Australia: AGL fails to acquire MacGen: Where to now for the sale of electricity generation assets in NSW and Queensland?

On 4 March 2014, the ACCC published its decision to oppose AGL Energy Limited's (AGL) proposed acquisition of Macquarie Generation, including two power stations which account for 27% of NSW generation capacity, as it considered it would be likely to result in a substantial lessening of competition in the market for the retail supply of electricity in NSW.

This decision is likely to have implications for the disposal of electricity assets in NSW and other National Energy Market (NEM) states going forward, particularly in circumstances where one of the "big three", AGL, Origin or Energy Australia is a proposed purchaser.


Macquarie Generation is a State-owned corporation and one of Australia's largest energy generators. Macquarie Generation is being offered for sale as part of the broader privatisation of NSW energy assets being undertaken by the NSW government. On 2 December 2013, the ACCC commenced market inquiries in relation to the proposed acquisition and it released a Statement of Issues on 6 February 2014 (SOI).1

In the SOI, the ACCC expressed concern that the proposed acquisition may result in a significant reduction of liquidity in the supply of hedge contracts due to the reduced volume of hedge contract trading, as AGL would be likely instead to support its retail load with a "natural hedge" in the form of its wholly owned generation capacity. The ACCC considered that this may potentially increase the risk of spot price exposure for independent retailers and, in turn, discourage participation in those markets and/or increase risk premiums in forward hedge contracts.

The ACCC was also concerned that the proposed acquisition may result in the increased ability and incentive of AGL (and potentially other vertically integrated generators) to withhold competitively priced and customised hedge contracts from independent retailers.

AGL then offered a section 87B undertaking in relation to the acquisition on 19 February 2014 which was intended to address some of the competition concerns the ACCC had raised in the SOI.

The proposed undertaking stated that AGL would:

  • provide liquidity to the NSW hedge contract markets, by offering to sell a certain quantity of electricity futures and options either directly to retailers, via an electricity broking service, or by placing orders on an electricity futures exchange; and
  • appoint an ACCC-approved independent auditor to conduct compliance auditing and provide reports directly to the ACCC in relation to AGL's compliance with the undertaking.

However, the ACCC has stated that this was insufficient to address its concerns because:

  • the largest source of generation capacity in NSW would be owned by AGL, one of the three largest electricity retailers in NSW. This was likely to raise barriers to entry and expansion for other electricity retailers in NSW and therefore reduce competition; and
  • the acquisition would likely result in a significant reduction in hedge market liquidity and the supply of competitively priced and appropriately customised hedge contracts to second tier retailers in NSW. The ACCC was concerned that the remaining independent generators in NSW would not be able to provide sufficient hedge cover to adequately service the requirements of second-tier retailers that sought to enter into the NSW market or grow their existing retail position.

Finally, the ACCC was concerned about the likely impact of the proposed acquisition on one or more of the wholesale electricity markets in NSW, Victoria and South Australia, as AGL would become the largest generator in each of these states.

The ACCC concluded that the draft undertaking was not capable of addressing the ACCC's competition concerns in relation to the NSW retail electricity market, noting that most of the market feedback received in relation to the undertaking raised concerns about its ability to address the likely competitive harm, as well as circumvention risks.


The ACCC has indicated it will publish a public competition assessment setting out its detailed reasons in due course. However, AGL's Managing Director and Chief Executive Officer, Bill Fraser, has been outspoken in his rejection of the factual and legal basis for the ACCC's decision and there has been a certain amount of speculation that AGL may seek to mount a "challenge".

There is no straight-forward route to challenging the ACCC's decision not to grant an informal merger clearance. This is largely because the informal merger clearance process has no legislative underpinning and is a purely administrative process developed by the ACCC to provide an avenue for merger parties to obtain the ACCC's view prior to completion of a merger. It would be open to AGL to apply for a formal clearance under s 95AD of the Competition and Consumer Act 2010 (CCA) and, if the ACCC declined to provide a formal clearance, seek review by the Australian Competition Tribunal. However, this process may take in excess of six months and it seems unlikely that the NSW government would continue to entertain AGL's proposal for that length of time. It is more likely that AGL would take the course it previously adopted when the ACCC refused to provide an informal clearance in relation to AGL's acquisition of the Loy Yang generation assets in Victoria. There, AGL applied to the Federal Court for, and was granted, a declaration that the acquisition would not constitute a breach of s 50 of the CCA (contrary to the view previously expressed by the ACCC). Whether the outcome would be the same this time around is open to debate.


The ACCC's decision has left the NSW government's privatisation project at something of an impasse and raises questions for Queensland in relation to its preliminary steps towards privatising its state-owned generators.

The NSW Treasurer has ruled out negotiating with the underbidders in the Macquarie Generation tender, ERM Power and Marubeni Corporation, because their bids were below the retention value of the assets. It is not clear how the retention value was arrived at, nor is the figure ever likely to be made public. What is clear is that the ACCC's concerns regarding further vertical integration by the "big three" may ultimately have a significant impact upon the value of generation assets in NSW and elsewhere in the NEM. It is perhaps not surprising that the value of the Macquarie Generation assets is greater to a retailer seeking a natural hedge against spot price volatility (the very issue that concerned the ACCC) than to other potential investors. Going forward, unless AGL is successful in any challenge to the ACCC's decision, it seems likely that the NSW government will either need to re-evaluate its retention value for the Macquarie Generation assets or hold onto them. Alternatively, the NSW government and the "big three" may need to revisit the possibility of selling the Macquarie Generation assets separately (the initial request for expressions of interest allowed investors to bid for one or both of Bayswater and Liddel).2

The Macquarie Generation assets are probably the most significant and strategic generation assets in NSW and it may be that that the ACCC's concerns about liquidity in the hedge market would not be as acute in the context of a smaller acquisition by AGL or another of the "big three", for example the assets owned by Delta Electricity (12% of NSW generation capacity). The ACCC, in announcing its decision, seemed to hold an underlying concern that the "big three" may in some way coordinate to "soak up" the liquidity in the hedge market if AGL were permitted to acquire Macquarie Generation.3 This would surely present less of a concern in the context of the sale of the Delta Electricity assets if, after the transaction, Macquarie Generation remained an independent generator (either because the NSW government has been unable to sell it or it has sold to a non-vertically integrated party). However, until the ACCC's detailed reasons are published, it will remain unclear whether any of the parties who have submitted expressions of interest in relation to the Delta Electricity assets (Origin Energy, EnergyAustralia, Snowy Hydro and AGL) would have any prospect of obtaining merger clearance.

Although the Queensland government has indicated that it will not commence privatisation of its generation assets without first taking the policy to an election, it has taken the preliminary step of commissioning a scoping study for the sale of CS Energy and Stanwell Corporation. The generation market in Queensland is highly concentrated with CS Energy and Stanwell Corporation controlling around 65% of generation capacity.4 On the retail side Origin (38% of the market), AGL (19% of the market), EnergyAustralia (5% of the market) and Ergon (33% of the market) are the major players. While on the bare numbers, the big three hold a substantially smaller proportion of the retail market in Queensland than in NSW, the retail market in metropolitan areas may actually be more concentrated than it first appears because, since deregulation of the retail sector in 2007, Ergon has supplied its services in regional Queensland at regulated prices and is precluded from competing for new customers.5

There has been some suggestion that the sale of Queensland's electricity assets may present fewer difficulties from a competition perspective because of the smaller size of the individual baseload stations and the ease with which the stations could be separately sold.6 However, this may not necessarily address the ACCC's concerns if the "big three" win the majority of the tenders.


The ACCC's decision makes it clear that, in its view, control by the "big three" of 70-80% of the generation capacity in NSW in conjunction with 85% of the retail market would constitute a substantial lessening of competition when compared with the status quo.7 What is less clear is whether some smaller increase in the generation capacity of the "big three" would, in the ACCC's view, leave sufficient liquidity in the in the hedge market to protect the competition offered by second-tier retailers. Precisely where the ACCC draws the line on this question will have far-reaching implications for the privatisation projects in NSW and Queensland. For this reason, it is hoped that the ACCC will give some guidance on this point in its public competition assessment when it is released.


1The SOI can be found here.

2Australian Energy Regulator, State of the Energy Market 2013, p29.

3ACCC, Media Release, ACCC opposes AGL's proposed acquisition of Macquarie Generation, para 3.

4Australian Energy Regulator, State of the Energy Market 2013, p29.

5Australian Energy Regulator, State of the Energy Market 2013, p29

6Australian Financial Review, "MacGen veto puts Queensland power sell-off under a cloud", 5 March 2014.

7ACCC, Media Release, ACCC opposes AGL's proposed acquisition of Macquarie Generation, paras 3 and 6.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.