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IP/03/825

Brussels, 11 June 2003

Commission approves Austrian electricity merger subject to conditions and obligations

The European Commission has approved a link-up between the Austrian power company Österreichische Elektrizitätswirtschafts-AG (Verbund) and five Austrian regional power suppliers grouped together as EnergieAllianz, subject to conditions and obligations. The initial plan (known as the "Austrian power solution" or ÖSL in German) would have created or strengthened dominant positions held by Verbund and EnergieAllianz, especially on the market for the supply of electricity to large customers. But the parties have entered into significant commitments which fully resolve the Commission's concerns. One of these commitments: the sale of Verbund's controlling stake in APC, its distributor for large customers, will need to be fulfilled before the merger can take place.

"I am happy that after lengthy and difficult discussions we were able to find a solution which will allow creation of another powerful player, especially in view of the upcoming liberalisation of the European energy market, whilst at the same safeguarding consumer interests in Austria", said Competition Commissioner Mario Monti.

Under the terms of the deal notified to the Commission for regulatory clearance on 20 December, EnergieAllianz and Verbund will combine their respective activities in electricity trade and supply to large industrial customers with an annual consumption exceeding four gigawatt-hour (GWh). The two parties will then supply their electricity via two newly created joint ventures, APT and E&S.

The new entity will be roughly the 10th largest player in the European Union's electricity market.

After a detailed inquiry, the Commission concluded that the deal would create or strengthen a dominant position held by EnergieAllianz and Verbund in the markets for the supply of electricity to large customers, small distributors and small customers in Austria.

Whilst it is true that the liberalisation of the energy market in Austria already covers all categories of customers and that there is no shortage of capacity on the interconnectors with Germany, in geographic terms the relevant product markets do not currently extend beyond Austria's own borders. Furthermore, there is not sufficient certainty that the situation will change in the near future.

This is because foreign competitors in Austria have so far secured market shares of less than 5%, leaving aside some foreign holdings in Austrian regional suppliers. The geographic market is also kept separate by the fact that electricity prices to final consumers (not including through-transmission and other charges) are lower in Austria than in Germany due to established customer relations and to marketing and cost advantages conferred on Austrian companies by their access to domestic production capacity, especially hydroelectric power. These factors also act as barriers to foreign competitors wishing to enter the Austrian market.

Another major obstacle to entry is the risk posed by the cost of balancing energy. Balancing energy is used to make up the difference between planned consumption and actual consumption in power supply control areas. At present 'balancing energy' cannot be supplied in sufficient volume from one control area to another. The control area relevant in this transaction comprises all of Austria with the exception of the two westernmost Länder, Vorarlberg and the Tyrol. In the absence of appropriate commitments, the planned transaction would lead to a higher cost risk to competitors, a substantial increase in balancing energy costs, and ultimately higher prices for consumers.

The parties' combined share of these markets is high: depending on the class of consumer, it ranges from about 50% to 75%. A dominant position on these markets would also have been created or strengthened by the disappearance of Verbund as EnergieAllianz's most important existing and potential competitor, by the parties' leading position in power generation, and by existing links with competitors.

Conditions and obligations

To overcome the Commission's objections, Verbund and EnergieAllianz have entered into the following commitments:

  • Verbund will sell its 55% shareholding in APC, a company that deals with large customers and has a share of around 10 to 15% of the Austrian market. The effectiveness of this key commitment will be safeguarded by the conclusion with the buyer of the APC stake of a power supply contract for three terawatt-hours (TWh)(1) a year for at least four years -- enough to cover the bulk of APC's electricity requirements. The buyer will also be able to make short-term adjustments to its demand profile. Only once this sale is effective, and the Commission has approved the buyer found for APC, can the transaction be completed.

    This commitment means that one of the independent firms already operating in Austria may be able to expand its business significantly by buying APC and thus provide an important counterweight to the parties' market power. The same effect would also be achieved if an active foreign competitor were to enter the market by buying APC.

  • The commitment to sell APC is backed up by the following additional commitments: until the end of 2007, Verbund undertakes not to exercise important voting rights it holds in the Styrian regional supplier Steweag-Steg, which is controlled jointly by EdF and the Land of Styria. Energie AG Oberösterreich, which belongs to EnergieAllianz, will likewise refrain until the end of 2007 from exercising its voting rights in the Salzburg regional supplier SAG; Energie AG Oberösterreich's share in SAG is to be transferred to a trustee until then. Large customers of the parties will also have the unilateral right to cancel their contracts once the merger has taken place and if they so wish.

  • As regards the supply to small customers, the approval of the transaction is subject to the condition that a volume of electricity totalling 450 gigawatt-hours, structured in line with the consumption profile of small Austrian customers, and including 50% hydroelectricity, is to be auctioned each year until July 2008. This is intended to increase liquidity, so as to encourage entry to and expansion on the Austrian small customers market and to improve the range of sources open to small distributors. Verbund has also undertaken to sell the shares it still holds in the new suppliers in the area of small customers, MyElectric and Unsere Wasserkraft, which the Commission has taken note of.

  • To deal with the problem of balancing energy the parties submitted a package of commitments which sets a price cap for a transitional period until an integrated cross-border market in balancing energy is achieved. This reduces the price risk to competitors and encourages the mutual integration of the markets in balancing energy in Austria and the neighbouring countries.

In assessing those of the commitments which are limited in time, the Commission took account of the fact that in the medium term, given the existing conditions in Austria with regard to the degree of market liberalisation and the adequate interconnection capacity to and from Germany, the scheduled entry into force of the new Electricity Market Directive and the Regulation on cross-border trade in energy can be expected to produce a lowering of the barriers to entry. This legislation is to become effective between 2004 and 2007, and among other things provides for advances in respect of the removal of charges for cross-border electricity supplies and with regard to unbundling.

The Commission took note of the fact that the Austrian Minister for Economic Affairs and Labour indicated that he was willing to implement the provisions of the Energy Market Directive concerning legal unbundling immediately. It also took note of the parties' commitment to remove the existing bottlenecks in the Austrian high-voltage network as soon as the necessary permits have been granted, and to proceed with the development of interconnectors to Italy and Slovenia. Taken together, these measures will improve the scope for entry to the Austrian market.

Cooperation

The Commission acted in close and fruitful contact with the Austrian federal competition authority and the Austrian energy regulator, E-Control. The regulator will supervise the implementation of sections of the commitment package, especially with regard to balancing energy and energy auctions.

Background

EnergieAllianz is an alliance formed through the setting up of joint ventures between the regional energy suppliers EVN AG, Wien Energie GmbH, Energie AG Oberösterreich, Burgenländische Elektrizitätswirtschafts-Aktiengesellschaft ("Bewag") and Linz AG für Energie, Telekommunikation, Verkehr und Kommunale Dienste. Majority holdings in these companies are held by local or regional authorities.

Verbund is majority controlled by the Republic of Austria.

Together, Verbund and EnergieAllianz generated 44 terawatt/hours of electricity in 2002, of which about 31 tWh by Verbund. A large proportion of this was generated in hydroelectric plants as 88% of power generated by Verbund is hydroelectric. The parties' total sales to final consumers amounted to about 30 tWh in 2002, of which 26 tWh were sold by EnergieAllianz. The parties have about four million customers for electricity, most of which are customers of EnergieAllianz.(2)

(1) A terawatt-hour is equal to 1 000 gigawatt-hours, 1 000 000 megawatt-hours, or 1 000 000 000 kilowatt-hours.

(2) Source: Data from websites of Verbund and the EnergieAllianz subsidiaries E&T and Energie Allianz Austria GmbH.


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