ACCC blocks AGL's MacGen buy

Updated: Watchdog will not approve AGL's MacGen acquisition, AGL shares slide.

The competition regulator has blocked AGL Energy's proposed $1.5 billion acquisition of Macquarie Generation's assets.

The Australian Competition and Consumer Commission said it considered the proposed acquisition would likely to result in a substantial lessening of competition in the market for the retail supply of electricity in New South Wales.

AGL said it was reviewing the reasons for the ACCC’s decision and will make a further statement about what actions, if any, it may take in response to the ruling.

Investors reacted poorly to the news. At 1035 AEDT, AGL shares were 2.24% weaker at $15.085, against a benchmark index lift of 0.15%. In earlier trade, AGL shares touched as low as $15.04.

In February, AGL announced it had entered into an agreement with the New South Wales government to acquire Macquarie Generation's assets, subject to ACCC approval.

Barring a successful appeal by suitor AGL, the New South Wales government is likely to shelve the sale of MacGen "in its current form".

Treasurer Mike Baird released a statement following the ACCC's ruling that said: "I would like to reiterate that the government will not consider a sale unless it exceeds the state’s retention value”.

Mr Baird said the sale would reap $1.725bn in gross proceeds, including AGL’s bid of $1.505bn and $220 million in cash held by MacGen.

In its statement, the ACCC said it considered that 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 proposed acquisition would result in the largest source of generation capacity in New South Wales being owned by one of the three largest retailers in New South Wales," ACCC chairman Rod Sims said.

"Indeed, with this acquisition, the three largest retailers in New South Wales would own a combined share of 70% to 80% 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."

The consumer watchdog said it had 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 New South Wales.

“In particular, it does not appear likely that the remaining non-aligned generators in New South Wales, 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 New South Wales retail market or grow their existing retail position," Mr Sims said.

"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% of the mass market, and would have a combined share of 70 to 80% of electricity generation capacity or output in New South Wales if the acquisition proceeded."

Mr Sims added that, had the acquisition proceeded, AGL would have become the largest generator in each of New South Wales, Victoria and South Australia.

He said the watchdog remained concerned about the "likely competitive impact" of the proposed acquisition in one or more of the wholesale electricity markets in these regions.

The ACCC said it had engaged with a large number of market participants and industry experts during its deliberation, and noted that a significant proportion of the market participants consulted, especially second-tier retailers, expressed concerns about the effect of the proposed acquisition.