Energy Reform Strategy
The Rees Government announced its Energy Reform Strategy on 1 November 2008, namely to:
- sell the retail arms of the three State-owned energy corporations (EnergyAustralia, Integral Energy and Country Energy);
- sell the seven power station development sites around NSW;
- contract the electricity trading rights of the nine State-owned power stations to the private sector (the ‘Gentrader model’);
- maintain public ownership of existing power stations; and
- maintain public ownership of electricity transmission and distribution networks (the poles and wires).
Government Objectives
- Ensure NSW homes and businesses continue to be supplied with reliable electricity;
- Deliver a competitive retail and wholesale electricity market in NSW to increase the potential for the sector to respond dynamically and innovatively to market forces and opportunities;
- Create an industry and commercial framework to encourage private investment into the NSW electricity sector reducing the need for future public sector investment in retail and generation; and
- Place NSW in a stronger financial position by optimising the sale value of public assets, reducing the Government’s exposure to electricity market risk, and reducing the State’s public sector debt.
Key Aim – a new market entrant
There are three key sectors in the electricity industry: the competitive generation sector, the competitive retail sector, and the regulated network sector (distribution and transmission).
The reform strategy has been designed to deliver a competitive retail and wholesale generation electricity market, by ensuring at least one new market player is able to establish itself in the generation sector. A new entrant will increase competition between market players in areas that are central to electricity customers’ interests – products, services and pricing.
The Government will achieve this new entrant through the Transaction Approach outlined below.
Gentrader Contracts
To increase the likelihood of a new entrant in the generation sector, the output of the two largest generating companies 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. Contract terms will be for the technical life of the power station.
Retailers
The retailers will be transacted in their current configurations, that is, EnergyAustralia, Country Energy and Integral Energy. Bidders for EnergyAustralia will be given the flexibility to bid separately for EnergyAustalia’s gas customers, its electricity customers, or both.
Development Sites
The 7 development sites will be made available separately from the retailers and Gentraders, but as part of the same simultaneous trade sale process discussed below.
Customer Protection
In December 2007 the Government committed to extend electricity retail price regulation until at least 2013 or beyond until the Government is satisfied there is sufficient competition in the NSW retail energy market. The Government maintains this commitment.
From 1 July 2009, the Government brought forward the implementation of a $272.5 million Consumer Protection Package which was developed as part of the energy reform process.
Employee Protection
The overwhelming majority of the 14,500 workers in the NSW electricity industry will be unaffected by the Government’s proposals as power stations, transmission and distribution assets will remain in public ownership.
The NSW Government has made commitments to both retail and generation employees. These include the right to remain employed with a state owned generation or distribution company; generous transfer payments of up to 30 weeks pay, depending on length of service, for employees accepting employment offers with new private sector owners of the Gentrader contracts and electricity retailing businesses; protection of leave and long service entitlements for transferring employees; and preservation of Country Energy’s extensive customer service centre network in rural and regional NSW. The Government is committed to ongoing dialogue with unions regarding the implementation of these protections.
Transaction Approach
The retail businesses, development sites, and gentrader contracts will be transacted at the same time to enable bidders to choose the combination of assets they find optimal and maximise competitive tension.
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 potential IPO assets).
The private sector will have the first opportunity to acquire these assets through the trade sale process. However, to guarantee a new entrant, the Government will keep open the option to create a new, independent share market listed entity incorporating the nominated potential IPO assets.
Expressions of Interest will open for six weeks from late September. The Government and its financial advisers will then assess the expressions of interest and select preferred bidders who will be invited to participate in the trade sale. The Government expects the transactions to close in the first half of 2010.
Date Modified:01-Oct-2009
