European Commission Decision

Relating to proceeding under Article 82 - EC Treaty (Case COMP/39.402 – RWE Gas foreclosure)

Master of International Management University of Trento

Neda MemariWS 2010/11

Prof. Vezzoso Simonetta

Table of Content

I. Subject Matter

II. The Addressee

III. Procedural Steps Under Regulation

IV. Preliminary Assessment

V. Proposed Commitments

VI. Proportionality of the Final Commitments

VII. Conclusion

Subject Matter

• Decision is Addressed to RWE AG

• Preliminary assessment according to article 82 (now 102) EC treaty

The Addressee

Rheinische Westfälisches Elektrizitätswerk AG (RWE AG)

• A German-based energy and utility company

• Primarily active in production & supply of gas & electricity

• Traditionally have been focused on NRW region in Germany

• Today has 8 subsidiaries and is active in other countries

• Its turnover was €42,507 million in 2007

Procedural Steps Under Regulation

• In May 2006, the investigation was based on the results of an inspection at RWE’s premises.

• On 20 April 2007, the EC initiated proceeding against RWE pursuant to article 81 & 82.

• On 15 October 2008, the EC adopted a preliminary assessment.

• On 26 November 2008, RWE submitted comments to the preliminary assessment.

Procedural Steps Under Regulation

• On 5 December 2008, a notice was published for inviting interested third parties to give their observations in one month.

• On 19 January 2009, the EC informed RWE of the received observations.

• On 2 February 2009, RWE submitted an amended commitment proposal.

• On 6 March 2009, issued the final report of advisory committee on restrictive practices & dominant.

Preliminary Assessment

• Relevant markets

• Substantial part of the common market

• Practices raising concerns

• Effect on trade between Member States

Relevant Markets

• The relevant product markets• Distinguished between gas Supplier and transporter services

• TSO separate from DSO

• Distinguished between Wholesalers and end Customers

• The relevant geographic markets• Negligible competition outside TSO

• Gas supply defined as grid-wide

Relevant Markets

• RWE’s dominant position on the relevant markets

• Dominant position since 2003

• High entry barriers for potentially competing TSO

• Low market share on supply markets

• Entire available capacity was booked on a long term

Substantial part of the common market

• Gas transmission network covered by RWE

• Affected geographic market of the most German population

Practices raising concerns

• Capacity management (refusal to supply)

• RWE TSO may have pursued a strategy for keeping the transport capacities

• RWE has booked almost entire capacities on its transmission network on a long term basis

• Demand exceeded the offered capacities

• Huge difference between indicated and actual capacity used

• Lack of effective congestion management system

Practices raising concerns

• Margin squeeze

• RWE may have followed a strategy for squeezing competitors’ downstream gas supply margins

• Elevated tariffs for network access

• Elevated prices for access to its transmission network

• As a vertical integrated and dominant company control the gas transmission network

• Asymmetric cost elements disadvantaging competitors

• While RWE was itself exempted from paying balancing costs, due to agreements between RWE-energy-TSO, other transport customers had to pay high penalty fees within RWE TSO’s network

Effect on trade between Member States

• RWE’s behaviour was capable of affecting trade between Member States

• Notably by affecting import and export flows

• Hindering foreign competitors from competing within its grid area

Proposed Commitments

• RWE notably committed to divest:I. RWE’s German high-pressure gas transmission network with a total length of

app. 4,000 Km

II. Auxiliary equipment necessary for the operation of the transmission network

III. Intangible assets necessary for the operation of the transmission network

• RWE commits to supply the purchaser for a limited period of up to five gas years

• The business will be endowed with personnel and key personnel necessary for transmission network

Proportionality of the Final Commitments

• RWE’s divestiture can be a structural remedy

• Oblige RWE to behave in a certain manner of its gas transmission activities

• Ensure that RWE has no control over the gas transmission network

• Clear-cut solution to the identified competition concerns

Conclusion

• Adopting a decision pursuant to article 9(1) of regulation

• Decision doesn’t conclude whether or not there has been or still is an infringement

• In the light of the final commitments offered, the commission considers that there are no longer ground for action on its part

• With no prejudice to Article 9(2) of regulation, the proceedings in this case should therefore be brought to an end.

References

• http://ec.europa.eu/competition/

• http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12002E082:EN:HTML

• http://www.zoll.de/english_version/a0_passenger_traffic/member_states/index.html

• http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1306245

Thank you