The ACCC has announced that it will oppose AGL’s proposed acquisition of the assets of Macquarie Generation from the NSW Government.
The ACCC considers the proposed acquisition would substantially lessen competition in the market for the retail supply of electricity in New South Wales. In particular, by raising barriers to entry and expansion by significantly reducing hedge liquidity and increasing AGL’s ability and incentive to withhold competitively priced and customised hedge contracts.
“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…,” ACCC Chairman Rod Sims said.
“…it does not appear likely that the remaining non-aligned generators in NSW…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.” Mr Sims went on to say.
The ACCC is also concerned that the proposed acquisition may raise competition concerns in the markets for the supply of wholesale electricity in NSW, Victoria and South Australia.
The ACCC’s decision is not entirely unexpected. As we blogged about here, the ACCC raised significant concerns regarding the proposed acquisition back in February.
AGL subsequently offered an undertaking which attempted to address some of the ACCC’s concerns. However, as we blogged about here, at the outset there were concerns the proposed undertaking would not be sufficient. Indeed, following market consultation, the ACCC concluded that the proposed undertaking was not capable of addressing its competition concerns and that there was a risk that AGL could circumvent its obligations under the proposed undertaking.
The ACCC’s decision casts doubt on the privatisation process for the NSW Government’s remaining electricity assets, as the sale of MacGen was subject to an ACCC condition precedent.
Both AGL and the NSW Government have announced they will review the ACCC’s reasons for its decision before deciding on next steps.
There is speculation that AGL will seek to challenge the ACCC’s decision in the Federal Court, by seeking a declaration to the effect that the proposed acquisition of MacGen does not substantially lessen competition contrary to section 50 of the Act.
AGL is no stranger to challenging the ACCC, having previously been successful in seeking a declaration from the Court that its proposed acquisition of a 35 per cent interest in the Loy Yang A power station would not be likely to substantially lessen competition, following the ACCC’s decision to oppose the transaction.
We will keep you updated of any developments.
