Case No COMP/M.5802 - RWE ENERGY/ MITGAS

Only the English text is available and authentic.

REGULATION (EC) No 139/2004 MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION Date: 17/06/2010

In electronic form on the EUR-Lex website under document number 32010M5802

Office for Publications of the European Union L-2985 Luxembourg

EUROPEAN COMMISSION

Brussels, 17.06.2010

SG-Greffe(2010) D/8621 C(2010)4231

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 Where possible the information omitted has been replaced by ranges of figures or a general description.

PUBLIC VERSION

MERGER PROCEDURE ARTICLE 6(1)(b) DECISION

To the notifying party

Dear Sir/Madam,

Subject: Case No COMP/M.5802 – RWE ENERGY/ MITGAS Notification of 10/05/2010 pursuant to Article 4 of Council Regulation No 139/2004

1.On 10/05/2010, the Commission received a notification of a concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (the "Merger Regulation") by which enviaM Mitteldeutsche Energie AG ("enviaM", Germany), which is controlled by RWE AG ("RWE", Germany) (the "notifying party"), acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of the whole of Mitgas Mitteldeutsche Gasversorgnung GmbH ("Mitgas", Germany) (the "parties"), by way of purchase of shares (the "transaction").

I. THE PARTIES AND THE OPERATION

2.RWE is the ultimate parent company of the RWE Group, which is primarily active in the business areas of electricity and natural gas. RWE's activities in the energy sector cover products and services related to electricity and gas at essentially every level of the supply chain, ranging from exploration/generation to the supply of end-customers. RWE is active across the European Union.

3.enviaM is a subsidiary of RWE. enviaM and its subsidiaries are mainly active in the transmission and retail of electricity, heat and related services to local distributors and

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") has 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.

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

4.end-customers as well as in water supply. enviaM also has marginal activities in the gas sector. Geographically, enviaM's activities focus on the area of its electricity transmission network in the German States of Saxony and Saxony-Anhalt as well as parts of Thuringia and Brandenburg. enviaM holds shares in 54 companies in the energy sector, 25 of which are local energy suppliers (the so called "Stadtwerke"). Within the area in which the Mitgas is active, enviaM owns Stadtwerke Herzberg GmbH and its local gas supply grid(the local grid hereinafter called the "Former SW Herzberg Grid"). In addition, enviaM holds a majority participation in the local gas supplier envia infra GmbH, Bitterfeld (its grid hereinafter the "envia infra Grid").

5.Mitgas is a regional gas distributor in Eastern Germany. Mitgas is mainly active in the wholesale supply of H-gas to Stadtwerke and in the retail supply of H-gas to end-customers. Mitgas also provides gas transmission services to other gas suppliers. Mitgas does not hold any participation in local gas suppliers, and does not have any L-gas or electricity activities. Geographically, Mitgas' activities focus on its gas distribution network area in the German states of Saxony, Saxony-Anhalt and Thuringia.

6.Prior to the transaction, RWE indirectly held a majority share in Mitgas (60.1%) while Kommunalwirtschaft Sachsen-Anhalt GmbH & Co. Beteiligungs-KG, Magdeburg ("Kowisa") held 15.3% and VNG Beteiligungs GmbH, a direct subsidiary of VNG Verbundnetz Gas AG ("VNG") held 24.6% of the shares in Mitgas.

7.On 6 February 2009, RWE and Kowisa reached an agreement pursuant to which RWE would acquire the 15.3% Kowisa share in Mitgas, and thereby increase its direct and indirect share in Mitgas from 60.1% to 75.4%. On 28 August 2009, the transaction was implemented.

8.RWE considers that it solely controlled Mitgas pre-transaction. However, the Commission considers that RWE and Kowisa had joint control over Mitgas. This is because Kowisa had, by virtue of its votes in the supervisory council of Mitgas, the right to block certain strategic decisions of the majority shareholder RWE such as the conclusion, amendment or cancellation of major contracts between Mitgas and third parties, the acquisition or sale of stake holdings. VNG did not have such powers. The Commission therefore asked RWE to notify the concentration retroactively pursuant to Article 4 of the Merger Regulation.

9.The transaction is a concentration in the meaning of Article 3(1)(b) of the Merger Regulation.

II. EU DIMENSION

10.The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5000 million(RWE: EUR […] billion, Mitgas: EUR […] million). Moreover, the aggregate EU-wide turnover of both undertakings is more than EUR 250 million (RWE: EUR […] billion, Mitgas: EUR […] million). Only Mitgas achieves more than two-thirds of its aggregate EU-wide turnover within one Member State (Germany). Thus, the

2A 'grid' is a network for gas supplies.

3Turnover calculated in accordance with Article 5(1) of the Merger Regulation.

transaction has an EU dimension in the meaning of article 1(2) of the Merger Regulation, and falls into its scope.

III. THE RELEVANT MARKETS

11.The German natural gas market is characterized by different so called market areas and grid areas. Mitgas operates a regional grid which is located within the GASPOOL market area, more specifically within the grid operated by the Transmission System Operator Ontras. Through enviaM, RWE operates two local girds within this area, the Herzberg grid and the envia infra grid which are connected to the Mitgas grid.

12.The transaction gives rise to horizontal overlaps on the following markets: (i) long-distance wholesale of H-gas; (ii) short-distance wholesale of H-gas; (iii) the retail supply of large industrial and commercial end-customers; and (iv) the retail supply of small end-customers. There are vertical relationships on the following markets: (i) the (upstream) market of short-distance wholesale supply and (ii) the (downstream) markets of local retail supply to end-customers.

Relevant product markets

13.The Commission has distinguished in its previous recent decisions, different product markets for (i) wholesale gas supply, which in Germany consist of two markets, namely a primary level: sales to regional wholesale companies (long-distance wholesale supply), and a secondary level: sales to LDC ("Stadtwerke") (short-distance wholesale supply); (ii) retail gas supply to industrial customers (a market which may include electricity power plants), (iii) retail supply to small customers (households).

14.In its recent decisions the Commission has taken the view that a further distinction should be made with regard to the gas quality (H-gas and L-gas) especially in Germany.

15.The notifying party considers that the Commission does not need to decide on the exact scope of the market in the present case.

16.RWE, enviaM and Mitgas are only active in the field of H-gas in the area concerned. In relation to the wholesale supply of H-gas the precise product market definition can be left open, as under any potential market definition no competition concerns arise.

Retail supply of natural gas

17.In previous decisions, the Commission has distinguished different product markets for (i) retail gas supply to large customers (industrial customers and electricity power plants), (ii) retail supply to small customers (households).

18.As regards large customers, the Commission has also drawn distinctions between industrial customers and electricity power plants according to their annual gas consumption and their type of activity and the same distinction between H-gas and L-gas applies with regard to retail supply of natural gas as in respect of wholesale supply of natural gas.

19.RWE submits that the market definition can be left open in the present case. The Commission considers that the precise market definition can be left open in the present case as under any potential market definition no competition concerns arise.

Relevant geographical markets

20.In its previous decisions, the Commission has held that the geographic markets for gas supply were not wider than national. As for short-distance wholesale supply of natural gas its geographic scope corresponds to the grid area in Germany.

21.The notifying party submits that the geographic markets must extend, at the very least, to the market areas or be considered national in scope.

22.The Commission considers that with regard to the transaction this question can be left open since on the basis of alternative definitions it does not raise competition concerns.

Retail supply of natural gas

23.In its previous decisions, the Commission has left open the precise geographic definition for the markets of retail supply to power plants, to large customers and small customers however indicating that these markets may be national or regional while not being wider than national.

8Case COMP/M.4890 – Arcelor/Ferngas, of 22 November 2007, paragraph 11 and Case COMP/M.5467 – RWE/Essent, of 23 June 2009, paragraph 365.

9Case COMP/M.3696 – E.ON/MOL, of 21 December 2005, paragraph 89 and Case COMP/M.5467 – RWE/Essent, of 23 June 2009, paragraph 366.

10Case COMP/M.5467 – RWE/Essent, of 23 June 2009, paragraphs 369 – 371.

11Case COMP/M.5220 – ENI/Distrigaz, of 15 October 2008, paragraph 25 and Case COMP/M.5467 – RWE/Essent, of 23 June 2009, paragraph 330.

12Case COMP/M.5467 – RWE/Essent, of 23 June 2009, paragraph 333

13A market area is defined as the combination of multiple operators’ networks and network areas that are interconnected, technically or by means of swaps of gas quantities, either vertically (e.g., TSO-DSO) or horizontally (e.g., TSO-TSO), creating an area within which gas injected at a given entry point can exit at any exit point within the market area in question (Case COMP M.5467 - RWE/Essent, paragraph 300). In July 2006, the operators of the natural gas networks in Germany entered into a cooperation agreement (Vereinbarung über die Kooperation gemäß §20 Abs.1b) EnWG zwischen den Betreibern von in Deutschland gelegenen Gasversorgungsnetzen) which provides for the formation of so-called market areas (Marktgebiete) (Case COMP M.5467 - RWE/Essent, fn 207).

14Case COMP/M.5467 – RWE/Essent, of 23 June 2009, paragraph 372 – 382.

23.The notifying party submits that the retail markets are national in scope or must, at the minimum, extend to the market area in which a customer is located, however with regard to the transaction this question can be left open since on the basis of the narrowest market definition (the area covered by a grid) it does not raise competition concerns.

The geographic scope of the markets can be left open as under any potential market definition no competition concerns will arise.

IV. COMPETITIVE ASSESSMENT

25.The transaction gives rise to overlaps on the markets listed in point 11. Geographically, the overlaps are limited to the Mitgas grid area, and within the Mitgas grid area the Former Stadtwerke Herzberg grid area and the envia infra grid area (the latter only as regards retail).

26.However, the present transaction consists in a change from joint to sole control over Mitgas. In consequence, the transaction can only lead to competition issues if there was, at the time when the concentration was implemented, appreciable actual competition or at least likelihood for appreciable potential competition between the joint venture Mitgas on the one side and other RWE group companies on the other.

27.The market investigation carried out by the Commission revealed that several market players and in particular customers perceived Mitgas and enviaM as competing with each other in the Mitgas grid area for a relatively short period of about one year.

28.RWE explained that the enviaM Board of Directors decided in May 2007 to enter the gas business in the Mitgas grid. Active acquisition of gas customers started in July 2007. However, on 7 April 2008, the enviaM Board of Directors decided to stop all active or passive marketing activities for gas supply in the Mitgas grid area. enviaM decided to continue honouring existing contracts and to stick to offers that were already submitted but would not enter into new contracts. […]. It is submitted that this decision to withdraw from the market did not affect the supplies in the two local grids (Herzberg and envia infra grid) which are connected to the Mitgas gird. Also, in areas outside the Mitgas grid enviaM continues being active.

29.Apart from enviaM, RWE was and continues to be active through its group company RWE Supply & Trading. These activities consist in supplying in total […] large customers which have some of their sites located within the Mitgas grid area ([…] in the Mitgas grid and […] in the envia infra grid). Unlike other customers in the Mitgas grid area, these customers are interested in German wide contracts for the supply of all their sites.

30.The Commission notes that RWE had a controlling shareholding in Mitgas and could have thus potentially used its influence by limiting Mitgas' activities. However, there is no need to verify if it had been feasible for RWE to do so since RWE decided in 2008 that enviaM should withdraw from gas supplies in the Mitgas grid area. This decision had been taken before the present concentration was implemented which indicates that the concentration was not the reason for any reduction of actual or potential competition.

Wholesale supply of natural gas

GASPOOL market area and ONTRAS market area

31.The combined market shares of the parties in the GASPOOL market area in 2009 for long-distance wholesale is estimated around [0-5]%, for short distance wholesale less than [5-10]%, for supply to large customers less than [10-20]% and for supply to small customers less than [5-10]%.

32.The combined market shares of the parties in the Ontras market area in 2009 are around [0-5]% in long distance wholesale, [10-20]% in short distance wholesale, [10-20]% in supply to large customers and less than [10-20]% in supply to small customers.

Based on the limited market shares and the fact that several large competitors are active in these areas, the transaction does not lead to competition concerns in the wholesale supply of natural H-gas in the GASPOOL and ONTRAS market area.

(Short distance) Wholesale supply in the Mitgas Grid Area

34.enviaM and Mitgas supplied LDCs (Stadtwerke) in the Mitgas grid area. RWE estimates the market shares for the year 2009 at [40-50]% for Mitgas and [0-5]% for enviaM, the latter resulting from the wholesale supply to a single customer ([…]). RWE submits that in the years before 2009, Mitgas’ market shares had been significantly higher but in 2009 Mitgas lost many supply contracts with local suppliers.

35.As stated above, RWE decided in April 2008 to withdraw enviaM from the gas business in the Mitgas grid area. Since then, enviaM only supplies one LDC, the […] due to a contract that pre-dates RWE’s decision to stop enviaM’ activities in the Mitgas grid area. Apart from that, RWE continues to be active in the two local grids, Herzberg and (for retail supply) in the envia infra grid.

36.The Commission considers that due to the minor activities of RWE/enviaM in the wholesale supply of H-gas in the Mitgas grid area pre-transaction any material competitive impact caused by the concentration is unlikely. Moreover, as stated above RWE/enviaM decided already before the concentration to stop marketing activities by enviaM in the Mitgas grid area. Any competitive impact is therefore not caused by the concentration.

Retail supply of natural gas to large end customers

Mitgas Grid Area

37.RWE estimates that in retail supply of natural gas to large end customers, Mitgas has a market share in the Mitgas grid area of [70-80]% in 2009. RWE’s market share is estimated at [10-20]% resulting from supplies by enviaM and RWE Supply & Trading.

38.RWE Supply & Trading, a subsidiary of RWE, supplied in 2009 […] GWh to large industrial customers with multiple sites in Germany including in the Mitgas grid area. The supplies by RWE Supply & Trading represent [5-10]% of RWE’s estimated market share in the Mitgas grid area whereas the supplies by enviaM only account for about [0-5]%

39.The market shares for RWE Supply & Trading result from contracts that are negotiated on a national basis and not only for the Mitgas grid. They are allocated to the Mitgas grid only for reason that some of the sites of the customer are located within the Mitgas grid. However, effectively competition for these national customers does not take place at the level of the Mitgas grid. Therefore the market share of RWE Supply & Trading does not indicate market presence within the Mitgas grid. In addition, as stated above, RWE decided to withdraw enviaM from being active in the Mitgas grid so that any actual or potential competition stopped before the concentration.

Former Stadtwerke Herzberg Grid Area

40.In the Former Stadtwerke Herzberg grid area, all end-customers are supplied by enviaM. Mitgas has not been active since 2005 in the retail supply of gas in this grid. Therefore the Commission considers that there was no actual or even potential competition concerning the Herzberg grid as RWE had the power to allocate the activities of its group companies.

envia infra Grid Area

41.In the envia infra grid area, large end customers are supplied by both enviaM ([90-100]%) and Mitgas ([5-10]%). RWE states that Mitgas’ marketing activities in the envia infra grid were limited to the year 2008 in which it acquired […] customers. Supply to these customers started in 2008 or, at the latest on 1 January 2009. The volumes supplied by Mitgas in 2009 were limited to […] GWh. RWE submits that from late 2008/early 2009, at the same time when enviaM decided to cease its gas marketing activities in the Mitgas grid, Mitgas ceased to actively or passively market gas supplies in the envia infra grid. RWE states that Mitgas has not acquired any new customers in the envia infra grid since then. It has only extended the term of the existing supply contracts that had already been acquired in 2008. From enviaM’s perspective, Mitgas’ presence in the envia infra grid was so limited and incidental that there was no need to request RWE to stop the Mitgas supplies. It must also be noted that the envia infra grid exclusively serves the customers in the Bitterfeld-Wolfen industrial park.

42.The Commission therefore considers that there was only very limited competition by Mitgas in the envia infra grid for which stopped in 2008. Therefore, the concentration did not cause any negative effect on competition.

Retail supply of natural gas to small end customers

43.Concerning the retail supply of natural gas to small end customers enviaM's activities in the Mitgas grid (including Stadtwerke Herzberg) were very limited and amounted to less than [0-5]% market share. The Commission thus considers that the transaction did not bring about any material effect on the competitive situation.

Vertical Relationship

A vertical relationship exists between the (upstream) market of short-distance wholesale supply and the (downstream) markets of local retail supply to end-customers. Regarding the short-distance wholesale supply, as explained above, the parties’ market shares in the GASPOOL and the Ontras grids are limited, and enviaM and Mitgas respectively ceased or significantly limited their wholesale activities in the Mitgas grid area and the Former Stadtwerke Herzberg grid area. Also in retail supply, enviaM ceased its activities in the Mitgas grid area. In the Former Stadtwerke Herzberg grid and in the envia infra grid, Mitgas ceased its activities.

Conclusion

45.The Commission considers that the horizontal overlaps between the parties’ activities are very limited or set to diminish and to eventually reach zero. This also applies to the vertical relationship between the parties. The termination of the activities was already decided and at least partially implemented pre-transaction and was therefore not the effect of the transaction.

As regards the situation until that date, the Commission notes that the transaction involves a change from joint to sole control of Mitgas. As RWE already exercised a certain level of control (joint control) over the target the transaction is unlikely to result in any significant change in the market structure.

V. CONCLUSION

47.For the above reasons, the European 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.

For the European Commission, (signed) Joaquín ALMUNIA Vice-President of the European Commission

8