Aurora Energy - acquisition of the Tamar Valley Power Station Project

Summary

Aurora Energy acquired the Tamar Valley Power Station Project from Babcock and Brown Power.

Market definition

The ACCC considered the acquisition in the context of:
1. the wholesale supply of electricity in Tasmania (including flows into Tasmania from Basslink); and
2. the retail supply of electricity in Tasmania.

For the purposes of this analysis, the ACCC did not consider it necessary to form a definitive view with respect to product market definition regarding hedge contracts - hedge contracts (or financial contracts) are those contracts entered into by parties to manage risk regarding spot price outcomes in the wholesale electricity market.

The ACCC also recognises that a broader geographic market definition may be appropriate, but is of the view that this would not alter the competition analysis.

Competition analysis

The ACCC initially considered that there were potential competition concerns that could arise from the common ownership of Aurora Energy and Hydro Tasmania - that is, all the electricity generators in Tasmania would be owned by the Tasmanian Government. In order to ensure it had an opportunity to explore whether these concerns were practically likely to ensue, the ACCC accepted an undertaking from the Tasmanian Government to hold separate the entities while the ACCC conducted comprehensive market inquiries.

On 29 October 2008, the ACCC decided that the acquisition was unlikely to result in a substantial lessening of competition in any of the relevant markets. The decision was made after a comprehensive review, including inquiries with market participants. Factors informing this conclusion were:

- the nature and extent of the hedge contract in place between the owner of the Tamar Valley Power Station and Aurora Energy; and

- the likely counterfactual.

In this matter, a key determinant of the counterfactual (the likely state of competition in the absence of the acquisition) was whether there was a real chance of a privately owned party purchasing the half-built power station in the absence of the Aurora acquisition. The ACCC did not find any compelling evidence to suggest that this would be a likely outcome. Therefore the ACCC considered the acquisition according to the likely counterfactual that without the acquisition the construction and commissioning of the power station would be delayed or, at worst, terminated.