PROJECTS

Economic Advice to Bidder on $3.25 billion Generation and Retail Privatization

The problem

Origin Energy, one of Australia’s largest power companies, wanted to bid for the power generation and retail assets that the State of New South Wales was privatizing, but the bid risked being blocked on competition grounds. The competition issues were complicated because the privatization involved simultaneous sale of several different generation and electricity retail assets. The competitive effects would depend on the package of assets a bidder acquired, but this would not be known until after the tender was complete.

How we helped

Castalia advised Origin Energy on the economic aspects of the bid. We demonstrated to the ACCC (the competition regulator) that, even if Origin acquired the maximum number of generation and retail assets, there would be no competitive detriment, since the number of other generators and retailers in Australia’s National Electricity Market meant Origin would not have pricing power.

Impact

Origin Energy was pre-cleared by the ACCC to bid for the assets it wanted. In 2011 Origin Energy acquired the retail arms of Integral Energy and Country Energy from the NSW government (customer base 1.6 million), and rights to the output of the Eraring Energy power stations on Lake Macquarie and in Shoalhaven, for a total price of AUS$3.25 billion.