AGL Energy Limited - proposed acquisition of Powerdirect Australia Pty Ltd, Powerdirect Utility Services Pty Ltd

Summary

AGL Energy Ltd requested an informal review of its proposed acquisition of Powerdirect Australia Pty Ltd and Powerdirect Utility Services Pty Ltd (together Powerdirect), which are being sold as part of a tender process being run by the Queensland Government.

Market definition

In terms of analysing energy retailing, the ACCC took an approach of looking at aggregation on a state by state basis. The ACCC did not reach a concluded view on whether there were state-based markets in retailing or a wider market, since geographic market definition was not critical to the outcome of the competition analysis, but the ACCC noted that a state by state analysis was important in order to fully consider the competition issues given that:
- several retailers, particularly those that are government-owned, have limited operations outside of their home state;
- concentration measures vary widely in different areas.

The ACCC noted that the Queensland Government intended to introduce full retail contestability on 1 July 2007.

The ACCC considered that the relevant product was the retailing of electricity. The ACCC considered the possibility that gas and electricity retailing might be in the same market, at least in some areas, and the possibility that retailing to small customers can be quite distinct from retailing to large commercial and industrial customers.

Competition analysis

The ACCC noted that in Queensland AGL Energy's electricity retail interests were very limited. The ACCC noted that AGL Energy owned a license to build a 370 MW generation plant in Queensland and also had approximately 70,000 gas retail customers via its acquisition of Sun Gas, but did not consider that in this case these factors altered the competition assessment in Queensland. The ACCC concluded that a substantial lessening of competition was unlikely in Queensland.

In terms of the other states, the ACCC noted that Powerdirect had a not insignificant retail presence, particularly in South Australia and Victoria. The proposed acquisition would have resulted in aggregation of Powerdirect's retail operations with AGL Energy's very significant retail operations in these states, particularly in South Australian electricity retailing. However, given the relatively small increase in AGL Energy's share of electricity retail customers in each state and given the existence of other retailers, the ACCC concluded that a substantial lessening of competition was unlikely outside of Queensland.

The ACCC also assessed the broader implications of the proposed acqusition. While AGL's position as a leading retailer across the eastern seaboard would have been further cemented by the proposed acquisition, the existence of other large retailers (in particular Origin Energy) was recognised as a constraint.