FCO prohibits EONR gas contracts


January 2006

The FCO has decided that E.ON Ruhrgas AG’s gas supply contracts with distributors, which include long-term purchase obligations and require distributors to purchase a high percentage of their total gas requirements from E.ON Ruhrgas, violate European and German competition law.

The FCO has prohibited E.ON Ruhrgas from pursuing such practices and the formal decision is immediately enforceable. The FCO has prohibited 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.

In relation to the conclusion of new contracts with regional and local gas companies, any contracts which run for more than four years and which cover more than 50 per cent of the companies’ actual gas requirements, or which run for more than two years and cover more than 80 per cent of requirements are to be prohibited. For reasons of practicability and irrespective of the fact that these contracts also violate Articles 81 and 82 of the EC Treaty, distributors whose actual total requirements are less than 200 GWh are exempted from this prohibition. 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 FCO 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 large industrial gas purchasers or those concerning the construction of gas power plants or investments for the development of gas sources.

Since a consensus was not reached at the end of September and the FCO threatened the company with prohibition proceedings, E.ON Ruhrgas offered a voluntary 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 FCO’s view, the offer did not go far enough to remedy the anti-competitiveness of the gas contracts. Rather, there was still a danger that the 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 FCO.

Source: http://www.Bundeskartellamt.de