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Hunter River Salinity Trading Scheme Credit Auction: 2006 Auction Report

On 5 April 2006, the NSW Department of Environment and Conservation (DEC) held the second auction of 200 credits under the Hunter River Salinity Trading Scheme (HRSTS). The credits have a 10-year life from 1 July 2006 until 30 June 2016. These credits replaced the 200 credits that expired 30 June 2006. The next auction will be held in 2008.

Where and who

The Auction was held at the Monte Pio Conference Centre, corner of New England Highway and Dwyer Street, Maitland. Slattery Auctions Australia conducted the auction in accordance with the auction rules as detailed in the Hunter River Salinity Trading Scheme Credit Auction - process and rules. These rules were developed in consultation with the HRSTS Operations Committee, scheme participants and other stakeholders.

Eleven bidders representing mining and power generation facilities competed for credits. All but one bidder represented organisations that were already participating in the HRSTS. There were no registrations from non-industry bidders and only one community representative attended the auction. Centennial Coal P/L was a new bidder.

Results

The auction continued for the full 3-hour time allocation. Twenty-one bid rounds were completed.

All 200 credits were allocated at the auction. The credits were distributed between eleven companies.

The auction raised $112,770. The average price paid per credit of $564 increased 11% from the 2004 auction. The maximum and minimum credit prices were $658 and $532 respectively. The credit allocation and the cost to each organisation is shown in the table below.

Organisation   Credits allocated  Total cost
Macquarie Generation 50  $27,600
Ravensworth Operations 25  $13,700
Liddell Coal Operations Pty Ltd 22  $11,774
Xstrata Mt Owen Pty Ltd  $1,656
Bulga Coal   $5,922
Centennial Hunter Pty Ltd 10  $5,550
United Collieries Pty Limited $1,080
Rio Tinto Coal Australia 40  $23,640
Bengalla Mining Company  12  $6,518
Wambo Coal  12  $6,690
Redbank Power  15  $8,640
Total 200  $112,770

Figure 1 below shows the highest, average and lowest successful credit prices offered for each of the 21 rounds.  By the last round, the difference between the maximum and minimum successful bids was $126 which is 19% of the maximum bid per credit. 

Fig. 1: Highest, average and lowest credit price per auction round - 2006

Figure 1 also shows that while the highest bids increased in a stepwise manner, the rate of increase in the average price curve remained relatively constant throughout the auction, in contrast to the 2004 auction when it increased more steeply in the final rounds.

Revenue and costs

Net revenue from the auction ($112,770 less expenses including GST of  $17,868) will be used to offset the HRSTS participants' scheme contribution for the 2005/2006 year.

Objectives achieved

The HRSTS auction process is designed to:

  1. distribute credits to stakeholders who place the highest 'value' on the credits;
  2. provide equitable access to credits for all bidders, including new entrants to the market; and
  3. ensure that all available credits are taken up (NSW Government not left holding credits).

Against these objectives the DEC can report that:

  1. No complaints were submitted concerning the distribution of the credits or the way in which the auction was conducted.
  2. All 200 credits were taken up and have been paid for.
  3. There was no apparent collusion or anti-competitive behaviour.
  4. The auction has achieved a distribution of credits based on the value of credits to the operational requirements of existing licence holders and new companies entering the market.
  5. The auction distributed 188 credits between companies that are already scheme HRSTS participants with a discharge licence. 
  6. Centennial Coal Pty Ltd, who recently submitted a development application for the proposed Anvil Hill Coal Mine, acquired 10 credits. 
  7. United Collieries Pty Limited purchased the remaining 2 credits.

Feedback received

Feedback on the auction arrangements and the outcomes was sought from all participants and from the Hunter River Salinity Trading Scheme Operations Committee.  The feedback received was positive with the following suggestions made to improve the 2008 auction:

  1. hold the auction in Singleton;
  2. shorten the auction or conduct fewer biding rounds;
  3. introduce a minimum starting bid of $400 to $450; and
  4. contact participants regularly to remind them of the forthcoming auction details.

DEC's response to feedback suggestions

  1. Agree to hold the 2008 auction in Singleton.
     
  2. Several participants indicated their preference for the time allocated to complete the auction to be reduced. An analysis of the bid pattens shown in Figure 1 indicates that although there was no change in the rate of increase of the average or minimum bids throughout the auction the maximum price sharply increases during the last round. This result indicates that participants were prepared to pay a higher price to ensure they secured the credits they need and that higher bids would have been received if more bid rounds are conducted. A similar result might be achieved by reducing the auction time to encourage bidders to place fewer/higher value bids. However, with all proceeds from the auction used to offset the net running cost of the HRSTS the auction is not revenue driven. On balance, reducing the auction time to less than 2 hours with a minimum of 10 bid rounds, is unlikely to adversely impact the objectives or the outcome of the auction. DEC will adopt this approach for the 2008 auction.
     
  3. A minimum starting price of $250 per credit was introduced for the 2006 auction to speed up the auction. This rule change has not had the desired effect. The 2006 auction ran for the allocated 3 hours completing 21 bidding rounds. The reduction time appears more likely to improve auction efficiency, and hence DEC will retain a minium starting price of $250 per credit for the 2008 auction. 
     
  4. The 2006 auction was widely advertised in the public notice sections of state, regional and local newspapers. In addition, all participants were advised in writing of the auction details one month before the auction. For the 2008 auction, notification will go out to participants approximately two months before the auction date. Advertisements will be placed in state, regional and local newspapers approximately one month before the auction is held.


Page last updated: 18 June 2013