Commission clears TransAlta and Alliant to buy Contact Energy: AGL withdraws
Published12 Feb 1999
In two separate decisions, the Commerce Commission today cleared TransAlta Corporation of Canada and Alliant International (New Zealand) Limited to acquire 40 percent of Contact Energy Limited.
The third company that had applied for clearance, The Australian Gas Light Company, withdrew its application yesterday.
Commissioner Dr Kate Brown said that the Commission was satisfied that neither TransAlta nor Alliant would acquire or strengthen a dominant position in any market.
In making its decisions, the Commission took into account the Government's statement of economic policy in relation to market power in the electricity sector, reports provided by the Ministry of Commerce, TransAlta and other industry participants, as well as submissions from, and interviews with, industry participants.
Contact is an SOE that generates, wholesales and retails electricity, and also wholesales and retails natural gas.
TransAlta
TransAlta Corporation of Canada is the ultimate parent of TransAlta New Zealand Limited, which is a New Zealand listed company that retails electricity in Auckland, Wellington, Nelson and Christchurch. TransAlta New Zealand also generates electricity, retails natural gas and owns some natural gas distribution assets.
The Commission concluded that the relevant markets for considering the application were:
the national electricity generation and wholesaling market;
the national electricity retail market;
the North Island gas wholesale market (i.e. sales to consumers of more than 0.01 petajoules a year); and
the North Shore and Wellington retail gas markets (i.e. sales to consumers of less than 0.01 petajoules a year).
"An important issue applying to all the relevant markets is that the proposed acquisition is not a merger of TransAlta and Contact," Dr Brown said. "If the acquisition were to go ahead the companies would remain separate legal entities.
"As separate legal entities they cannot collude over market activities to substantially lessen competition. If TransAlta acquired 40 percent of Contact, it would still be illegal for the two companies to work together on pricing, output and market sharing, or act in any other way prohibited by the Commerce Act."
In both electricity markets and the gas wholesaling market TransAlta and Contact's combined market share would be well inside the Commission's "safe harbours". The safe harbours are published in Business Acquisitions Guidelines and are 40 percent market share or 60 percent if at least one competitor has 15 percent or more of the market.
In the electricity generation and wholesaling market TransAlta's and Contact's combined market share would be 44 percent, with Hydro Energy Limited having 27 percent.
In the electricity retailing market TransAlta's and Contact's combined market share would be 45.2 percent, with Waikato SOE Limited having 15.5 percent. The retail percentages are based on total electricity sales measured in GigaWatt hours.
Both companies have small shares in the gas wholesaling market and their combined total is well under 40 percent. Gas retailing markets are not competitive. Customers must buy from the incumbent, and changes in ownership of the incumbent do not change that situation. Contact is the incumbent in both the North Shore and Wellington.
Alliant International
Alliant is a New Zealand incorporated company ultimately owned by a United States company, Interstate Energy Corporation. It is a minority shareholder in a number of New Zealand energy companies.
The Commission considers that Alliant's current shareholdings in New Zealand energy companies are so small that if Alliant were to acquire Contact, then there would be neither aggregation of market share nor other changes which could impact on market power.
Background
The Commerce Act prohibits business acquisitions that result in dominance being acquired or strengthened in any markets. Parties can apply for a clearance, which will be granted if the Commission is satisfied that dominance is not acquired or strengthened.
A clearance, if granted, protects an acquisition from court action under the Act.
The Government had required all bidders for the cornerstone shareholding in Contact with existing interests in New Zealand electricity or gas markets to apply for Commission clearance.
Public copies of the Commission's decisions will be available at 4.30pm from its website, www.comcom.govt.nz and its Wellington office, level 7 Landcorp House, 101 Lambton Quay.
