The public benefit argument that AGL Energy has put to the Australian Competition Tribunal in support of its proposed $1.5 billion acquisition of Macquarie Generation is underpinned by something more than the prospective benefits to the NSW Government and taxpayer. It involves a lot more AGL cash.

The obvious public benefit argument for AGL to make is the deal’s impact on the NSW Government, which would get $1.5 billion from AGL and a return of $220 million of cash held within MacGen. AGL needs the Tribunal to authorise a transaction that the Australian Competition and Consumer Commission opposed.

NSW Treasurer Mike Baird has said AGL’s bid for MacGen was the only one that exceeded the retention value of the generator to the state and therefore, if it didn’t proceed, the state would retain the assets. Given that, AGL today represents the only way for the state to gain those proceeds.

After repaying the $710 million of MacGen debt, the state has no option but to pay the net proceeds of about $1 billion into its ‘’Restart NSW Fund’’, where they would be recycled to fund new infrastructure projects. As AGL’s submission (which was lodged with the tribunal very recently) noted, NSW has a deficiency in public infrastructure but the government is constrained in its ability to fund new projects.

The impact on the state – and the state’s demonstrated conviction that it can put the funds now tied up in MacGen to better use on behalf of NSW citizens – is the obvious public benefit argument to be mounted.

It could also be argued, as AGL did, that retaining MacGen at a time of uncertainty in the energy sector, with price volatility for coal and gas, cost pressures and uncertainty flowing from the carbon tax and sliding demand for electricity, represents a risk for NSW.

There’s also, of course, the commercial risks taxpayers are exposed to by owning generators in competitive and highly complex markets – and the prospect that MacGen might require capital injections at some point in future.

That’s where AGL makes the specific case for its acquisition. In the submission it says it will invest about $345 million in maintenance and capital spending on the Bayswater and Liddell power stations over their projected life -- $345 million more than the existing planned levels of future investment in the plants.

Most of those funds --$304 million – will be devoted to the Bayswater plant and $190 million of the extra funds for Bayswater would be invested between the 2015 and 2019 financial years.

It is worth noting that since 2007, capital expenditure on the generators has tailed away dramatically and that in the past few years the availability of capacity at the generators has been sliding, particularly at the smaller Liddell plant.

Higher levels of availability from the low-cost Bayswater plant would make more electricity available to the market than would otherwise have been the case, would lower the risk of unplanned outages, make operation of the plant safer and deliver a more reliable supply of baseload electricity into the market at a lower cost, AGL says. The investment in Liddell, regarded as more of a back-up generator, would have similar effects.

AGL makes other arguments, but the impact on NSW’s ability to fund new infrastructure and the size and impact of its own planned investment over-and-above that of the existing MacGen management are its core public benefit claims.

It could also argue, and it does, that as one of the three big electricity retailers acquiring MacGen would not only reduce its own risks and improve its own economics by providing it a natural hedge against fluctuations in demand and price the national electricity market but make it a stronger competitor against the two existing integrated players, Origin Energy and Energy Australia.

AGL has offered the same undertakings to the tribunal that were rejected by the ACCC, namely to make available to independent electricity retailers in NSW 500MW of competitively priced hedge products to alleviate concerns that its acquisition of MacGen might damage the ability of those retailers to compete in NSW.

The tribunal’s eventual decision will not only determine the medium-term shape of the NSW electricity industry but is regarded as a significant challenge to the ACCC’s approach to sensitive acquisitions and the fashion in which it chooses to interpret the legislation it administers.