AGL (AGK) and Origin (ORG) were the biggest drags on the local market yesterday after the competition regulator rejected AGL’s bid for a major NSW state-owned asset.
AGL shares fell 2.5% to $15.05 and Origin fell 1.2% to $14.58, because of doubts that future government sales of energy assets will find buyers such as the two energy giants.
After NSW, Queensland remains the source of future government sales of energy producers. Unless new, non generator buyers emerge, the NSW and Queensland governments will struggle to find buyers for their assets, if the ACCC’s decision is not overturned in any possible court action by AGL.
The competition regulator announced yesterday morning, well before stockmarket trading started, that it had blocked AGL from buying Macquarie Generation, the largest power generator in the national electricity market.
The ACCC indicated that it found considerable opposition to the AGL deal from business, especially from smaller energy retailers who feared they would be damaged by increased concentration among the generators in NSW.
The Commission’s ruling in turn threw into doubt the future privatisation plans of the NSW government, which says the sale won’t happen in its present form.
AGL had reached agreement to pay $1.5 billion for Macquarie Generation, but the purchase was subject to the agreement of the ACCC.
Macquarie Generation operates two coal-fired power stations in the Hunter Valley, north of Newcastle. They are the Liddell and Bayswater power stations.
But from the outset of the sale process the ACCC has expressed concern that the purchase would lead to a lessening of market competition within the national electricity market.
And both business and consumer lobby groups have expressed concern (to the ACCC especially) that the purchase could distort prices in the wholesale electricity market.
From what the ACCC much of the opposition came from business, which will be a problem for AGL in any possible legal action.
AGL said yesterday it was reviewing its options. Some analysts reckon the deal will end up in court action by AGL against the ACCC.
AGK 1Y – ACCC pulls the plug on Macquarie Generation acquisition
NSW Treasurer Mike Baird said the sale to AGL would not proceed in its present form, with the government to study the ACCC decision before responding further.
Competition concerns had ruled AGL out of the earlier privatisation round of NSW government-owned power assets, with Origin Energy and EnergyAustralia acquiring electricity retailers.
AGL had offered concessions to assuage ACCC concerns, by specifically offering to ensure that supplies would be offered at times of high wholesale electricity demand to ensure that smaller retailers would not be squeezed out of the market, but the ACCC said yesterday it reckoned those concessions would not go far enough.
The central reason for the rejection was the ACCC’s belief that having 71% of the NSW market controlled by just three companies, was too much and any concessions could not lessen those fears.
In its statement, the ACCC said, "The proposed acquisition is likely to result in a substantial lessening of competition in the market for the retail supply of electricity in New South Wales.
"The key assets of Macquarie Generation are the Bayswater and Liddell power stations (together, these power stations account for 27 per cent of NSW capacity). AGL is already a substantial electricity retailer in NSW.
“The proposed acquisition would result in the largest source of generation capacity in NSW being owned by one of the three largest retailers in NSW. Indeed, with this acquisition, the three largest retailers in NSW would own a combined share of 70 to 80 per cent of electricity generation capacity or output.
"This is likely to raise barriers to entry and expansion for other electricity retailers in NSW and therefore reduce competition compared to the situation if the proposed acquisition does not proceed,” ACCC Chairman Rod Sims said in yesterday’s statement.
"The ACCC formed the view that the proposed acquisition would be likely to result in a significant reduction both in hedge market liquidity and the supply of competitively priced and appropriately customised hedge contracts to second tier retailers competing in NSW.
“In particular, it does not appear likely that the remaining non-aligned generators in NSW, Delta Coast and Snowy Hydro, would be able to provide a sufficient quantity and type of hedge cover to be able to adequately service the requirements of second tier retailers that sought to either enter the NSW retail market or grow their existing retail position.
“In this way, the acquisition would be likely to prevent sufficient vigorous competition with AGL, Origin and EnergyAustralia, who already have 85 per cent of the overall retail market in NSW and 95 per cent of the mass market, and would have a combined share of 70 to 80 per cent of electricity generation capacity or output in NSW if the acquisition proceeded.
“In addition, had the acquisition proceeded, AGL would have become the largest generator in each of NSW, Victoria and South Australia. The ACCC remained concerned about the likely competitive impact of the proposed acquisition in one or more of the wholesale electricity markets in these regions,” Mr Sims said.
"For commercial reasons, AGL required the ACCC to make its decision by 4 March 2014.
"In the time available since the transaction became public, the ACCC has engaged with a large number of market participants and industry experts and received significant cooperation from the NSW Government and AGL.
"A significant proportion of the market participants consulted, especially second tier retailers, expressed concerns about the effect of the proposed acquisition.
"The ACCC concluded that the draft undertaking offered by AGL on 17 February 2014 was not capable of addressing the ACCC’s competition concerns in relation to the likely effect of the proposed acquisition on competition in the market for the retail supply of electricity in NSW.
"Most of the market feedback received by the ACCC in relation to the undertaking raised concerns about its ability to address the likely competitive harm, as well as circumvention risks," the ACCC said.
