queensland has announced it will deregulate effective July 1, 2015. And a recent commissioned study for New South Wales concluded that competition is effective and recommended that the state government deregulate electricity and gas prices.

Deregulation will remove a major risk from AGL’s business, as adverse regulatory outcomes reduced fiscal 2013 earnings before interest and taxation by approximately AUD68 million.

AGL is extremely well placed with a long gas position in Queensland, with supply contracts in place to 2027. Existing supply contracts allow for additional sales of up to 40 petajoules per annum from 2015.

The majority of AGL’s existing gas supply contracts are now fixed, with approximately 85 percent of supply contracted at wholesale gas prices. Management also notes “good progress” on large sales contract negotiations, with rising gas prices in all east coast markets. The Queensland market for fiscal 2015 forward is now trading at AUD9 to AUD10 per gigajoule.

Another key development is the Gloucester natural gas project, which management forecasts will provide the lowest-cost gas supply into the Sydney-Newcastle market. The front-end engineering and design (FEED) phase of the project is currently underway.

AGL plans to make a final investment decision during the third quarter of calendar 2014, with first gas from the project targeted in the fourth quarter of 2016. Management’s current production forecast is for 20 to 30 petajoules per annum.

AGL has developed a balanced portfolio of generation assets to provide competitive sources of energy, not only to its substantial commercial and industrial customer base but also to its retail customers that now total some 3.85 million accounts.

In addition to the largest portfolio of renewable electricity generators in Australia AGL also has one of the largest and most competitive thermal power plants. AGL is also positioned to profit from a strong portfolio of gas contracts and gas storage facilities.

Management’s portfolio strategy is to be responsive to government policy as well as to technological developments, all within the context of generating sufficient profit to support dividends for shareholders.

AGL Energy is a buy all the way up to USD17.25 on the Australian Securities Exchange (ASX) using the symbol AGK and on the US over-the-counter (OTC) market using the symbol AGLNF.

AGL Energy also trades on the US OTC market as an American Depositary Receipt (ADR) under the symbol AGLNY. AGL’s ADR, which is worth one ordinary, ASX-listed share, is also a buy under USD17.25.

AGL closed at AUD15.02 on the ASX on Nov. 14. Based on the prevailing exchange rate as of this writing, that’s USD13.98 in US dollar terms.

AGL Energy’s fiscal year runs from Jul. 1 to Jun. 30. The company reports full financial and operating results twice a year; it typically posts first-half results in late February, with full fiscal year numbers out in late August.

Interim dividends are usually declared in February, along with financial and operating results for the first half of the fiscal year, with payment typically made in early April. Final dividends are usually declared in August, along with fiscal year results, with payment made in late September.

AGL’s final dividend in respect of fiscal 2013 of AUD0.33, declared on Aug. 28, 2013, was paid on Sept. 27 to shareholders of record as of Sept. 6. Shares traded ex-dividend on this declaration as of Sept. 2.

The most recent interim dividend of AUD0.30 per share was declared Feb. 27, 2013. It was paid April 4, 2013, to shareholders of record as of March 12. Shares traded ex-dividend on this declaration as of March 5.

Management will declare the interim dividend for fiscal 2014 on or about Feb. 26, 2014, when it reports financial and operating results for the first six months of the financial year.

Dividends paid by AGL Energy are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January 2013 dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

The Australian government withholds 5 percent to 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock nine rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology, while five rate it a “hold.” No brokerages that cover AGL rate the stock a “sell.”