We all have a stake in AGL play

Long-suffering electricity users have someone new to blame if the power fails or prices spike with a botched transition to renewables. Software billionaire Mike Cannon-Brookes has put his hipster visage, personality and financial reputation on the line to derail AGL’s plan to spin out its coal-fired power stations into a stand-alone company. The fine print of Mr Cannon-Brookes’s complex shareholder intervention should come with a warning: you break it, you own it. Mr Cannon-Brookes has made clear he considers AGL’s timetable to close Australia’s major coal-fired power stations is too slow. A plan to separate the coal and renewable assets into different companies is seen as a way of keeping coal alive, possibly with government support in the form of capacity payments, to ensure they are there if the wind does not blow or the sun doesn’t shine. Free of coal, the argument goes, the rest of AGL will be free to pursue an energy future eco-fussy lenders can be proud of.

To block the spin-off, Mr Cannon-Brookes has launched a high-profile raid and public blitz to persuade other shareholders to reject the deal. He claims to have amassed the capacity to vote about 11 per cent of the shares in the company against a special resolution that needs 75 per cent to succeed. Mr Cannon-Brookes hasn’t actually purchased the AGL shares. Rather, he has entered a series of complex derivative deals with New York-based JPMorgan.

As Mr Cannon-Brookes has spruiked his deal publicly, superannuation fund HESTA, which controls less than 0.5 per cent of AGL, has given him support, saying it was not convinced the proposed AGL demerger would achieve emissions reduction and coal asset closure aligned with the Paris Agreement. Mr Cannon-Brookes says the AGL plan involves entrenching “very expensive assets that generate expensive power, that were built approximately when the personal computer was invented 30-40 years ago”. He says there are “far cheaper ways of doing it”. What’s missing from Mr Cannon-Brookes’s intervention is any detail of what happens next once the spin-off is blocked. AGL chairman Graeme Hunt says the choice for shareholders is a choice between a plan and no plan.

The danger for consumers and taxpayers is that Mr Cannon-Brookes’s view turns out to be a triumph of optimism over reality. The problem is not the cost of production from renewables when they are working but the cost of filling the holes when they are not. The global experience is the transition is far from smooth. Mr Cannon-Brookes no doubt believes in what he is doing and, in the best tradition of corporate raiders, is using financial wizardry to make his point. Shareholders no doubt want to get value back into AGL’s heavily devalued stock. But there is more at stake than corporate ego. Shareholders and customers need to know there is a plan to keep the lights on.