NSW Electricity Privatisation background and issues December 2012 Background There were seven State-owned corporations involved in the production and distribution of electricity in New South Wales (NSW) prior to the Government s first-round sale in late 2008. This year, the new Government announced the sale of all remaining Stateowned electricity generation assets. Below is an illustration of the current electricity market in NSW in the context of the State s privatisation. 1 1 What assets are for sale (and what is not for sale)? 1.1 First-round sale In November 2008, the Keneally Labor Government launched its Energy Reform Strategy involving four main elements: (a) the sale of the retail business; 1 NSW Auditor-General, New South Wales Auditor-General s Report: Financial Audit focusing on Electricity, 2011, Vol 4, p 6.
(b) (c) the sale of development sites; contracting out of Government-owned generation (GenTrader option); and (d) retention of Government ownership of the network and transmission infrastructure. How were the assets valued, what was sold and for how much? 2 Retention values of the assets were calculated first before any bid was considered. These values had to be current (at the time of the transactions) to facilitate proper comparisons with subsequent bids. Retail business The retail businesses were valued by reference to five-year cash flows, which were based on existing five-year plans and terminal values based on the forecast growth rate of those cashflows after five years. Vendor Purchaser Gross proceeds $ million (excluding GST) Country Energy Origin Energy 1,300 EnergyAustralia TRUenergy 1,486 Integral Energy Origin Energy 1,000 Total 3,786 Development sites On 14 February 2011, Infratil Energy Australia acquired Delta Electricity s Bamarang development site for $9 million to support its own retail business, Lumo Energy. 3 GenTrader option Eraring Energy and Delta West bundles The generation businesses were valued by reference to the cashflows to the Government for the forecast life of the business, which were then discounted back to present value at an appropriate rate to reflect the risk of those cash flows. 2 Tamberlin, B.J. Final Report of the Special Commission of Inquiry into the Electricity Transactions, October 2011, 108-109, 217-222. 3 Infratil Energy Australia, ASX announcement - Infratil Energy Australia Bamarang Acquisition, 14 February 2011.
The generation trading option involved the sale of the electricity generation output rather than the underlying generators themselves. The GenTrader Agreements were executed on 1 March 2011 whereby all the electricity generation output of: Eraring and Shoalhaven power stations was sold to Origin Limited (the GenTrader) with effect from 27 February 2011; and Mt Piper and Wallerawang power stations (Delta West) was sold to TRUenergy Pty Ltd (the GenTrader) with effect from 1 March 2011. The GenTrader contracts were written to account for the technical life of the power stations they cover (see below). This ensure that the contracts expire at different times reducing the risk of market disruptions caused by multiple contracts expiring simultaneously. Vendor Purchaser Gross proceeds $ million (excluding GST) Eraring Energy Origin Energy 960-1,158 Delta West TRUenergy 540-600 Total 1,500-1,758 The upfront sale proceeds and carrying values of the relevant assets immediately prior to the sale were: 4 Following the above transactions, two GenTrader bundles (Delta Coastal and Macquarie Generation) and two significant development sites (Tomago and Bayswater B) remained unsold. The Government, however, decided not to sell these at that time. How much did the Government get from the first-round sale? 4 NSW Auditor-General, above n 1, 7.
Proceeds from the transactions were $5.3 billion resulting in a profit of $1.2 billion. This comprised a loss on the sale of the electricity generation output (GenTrader), primarily due to write-downs in the values of the power stations to reflect their sale price, and a profit on the sale of the electricity retail businesses as illustrated below. 5 The proceeds from selling the generation output represented only 41.9% of the carrying value of applicable power station assets at the time of sale. What was the Australian Competition & Consumer Commission s (ACCC s) attitude to the transactions? 6 Despite recognising that the acquisitions would lead to the acquirers having high market shares in the retail electricity markets in NSW (and Queensland), the ACCC concluded that the potential acquisitions were unlikely to result in a substantial lessening of competition in any relevant market. Further, it concluded that the vertical integration of generators and retailers arising from the potential acquisitions would not be likely to change incentives for generator bidding or retailer conduct in NSW, nor raise barriers to entry in these markets. Retail business Origin would face competition in electricity retailing from the separate acquirer of Energy Australia, smaller players, as well as AGL, which has a large gas customer base and expanding electricity customer base. the aggregation of Origin's Uranquinty generator with one of the GenTrader bundles would not be likely to provide it with the ability to exercise market power in the wholesale electricity market in NSW due to the presence of several competing generators in the market. Development Sites the acquisition of one or more development sites would unlikely provide Origin or AGL with a material advantage in the development of new generation capacity relative to other generation project developers. Moreover, the aggregation of these with the GenTrader contracts were unlikely to provide the acquirers with increased ability to exercise market power, given the presence of other competitors in the market including other acquirers of generation development sites. 5 NSW Auditor-General, above n 1, 7. 6 Australian Competition & Consumers Commission, ACCC clears potential acquisitions under NSW Energy Privatisation, 9 December 2010 <http://www.accc.gov.au/content/index.phtml/itemid/961089>.
1.2 Second-round sale: current privatisation The remaining State-owned electricity generation assets will now be sold. What assets are being sold now and how old are they? The Owen Report predicted that NSW would need a new baseload generator by 2014 to avoid blackouts. 7 More recently, however, the Australian Energy Market Operator (AEMO) predicted the Low Reserve Condition Point (LRC) in NSW (which indicates when reserves will fall below the required level to avoid possible shortage of supply) to be 2022. 8 This eightyear difference may arguably not be significant if the likely short fall is closer to 2022 considering the time required to plan and implement capital-driven investment. (a) Electricity generators Eraring Energy Eraring (coal) power station was commissioned in 1982 9 (Eraring bundle subject to GenTrader agreement see above) and has a remaining life of around 20 years (2032); 10 and Shoalhaven (hydro) (Bendeela and Kangaroo Valley) were both commissioned in 1977) 11 (Eraring bundle subject to GenTrader agreement see above) and has a useful life of about 26 years (2038). 12 Delta Electricity Delta Electricity s generators are as follows: 13 Munmorah (coal) was commissioned in 1968 and little to no useful life remaining; Wallerawang (coal) was commissioned in 1976 (Delta West bundle subject to GenTrader see above) was has useful life until 2028. Under the GenTrader agreement, TRUenergy may elect to terminate earlier on 2018; 14 Mount Piper (coal) was commissioned 1992 (Delta West bundle subject to GenTrader see above) and has a useful life until 2043. Under the GenTrader agreement, TRUenergy may elect to terminate earlier on 2029; 15 Vales Point (coal) commissioned in 1978 and has useful life until 2029; and Colongra (gas) commissioned in 2009 and has useful life until 2039. 7 Owen, A.D. Inquiry into Electricity Supply in NSW, September 2007, i. 8 Australian Energy Market Operator, 2012 Electricity Statement of Opportunities for the National Electricity Market, 2-2. 9 Owen, above n 5, 2-10. 10 NSW Auditor-General, above n 1, 46. 11 Owen, above n 5, 2-10. 12 NSW Auditor-General, above n 1, 46. 13 Owen, above n 5, 2-10. 14 Delta Electricity, Annual Report 2010-2011 - Performance, 5. 15 Ibid.
Macquarie Generation Liddell (coal) power station was commissioned in 1971 and has an accounting useful life to the end of 2022; 16 and Bayswater (coal) power station was commissioned in 1985 17 and has an accounting useful life to the end of 2035. The power purchasing arrangements of the State-owned electricity generators i.e. how much output they purchase, from whom and at what price are not publicly available information. We understand, however, that Macquarie Generation has a 900MW contract with Tomago Aluminium (scheduled to end in 2021) which hedges the power price to the London Metals Exchange price from aluminium. It is rumoured to contain interruption clauses that allow Macquarie Generation to suspend power in cases of severe generation disruptions. 18 (b) Development sites The remaining development sites being sold are: Bayswater B, Munmorah and Tomago. 19 Macquarie Generation, however, is currently planning the following major projects at its sites: 20 Bayswater B extension project On 12 January 2010, the Minister for Planning gave concept approval for the Bayswater B extension project subject to a number of conditions. The project involves developing a fuel neutral 2,000 megawatt power station. If constructed as a coal plant with access to existing water and coal delivery infrastructure, it is expected to cost approximately $3.6 billion. If constructed as a gas plant with a new gas well and pipeline infrastructure, it is expected to cost approximately $2.3 billion. Tomago Gas-Fired Power Station Macquarie Generation has development approval to construct a gas-fired power station at Tomago, north of Newcastle. The project is designed to provide open cycle gas generation capacity of 500 megawatts or, alternatively, 790 megawatts of combined cycle capacity. The project has an approximate cost of $500 million. 16 Macquarie Generation, Statement of Corporate Intent 2011/2012, <http://www.macgen.com.au/resources/documents/annual-reports/macquarie-generation-sci-2011-12.pdf>. 17 Owen, above n 5, 2-10. 18 Elemental Power Industries, Renewable News 15 November 2010 <http://elementalpower.com.au/news/?tag=tomago>. 19 Tamberlin, above n 2, 113. 20 NSW Auditor-General, above n 1, 59.
(c) Renewable Assets The renewable assets that may be for sale are: Delta Electricity s two hydro units at Mt Piper (total capacity of 58MW) and mini hydro project at Chichester Dam (120kW); Eraring Energy s Crookwell wind farm (4MW) and Blayney wind farm (9MW); Macquarie Generation s integrated solar thermal energy project at Liddell; and Macquarie Generation s biomass schemes at its Liddell and Baywater power stations. How will the electricity generation assets be sold? Electricity Generator Assets (Authorised Transactions) Act 2012 (NSW) (Act) The Act commenced 5 June 2012 and authorises the transfer of the State-owned electricity generator assets between public sector agencies and to the private sector. More practically, it clears the way for the sale of the assets of Macquarie Generation, Eraring Energy and Delta Electricity (but not the sale of the electricity network businesses (i.e. poles and wire)). Further, the energy transmission operators and generators, being Transgrid, Ausgrid, Endeavour Energy and Essential Energy, are not being sold (nor proposed to be sold) and their sale are not facilitated by the Act. 21 The NSW Government also seeks to sell electricity development sites and sell/lease the Cobbora mine. Sale proceeds will go into Restart NSW Fund, with 30 per cent to be invested in regional NSW (a Nationals request). The Act creates the Electricity Assets Ministerial Holding Corporation which will hold and carry on business in relation to the electricity generator assets. 22 The Act also allows for the creation of transaction SOCs and other transaction companies. 23 This arguably allows for flexibility in relation to the sale structure: a direct trade sale, IPO, or business and assets restructuring prior to sale. 24 The Act provides for protection and transfer mechanisms to existing employees of the energy distributors. 25 The rationale is to maintain continuity of service, superannuation arrangements and industrial conditions for those employees. 26 Potential purchasers may therefore need to account for existing employee arrangements in their bids. 27 21 Explanatory Memorandum, Electricity Generator Assets (Authorities Transactions) Bill 2012 (NSW) 35. 22 Electricity Generator Assets (Authorities Transactions) Act 2012 (NSW) s 12. 23 Electricity Generator Assets (Authorities Transactions) Act 2012 (NSW) ss 8-9. 24 Explanatory Memorandum, Electricity Generator Assets (Authorities Transactions) Bill 2012 (NSW) 35. 25 Electricity Generator Assets (Authorities Transactions) Act 2012 (NSW) s 14. 26 Explanatory Memorandum, Electricity Generator Assets (Authorities Transactions) Bill 2012 (NSW) 35. 27 Australian Financial Review, Buyers face extra imposts in NSW power sell-off, The Australian Financial Review, 19 November 2012, 16.
There will be no compensation from the State in relation to the operation of the Act. 28 This will no doubt impact on the bids for the assets underlying existing GenTrader contracts. How much does the Government expect from the sale? A back-of-the-envelope calculation by one interested party would suggest that the government's downgraded $3 billion estimate for sales proceeds might still prove overoptimistic by more than $500 million. 29 1.3 What is not for sale? As indicated above, the state-owned energy transmission operator (Transgrid) is not being sold. The assets of the three distribution/retail SOCs are also not being sold. These SOCs own and operate distribution networks (the poles and wire ) in different geographical areas. 30 It may be that these assets will be put up for sale after the next State election in March 2015. Infrastructure Partnerships Australia (Australia s peak infrastructure body) values the transmission and distribution networks as worth between $29.2 and $34.5 billion. That said, the network businesses are currently around $15 billion in debt (according to Treasury). 31 Other valuations fall within the range of $10 billion to $15 billion. NSW Energy Minister has indicated that the Government will make a decision of the State s remaining electricity assets in late 2014 or early 2015, in any case, before the next election. 32 2 Current status of the proposal The Government issued a tender for financial advisers in relation to the electricity generation assets and the Cobbora Coal Mine on 20 June 2012. 33 The financial adviser is providing specialist financial and commercial advice in relation to the Cobbora coal mine transaction, and also project co-ordination and management. Goldman Sachs is advising the Government on the sale of the electricity generators; and Citigroup is the financial adviser on the sale/lease of the Cobbora coal mine development. 28 Electricity Generator Assets (Authorities Transactions) Act 2012 (NSW) s 26. 29 Thompson, S. and MacDonald, A. Hurdles mount for NSW power sale, Australian Financial Review, 31 July 2012, 18. 30 Tamberlin, above n 2, 13-14. 31 Ibid 254. 32 Robins, B. Voters to decide on NSW power privatisation, Sydney Morning Herald, 26 September 2012. 33 NSW etendering, RFS for Financial Adviser Electricity Generation Assets and Cobbora Coal Mine Transaction <https://tenders.nsw.gov.au/?event=public.advancedsearch.keyword&keyword=%22electricity+generation+asse ts%22>.
The Government has advised that the assets will be sold consecutively over 2013 and 2014 (and expected to complete by mid-2014) 34. The first round of sales will commence with bilateral negotiations with the GenTraders bidding for the actual generators underlying their trading contracts. Other potential bidders such as Ratch Australia 35 may also be engaged to ensure maximum value. The second round of sale will be Macquarie Generation s Bayswater and Liddell plants, followed by Delta Electricity s Vales Point and its gas-fired Colongra plant. The development sites and renewable assets offered in tandem with the plants, but separate bids for those sites are also possible. 36 The status of the Cobbora Coal Mine sale is uncertain. Cobbora may be sold early, but the Government may also decide against its sale. 37 Citigroup has advised that a loss of $1.5 billion may be incurred if a sale goes ahead. The Government will also be exploring other options such as investigating whether alternative sources of coal are available to satisfy its obligations under the existing coal supply arrangements. 38 3 Current status of the electricity market 3.1 Pricing (a) Wholesale Electricity wholesale prices in the National Electricity Market (NEM) decreased during 2011. The average spot price from 2010-2011 in NSW was $36.74/MWh, a decrease of 16.9% from the 2009-2010 average of $44.19. The reduction was attributed to less extreme weather events resulting in fewer periods of high demands. Other less significant contributing factors include: the end of the prolonged drought on generating capacity, fewer planned and unplanned outages and constraints on the flow of electricity into the State from other regions in the NEM. 39 The wholesale average annual price has again (so far) fallen for 2011-2012 to $29.67, around 19.2% from the previous year. Please see below in relation to the NEM: 40 Year NSW QLD SA TAS VIC 2008-2009 38.85 34.00 50.98 58.48 41.82 2009-2010 44.19 33.30 55.31 29.37 36.28 34 Media Release, NSW Treasurer, 15 November 2012. 35 Media Release, NSW Treasurer, 15 November 2012. 36 Media Release, NSW Treasurer, 15 November 2012. 37 Ibid; Thompson, S. And MacDonald, A. NSW power play goes up a gear, The Australian Financial Review, 5 November 2012. 38 Media Release, NSW Treasurer, 15 November 2012. 39 NSW Auditor-General, above n 1, 9-10. 40 AEMO, Average Price Tables <http://www.aemo.com.au/en/electricity/nem-data/average-price-tables>.
2010-2011 36.74 30.97 32.58 29.45 27.09 2011-2012 29.67 29.07 30.28 32.58 27.28 2012-2013 64.11 61.51 75.22 56.31 68.70 The most recent data in respect of the monthly and quarterly spot market volume weighted average price and turnover as follows: 41 (b) Retail 42 The Independent Pricing and Regulatory Tribunal (IPART) currently regulates electricity prices for around half of all residential and small business customers in NSW. IPART recently released its report on regulated electricity retail prices from 1 July 2012 concluding that average regulated retail electricity prices will increase by 18.1% across NSW on 1 July 2012. These increases come on top of increases of 10% and 17% across NSW in 2010/11 and 2011/12 respectively. Over the past two years, the average regulated electricity prices have increased for two main reasons: 1. rising network costs (the costs of using the transmission and distribution networks to transport electricity to customers premises); and 2. rising green scheme costs (the costs of complying with Commonwealth and State Government schemes aimed at mitigating growth in carbon emissions). This year, however, the increases have been driven predominantly by: continuing rise in network costs, which is responsible for nearly half of the average 18% price increase; and introduction of a carbon pricing mechanism, which is responsible for the other half. 41 Australian Energy Regulator, Weekly Electricity Market Analysis 30 September 6 October 2012 <http://www.aer.gov.au/sites/default/files/20120930%20-%2020121006%20- %20Weekly%20report%20%5BV2%5D.pdf>. 42 Independent Pricing & Regulatory Pricing Tribunal, Final Report Changes in regulated electricity retail prices from 1 July 2012, 13 July 2012, 1-5.
Rising network costs IPART believes that the continuing rise in the network costs will add around 8% to average regulated electricity prices across NSW in 2012/13. These costs reflect the prices retailers must pay to use the transmission and distribution networks to transport electricity to their customers. These network prices are regulated by the Australian Energy Regulator (AER). Carbon pricing The Federal Government s carbon tax commenced on 1 July 2012 with a fixed price of $23 per tonne of CO 2 emissions. IPART calculates that this will add 9% to average regulated retail electricity prices across NSW in 2012/13 or the impact of the carbon price on regulated prices will be around $170 for a typical household in NSW in 2012/13 (see more on the carbon tax below). 3.2 NEM Public corporations still control a majority of capacity in NSW and Queensland, but with the privatisation attempt by the Labor Government, there is increasing private sector activity. Origin Energy, AGL Energy and TRUenergy now control almost 30% of generation capacity in mainland regions of the NEM and jointly supply over 80% of small electricity retail customers as shown in the table below. 43 43 Australian Energy Regulator, State of the Energy Market 2011, 13.
Generation ownership in the NEM, July 2011 44 44 Ibid 30-31.
Market share 45 45 Ibid 26.
4 Timing Construction of Cobbora is expected to begin in the middle of next year, with mine activities starting in early 2015. As yet, no electricity generators have been sold. Goldman Sachs is set to report back to Government in September/October 2012 with its scoping document advising on the sale structure. Insiders are not ruling out a two-stage process, with the sale of the plants underlying the GenTrader contracts sold first. 46 5 Potential competition issues (a) ACCC 47 The ACCC may oppose further mergers within the NEM. Considering the increase in market share by TRUenergy and Origin Energy from their respective acquisitions in the first-round, this may mean that they may be ruled out. This may encourage foreign investors. Macquarie Generation may not be sold as a whole, but be broken-up as it has 30% (see above) market share in NSW (and 18% in the NEM). One solution may be to split the sale of Macquarie Generation assets into its two plants (i.e. the Bayswater and Liddell plants). (b) FIRB The Foreign Investment Review Board (FIRB) reviews proposals by foreign persons to invest in Australia and makes recommendations to the Federal Treasurer. FIRB is governed by the Foreign Acquisitions and Takeovers Act 1975 (Cth) and is guided by Australia's foreign investment policy. 48 Foreign persons include persons not ordinarily resident in Australia and corporations or trusts substantially owned by persons not ordinarily resident in Australia. Substantial ownership means 15%, or greater, control by any one person or 40%, or greater, control in aggregate by two or more persons; 49. Foreign persons must notify FIRB of all direct investments, among other things, and proposals by them to establish new businesses in Australia or acquire interests. Monetary thresholds 50 Non-US investors 46 Thompson and Macdonald, above n 19. 47 Macdonald-Smith, A. Regulator warns on power mergers, Australian Financial Review, 25 May 2012 <http://www.afr.fairfax.com.au/p/national/regulator_warns_on_power_mergers_1pf7nho3lm6gec9sj4mlnm>. 48 Commonwealth Treasurer, Foreign Investment Policy <http://www.firb.gov.au/content/_downloads/australia's_foreign_investment_policy_jan_2011.pdf>. 49 Foreign Acquisitions and Takeovers Act 1975 (Cth) s5. 50 Foreign Investment Review Board, Monetary thresholds <http://www.firb.gov.au/content/monetary_thresholds/monetary_thresholds.asp>.
$244 million an interest in an Australian business; or US investors an interest in an offshore company that holds Australian assets or conducts a business in Australia, and the Australian assets or businesses of the target company are valued above the threshold $244 million involving AUSFTA prescribed sensitive sectors: an interest in an Australian business; or an interest in an offshore company that holds Australian assets or conducts a business in Australia, and the Australian assets or businesses of the target company are valued at/above the threshold. $1062 million not involving AUSFTA prescribed sensitive sectors: an interest in an Australian business; or an interest in an offshore company that holds Australian assets or conducts a business in Australia, and the Australian assets or businesses of the target company are valued at/above the threshold. FIRB review of applications from sovereign wealth funds FIRB will apply the following six principles: 51 1. that an investor's operations are independent from the relevant foreign government (arm s length commercial relationship); 2. that an investor is subject to and adheres to the law and observes common standards of business behaviour ( [p]roposals by foreign government owned or controlled investors that operate on a transparent and commercial basis are less likely to raise additional national interest concerns than proposals from those that do not ); 3. whether an investment may hinder competition or lead to undue concentration or control in the industry or sectors concerned; 4. whether an investment may impact on Federal Government revenue or other policies; 5. whether an investment may impact on Australia's national security; and 6. whether an investment may impact on the operations and directions of an Australian business, as well as its contribution to the Australian economy and broader community. 51 Commonwealth Treasurer, above n 36.
There is not much guidance from the Treasurer on the last four principles above and each proposal is considered on a case by case basis. That said, FIRB (in its advice to the Treasurer) when reviewing national interest will consider: the economy; national security; competition; compliance with Australian law (including Tax); the character and nature of the investor. More recently, FIRB Chairman as indicated that SOEs and sovereign wealth funds could be forced to take on commercial partners if FIRB concerned that their acquisitions in Australia are driven by political factors rather than market forces. 52 Would a change in Federal government alter FIRB s approach? The federal opposition has hinted at new requirements (if in government) for foreign investors which may include more information disclosures, a register of land ownership, lower thresholds to vet foreign buyers of farming land, and wider community representation on the FIRB. The recent Coalition discussion paper, however, reveals no new requirements or changes to existing requirements in relation to SOEs or sovereign wealth funds. We note, however, that it wants a zero-trigger for the purchase of land (agricultural) by foreign persons. 53 Overall, however, we do not expect that the obtaining of any FIRB approval will be a material issue for any foreign persons who may wish to invest in the NSW electricity assets. 6 Who are the potential bidders for the electricity generation assets? 6.1 Likely bidders Chinese SOEs free to bid in asset sales according to guidelines to be set out in an infrastructure blueprint due in September; Canadian pension funds; Intergen and International Power GDF Suez; Private equity TPG Capital and Blackstone (again) and others. 6.2 Market rumours 52 Morris, S. FIRB offers sovereign solutions, Australian Financial Review, 17 August 2012 <http://fw.farmonline.com.au/news/nationalrural/agribusiness-and-general/general/firb-offers-sovereignsolutions/2619409.aspx>. 53 Liberal Party Australia, The Coalition s Policy Discussion Paper on Foreign Investment in Australian Agricultural Land and Agribusiness, August 2012 <http://www.liberal.org.au/share/foreign_investment_discussion_paper.pdf>.
AGL Energy is keen to pick-up a plant, but anything other than Delta Electricity s Colongra gas-fired peaking station may be too difficult as it has already purchased Loy Yang A power station in Victoria. AGL Energy has also indicated that decisions by state regulators to cap retail power prices will reduce the amount it is prepared to bid for power plants. TRUenergy was preparing itself for an $8 billion-plus IPO and will use the proceeds of the float to bid in the float. Origin Energy has indicated that it is unlikely to buy any more NSW assets if they were privatised. ERM Power is keen to link-up with a buyer of one of the larger power plants, but may not take an equity stake in the generator. More recently, foreign investment (especially from China) has been a sensitive issue within the Coalition parties and the Federal Parliament. That said, the current NSW Government believes, in relation to Chinese investment, that you could spend $40 billion in Sydney without touching sides. More visibility on the State Government s approach would be revealed in the Infrastructure NSW Report due in September. Intergen and International Power GDF Suez are expected to participate, but have had recent difficulties with debt refinancing. Little interest is expected from overseas power producers without local presence given the market risks of buying a chunk of power capacity without any retail base. 7 Other potential issues Carbon tax Under the federal legislation, about 500 of the biggest carbon emitters will pay the carbon price. These include NSW Government-owned electricity generating corporations. Government corporations are not entitled to any form of compensation under the Federal legislation. Delta Electricity s assessment of the impact of the scheme resulted in a $318 million write-down of its Central Coast power stations. 54 Current modelling by Macquarie Generation on the impact of a carbon price indicates there could be a significant reduction in the value of its power plant assets. 55 Under the GenTrader Agreements in place with Delta Electricity and Eraring Energy, the GenTrader (not the Owner) is responsible for any carbon tax liability arising from the carbon emissions of the Delta West and Eraring power stations. 56 54 NSW Auditor-General, above n 1, 36. 55 Ibid 56. 56 Ibid 13.
If the Federal opposition wins at the next election, the Carbon Tax may be repealed. NSW Treasurer, Mike Baird, has sought advice regarding the impact of that move on the price of the electricity generators. The next federal election is expected between August November 2013. The next New South Wales State election is not due until March 2015. Shaun McGushin Partner +61 2 9210 6915 shaun.mcgushin@corrs.com.au Adam Seeto Lawyer +61 2 9210 6481 adam.seeto@corrs.com.au
CORRS TEAM CONTACT CARD FOR NSW ELECTRICITY Shaun McGushin Partner Tel + 61 2 9210 6915 Mob +61 414 225 340 shaun.mcgushin@corrs.com.au Rommel Harding- Farrenberg Partner Tel + 61 2 9210 6366 Mob +61 400 600 436 rommel.hardingfarrenberg@corrs.com.au Jeremy King Partner Clare Corke Partner Tel + 61 3 9672 3431 Mob +61 400 899 902 jeremy.king@corrs.com.au Tel + 61 3 9672 3255 Mob +61 405 275 045 clare.corke@corrs.com.au Andrew Chew Partner Michael MacGinley Partner Tel + 61 2 9210 6607 Mob +61 407 453 443 andrew.chew@corrs.com.au Tel + 61 7 3228 9391 Mob +61 417 621 910 michael.macginley@corrs.com.au David Warren Partner Tel + 61 3 9672 3504 Mob +61 421 059 421 david.warren@corrs.com.au