New Announcement on NSW Electricity Sale Process

The NSW Government has re-announced its electricity sale plans with some updates. While the ‘International Market Testing Update’ planned for expressions of interest in July / August, the new plan now sets the date from late September until mid-November 2009.

The new document, ‘Delivering the Strategy: approach to transactions and market structure’ details the updated plan including:

• The Gentrader contract durations will be set to the remaining technical life of the power stations;
• The Gentrader contracts will be offered in five bundles, two from Maquarie Generation’s current operations, two from Delta’s and one from Eraring’s;
• Generators will ‘pass through’ current fuel costs to Gentraders before switching to fuel tolling agreements to be managed by the Gentraders;
• Co-insurance arrangements will be used to offset losses due to outages;
• Incentive will be offered for Gentraders to invest in the plant;
• Periodic payments for the Gentrader contracts will be considered, although preference will be given to up-front payments;
• The retailers (EnergyAustralia, Integral Energy and Country Energy) will be sold as they are, although bidders will be able to bid separately for EnergyAustralia’s gas customers;
• Transitional services agreements will run for three years, with built in termination clauses;
• The retail brands form part of the asset being offered. The distribution networks will develop new brands;
• Development sites will be offered separately, but part of the same sale process. Munmorah will be offered as a Gentrader contract until its decommissioning, after which it will be offered for sale;
• Retail price regulation will continue to at least June 2013;
• ETEF will be extended until June 2011; and
• The Government will offer a ‘Consumer Protection Package’ including energy rebates and other assistance.

The most interesting part of the annoucement was the ‘plan B’ approach of merging Eraring, Integral Energy and the Bamarang development site and floating the entity via an Initial Public Offering. This approach would only be taken if the individual assets did not achieve acceptable bids in the trade sale process or if the sale process failed to facilitate ‘at least one new generation entrant’.