Commission's commitment decision opens German gas pipelines to competitors - Briefing

04 May 2010
by Ina Dimireva -- last modified 04 May 2010

The European Commission has adopted a decision that renders legally binding commitments offered by E.ON to effectively open up access to the German gas market thereby addressing concerns that it may have unfairly shut out competitors in a possible abuse of its dominant market position.

1. What is a commitment decision?

A "commitment decision" is a decision based on Article 9 of Regulation 1/2003 on the implementation of the EU competition rules. Such a decision does not conclude that there has been an infringement of competition rules, but it legally binds the company concerned to the commitments it has offered, and ends the Commission's investigation. If the company concerned were to break its commitments, the Commission could impose a fine of up to 10 percent of the company’s annual turnover without having to prove any violation of the competition rules under the Treaty on the Functioning of the European Union (TFEU).

2. What are the main elements of E.ON's commitments?

Under the commitments, E.ON will, in a first step, release by October 2010 a volume of 17.8 GWh/h firm, freely allocable entry capacities into its gas transmission network.

In a second step, E.ON will by October 2015 further reduce its overall share in the bookings of firm, freely allocable entry capacity in the H-gas market area (NetConnect Germany) to 50% and for the L-gas network to 64%.

3. What were the Commission’s competition concerns?

The Commission was concerned that E.ON's long-term reservations might have infringed EU rules on the abuse of a dominant position (Article 102 TFEU), by closing off other gas suppliers from access to the German gas market.

E.ON booked large parts of the firm, freely allocable entry capacities available in its own gas network. This may have prevented competitors to transport gas into E.ON's network and, subsequently, to the customers connected to E.ON's grid. Thereby E.ON might have restricted competition on the downstream gas supply markets and harmed consumers.

4. What are the implications of the decision for security of supply in Germany?

The easier gas can flow freely within the EU, the more secure the supply of any individual country will be. The commitments are fostering the free flow of gas into Germany and in the EU in general. They will help markets to integrate in Europe and will also contribute to further infrastructure investments. This is, therefore, a remedy which enhances security of supply in Germany and in the EU. The Commission understands that E.ON has designed its proposals so as to be able to respect its supply obligations. There are also a number of other options available for E.ON to meet such obligations – including, for example, the use of storage and booking of short term capacity.

5. In the light of previous energy cases, why was a structural remedy not imposed, such as unbundling of the network operator?

The reduction of E.ON's share of transport capacity into its transmission grid will lead to a permanent change in the structure of German gas transport markets. It is, consequently, of a structural nature.

Moreover, commitments must relate directly to a specific, potentially abusive, behaviour and must constitute a necessary, suitable and proportionate remedy. The behaviour identified in the Commission's preliminary assessment concerned capacity reservations by E.ON as a shipper of gas. Unbundling would therefore not have resolved the competition problem in this case, as E.ON's long-term reservations would still close off competitors, even if the grid would have been sold to another operator.

6. Why does E.ON have until 2015 to reach the "long-term" reservation ceilings?

The decision allows E.ON to reach the ceilings of 50% (NetConnect Germany) and 64% (E.ON L-gas-network) in various ways, either by returning capacities to the transmission system operator, by measures increasing the capacity in the respective network, or by entering into market area co-operations, which increase the total capacity volume in E.ON's respective grid. E.ON commits not to exceed these thresholds until 2025. As the release of such significant transport capacities may require investments or re-negotiations of existing contracts, a transition period appears to be appropriate.

7. How much does the rapid release of capacity represent?

The capacity that will be released by E.ON by October 2010 (17,8 TWh/h) corresponds to about 15% of the total firm freely allocable entry capacity into the E.ON grids.

8. Why is the duration of the commitments so long?

The duration is appropriate for a case relating to long-term capacity reservations. Current capacity reservations often run 10-15 years into the future.

9. What happens if no one wants the liberated capacity?

This is highly unlikely. Many third parties have specified the difficulties they face due to a lack of available capacity. Of course, this does not mean that third parties will necessarily book capacity for more than 10 years at a time, like E.ON. Nor does it mean that they can necessarily organise themselves immediately to take all the freed capacity. However, this will not result in any supply problem, since the commitments allow E.ON to book any unbooked capacity under a short-term regime. Consequently, no capacity will remain unused.

10. Why does the immediate release not target all entry points into E.ON's networks?

The immediate release covers all the main entry points into E.ON's networks and includes pipelines from all main gas sources (i.e. Russia, The Netherlands and Norway). Whereas individual shippers all have their own preferences, the Commission’s market test showed that a correct balance has been struck.

Source: European Commission