Article 4
This Decision is addressed to: Burgenländische Elektrizitätswirtschafts-AG Kasernenstraße 9 A - 7000 Eisenstadt Energie AG Oberösterreich Böhmerwaldstraße 3 A - 4021 Linz EVN AG EVN Platz A - 2344 Maria Enzersdorf Linz AG für Energie, Telekommunikation, Verkehr und Kommunale Dienste Fichtenstr. 7 A - 4021 Linz Österreichische Elektrizitätswirtschafts-AG Am Hof 6a A - 1010 Vienna Wien Energie GmbH Schottenring 30 A - 1010 Vienna Done at Brussels, 11 June 2003. For the Commission Mario Monti Member of the Commission (1) OJ L 395, 30.12.1989, p. 1; corrigendum in OJ L 257, 21.9.1990, p. 13. (2) OJ L 180, 9.7.1997, p. 1. (3) OJ C 79, 30.3.2004. (4) OJ C 79, 30.3.2004. (5) Commission decision of 14 December 2001 in Case COMP/M.2485 - Verbund/Estag, paragraph 7. (6) This company previously traded under the name RWA Wasserkraft, and was subsequently renamed Unsere Wasserkraft; it was originally owned 50:50 by Verbund and Raiffeisen Ware Austria AG (RWA): Commission decision of 17 September 2001 in Case COMP/M.2541 - RWA/Verbund/JV. At the end of 2002 all of RWA's shares and part of Verbund's shares were sold to Estag. (7) Parts of this text have been edited to ensure that confidential information is not disclosed: those parts are enclosed in square brackets and marked with an asterisk. (8) OJ C 68, 2.3.2001, p. 3, paragraph 43. (9) The full text of these modified commitments is attached in the Annex to this Decision. (10) Turnover calculated in accordance with Article 5(1) of the Merger Regulation and with the Commission notice on calculation of turnover (OJ C 66, 2.3.1998, p. 25). (11) OJ C 372, 9.12.1997, p. 5, paragraphs 7 and 13 et seq. (12) One such being Österreichische Bundesbahnen (ÖBB), the federal railway. (13) Commission Decision of 14 December 2001 in Case COMP/M.2485, Verbund/Estag. (14) Consideration might possibly be given to the question whether a limited number of very large consumers, such as ÖBB for example, ought to be separated from the other large customers, and excluded from the large customers market (or the large customers and small distributors market). But this would not ultimately affect the structure of the large customers market and consequently its assessment for competition purposes, and if this segment is indeed assessed separately no competition concerns in fact arise. (15) That is to say all Austrian distributors with the exception of the Land suppliers (the EnergieAllianz companies plus Steweag-Steg, Salzburg AG, Kelag, Tiwag and VKW) and the companies associated with them, and also excluding Verbund and EnBW Austria. In their reply to the Commission's statement of objections the parties to the transaction argued that the classification of some municipal utilities in Land capitals was not straightforward, because their purchasing behaviour was closer to that of the Land supplier than to that of the other small distributors. But this question is of no importance here, because the precise classification of these municipal utilities does not affect either the assessment for competition purposes of the market in supply to small distributors (or large customers and small distributors) or of the market in supply to large distributors (or the market in electricity trading including supply to large distributors). (16) This may be the reason why, as many small distributors have told the Commission, the terms that their suppliers give to small distributors are less favourable than those offered to industrial and large commercial consumers. This is contested by the notifying parties. (17) Decision of 28 September 1999 in Case IV/M.1557, EdF/Louis Dreyfus, paragraphs 16 to 18; decision of 13 June 2000 in Case COMP/M.1673, VEBA/VIAG (OJ L 188, 10.7.2000, p. 1), paragraph 18. (18) Relevant market definition notice (see footnote 10), paragraphs 8 and 13 et seq. (19) Relevant market definition notice (see footnote 10), paragraph 28. (20) Austria traditionally exports peak-load power to Germany and imports base-load power from Germany. (21) In Austria RWE supplies final consumers only through its Austrian subsidiary Kelag. Vattenfall has no dealings with final consumers in Austria. (22) "Chain" customers are customers that draw power from a large number of supply points. An example would be big retail chains. (23) At a late stage in the proceedings the parties submitted figures for conduct in respect of bids made to large customers of EnergieAllianz, which suggest that conduct in respect of bids to these customers was somewhat different. But the sample submitted by the parties is considerably smaller than the sample used in the Commission's investigation. In addition, the sample, with very few exceptions, includes no small Austrian distributors. In addition, it is not clear how many bids attributed to foreign suppliers genuinely originated with those suppliers, or how many bids were competitive offers that would have been seen by customers as possible alternative sources of supply. The bulk of foreign bids came from EnBW. For the other German suppliers the parties' figures confirm the statements made here. (24) Source: UCTE, Statistical Yearbook 2001. The notifying parties quote a figure over 25 %, because they refer exclusively to the thermal transfer capacity of the interconnectors. But according to E-Control, only the net transfer capacity is relevant in practice, because that calculation takes account of the whole grid and makes projections on the basis of the weak points: it asks what capacities are in practice available on the interconnectors in order to ensure steady network operation in the event of the failure of a circuit or transformer. (25) The European Association of Transmission System Operators, ETSO, is currently in the closing stages of discussion of a complete abolition of transfer charges with effect from 2004, and their replacement by other methods of setting prices for cross-border transfers of electricity. (26) Relevant market definition notice (see footnote 10), paragraph 32. On the proposed amendment of the Electricity Market Directive, see paragraph 103. (27) Relevant market definition notice (see footnote 10), paragraph 17. (28) "Since the market for service-oriented customers is in a transitional phase, and the historical prices for last year (2002) give little indication of the prices to be expected in this and subsequent years, we use a hypothetical approach as a basis for calculating the competitive price" (Frontier Economics, Gutachten zur Frage der Marktabgrenzung, p. 61). (29) For more details see recital 89. (30) Conversely, these costs, which - except for the CBT - also fall on the buyer, push up the possible arbitrage costs of a new entrant wishing to sell traded electricity to final consumers in Austria. (31) For example, the Frontier Economics study bases its estimate of the short-term profitability of a new entrant - who retains customers for one year - on the assumption of a [< 1 %]* acquisition discount for customers with an annual consumption of over 100 GWh and a discount of [< 5 %]* for customers with an annual consumption of 4 to 20 GWh and 20 to 100 GWh. In their reply to the Commission's request for information of 2 May 2003, the parties extended this assumption of a [< 5 %]* discount to large customers with an annual consumption of 0,1 to 4 GWh. By contrast, the Commission's market investigation of undertakings whose competitive situation in the eastern control area is comparable to that of a new entrant came up with average values which, at the upper end of the scale, were 300 %, 63 %, 100 % and 183 % (for customers consuming >100 GWh, 20 to 100 GWh, 4 to 20 GWh and 0,1 to 4 GWh) higher than the assumptions made in the Frontier Economics study. Even at the lower end of the scale only one value, that of the 20-100 GWh customer group, fell within the range of the study's assumptions, whereas the other three values were in some cases much higher, by 50 % for the over 100 GWh group, by 25 % for the 4 to 20 GWh group, and by 133 % for the 0,1 to 4 GWh group. It is therefore impossible to argue that the study's assumptions correspond to the real market conditions on this crucial point. In reply to the Commission's request for information of 2 May 2003, the parties presented a sensitivity analysis of the study's results in relation to higher acquisition costs. However, this analysis went no further than acquisition costs that were 50 % higher than the original estimates. As explained above, in some cases this lies well below the results of the market investigation. However, even on these assumptions a price increase of over 5 % was required to make a profit on customers with annual consumption of 4 to 20 GWh and 20 to 100 GWh. For large customers consuming 0,1 to 4 GWh the profit threshold of new entrants was a price increase of over 5 % even without any increase in the assumed acquisition costs in the context of a sensitivity analysis (no such analysis was undertaken by the parties). (For this group of customers the market investigation showed that acquisition costs were 133 % to 188 % above the value stated by the parties. This suggests that an increase in prices of well over 10 % would be needed before profitability could be reached in this customer group.) So a critical view of the assumptions made in the Frontier Economics study leads to the conclusion that price increases of well over 5 % would be required to make market entry profitable in the short term under the Frontier Economics model. Note on the market investigation: the Commission asked for the views of seven undertakings which are sufficiently familiar with the market in Austria and whose market position in the eastern control area is comparable to that of a market entrant, namely the German undertakings E.On and EnBW, the Swiss firm Atel, the western Austrian suppliers Tiwag and VKW and two undertakings that are operate only in the lowest segment of the large customer market - MyElectric and Ökostrom. The Commission received replies from six of the seven undertakings, which in some cases quoted an upper and a lower limit on discounts for the one-year customer acquisition of market entrants. The question they were asked was, "In your experience, what is the first-year acquisition discount which your firm may obtain from a supplier at present for the same electricity product in order to induce a customer in the APG area to switch supplier? Please give this discount as a % of the net electricity price (excluding through-transmission costs and extra charges)." (32) Presentation, "Österreichische Stromlösung", January 2002, p. 9. Prices for consumption of 24 GWh per year. Source: Eurostat, international regulators. (33) In order to compensate for the higher costs of unprofitable power stations that were built in the expectation of continued monopoly rights and on the basis of obligations imposed and guarantees of operation given by the authorities (stranded costs), the Electricity Market Directive provides that aid may be granted for a limited time. By decision of 25 July 2001 the Commission authorised aid of EUR 560 million for a number of run-of-river hydroelectric stations and one thermal station belonging to Verbund (State aid measure No N 34/99, Austria, compensation of stranded costs). The parties point out that this decision is unlikely to be put into effect in Austria. Nevertheless, a partial limit on production cost risks is a beneficial cost factor. (34) It is of less importance here whether these pools of small electricity consumers should already be classified in the lower segment of the large customer market or still in the small customer market. Internal documents of the parties suggest that the parties are trying to keep these customers associated with the market for small customers. (35) Common Position (EC) No 5/2003 of 3 February 2003 adopted by the Council, acting in accordance with the procedure referred to in Article 251 of the Treaty establishing the European Community, with a view to adopting a directive of the European Parliament and of the Council concerning common rules for the internal market in electricity and repealing Directive 96/92/EC (OJ C 50 E, 4.3.2003, p. 15); and, most recently, European Parliament legislative resolution on the Council common position for adopting a European Parliament and Council directive on common rules for the internal market in electricity and repealing Directive 96/92/EC (15528/2/2002 - C5-0034/2003 - 2001/0077(COD)), 4.6.2003 (P5_TA-PROV(2003)0242). Common Position (EC) No 4/2003 of 3 February 2003 adopted by the Council, acting in accordance with the procedure referred to in Article 251 of the Treaty establishing the European Community, with a view to adopting a regulation of the European Parliament and of the Council on conditions for access to the network for cross-border exchanges in electricity (OJ C 50 E, 4.3.2003, p. 1); and, most recently, European Parliament legislative resolution on the Council common position for adopting a European Parliament and Council regulation on conditions for access to the network for cross-border exchanges in electricity (15527/2/2002 - C5-0036/2003 - 2001/0078(COD)), 4.6.2003 (P5_TA-PROV(2003)0244). (36) Court of Justice in Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, paragraph 39; see also Court of First Instance in Case T-102/96 Gencor v Commission [1999] ECR II-753, paragraphs 201 and 202. (37) Hoffmann-La Roche (see footnote 35), paragraph 39. (38) On market shares in 2002, see recital 122. (39) Tiwag's market share falls to below 15 % if supply to the Innsbruck municipal plants, which are affiliated with Tiwag, is left out. At the same time, the combined market share of the parties would increase by a number of percentage points. (40) Reply from Salzburg AG dated 27 February 2003 to a request for information from the Commission. (41) See footnote 32. (42) See recital 82. (43) This follows from the statistical fact that within the large-customer market the balancing energy risk - and with it the balancing energy cost risk - falls as the size of the balance group increases. Likewise, the parties' argument that very small balance groups had lower balancing energy costs, since they did not reach the threshold of energy deviation that triggered the minute reserve, is not convincing, at least as far as the large-customer market is concerned. This is because in the large-customer sector even a few customers can purchase significant amounts of energy. (44) Figure based on amounts purchased; 0,8 % of households and 3 % of other tariff customers. E-Control, Annual Report 2002, p. 70. (45) Annex 10 to EnergieAllianz's reply to the Commission's request for information of 28 February 2003. The data for WienEnergie have not been included, because the reply was incomplete in this respect. (46) Verbund-Austrian Power Vertriebs GmbH (HGB) shareholders' committee, seventh meeting, 28 November 2002, agenda, item 3. (47) Annex 10 to EnergieAllianz's reply to the Commission's request for information dated 28 February 2003. The data for WienEnergie have not been included, because the reply was incomplete in this respect. Switching rates submitted by EnergieAllianz at the hearing show that in the nine months between July 2002 and March 2003 it was Verbund which gained most small customers (network level 7) switching from EnergieAllianz, after MyElectric and Unsere Wasserkraft. Its percentage share of customers switching from EnergieAllianz fell in this period to some [< 15 %]*, which is unsurprising in the light of the planned merger. (48) Planned cooperation between Ruhrgas AG and Salzburg AG with a view to supplying final consumers on a multi-utility basis has not been realised to date. If such cooperation had come about, Ruhrgas AG would ultimately have been competing with of EVN, the EnergieAllianz member linked with E.On. (49) See Table 1 in recital 20. (50) It can also be presumed that the legislation discussed in recital 103 will make it easier to supply Austrian regional suppliers from abroad. (51) This period is to be seen against the background of the legislation discussed in recital 103. (52) This period is to be seen against the background of the legislation discussed in recital 103. (53) This period is to be seen against the background of the legislation discussed in recital 103. (54) See recital 103. (55) Remedies Notice, recital 30. (56) Remedies Notice, recital 12. (57) See footnote 8.