AGL’s bid for Macquarie Generation runs into resistance

The ACCC has called for further comment on AGL’s proposed acquisition of Macquarie Generation and identified serious competition concerns in a ‘Statement of Issues’ released this month.

The regulator said its preliminary view is that the proposed acquisition is likely to substantially lessen competition in the market for the retail supply of electricity in NSW.

In particular, the ACCC is concerned that the proposed acquisition will raise barriers to entry and expansion by significantly reducing liquidity in the supply of hedge contracts and increasing AGL’s ability and incentive to withhold competitively priced and customised hedge contracts to independent retailers.

Hedge contracts are used by electricity generators and retailers to manage the risks associated with volatile spot pricing in the National Electricity Market. “Our concern is that second tier and new entrant retailers may find it difficult to gain the hedge contracts they need to compete aggressively in the NSW retail market.” ACCC Chairman Rod Sims said.

The ACCC is also concerned that the proposed acquisition may lead to a substantial lessening of competition in the market for the wholesale supply of electricity in NSW, Victoria and South Australia by giving AGL the ability and incentive to withhold electricity supply and raise wholesale electricity prices in those regions.

Macquarie Generation owns the Bayswater and Liddell power stations, which make up around 27 per cent of NSW’s electricity generation capacity. It is currently being offered for sale by the NSW Government as part of the privatisation of its remaining electricity assets.

AGL is a vertically integrated energy company, with substantial electricity generation assets in Victoria and South Australia and, together with Origin and EneryAustralia, is one of the three major energy retailers in Australia.

It was announced last week that AGL was the successful bidder for Macquarie Generation,  entering into an agreements with the New South Wales Government to purchase the assets for approximately $1.5 billion. The transaction is subject to ACCC approval.

The ACCC has invited further submissions in response to the issues raised in the ‘Statement of Issues’ by 17 February 2014, with an indicative decision date of 4 March 2014.

We’ll keep you updated on any developments.

Photo credit: Flickr / jo-marshall   / CC.BY.2.0 (changed to black and white)