Any attempt by the Turnbull government to weaponise the competition regulator to force or even threaten energy giant AGL into splitting its power generation and retail power businesses would be a serious case of overreach.
It’s far too convenient for the government to seize on comments from the Australian Competition and Consumer Commission that the vertically integrated nature of power companies like AGL is responsible for the energy supply and pricing crisis.
Coalition talks coal power with AGL boss
A showdown between the boss of Australia’s biggest energy company and Prime Minister Malcolm Turnbull is underway in Canberra.
To the extent that this is a factor in the mix, most experts don’t think it’s the primary one. It’s more the successive inaction by state and federal governments over the past ten years to formulate and stick with a comprehensive energy policy that deals with emissions and provides energy companies with investment certainty.
Instead, the Turnbull government is looking for scapegoats, monstering energy companies to breach their fiduciary duties that they have looking after the interests of shareholders.
What’s best for AGL shareholders is to keep its coal-fired Liddell power plant open until 2022 – the point at which it is past its use-by date. To keep it going any longer would be to waste shareholder funds on an investment with poor returns.
Incidentally, while all this heat is being placed on AGL and Liddell, few are focusing on the fact that other energy companies will also be closing down coal-fired plants over the next 10 to 20 years.
This only increases the imperative for the government to sort out an energy policy rather than attempt adhoc band-aid solutions like keeping Liddell open beyond 2022 or pressuring AGL to sell it to a competitor who would undoubtedly be looking to the government for some kind of subsidy.
The ACCC has a legitimate role to play in helping to sort out what has contributed to the energy market problems, and we will probably hear more about this when its chairman Rod Sims addresses a lunch next week.
AGL Energy’s Liddell power plant, with Lake Liddell in the foreground, and Bayswater power plant behind. Photo: Simone De Peak
He has already been very vocal about his position on the issue. In 2014, the ACCC attempted to block AGL from buying Macquarie Generation (which owned power stations including Liddell), but the regulator’s decision was overturned on appeal to the Competition Tribunal.
While Sims is clearly no fan of integrated power companies and the government suggests they are part of the problem, it would be a very radical move for the government to unscramble the corporate eggs.
AGL’s Andy Vesey said on Monday after meeting Prime Minister Malcolm Turnbull that he would put the idea of extending Liddell to his board even though it was “economically irrational”. Photo: Andrew Meares
AGL has been largely tight-lipped since Turnbull waded into the issue a few weeks back but has made it abundantly clear that it wants to stick to its own plan – albeit agreeing to take the government’s wishes to a board meeting and furnish the government with a plan on how it would replace the capacity that is removed once Liddell is closed.
But this week’s potential threat of being forced to split the company prompted a response from AGL’s Chief Financial Officer Brett Redman: He argued that forcing a split between the power generation and retailing activities of companies such as AGL would only hinder the much-needed investment in new supply that would bring down electricity prices.
“The market badly needs new generation,” Mr Redman reportedly said, noting that “breaking up vertical integration will dramatically reduce the chances of this coming from private investment.”
Meanwhile, we have already had the Finkel Review, which provided the government with an energy policy roadmap and which most experts agreed was a sensible way forward. The government has accepted all of its recommendations bar the most important one – adopting a clean energy target.
Only this week the Australian Energy Market Commission weighed into the debate saying the lack of a credible, long-term mechanism to achieve Australia’s emissions reduction commitments has created uncertainty and deterred investment in the sector.
In a discussion paper launched a few days ago, AEMC said energy policy uncertainty in recent years had led to investment delays and consequent electricity price rises and risks to the security and reliability of the system.
“This uncertainty, around incentives for renewable energy or penalties for emissions, has counter-acted the signals for new investment coming from recent high wholesale prices,” the paper said.
BIllionaires’ bid, take two
Lachlan Murdoch and Bruce Gordon have launched their own missile aimed at blowing up the deal Network Ten’s administrators had all but sewn up with US giant CBS to buy the number three Australian television network.
Whether the billionaire odd couple can achieve its goal of usurping CBS depends on a range of factors, including what happens at a creditors’ meeting next Tuesday at which they will vote on the CBS deal. CBS has had the numbers on its proposed deal and the support of most creditors – other than interests associated with Murdoch, including 21st Century Fox.
But on the day before the creditors meeting a Supreme Court judgment should be handed down on whether Ten’s administrators KordaMentha gave creditors adequate information about the competing bid for Ten from Murdoch and Gordon’s interests.
The fresh bid from Gordon/Murdoch looks slightly superior for creditors and does allow shareholders some value – albeit highly diluted.
It will certainly be less complicated than the billionaires’ first proposal, given the cross-media ownership changes are now all but through Parliament, removing the ownership restrictions previously imposed on Gordon and Murdoch.
Even if Monday’s judgement goes against the billionaires, it is hard to believe they won’t regroup and come at it again from a different angle.
At the very least they need to attempt to rescue their reputations, following their ill-conceived strategy to take control of Ten.