The electricity supply business of South-western Electricity plc (SWEP) has been acquired by Eléctricité de France (EDF) through its wholly-owned subsidiary London Electricity plc (LE). EDF is a French wholly state-owned group, whose principal activity is the generation, transmission, distribution and supply of electricity in France. In 1998, it acquired LE, a regional electricity company (REC) whose main activities are the supply and distribution of electricity mainly in the London area. EDF also provides a small part of a UK demand for electricity, through the France/UK inter-connector cable. SWEP is controlled by Southern Energy, Inc., a US energy company. SWEP which LE acquires supplies electricity mainly in the South-west of England.
In assessing the relevant product markets, the Commission considered whether, since the liberalisation of electricity supply was completed on 24 May 1999, a distinction should be made between the supply of electricity to the smallest customers (i.e. those whose demand for electricity is below 100 kW) and other customers. It concluded that the supply to smaller customers would still appear to form a distinct product market mainly because these customers are, and will continue to be, in the short to medium term at least, protected by the Director General of Electricity Supply (DGES) who sets maximum prices for supply to them. Moreover, these customers are relatively unsophisticated and for them electricity is not a major item of expenditure so the potential savings do not constitute a significant incentive. However, the Commission left open whether there are one or two relevant product markets. As to the geographic definition of the markets, the Commission recalled its EDF/London Electricity decision (Case IV/M.1346, see EU Law Briefing Notes of April 1999). Although pressed by the notifying party to redefine the relevant geographic market as England and Wales, the Commission reiterated that the geographic market for the supply of the smallest customers would still remain limited to the twelve distribution areas. The Commission therefore disregarded the argument that, following the liberalisation of supply, the conditions of competition are identical in England and Wales, and that smallest customers are well informed about competitors’ products and prices. On the contrary, the Commission found that smallest customers will remain kept, at least in the short term, and that it is unclear whether these customers are well informed about the identity of competitors.
Finally, no more than 5% of customers in LE or SWEP’s areas have already changed suppliers. The Commission however left open the question of definition of the geographic markets concerned. The Commission found that the operation would not materially affect competition and the parties’ activities overlap only in the supply of electricity. Following liberalisation, customers are now free to choose their supplier. LE and the SWEP business have a share of less than 15% of the total supply in England and Wales. The Commission also examined the possibility that the vertical integration of EDF and LE’s generating activities and the SWEP’s business might lead to adverse effects on competition, particularly for the smaller customers in London and the South-western areas, where LE and the SWEP businesses are dominant. However, given their existing framework of sectoral regulation of the electricity industry in the UK, the Commission concluded that anti-competitive effects were unlikely to arise from the vertical aspects of the merger.
As ancillary restrictions, the Commission agreed to a number of non-competition clauses. However, it considered that it is not necessary to protect SWEP from the competition of LE as it would have amounted to protecting the vendor. The Commission did not accept as ancillary restriction the agency agreement whereby LE will be the sole and exclusive agent to manage, carry out and conduct SWEP’s tariff supply business. As this provision appeared to be an integral part of the operation, the Commission did not consider it as ancillary restriction. (Case No. IV/M.1606, decision of 19.07.99)
