Rheinenergie can only establish strategic connection with Westenergie (E.ON) after selling large parts of its heating electricity business

The Bundeskartellamt has today cleared the planned strategic connection between the E.ON subsidiary Westenergie and Rheinenergie in second phase proceedings following changes to the merger plans. Rheinenergie has to sell large parts of its heating electricity business to another company.

Andreas Mundt, President of the Bundeskartellamt: “The planned strategic connection between Westenergie (E.ON) and Rheinenergie raises competition concerns especially in the heating electricity supply in the greater Cologne area. The loss of an essential competitor would have further strengthened Rheinenergie’s dominant position. We therefore only allow the merger to go ahead on the condition that large parts of Rheinenergie’s heating electricity business are transferred to a third party. In this way we create the basis for a new important competitive force to emerge. In the overall assessment these competitive advantages are so significant that they outweigh our concerns, which do exist also with regard to charging stations.”

The strategic connection between Westenergie (E.ON) and Rheinenergie is essentially to consist of three parts. First, Rheinenergie and Westenergie will bring their participations in municipal utilities in the Cologne area under joint control. Second, Westenergie, and thus E.ON, will increase its participation in Rheinenergie to around 24 per cent and as a result will for the first time also gain a material competitive influence on Rheinenergie. The third part of the planned transaction, namely Rheinenergie’s acquisition of the 20 per cent share in the municipal utility company Stadtwerke Duisburg previously held by Westenergie, has already been examined and cleared separately.

According to the Bundeskartellamt’s investigations, competition concerns mainly arose with regard to heating electricity. Without selling large parts of its heating electricity business, Rheinenergie’s dominant position in and around Cologne would have been strengthened. In the operation of charging stations for electric vehicles, the planned merger also leads to a critical strengthening of the parties’ position in some local markets within Bergheim, Cologne and Sankt Augustin. However, this concerns only a few very narrowly defined local areas currently still generating marginal revenues. This market will also develop very dynamically in the future. The plans do not raise any concerns under merger control rules in any of the other energy supply markets affected.

The Bundeskartellamt’s clearance is subject to the condition precedent that Rheinenergie sells a large part of its heating electricity business to a single acquirer, including the wholesale quantities required to supply these customers in the coming year. The sold part of the heating electricity business includes around 6,000 heating electricity supply contracts.

While selling the heating electricity business does not address the issues in all problematic markets, creating a new strong competitive force nevertheless clearly outweighs the loss of Westenergie’s (E.ON) competitive position in the region. In the end, the competitive concerns arising with regard to charging stations are therefore not relevant either. In its competitive assessment the Bundeskartellamt made use of the rarely applied balancing clause (Section 36(1) no 1 of the German Competition Act – GWB) according to which a concentration is not to be prohibited if it will also lead to improvements of the conditions of competition and these improvements outweigh the impediment to competition.

Further information on heating electricity in particular is provided in a supplementary background paper (in German only)