The Energy Regulation and Markets Review - Stikeman Elliott

Australia
III
TRANSMISSION/TRANSPORTATION and DISTRIBUTION
SERVICES
i Vertical integration and unbundling
There has been a trend towards the separation of transmission from the production and
retail sectors, with energy industry operators generally specialising in either network
infrastructure, including transmission, or the non-network areas of production,
generation and retail. This trend has been linked to capital markets and the limited
efficiency benefits of full-scale integration. It also reflects national competition policy
pursued by the Commonwealth, state and territory governments in the 1990s.
There has, however, tended to be greater integration and ownership consolidation
within each sector. The ACT, South Australia and Tasmania have only one major
electricity distribution network each, and while there are multiple networks in
Queensland, NSW and Victoria, each is a monopoly provider in a particular area.
Cheung Kong Infrastructure and Power Assets Holdings, for example, jointly own 51
per cent of two Victorian distribution networks, as well as holding a 200-year lease of the
South Australian distribution network. In both states, the other 49 per cent is owned by
Spark Infrastructure, in which Cheung Kong Infrastructure has a direct interest. 15
The distribution and transmission sectors are not generally integrated. In Tasmania
and the ACT, there is some common ownership in the distribution and retailing sectors. 16
There is a mix of both government-owned and privately owned distribution or retail
businesses, with a trend to privately owned utilities in all states and territories:
a the transmission network and the five distribution networks in Victoria are
privately owned;
b the transmission and distribution networks in South Australia are leased to private
interests;
c the transmission and distribution networks in the ACT have joint government
and private ownership; and
d the transmission and distribution networks in Queensland, NSW and Tasmania
are government-owned.
There has been a trend towards vertical integration of generation and retail activities, a
trend sometimes referred to as ‘gentailing’. There is an acceptance in the industry that
‘gentailing’ enables generators or producers and retailers to manage the risk of volatile
wholesale prices and to enhance security of supply. Gas and electricity are also increasingly
being marketed jointly, with customers being able to obtain dual supply under a single
contract. AGL Energy, TRUenergy and Origin Energy now jointly supply more than 80
per cent of small electricity retail customers, and control almost 30 per cent of generation
capacity in the mainland regions of the NEM. Similarly, those entities each have interests
in gas production or gas storage, or both.
15 AER, State of the Energy Market 2011, available at www.accc.gov.au,
16 Id.
7