DHR confirmed decision FCO EON

30 October 2007

Shiraz Kutar

In a decision of 6 June 2007 the Düsseldorf Higher Regional Court has confirmed a decision of the Federal Cartel Office (FCO) prohibiting E.ON from acquiring a 33 per cent share in a municipal utility. This fundamental decision by the Düsseldorf Higher Regional Court will have wide repercussions for the German electricity sector as it may significantly limit E.ON and RWE’s ability to vertically integrate municipal utility companies.

The case concerned the planned acquisition of 33 per cent of the municipal utility Stadtwerke Eschwege by E.ON, one of the biggest companies in the German electricity sector. The FCO had prohibited the acquisition as it would have strengthened the dominant position of E.ON in the German electricity market.

The Düsseldorf Higher Regional Court had to deal with two central questions. First, it had to assess whether the German electricity markets are still dominated by a powerful duopoly of the energy companies E.ON and RWE. Second, the Court had to determine whether this duopoly has a joint strategy to foreclose the market and to strengthen their market power by acquiring successive shares in municipal utilities.

For this analysis the Court relied on two national surveys conducted by the FCO on the market situation in the electricity market in Germany. According to these surveys the combined market share of E.ON and RWE amounted to about 52- 59 per cent with regard to generation and distribution of electricity. It was the Court’s view that the paramount position of the companies, not only at the generation but also at the distribution level, and the fact that electricity cannot be stored meant that the companies were able to control the distribution of electricity to consumers. Therefore the Düsseldorf Higher Regional Court concluded that the joint strategy of further acquisitions of municipal utilities would have allowed the companies to expand and intensify their dominant position. Thus, the Court confirmed the FCO’s decision. The decision is open for an appeal by E.ON to the Federal Court of Justice.

Sources: http://www.bundeskartellamt.de; www.olg-duesseldorf.nrw.de