AGL committed to Loy Yang despite ACCC knockback

The Australian Gas Light Company (AGL) is preparing to fight for its proposed 35% minority interest in the Great Energy Alliance Corporation's (GEAC) acquisition of the Loy Yang A Power Station (Loy Yang), following the Australian Competition and Consumer Commission's (ACCC) strong concerns over its involvement.

So far AGL and its consortium members have engaged in extensive negotiations with the ACCC for over six months aimed at resolving the outstanding issues.

However, ACCC Chairman, Graeme Samuel, said it would maintain its opposition to the deal despite court-enforceable undertakings being offered by AGL and its partners, the Commonwealth Bank and Tokyo Electric Power Company, which are aimed at mitigating the anti-competitive effects of the acquisition.

"The parties and the ACCC had extensive and cooperative discussions on the proposed undertakings to ensure all potential remedies were assessed, however the last version of the undertaking offered did not adequately address some of the substantive competition concerns raised by the ACCC," said Samuel.

"The ACCC remains firmly of the view that the proposed acquisition creates substantial competition concerns which are potentially in breach of section 50 of the Trade Practices Act 1974.

"It would lead to a less competitive and less efficient market structure in Victoria and, potentially, in the National Electricity Market.

"This is likely to result in higher prices, increased barriers to entry and a resulting substantial lessening of competition.

"Therefore, the ACCC will oppose AGL acquiring an interest in Loy Yang Power," said Samuel.

According to the ACCC the proposed acquisition would result in the re-aggregation of AGL's electricity retail and distribution businesses in Victoria with the largest and lowest cost generator in Victoria. AGL is also the dominant electricity retailer in South Australia.

"The ACCC previously said that combining the biggest producer of electricity in Victoria with a major retailer potentially reduces crucial electricity hedges available for other retailers and, in particular, new entrants.

"In addition, the ACCC's extensive investigation suggests the proposed acquisition would create incentives for Loy Yang Power to exercise market power at the wholesale level that it would otherwise not have if AGL were not acquiring the interest in Loy Yang Power.

"This would have the effect of raising the costs of electricity and electricity hedges bought by AGL's retail competitors and ultimately raising the costs of electricity to Victorian businesses and households.