AGL Energy Limited - proposed acquisition of Australian Power and Gas Company Limited

Summary

AGL Energy Limited (AGL) proposed to acquire Australian Power and Gas Company Limited (APG).

Market definition

The ACCC assessed the effects of the proposed acquisition in the context of state-based markets (in Victoria, NSW and Queensland) for:

i. the retail supply of electricity to residential and small business customers;

ii. the retail supply of gas to residential and small business customers;

iii. the wholesale acquisition of electricity (including entry into associated risk management arrangements); and

iv. the wholesale acquisition of gas and gas transportation (including entry into associated risk management arrangements).

The ACCC recognised that competitive effects on a wider geographic basis (such as NEM-wide) may be relevant for other acquisitions.

Competition analysis

The ACCC considered that the proposed acquisition was not likely to substantially lessen competition in any relevant market. Factors informing this view included:

i. in Victoria, the merged entity would continue to face a competitive constraint from first tier retailers and a sufficient number of second tier energy retailers;

ii. the removal of APG as an independent retailer was not likely to reduce the overall competitiveness of the relevant retail markets in Victoria, NSW or Queensland; and

iii. the proposed acquisition was not likely to have a material impact in markets for the wholesale acquisition of electricity or gas, since there would be minimal increase to the level of vertical integration.

The ACCC found that second tier retailers drive competition in price and non-price aspects of their offerings disproportionately to their market shares and that the collective presence of a sufficient number of second tier retailers is a key competitive constraint upon first tier retailers in retail energy markets, particularly in Victoria which has experienced a higher degree of new entry in recent years.