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REGULATION (EC) No 139/2004 MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION Date: 22/08/2008

In electronic form on the EUR-Lex website under document number 32008M4922

Office for Official Publications of the European Communities L-2985 Luxembourg

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 22-08-2008

SG-Greffe(2008) D/205193-205197

C(2008) 4626

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 [Ö]. Where possible the information omitted has been replaced by ranges of figures or a general description.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 parties:

Dear Sir/Madam,

2.After examination of the notification, the Commission has concluded that the notified operation falls within the scope of the Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings ("Merger Regulation") and will not significantly impede effective competition in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position.

1OJ L 24, 29.1.2004 p. 1.

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

(1) THE PARTIES

3.ENE, ENDK and VE-T are electricity transmission system operators (ìTSOsî) ; EEX and NPS are power exchanges. ENE is an indirect 100%-subsidiary of E.ON AG, a vertically integrated electricity and natural gas supplier. VE-T is a 100%-subsidiary of Vattenfall AB, a Swedish state-owned vertically integrated energy undertaking. The three other parents i.e. ENDK, EEX and NPS are not controlled by a vertically integrated electricity or natural gas company. ENDK is a Danish state-owned TSO. EEX is the German energy exchange, located in Leipzig, and operates an exchange for the following products and derivates: power, natural gas, European emissions allowances and coal. NPS is the Nordic energy exchange operating and owning the day-ahead auction trading system Elspot and the intra-day trading system Elbas. In addition to its headquarters in Oslo, NPS has offices in Denmark, Finland and Sweden.

(2) THE CONCENTRATION

5.JVs would be full-functional as it is intended to take on the foreseen market coupling and secondary capacity auctioning activities on a long-lasting basis and to do so autonomously. The clients of the JVs would be both the shareholders and so called commercial capacity holders (independent interconnectors) on the one hand and any traders willing to sell or buy the transmission rights on the secondary market on the other

2"transmission system operator" means a natural or legal person responsible for operating, ensuring the maintenance of and, if necessary, developing the transmission system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long term ability of the system to meet reasonable demands for the transmission of electricity;

3"power exchange" is a form of a commodity exchange where various energy products and their derivatives are traded.

4Market coupling is a method for integrating electricity markets in different areas. With market coupling the daily cross-border transmission capacity between the various areas is not explicitly auctioned among the market parties, but is implicitly made available via energy transactions on the power exchanges on either side of the border (hence the term implicit auction). It means that the buyers and sellers on a power exchange benefit automatically from cross-border exchanges without the need to explicitly acquire the corresponding transmission capacity.

5OJ L 176 , 15/07/2003 p 1

6hand . The JV would be financed by a cost based service-fee which would be split equally between the capacity holders in relation to the capacities brought by them to the JV. The JV would therefore apply an equal charging methodology to the parents and to independent capacity holders.

8Moreover with the eventual creation of other electricity coupling companies and auction offices in other regions, as provided for in article 3.2 of the Guidelines on the management and allocation of available transfer capacity of interconnections between national systems("Allocation Guidelines"), it is expected that, in the future, auction offices will start competing with each other in the provision of electricity coupling and allocation services vis-‡-vis interconnector/transmission system operators.

Therefore the JV will be full functional and the operation constitutes a concentration within the meaning of Article 3.1(b) of the ECMR.

(3) COMMUNITY DIMENSION

9.The transaction has a Community dimension pursuant to Article 1(2) of the Merger Regulation. The undertakings concerned had a combined aggregate worldwide turnover of more than EUR 5 billion in 2007. They did not achieve more than two thirds of its aggregate Community-wide turnover in one Member State.

(4) RELEVANT PRODUCT AND GEOGRAPHIC MARKETS

10.The operation deals with the provision of the congestion management services for cross border electricity transmission systems by market coupling. The European Commission has not yet identified or defined, in its publicly available decisions, relevant markets with regard to the creation and operation of undertakings active in electricity market coupling.

6Part of the interconnection capacity would be allocated in the form of explicit auctions for a long-term (yearly) or mid-term (monthly) as opposed to day-ahead implicit capacity allocation. Long-term capacity right is a standardised product that allows the holder to use the given amount of capacity during the whole duration of the right (e.g. 100MW during the whole year). The experience shows that the capacity holders hardly ever use their right for the whole period. Under the rules in place they are obliged to sell the capacities that they are unable to utilise and the only platform where such a sale could occur is the JV.

7"interconnector" means a transmission line which crosses or spans a border between Member States and which connects the national transmission systems of the Member States,

82006/770/EC: Commission Decision of 9 November 2006 amending the Annex to Regulation (EC) No 1228/2003 on conditions for access to the network for cross-border exchanges in electricity; OJ L 312 , 11/11/2006, p 59

Electricity Markets

11.In its past practice, the Commission has notably considered the following product markets as relevant markets in the electricity sector : (i) Generation and wholesale supply of electricity; (ii) Electricity transmission (i.e. the operation and management of the high-voltage grid); (iii) Distribution of electricity (i. e. the operation and management of the lower-voltage grids); and (iv) Retail supply of electricity to end-customers, indicating that there could be a distinction between large industrial and commercial customers on the one hand and smaller industrial and commercial customers and domestic customers on the other hand . The wholesale supply and the retail supply have been defined as national in scope, whilst the distribution market has been defined as limited to the respective grid (following the same logic as the transmission market described below). For the purposes of the present case, it is however not necessary to conclude on the precise scope of the relevant product or geographic markets in the electricity sector as under any alternative market definition, the proposed transaction does not give rise to any competition concerns.

12.The Commission has held that the operation and management of transmission systems constitutes a natural monopoly and that no competition takes place at this level. In its past practice, if the parties to a transaction operated transmission systems in different regions or countries, the Commission has concluded that these parties’ activities do not overlap as each grid constitutes a separate market. Transmission through one grid is not substitutable with transmission through another grid. Therefore, the geographic scope of the transmission markets was defined by the Commission as being regional within the limits of the area covered by the respective grid .

The existence of a separate market relating only to the transmission of electricity involving a ìcross-border flowî within the meaning of Article 2 (1) of Regulation 1228/2003 cannot be excluded. The geographic scope of such activity would in principle be limited to the respective interconnector line. While it is in principle possible for market participants to substitute certain interconnectors when booking interconnector capacity by using others, this will normally lead to an increase in the number of interconnectors that are necessary to complete the booking path. To the Commission's knowledge, to date, there is no single interconnector which could constitute a direct substitute for another. Although it cannot be excluded that this may in the future be the case, even on the basis of this very narrow market definition, this transaction would not result in any horizontal overlap between the parties’ activities.

15.The Commission has not, to date, identified or defined any relevant markets regarding the creation and operation of companies active in the provision of services in the congestion management services for cross border electricity transmission systems by market coupling. Given that such companies have either not been yet created or they are in an initial set-up phase, such a market currently does not exist. However, with the eventual creation of other market coupling companies in other regions as foreseen by the Allocation Guidelines, there could, in the future, be a separate market for electricity coupling services vis-‡-vis interconnector/transmission system operators.

Markets for Power Exchanges

16.The Commission has not yet dealt with relevant product markets in the power exchange sector. In relation to stock exchanges, the German Federal Cartel Office has indicated that it would consider the provision of stock exchange trading infrastructure, further sub-divided by product categories, as distinct product markets. These stock exchange markets were found to be national in scope.

(5) COMPETITIVE ASSESSMENT

17.In their capacity as electricity transmission system operators, the parties will retain their scope of responsibility in the operation and management of their respective transmission systems. They will thus retain their existing activities in transmission services on the transmission markets. The cooperation in the JV is by its very nature directly related to their core functions as TSOs in line with Regulation 1228/2003 and the Allocation Guidelines. Whereas the operation of the transmission systems by TSOs confers to them a monopolistic position in the respective transmission system, such a monopolistic position is not affected by a common platform and procedure for the market coupling between adjacent transmission systems and therefore no horizontal competition concerns arise with respect to transmission system operation.

19.Two of the parties to this concentration belong to vertically integrated energy companies which have overlapping activities in the markets for electricity generation and wholesale supply of electricity and in a number of downstream markets. These parties are VE-T

14Federal Cartel Office, Report 2005/2006, Bundestag Printed Paper No. 16/5710, p. 159.

23.Third, the joint venture will not facilitate the coordination among the parties as regards the allocation of capacities at each interconnector involved in the interest of their vertically integrated companies. Market coupling will ensure that the available capacity at the involved interconnectors is optimally used. However, by way of the implicit auction mechanism capacity is not allocated to particular market participants but made available to the trading markets at the power exchanges concerned. Thereby, it is the coupled markets as a whole that benefit from market coupling. Consequently, market coupling guarantees that cross border transmission rights be allocated (implicitly) in a non-discriminatory manner.

24.The limited size of the JV as compared to the other activities of the various groups in the energy markets tends to further reduce the likelihood that the setting up of this JV will result in coordination on such other markets. The JV will not result in the creation of significant structural links between the parent companies. As the JV's turnover can be expected to be moderate it is also unlikely that it will create a platform for any credible retaliation mechanisms.

26.The notified transaction does not therefore raise any competition concerns, given that no horizontal overlaps exist between the transmission systems of the participating electricity transmission system operators, and the creation of the JV will not lead to any anti-competitive spill-over effects.

VI. CONCLUSION

For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of Council Regulation (EC) No 139/2004.

For the Commission, (signed) Androulla VASSILIOU Member of the Commission

18Case No. COMP/M 4141 Linde/BOC, para. 146

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