May 19th 2018

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Articles from this issue:

COVER STORY The real cost of institutionalised child care

EDITORIAL AGL dismisses $250m bid for Liddell Power Station

GENDER POLITICS As Queensland transgenders birth certificates, 300 women quit UK Labour Party

CANBERRA OBSERVED No pressure on Malcolm to call election this year

NATIONAL AFFAIRS Can Greens regenerate, or are they mulch?

POLITICS Conservative shift in the Victorian Liberal Party

OPINION No fairytale ending from the Land of a Fair Go

LAW REFORM The Nordic Model: proven to curtail sex trafficking

NATIONAL AFFAIRS Committal hearing dismisses main serious charges against Cardinal Pell

GENDER AND ETHICS Transgenderism and the dissolution of identity

PHILOSOPHY The supercharged cheetah

INTERNATIONAL AFFAIRS One Belt, One Road: China's new empire


MUSIC Business as usual: The sweet tinkle of falling coins

CINEMA Avengers: Last Flag Flying and Infinity War

BOOK REVIEW A hungry beast that ate up 4 million lives

BOOK REVIEW Skewed analysis of republic in crisis



CANBERRA OBSERVED Bill Shorten's Budget-Reply speech: for what ails you

FOREIGN AFFAIRS Behind the U.S.-North Korea rapprochement

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dismisses $250m bid for Liddell Power Station

by Peter Westmore

News Weekly, May 19, 2018

Despite having acquired the Liddell Power Station from the New South Wales government at no cost in 2014 and operating it profitably for the past four years, the vertically integrated energy company, AGL, is refusing an offer of $250 million from Alinta Energy to buy the plant. AGL plans to shut the plant in 2022.

ACCC chairman Rod Sims.

In light of the looming shortage of base-load power in Australia, it remains to be seen whether the NSW or federal governments will allow this to happen.

An examination of official AGL documents shows how important coal is to AGL’s very profitable operations.

Four years ago, AGL published a presentation to investors entitled “Macquarie Generation Acquisition”, which detailed the terms under which AGL purchased Macquarie Generation from the NSW Government.

It said that Macquarie Generation produces about 30 per cent of NSW’s power needs, 12 per cent of the east coast’s total electrical power. The Liddell Power Station alone produces enough power for one million homes.

The investor presentation listed the assets that AGL purchased from the NSW government as:

• Bayswater (2,640 megawatts) and Liddell (2,000 MW) coal-fired power stations.

• Hunter Valley Gas Turbines (50 MW), Bayswater B and Tomago development sites, Liddell solar farm.

• Extensive coal-handling infrastructure comprising rail unloaders and conveyor systems.

• 104 Million tonnes (Mt) of low-cost contracted coal and 4.2 Mt coal stockpile.

The presentation said that the purchase price of $1.5 billion was based on Bayswater Power Station’s value of $780 million, the coal value of $768 million, and “Liddell valued at $0, representing a ‘free’ option”.

It added that AGL’s purchase of Macquarie Generation was “expected to generate substantial future cash flows for AGL”.

Just how much it was worth was revealed in the Financial Review on May 1 this year. Macquarie analyst Ian Myles estimated that Liddell was contributing $250 million after tax to AGL’s bottom line. However, AGL wrote the value of Liddell on its books as zero.

By closing the Liddell Power Station, AGL will simultaneously cut the available base-load power in New South Wales, push up prices further, and expand the share of electricity that must be provided by renewables, which receive substantial public subsidies.

It was very clear from its first response that AGL had no intention of accepting Alinta Energy’s offer. AGL’s statement was headed: “Receipt of unsolicited highly conditional proposal from Alinta Energy.”

The statement said: “AGL Energy Limited confirms that this morning it received a non-binding, highly conditional indicative offer from Chow Tai Fook Enterprises (CTFE) and Alinta Energy Pty Ltd (Alinta) to acquire the Liddell Power Station, associated assets and the related site for cash consideration payable to AGL of $250 million.

“AGL is assessing the proposal. No assurance can be given that any transaction will result from the offer. AGL will provide further updates to the market as appropriate.

“AGL has not sought to sell the Liddell Power Station, as it requires Liddell to provide energy to its customers until 2022 and for repurposing as part of its NSW Generation Plan post 2022.”

AGL seems not to want a competitor to continue to produce electricity from the plant it intends to shut down.

The future of the Liddell Power Station provides a test for the NSW and federal governments, which could initiate action before the Australian Competition and Consumer Commission (ACCC). The ACCC is responsible for ensuring effective market competition and protecting consumers.

Both the ACCC and the Australian Energy Market Operator have expressed concerns about the closure of Liddell.

ACCC chairman Rod Sims said last month that consumers would get lower energy prices if AGL sold Liddell Power Station to Alinta.

He told The Sydney Morning Herald: “It would benefit consumers if Alinta got hold of Liddell.” (April 5, 2018)

However, he went on to say that, under Australian competition law, the ACCC cannot force AGL to sell Liddell. He also argued that AGL’s decision to keep the asset or close it down does not amount to a misuse of market power under competition law.

Mr Sims said: “It’s not a breach of our act were AGL not to sell Alinta because you cannot show they are excluding Alinta from entering the market.

“Alinta could enter the market in other ways. Obviously, entering the market by buying Liddell would be a low-price entry point, but there are other ways they could enter the market.”

Setting aside the question of abuse of market power, he said that from a competition point of view, the more competition the better; and if Alinta owned Liddell it would be beneficial to competition in the market and therefore beneficial to consumers.

It remains open to the NSW and federal governments to argue that AGL is misusing its market power by closing Liddell, with a view to forcing AGL either to sell the plant or to put in place a credible alternative source of base-load power to replace it. Liddell at present has a base-load capacity of 1,600 MW.

Peter Westmore is publisher of News Weekly.

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