7th Aug 2009 14:00
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99/09 |
7 August 2009 |
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OFT CLEARS CENTRICA STAKE IN BRITISH ENERGY |
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The OFT has today given merger clearance to the anticipated acquisition by Centrica from EDF Group of a minority interest in British Energy.
Under the terms of an agreement with EDF, Centrica is proposing to purchase a 20 per cent shareholding in Lake Acquisitions, the EDF subsidiary that owns British Energy, with EDF retaining the remaining 80 per cent. British Energy is the owner and operator of eight nuclear power stations in the UK.
Under the agreement, EDF and Centrica will have the right to take uncontracted power supply from the existing British Energy nuclear fleet in proportion to their respective shareholdings in Lake Acquisitions.
The OFT's inquiry generated a large response from the energy industry, with many raising concerns about potential adverse competition effects from the proposed transaction.
The main concern related to a possible decrease in liquidity in the wholesale electricity market in Great Britain, which could lead to more price volatility and, potentially, increase barriers to entry or expansion in electricity generation or supply. A number of these concerns related, at least in part, to uncertainty about the effect of EDF's recent acquisition of British Energy, and the remedies given to the European Commission as part of that case, on EDF's position on the wholesale electricity market.
After careful analysis of the parties' respective wholesale trading positions, both current and over the short to medium-term, and taking account of the British Energy remedies given by EDF to the European Commission, the OFT concluded that the proposed transaction would not result in any significant decrease in liquidity in the wholesale electricity market.
Some market participants also raised concerns about the potential for coordination resulting from a structural link between two of the 'Big Six' players in the energy generation and supply market. However, the OFT concluded that the proposed transaction would not have any impact on the parties' incentives to engage in such activity, in particular given that EDF and Centrica will remain independent players in the market with different cost bases, generation mixes and retail market positions.
Amelia Fletcher, OFT Senior Director of Mergers, said:
'This transaction attracted a great deal of interest and raised a number of complex issues. After careful and detailed analysis, which included close liaison with Ofgem and positive co-operation from the parties, we were able to rule out any competition concerns.
'It is a good reminder of the benefits of engaging with the OFT right from the outset of a transaction, whether through pre-notification dialogue as in this case, or via the OFT's informal advice procedure.'
NOTES
The reference test - the OFT has a duty to make a reference to the Competition Commission if it believes that it is or may be the case that a relevant merger situation has been created, and the creation of that situation has resulted or may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
Under the Enterprise Act, a relevant merger situation is created if two or more enterprises have ceased to be distinct, and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
EDF Group and Centrica have also agreed that: (i) under a commercial power agreement, EDF Group will make available to Centrica an additional 18TWh of power between 2011 and 2016 at market prices; and (ii) Centrica will have a right to participate in up to 20 per cent in EDF Group's New Nuclear Build activities in the UK, which will include entitling Centrica to its pro-rata share of power offtake. Although there was some doubt as to whether these new nuclear build activities would fall within the OFT's jurisdiction under the Act and therefore be covered by this decision, the OFT concluded that these activities would not raise competition concerns and therefore decided to leave open the question of jurisdiction in this respect.
The European Commission cleared EDF's proposed acquisition of British Energy, subject to conditions, on 22 December 2008. See M.5224 EDF/British Energy.
The generation, transmission and supply of electricity in Great Britain are regulated by the British Electricity Trading and Transmission Agreements. The electricity industry on the island of Ireland is regulated by the Commission for Energy Regulation.
The text of these decisions will be placed on the Office of Fair Trading's web site at www.oft.gov.uk as soon as is reasonably practicable.
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