Bundeskartellamt prohibits E.ON Ruhrgas’ long-term gas supply contracts with distributors

In a formal prohibition decision the Bundeskartellamt has informed E.ON Ruhrgas AG that its gas supply contracts with distributors in their combination of long-term purchase obligations and high degree of requirement satisfaction violate European and German competition law. It has prohibited E.ON Ruhrgas from pursuing such practices. The decision is immediately enforceable.

The President of the Bundeskartellamt, Ulf Böge, stated: “Binding distributors by long-term supply contracts has a foreclosure and thus price-raising effect because it prevents the market entry of newcomers and deprives third providers of supply possibilities for years.”

The Bundeskartellamt prohibits E.ON Ruhrgas’ existing long-term contracts with distributors which cover more than 80 per cent of their actual gas requirements. These contracts are to be terminated at the latest by the end of the current gas year on 30 September 2006.

As regards the conclusion of new contracts with regional and local gas companies, those contracts are to be prohibited which run for more than four years and which cover more than 50 per cent of actual gas requirements, or which run for more than two years and cover more than 80 per cent of requirements. For practicability reasons and irrespective of the fact that these contracts also violate Art. 81, 82 EC, distributors whose actual total requirements are less than 200 GWh are exempted from this regulation. Furthermore, where requirements are satisfied by several suppliers, contracts should distribute the risk of demand fluctuations among suppliers according to the actual supply share provided by each of them. In order to prevent the circumvention of these principles multiple supply contracts between the supplier and the customer are to be considered as one individual contract. Tacit extension clauses are also prohibited.

The Bundeskartellamt has brought this test case against E.ON Ruhrgas because it is by far the largest gas supply company in Germany. Only contracts between E.ON Ruhrgas as the gas transmission company and the regional and local gas distributors, usually public utilities, are affected by the prohibition. Purchase contracts at the import level, i.e. between E.ON Ruhrgas as the gas importing company and gas producers are not affected. Also unaffected by the prohibition are contracts with the large industrial gas purchasers or those concerning the construction of gas power plants or investments for the development of gas sources.

When a consensus was not reached at the end of September and the Bundeskartellamt threatened the company with prohibition proceedings E.ON Ruhrgas offered a voluntary declaration of self-commitment. However, the offer not only included a later opening up of contracts in 2008, it also left many aspects open or unregulated, such as contract stacking, which opened up circumvention possibilities. In the Bundeskartellamt’s view the offer did not go far enough to remedy the anti-competitiveness of the gas contracts. Rather, there was still the danger that the self-commitment offer would do nothing to change the market-foreclosure effect of current contract practice. At the same time the proposals showed that E.ON Ruhrgas would not bring the anti-competitive practice to an end of its own accord.

E.ON Ruhrgas has already announced that it will appeal against the decision of the Bundeskartellamt.

Bundeskartellamt President Dr Böge stated: “The courts will have the last word in the dispute about long-term contracts. I am confident that a decision will be made soon which will provide the necessary legal clarity for all concerned. The elimination of long-term contracts by the end of the current gas year and the guarantee of non-discriminatory transmission provided by the network agencies will ensure that the networks will be opened up to more competition before the end of the year. Under otherwise equal conditions prices for gas should then fall.”