ACCC to run eye over generator sale

THE NSW government's planned sale of its electricity generators is expected to run the gauntlet of scrutiny from the competition watchdog, while bids for two of the generators may prove problematic since their output has been sold under long-term contracts.

By InvestSMART · 25 Nov 2011

By InvestSMART ·
25 Nov 2011

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Even so, industry funds along with electricity industry participants such as TRUenergy are expected to participate, while others such as AGL and Origin Energy are likely to remain on the sidelines.

The NSW government yesterday said it would sell all government-owned electricity generators, after it forced the previous Labor government to abandon its plan for full privatisation, leaving it to pursue a "second-best" option of selling the output of the generators, under the so-called "gentrader model".

Plans to sell the three government-owned distributors have been abandoned, but the merger of three into two companies will be pursued, with a detailed implementation proposal to be given to the government next week. This is expected to result in the loss of hundreds of jobs as two sets of head office staff are merged into one.

The government called on the Australian Consumer and Competition Commission not to block the proposed sale, although the ACCC yesterday refused to give that guarantee.

"The competition watchdog will not allow the sale of the generators to proceed if it believes there will be less competition," the NSW Premier, Barry O'Farrell, said yesterday.

"But, based on the Tamberlin report, I am confident the ACCC will find the sale is in the best interests of taxpayers."

An ACCC spokesman said it would review any proposed sale.

Earlier this year, the NSW government sold output from Eraring Power to Origin Energy and output from Delta Electricity's two Lithgow power stations to Hong Kong-owned TRUenergy. Plans to sell output from Macquarie Generation along with Delta's central coast power stations were abandoned with no bids received.

"It doesn't go as far as we would have liked, but it is a step forward," Brendan Lyon, of Infrastructure Partnerships Australia, said of the state government's plans.

A spokesman for TRUenergy said: "We'd need to see more detail, but it is obviously something we would consider."

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Frequently Asked Questions about this Article…

What is the NSW government planning with its electricity generators sale?

The NSW government has announced it will sell the output from all government-owned electricity generators. Rather than full privatisation, it plans to sell generator output under a 'gentrader model' — a move described as a 'second-best' option in place of selling generator ownership outright.

Will the ACCC allow the NSW generator sale to go ahead?

The Australian Competition and Consumer Commission (ACCC) has said it will review any proposed sale. The ACCC has not guaranteed it will approve the transaction and has signalled it would block any sale that would reduce competition, despite the NSW Premier urging it not to do so.

How could long‑term contracts make some generator bids problematic?

Some generators already have output sold under long‑term contracts, which can limit the commercial appeal or flexibility for buyers. The article notes bids for at least two generators may be problematic for this reason, and earlier sales attempts for some plants attracted no bids.

Which companies are expected to participate in the generator sale and which may sit it out?

Industry funds and electricity participants such as TRUenergy are expected to consider participating in the sale. By contrast, the article says major retailers AGL and Origin Energy are likely to remain on the sidelines for the planned sales.

What previous generator output sales have already taken place in NSW?

Earlier this year the NSW government sold output from Eraring Power to Origin Energy, and output from Delta Electricity’s two Lithgow power stations was sold to Hong Kong‑owned TRUenergy. Plans to sell output from Macquarie Generation and Delta's central coast stations previously attracted no bids.

What does the 'gentrader model' mean for investors and taxpayers?

The 'gentrader model' means selling the generators' output rather than full asset ownership. The NSW Premier said, based on the Tamberlin report, he is confident the approach is in taxpayers' best interests. Investors should note the model focuses on contracting output and that the ACCC will still review sales for competition impacts.

Could the distributor plans affect jobs and local operations?

Yes. While plans to sell the three government‑owned distributors have been abandoned, the government will pursue merging three distributors into two. A detailed implementation proposal is due next week and the merger is expected to result in the loss of hundreds of head office jobs as staff are consolidated.

What are the next steps and timeline investors should watch in the NSW generator sale?

Key next steps include the ACCC’s formal review of any proposed sale, bidders waiting for more transaction detail (as TRUenergy has indicated), and a detailed implementation proposal on distributor restructuring due to the government next week. Investors should watch for ACCC findings and detailed sale documentation to assess competitive and financial implications.