EUROPEAN COMMISSION

DG Competition

Only the English text is available and authentic.

REGULATION (EC) No 139/2004 MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION Date: 14/12/2020

In electronic form on the EUR-Lex website under document number 32020M9968

EUROPEAN COMMISSION

Brussels, 14.12.2020 C(2020) 9233 final

PUBLIC VERSION

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description.

To the notifying party

Subject: Case M.9968 – TOTAL/Ørsted UK Commission decision pursuant to Article 6(1)(b) of Council Regulation 1 No 139/2004and Article 57 of the Agreement on the European Economic 2Area

Dear Sir or Madam,

(1) On 16 November 2020, the Commission received notification of a concentration pursuant to Article 4 of the Merger Regulation which would result from a proposed transaction by which TOTAL S.E. (“TOTAL”), through its wholly owned subsidiary, Total Gas and Power Limited, intends to acquire control, within the meaning of Article 3(1)(b) of the Merger Regulation over the whole of a portfolio of electricity and gas contracts for business customers located in Great Britainand some related assets(the “Target”) from Ørsted Sales Limited and Ørsted Power Sales Limited which are both wholly owned subsidiaries of Ørsted A/S (“Ørsted”). In this Decision, TOTAL and the Target are referred to as ‘the Parties’.

11 OJ L 24, 29.1.2004, p. 1 (the “Merger Regulation”). With effect from 1 December 2009, the Treaty on the Functioning of the European Union (“TFEU”) introduced certain changes, such as the replacement of “Community” by “Union” and “common market” by “internal market”. The terminology of the TFEU will be used throughout this Decision.

22 OJ L 1, 3.1.1994, p. 3 (the “EEA Agreement”).

33 Great Britain includes England, Wales and Scotland.

44 See paragraph 3.

Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË

Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.

1. THE PARTIES

(2) TOTAL is a French multinational company that is active across the oil and gas supply chain, including upstream activities (hydrocarbon exploration, development and production), wholesale activities (refining, petrochemicals, specialty chemicals, trading and shipping of crude oil and petroleum) and retail supply of oil and energy. TOTAL is also active in the electricity generation and carbon neutrality businesses (energy efficiency, carbon capture usage and storage, hydrogen and nature-based solutions). TOTAL operates in more than 130 countries. In Great Britain TOTAL is present through its wholly-owned subsidiary Total Gas and Power Limited, and it is active in the trading of energy commodities and the supply of gas and electricity to industrial, commercial and public sector companies.

(3) The Target comprises the majority of the Ørsted's portfolio of electricity and gas industrial and commercial (I&C) customer contracts in Great Britain, in particular 6the following assets:

-(a) Around […] I&C customer contracts in Great Britain, with a total contracted volume of approximately […] TWh gas and electricity from […];

-(b) related customer data, hedges, green certificates (renewable obligation certificates (ROCs) and Renewable Energy Guarantees of Origin (REGOs));

-(c) the benefit of commission pre-paid to third party intermediaries (but not yet recovered from customers); and

-(d) up to […] full-time equivalent employees all of whom will transfer to the acquirer under local employment laws.

2. THE TRANSACTION

(4) The Transaction is to be achieved by means of the execution of a business purchase agreement concluded between TOTAL and Ørsted, pursuant to which TOTAL is to acquire the Target from Ørsted and hence to acquire control of the whole of the Target.

(5) The acquisition of control over intangible assets can be considered a concentration if these assets constitute a part of an undertaking, that is to say a business with a market presence, to which market turnover can be attributed. In particular, the transfer of the client base of a business can fulfil the above criteria if this is sufficient 7 to transfer a business with a market turnover.In the present case, the Target constitutes an undertaking to which a market turnover can be attributed because the assets listed in paragraph 3 above generated turnover in the financial year prior to the Transaction Also, the Transaction involves the acquisition of assets enabling the acquirer to access the market. Therefore, the Target constitutes an undertaking within the meaning of Article 3(1)(b) of the Merger Regulation.

66 The Target does not include a number of Large Industrial customer contracts (i.e. […] large corporate clients with consumption above […]GWh) [which will be retained by Ørsted].

77 See ‘Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (2008/C 95/01)’, in particular paragraph 24.

(6) It follows that the Transaction would result in a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

3. UNION DIMENSION

(7) The Parties have a combined aggregate worldwide turnover of more than EUR 5 000 8 million [TOTAL: EUR […] million; the Target: EUR […] million].Each of them has an Union-wide turnover in excess of EUR 250 million [TOTAL: EUR […] million; the Target: EUR […] million], but they do not achieve more than two-thirds of their aggregate Union-wide turnover within one and the same Member State. Therefore, the concentration has a Union dimension within the meaning of Article 1(2) of the Merger Regulation.

8 Turnover calculated in accordance with Article 5 of the Merger Regulation.

4. COMPETITIVE ASSESSMENT

(8) The Parties overlap in relation to the retail supply of (i) electricity and (ii) gas to business customers in Great Britain. However, affected market arise only in relation 9to the retail supply of gas.

Product market definition

(9) In the past the Commission considered the retail supply of gas as a separate market and subdivided it between (i) households, (ii) SMEs, (iii) large industrial customers 11 and (iv) gas-fired power plants. That definition, which is not contested by the Parties, is to be retained for the purposes of this Decision.

Geographic market definition

(10) The Commission has previously considered the retail supply of gas to be national in scope. In the context of the United Kingdom, the Commission has defined the 12 geographic market as encompassing Great Britain, excluding Northern Ireland. The Parties do not contest this geographic market definition and it is retained for the purposes of this decision.

8 Turnover calculated in accordance with Article 5 of the Merger Regulation.

9 The Transaction gives rise to overlaps in the markets for the retail supply of electricity to SMEs (with a combined market share of [5-10]%) and the retail supply of electricity to large industrial customers ([5-10]%). These markets are therefore not affected and thus not discussed further in this Decision.

10 See e.g. M.8870 E.ON/Innogy, M.8358 Macquarie/National Grid/Gas Distribution Business of National Grid.

11 In many recent cases, it has not been necessary to decide on a precise threshold to distinguish between customers in the different relevant product markets. Earlier Commission decisions have variously used thresholds based on consumption, metering or connection type, although the precise threshold has differed according to the national market concerned. See e.g. COMP/M.4180 GDF/Suez.

12 COMP/M.8870 – E.ON/Innogy, COMP/M.7228 – Centrica/Bord Gais Energy; COMP/M.5224 – EDF/British Energy; COMP/M.4517 – Iberdrola/Scottish Power.

Competitive assessment

(11) The Transaction gives rise to the following affected markets :

-(a) The supply of gas to SMEs in Great Britain; and

-(b) The supply of gas to large industrial customers in Great Britain.

(12) The Parties argue that the Transaction raises no competition concerns because (i) the combined market shares are modest with a limited increment, (ii) post-transaction TOTAL will continue to face strong competition in Great Britain from a number of strong suppliers, (iii) customers have countervailing buyer power, (iv) there is limited customer loyalty and switching is easy and (v) barriers to entry are low.

(13) On the basis of the information available to it and in the light of the results of the market investigation, the Commission considers that the Transaction is unlikely to raise competition concerns for the following reasons.

(14) First, the Parties have a moderate combined market share and the increment brought about by the Transaction is limited. Post-transaction the Parties’ combined market share will be [20-30]% in the market for the retail supply of gas to SMEs (with an increment of [0-5]%) and [20-30]% in the market for the retail supply of gas to large industrial customers (with an increment of [5-10]%).

(15) Second, there is a significant number of credible alternatives to the Parties that will remain active in the relevant markets post-merger.

(16) With particular regard to the retail supply of gas to SMEs, the Parties’ competitors include several sizeable players some of which are large international energy companies with activities in several countries: Corona Energy (with a market share of [10-20]%), British Gas ([5-10]%), Gazprom Energy ([10-20]%), SSE ([5-10]%) and E.ON UK ([0-5%]).

Table 1: Market shares in the retail supply of gas to SMEs in Great Britain (by volume)

Volume (in GWh) Market share

TOTAL […] [20-30]%

Target […] [0-5]%

Combined […] [20-30]%

Corona Energy […] [10-20]%

British Gas […] [5-10]%

13 The retail supply of gas to households is not relevant to the Transaction, as neither Party is active in that market.

Volume (in GWh) Market share

Gazprom Energy […] [10-20]%

SSE […] [5-10]%

ENGIE […] [0-5]%

E.ON UK […] [0-5]%

Others […] [10-20]%

Total […] 100%

Source: Parties’ estimates

(17) Similarly, for the retail supply of gas to large industrial customers the Parties will continue to face competition from large international players. These include: Gazprom Energy - that with a share of [20-30] % will remain the largest supplier even post-merger, ENI ([5-10]%), Corona Energy ([5-10]%), E.ON UK ([0-5%]) and ENGIE ([0-5%]).

Table 2: Market shares in the retail supply of gas to large industrial customers in Great Britain (by volume)

Volume (in GWh) Market share

TOTAL […] [20-30]%

Target […] [5-10]%

Combined […] [20-30]%

Gazprom Energy […] [20-30]%

ENI […] [5-10]%

Corona Energy […] [5-10]%

E.ON UK […] [0-5]%

ENGIE […] [0-5]%

Others […] [20-30]%

Total […] 100%

Source: Parties’ estimates

(18) Third, the evidence gathered by the Commission consistently points to the Parties not being particularly close competitors.

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(a) Diversion ratios: the Parties estimated that in 2019 only a small proportion of all gas customers TOTAL lost across the two markets under investigation diverted to Ørsted, and vice versa, evidencing that the Parties do not compete closely. The diversion ratio from Total to Ørsted in 2019 is estimated to be less than [0-5]%. The diversion ratio from Ørsted to Total is larger (approximately [10-20]%) but it is significantly lower than would be expected if Ørsted customers diverted to TOTAL proportionally to TOTAL’s market share (approximately [20-30]%) which further points to the lack of any significant closeness between the Parties.

(b) TOTAL’s internal documents: TOTAL prepares monthly internal reports that summarise the aggregate gains and losses across the two markets under investigation for the month, as well as the year to date. TOTAL’s internal assessment suggests that TOTAL gains and loses volume to a wide set of rivals, […]. Other [than Ørsted] suppliers, for example, […], appear to be competing more closely with TOTAL.

(c) The Commission’s market investigation questionnaire: during the market investigation only one respondent indicated that it sourced gas from both TOTAL and Ørsted. When asked to which supplier they would switch should its supplier (i.e. TOTAL or Ørsted) stop supplying them, the vast majority of respondents did not indicate the other Party as an alternative. The vast majority of respondents submitted that they would conduct a competitive tender process and would invite several suppliers to bid. In particular, respondents indicated that “there are now a number of large gas suppliers in the UK, examples include – Centrica (British Gas), EDF Energy, Scottish & Southern Energy, E.ON & Scottish Power. In the absence of a full competitive tender process, [we are] unable to confirm which competitor it would be most likely to switch to in place of Total but [consider] that there are a large number of credible alternatives to which it could switch”, that “in the event that Total were no longer able to supply gas, we would conduct a tendering process for a new supplier (…) Ørsted have not been included in any tender process for supply of gas”, and that “in this scenario, [we] would conduct a tender exercise on the open market to get the best value for the volume of gas”.

(19) Fourth, the vast majority of respondents (including both SMEs and large industrial customers) to the market investigation indicated that the Transaction would have little or no material impact on the intensity of competition. Several of the respondents to the Commission’s market investigation replied that the market for gas supply to end customers in the UK is highly competitive, and thus would not anticipate the Transaction to adversely affect competition. One of the respondents stated that it would not expect any impact on the intensity of competition since “[t]he UK Gas supply market is very competitive with multiple suppliers available to provide pricing”. Similarly, other respondents submitted that “we do not consider that there will be a significant impact on the intensity of competition, due to the competing suppliers in the UK market and with new potential suppliers entering the market place”, that “there are several suppliers in the market for the retail supply of gas in the UK already, including Gazprom, SSE, BPG, Corona, British Gas, EDF, Eon, Scottish Power. In our view, the Transaction will not affect the intensity of competition in this market”, and that “this transaction is unlikely to have any impact on the intensity of competition. While Total has been (and continues to be) our gas supplier, historically we have not considered Ørsted as a potential alternative and they have not been included in our tender processes for supply of gas”.

(20) Fifth, in its most recent report on the State of the Energy Market (2019), OFGEM, the energy regulator in the United Kingdom, looked across the whole non-domestic/business retail segment and noted that there were a large number (86) of active licensed suppliers, the HHI levels were moderate, at or just below 1,000 for the large gas business segment and slightly above 1,000 (1,148) for the small gas business segment, and concentration levels continued to decline.

(21) In light of the above, the Commission considers that the Transaction does not give rise to serious doubts as to its compatibility with the internal market with regard to the retail supply of gas to SMEs and large industrial customers in Great Britain.

5. CONCLUSION

(22) For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the internal market and with the EEA Agreement. This Decision is adopted in application of Article 6(1)(b) of the Merger Regulation and Article 57 of the EEA Agreement.

For the Commission

(Signed) Margrethe VESTAGER Executive Vice-President

17 See questionnaire Q1 (gas customers), replies to question 5.

18 https://www.ofgem.gov.uk/system/files/docs/2019/11/20191030_state_of_energy_market_revised.pdf

19 The Herfindahl-Hirschman Index (HHI) measures market concentration by summing the squares of the market share of each player.

20 According to its Horizontal Merger Guidelines (paragraph 19), the Commission “is unlikely to identify horizontal competition concerns in a market with a post-merger HHI below 1 000. Such markets normally do not require extensive analysis”.

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