Photo: RNZ / Nate McKinnon
- Commerce Commission unconvinced by Contact takeover of Manawa Energy
- Cites four grounds why deal might substantially lessen competition
- Contact says deal compelling and will press on
- Final decision due 31 March, but likely to be extended
Contact Energy is undeterred by a negative report from the Commerce Commission about its $1.9 billion takeover of Manawa Energy.
The competition watchdog released a statement late on Wednesday detailing its concerns about the deal and its potential to reduce competition in the electricity sector.
The Commission said it had four areas of concern about the market power the merged company could wield:
- The supply of hedging contracts for retailers needing electricity during times of tight supply
- The ability to effect spot electricity prices
- The merged company could lead to higher spot electricity prices
- The current electricity market has too little competition
Contact is one of the big four electricity generator-retailers (gentailers), with Manawa - the generating business left over when Trustpower sold off its retail operation - a distant fifth.
Manawa sells uncommitted power to the electricity market through hedging contracts, a form of insurance which smaller retail companies use to ensure supplies and prices when supplies are tight.
However a merged Contact-Manawa business would have about 24 percent of national generation.
The commission said the merged company would "have the ability and incentive to foreclose its competitors - independent retailers and generators - by refusing to supply them with the shaped hedges that they can use to appropriately manage their financial risk and therefore function as effective competitors in the market."
The regulator also said an enlarged company would have "substantially greater ability to impact the average wholesale electricity spot price more than Contact or Manawa would be able to do independently of one another", as well as the ability to operate in ways that might lead to higher average spot prices.
Fourthly, it said market co-ordination could occur in a market with few competitors which would lessen competition because the new company would be able to manage its assets, supplies and prices.
Contact says takeover compelling
Contact Energy reiterated the merits of the merger in a statement to the Australian Stock Exchange, given the New Zealand market was closed for Waitangi Day.
Chief executive Mike Fuge said the two companies had provided the Commerce Commission with plenty of evidence to support the benefits of the merger.
"The strategic rationale for this transaction remains compelling. This combination of Contact and Manawa will make a stronger, more resilient electricity company for New Zealand with a more diversified generation portfolio across the North and South Islands."
"The facts and our analysis continue to support clearance of this acquisition under the Commerce Act and also demonstrate that Contact's proposed acquisition of Manawa Energy would have for all of New Zealand."
Fuge said they would continue to aim to have the deal completed by the middle of the year.
The commission said the deadline for a decision was 31 March, but it could be extended.
Under the agreed deal Contact will pay close to $1.9b in shares and cash for Manawa as well as take over its $400m debt.
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