NSW Energy Reform Transaction Strategy

The NSW Government today announced its final policy position for its Energy Reform Transaction Strategy.

An overarching goal of the Strategy, according to Infrastructure Minister Joe Tripodi, is to ‘secure a new entrant into the NSW electricity market.’

The private sector will have the first opportunity to acquire the assets, but the Government has reserved the right to float selected assets on the share market through the creation of new, independent listed entity (Initial Public Offering or IPO) to ensure its ‘competition and valuation objectives’ are met.

Expressions of Interest will open in late September and stay open for six weeks.  The Government has said it expects to finalise transactions in the first half of 2010.

Key features of the Transaction Strategy

• The sale of the retail operations of EnergyAustralia, Integral Energy and Country Energy, generation trading (Gentrader) contracts for the output of the State’s generators and the sale of future power station development sites;

• To increase the likelihood of a new entrant in the generation sector, the output of Macquarie Generation and Delta Electricity will be separated into two distinct contract “bundles” each, while the output of Eraring Energy will be offered in its current configuration;

• State-owned power stations, transmission and distribution networks (the poles and wires) will remain in public ownership and the independent pricing regulator will continue to set regulated retail prices until at least 2013;

• The NSW Government will simultaneously prepare documentation for a share market listing of an entity that combines the retailing operations of Integral Energy, the generation trading contract for Eraring Energy and the development site at Bamarang on the NSW South Coast (the IPO sites).

Only the sites listed in the fourth point will be subject to a possible share market float, but will also be offered for sale in the initial process.

For potential investors, ACCC and Foreign Investment Review Board requirements will need to be met.

Gentrader sale

The Government’s three generating companies will be offered to the market in five bundles – each bundle representing the output of one power station or group of power stations.

This will cover:

• Macquarie Generation (Liddell power station);
• Macquarie Generation (Bayswater power station);
• Eraring Energy (Eraring Power station);
• Delta Electricity (Mount Piper and Wallerawang power stations) and
• Delta Electricity (Vales Point and Munmorah power stations).

Contracts will be written for the technical life of the power station.  This is to give investors the assurance the Government will not re-enter the electricity market once the contracts expire.

Once sold, Gentraders will make three types of payment to Goverment:

• A regular capacity payment to cover the power stations’ operating and maintenance costs;
• Fuel payments; and
• Payments for the value of the electricity trading rights.

Owners of the contracts will be liable for costs associated with the Commonwealth’s proposed Carbon Pollution Reduction Scheme, but will be able to invest in existing plants to extend life, improve efficiency and reduce emissions.

As the Munmorah station on the Central Coast is scheduled to close in 2014, the Government will be offering a short term Gentrader contract for its output.  A buyer will be offered an option to acquire Munmorah as a development site at the expiry of the contract.

Development sites

Seven potential power station development sites will be offered to the private sector.

This includes sites for gas fired power stations at Bamarang, Marulan and Tomago, and sites for gas/coal fired power station sites at Mount Piper and Bayswater.

Delta Electricity and Macquarie Generation have lodged Major Project Applications for potential power stations at the Mount Piper and Bayswater B sites. The Major Project Applications provide for either gas or coal fired plants.