E.ON’s and RWE’s Expansion Drive in Germany stopped

By confirming the decision issued to the E.ON company prohibiting it from acquiring a 33 per cent share in the municipal utility Stadtwerke Eschwege, the Düsseldorf Higher Regional Court has today taken a landmark decision which has wide repercussions for the German electricity sector.

Central to the proceedings were the fundamental questions of whether Germany’s electricity markets are still dominated by a powerful duopoly of the two large energy companies E.ON and RWE and whether this duopoly is foreclosing markets and expanding its market power by a joint strategy of acquiring successive shares in municipal utilities. To quote an excerpt from the Higher Court Decision: “There is no substantial competition against E.ON and RWE in the domestic electricity markets which could control the scope of action emanating from their paramount market position".

In these proceedings the Bundeskartellamt based its opinion on two national surveys which it conducted on the market situation in the electricity markets in Germany. According to these both companies hold a paramount position in the generation and distribution of electricity. More than 60 per cent of the electricity consumed by industrial and household consumers in Germany is generated, imported and distributed by E.ON and RWE. Since electricity cannot be stored, these companies with their paramount position, both at the generation and distribution level, control the distribution of electricity to the consumers. This is possible because of the companies’ large electricity parks with a broad mix of different plant technologies. Other than municipal utilities and independent generators, they are in a position to cover all load levels such as base, medium and peak.

By securing sales through acquisitions of stakes in municipal utilities the companies would be able to expand their dominant position and ultimately foil endeavours towards promoting competition in the transmission of electricity in regulated networks.

The President of the Bundeskartellamt, Bernhard Heitzer, welcomes the decision of the Düsseldorf Higher Regional Court: “Anyone controlling the production and direct supply of electricity to the end consumer via a municipal utility determines, in spite of regulation, what happens in the networks. It has therefore proved right for the Bundeskartellamt to put a stop to increasing vertical concentration in the electricity sector".

The confirmation of its prohibitive stance by the Higher Court Decision, against which E.ON can still appeal, reinforces the Bundeskartellamt in its strategy in other merger control and abuse proceedings in which the electricity duopoly E.ON and RWE are involved.