Contact Energy Says Planned Merger With Manawa Won’t Lessen Competition

(Bloomberg) -- New Zealand power company Contact Energy said its proposed merger with Manawa Energy won’t substantially lessen competition in any market, according to a clearance application submitted to the antitrust regulator.

Last month, Contact announced a NZ$1.86 billion (NZ$1.2 billion) cash-and-shares deal to buy its smaller rival, saying the enlarged business will be better able to build desperately needed new generation.

The announcement came as the electricity industry faced calls for change to address a lack of competition and investment that critics say contributed to a surge in wholesale power prices. Resources Minister Shane Jones said he expected regulators to assess what the proposal would mean for energy security and affordable pricing.

In its application, Contact said Manawa has just a 4.3% market share and the enlarged business will still face competition from larger rivals Meridian Energy and Mercury NZ. 

The proposal will not adversely impact competition in wholesale spot trading because of those rivals, nor will it affect availability of long-term flexibility contracts as the merged business doesn’t have significant volumes of generation that support those products, Contact said.

The transaction won’t impact retail markets as Manawa isn’t active in supplying mass-market customers, it said. 

Benefits arise from the proposal because Manawa’s hydro plants generate more in the winter, complementing Contact’s assets that produce more in summer, according to the application. That means greater certainty about generation over winter, allowing the combined entity to sell a larger volume of fixed-price contracts.

An increased supply of fixed-price contracts would provide more opportunities for independent retailers and industrial customers to better hedge themselves against the sort of market volatility seen this year, Contact said.

The company also submitted the merger will allow more efficient use of existing hydro assets, reducing the need for thermal generation, and will open the door for speedier development of new renewable projects.

The regulator has set a decision date of Nov. 26 but is able to adjust this if more time is needed to assess the application.

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