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On 28 December 2007 the New South Wales (NSW) Treasurer announced that Frontier (Australia) will be one of the companies advising the New South Wales government on the A$15 billion-plus partial privatization of the state’s electricity assets.

The NSW government intends selling the retail arms of Energy Australia, Integral Energy and Country Energy while the "poles and wires" assets of these companies remain in Government ownership. The government will also issue long-term leases for its electricity generators to the private sector.

The NSW Government selected Frontier for its in-depth knowledge of the Australian energy market and its experience gained from leading previous energy reform and privatisation programs in Australia.

For more information, please contact Marita O’Keeffe at or call on +61 (0)3 9620 4488.

On 4 December 2007, the New Zealand High Court released its decision in a major merger battle between Woolworths (the Australian supermarket operator) and the New Zealand Commerce Commission. Woolworths had applied to the Commission for clearance to acquire The Warehouse Group - a major retailer of general merchandise. The Commission had refused clearance. The High Court overturned this decision of the Commerce Commission.

Throughout the application before the Commerce Commission and the hearings before the High Court, Frontier had been retained by Bell Gully (solicitors for Woolworths). During the procedures of the Commission, Frontier undertook extensive empirical analysis of the effects of the 2002 supermarket merger and found that this had little effect on prices of groceries. During the appeal to the High Court, Philip Williams of Frontier (Australia) gave evidence and Bob Bartels and Tim Calkins undertook extra empirical work.

Phil Taylor, Partner, Bell Gully, commented on Frontier's work: "I have enjoyed working with you and your team and hope to continue to do so into the future. I must say I enjoy the simple way in which you clearly explain quite complex issues. I think that approach makes life easier for everyone and avoids misunderstandings."

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On 26 November 2007, the Federal Court of Australia in Melbourne ratified financial penalties for price-fixing that had been agreed between the Australian Competition and Consumer Commission (ACCC) and a group of abalone fishermen in South-Eastern Australia. Australia is the largest supplier of wild abalone to the world market, and the tightly controlled fisheries are among the most valuable commercially.

The ACCC had brought proceedings against the fishermen. Frontier (Australia) assisted the ACCC and Philip Williams of Frontier gave lengthy evidence for the ACCC. At the conclusion of the ACCC's case, the judge directed the matter to a Court Registrar for mediation and the case was settled.

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Frontier (Australia) has been engaged by the Independent Pricing and Regulatory Tribunal of NSW (IPART) to recommend allowances for energy purchase costs and for retail costs and margins for inclusion in regulated retail electricity tariffs. A key consideration in developing these allowances was ensuring a consistent approach, so that retail tariffs are cost reflective.

In its recommendation for energy purchase costs, one of the perspectives used by Frontier was the market price of hedging products to meet the regulated load. This was estimated using STRIKE, Frontier's portfolio optimisation model. Importantly, under the market-price perspective, energy purchase costs depend on the contracting strategy adopted by a retailer: the riskier the contracting strategy, the lower the energy purchase costs. STRIKE provides the energy purchase costs associated with the full range of efficient contracting strategies, clearly highlighting the relationship between energy purchase costs and energy purchase risks.

In its recommendation for retail margin, Frontier, in conjunction with Strategic Finance Group Consulting, estimated the retail margin that ensures electricity retailers earn a normal return on an asset base of customers. The approach used the recommended energy costs and retail costs as inputs, thereby ensuring a consistent approach to the various components of regulated retail tariffs.

IPART have recently released two draft reports by Frontier: one setting out Frontier's recommendations in regard to energy costs and another setting out Frontier's recommendations in regard to retail costs and margins. Following public consultation, Frontier's final reports will be released by IPART in February 2007.

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