CELEX: 32014M7228
Language: en
Date: 2014-06-13 00:00:00
Title: Commission Decision of 13/06/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7228 - CENTRICA / BORD GAIS ENERGY) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

Brussels, 13.6.2014
C(2014) 4080 final

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                                        To the notifying party

Dear Sir/Madam,

Subject:    Case M.7228 - CENTRICA/ BORD GAIS ENERGY
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

    1) On 5 May 2014, the European Commission received a notification of a proposed concentration pursuant to Article  4  of  Council  Regulation
       (EC) No 139/2004 by which Centrica plc. (Centrica) of the United Kingdom will acquire within the meaning of Article 3(1)(b) of the  Merger
       Regulation control of the whole of Bord Gáis Energy Limited (BGE or the "Target") of Ireland, a  wholly  owned  subsidiary  of  Bord  Gáis
       Eireann of Ireland, by way of purchase of shares. Centrica and BGE are designated hereinafter as the 'Parties' or 'parties to the proposed
       transaction'.

       THE PARTIES

    2) Centrica is an integrated energy company, which produces, sources and supplies gas and electricity for residential and business  customers
       in the UK and North America.

    3) BGE is a wholly owned subsidiary of Bord Gáis Eireann, with a focus on the purchase and supply of gas and electricity for residential  and
       business customers in the Republic of Ireland.

       THE TRANSACTION AND THE CONCENTRATION

    4) The Transaction involves the acquisition by a wholly-owned subsidiary of Centrica of sole control of BGE by way of acquisition of 100%  of
       the issued share capital of BGE. The Transaction therefore constitutes a concentration within the meaning of Article 3(1)  of  the  Merger
       Regulation.

       EU DIMENSION

    5) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million[2] (Centrica: EUR 29 500  million;
       BGE: 1 254 million EUR).  Each of them has a EU-wide turnover in excess of EUR 250 million (Centrica: EUR […]; BGE: […]), but they do  not
       achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. The  notified  operation  therefore
       has an EU dimension within the meaning of Article 1(2) of the Merger Regulation.

       MARKET DEFINITION

    6) Both Parties are active in the wholesale supply and trading of gas in the United Kingdom (UK) and in the Republic  of  Ireland.  Moreover,
       the Target is active in the retail supply of gas in the Republic of Ireland. Centrica is active in the retail supply of  gas  and  in  the
       retail supply of electricity in the UK.

       Relevant product market

       Wholesale Supply (and Trading) of Gas

    7) The Commission has in the past considered a distinct market for the wholesale supply of gas (i.e. sales to suppliers with the  purpose  to
       further resell gas to other wholesalers or downstream suppliers).[3] Such transactions encompass sales by shippers or  suppliers  with  an
       upstream gas supply contract as well as those with domestic production.

    8) The Commission has in the past considered a separate market for the wholesale trading of gas on the  Zeebrugge  gas  hub.[4]  However,  in
       another case the Commission considered to include sales on the gas hub in the wholesale market.[5]

    9) The Commission considers that the exact product market definition can be left open as the concentration  does  not  raise  serious  doubts
       under any plausible market definition.

       Markets for the Retail Supply to Gas

   10) The Commission has in the past considered distinct markets for (i) the retail supply of gas to gas-fired electricity plants,[6]  (ii)  the
       retail supply of gas to large industrial customers,[7] and (iii) the retail supply of gas to small customers.[8] The  Parties  agree  with
       this product market definition, which the Commission retains for the purpose of the present case.

       Relevant geographic market

       Wholesale Supply (and Trading) of Gas

   11) According to the Parties wholesale supply and trading of gas should be considered a market comprising the territory of the  UK  (including
       Northern Ireland) and the Republic of Ireland, because the conditions of competition are sufficiently homogeneous.

   12) Firstly, the Parties note that gas supplies from the UK meet over 93% of the Republic of Ireland’s annual gas demand. Only  the  remaining
       7% stem from gas fields situated off the south coast of Ireland. The Parties argue that both Irish and UK wholesalers purchase  gas  at  a
       price level which is set at the National Balancing Point (NBP) in the UK. Differences between the gas price in the UK and in the  Republic
       of Ireland merely reflect the transport costs through the interconnectors between the UK and the Republic of Ireland.

   13) Secondly, the Parties submit that there is sufficient capacity on the pipelines connecting the UK and the Republic of Ireland to ensure  a
       sufficient supply of gas. There are currently two pipelines from Moffat in the UK to the Republic of Ireland (“IC1”  &  “IC2”).   In  that
       regard the Parties note that the Moffat Exit Point has a capacity of about 342 million kWh, out of which only about 249  million  kWh  are
       currently contractually used, leaving surplus available capacity of about 94 million kWh. Besides, the Parties note that there is  also  a
       pipeline from Moffat to Northern Ireland (i.e. the  Scotland-Northern  Ireland  Pipeline  or  “SNIP”).[9]  Furthermore,  another  pipeline
       connects the gas network of the Republic of Ireland with Northern Ireland (i.e. the South-North Pipeline).

   14) Thirdly, the Parties submit that customers have a wide choice of suppliers who can meet their demand. The Parties note that there are over
       200 licensed shippers in Great Britain who can supply gas at Moffatt. If a given supplier would raise its prices, customers could  readily
       switch to any other of these suppliers.

   15) In the past the Commission has in some cases defined the market for the wholesale supply of gas to encompass various grids, if  there  are
       no bottlenecks or other obstacles, which might restrict free competition in 'balancing zones'.[10]

   16) The market investigation in the present case confirmed that the geographic scope of the market is at least national  and  might  encompass
       the Republic of Ireland and the United Kingdom. In particular, almost all responding customers from the  Republic  of  Ireland  considered
       that the conditions of competition are homogeneous in the area comprising the Republic  of  Ireland  and  the  United  Kingdom  (including
       Northern Ireland). Furthermore, almost all of these companies actually purchase their gas in the  United  Kingdom.  Moreover,  almost  all
       customers stated that the capacity of the interconnectors between Great Britain and the Republic of Ireland is sufficient.

   17) However, the Commission considers that the exact geographic market definition can be left  open,  as  the  concentration  does  not  raise
       serious doubts under any plausible geographic market considered, that is the UK and the Republic of Ireland as one geographic market or as
       separate geographic markets.

       Markets for the Retail Supply of Gas

   18) The Commission has in the past considered the respective markets for the retail supply of gas to gas-fired electricity  plants,  to  large
       industrial customers, and to small customers to be national in scope.[11] The Parties agree with this geographic  market  definition.  The
       Commission considers that the exact geographic market definition can be left open as the concentration does not raise serious doubts under
       the narrowest plausible geographic market definition, which is a national geographic market.

       COMPETITIVE ASSESSMENT

   19) The Parties’ activities horizontally overlap in the market for the wholesale supply of gas in the UK/Republic of Ireland.  Besides,  there
       are vertical relationships between these activities and (i) the Target's activities in the supply of gas to large industrial customers  in
       the Republic of Ireland, (ii) the Target’s activities in the retail supply of gas to small commercial  customers  and  households  in  the
       Republic of Ireland and (iii) Centrica’s activities in the retail supply of gas to small commercial customers and households in the UK.

       Horizontal effects

       Wholesale Supply (and Trading) of Gas

   20) On the basis of a geographic market encompassing the UK and the Republic of Ireland the Transaction leads to a horizontal overlap  on  the
       wholesale market (including trading) for the supply of gas. However, the Parties estimate that their  combined  market  share  in  such  a
       market is very limited and in any case below 20% under any market definition, both for the market for the trading of gas at  the  NBP  and
       for the market for wholesale supply of gas.

   21) As regards the market for the trading of gas, if the market would be as narrow as the NBP, the Parties' share on  this  market  by  volume
       would be below 10%.

   22) As regards the market for the wholesale supply of gas, the Parties note that most retail suppliers purchase gas on trading platforms  such
       as the Trayport or the ICE. On these platforms gas is both traded between wholesalers as well as sold to retail  suppliers.  Many  players
       are both active in the trading of gas as well as in the retail supply of  gas.  Therefore  there  is  no  clear  distinction  between  the
       wholesale trading market and the market for gas supply to retailers. Indeed, the Commission noted in the past  that  it  is  difficult  to
       estimate the market size of the UK wholesale market, since the same volume of gas can be bought just once, or many times in  a  succession
       of separate trading deals.[12]

   23) In any case, the Parties submit that their market share on these trading platforms is a good proxy for their market share in the wholesale
       supply of gas and that their market share in this market is not materially different from their overall share in the wholesale trading  of
       gas at the NBP in which the Parties' share would be below 10%.

   24) Moreover, the Parties note that they compete with a number of other players. There are more than 200 companies licenced for the  wholesale
       market. Many of these companies are themselves retail suppliers of gas, such  as  RWE,  EDF,  E.ON,  Gazprom,  SSE,  Scottish  Power,  BP,
       Petronas, Statoil, Total and Shell.

   25) On the basis of a national market for the wholesale supply (and trading) of gas in the UK the Parties further submit that  the  Target  is
       essentially a customer of wholesale suppliers. The volumes it sells are very  small  and  its  activities  as  a  seller  are  limited  to
       situations in which e.g. it has purchased more gas on a given day than its customers have required (so that it sells small  quantities  at
       the NBP for balancing purposes).

   26) On the basis of a national market for the wholesale supply (and trading) of gas in the Republic of Ireland, the Parties submit that  there
       is no overlap between their activities, because Centrica is not active in the wholesale supply of gas in  the  Republic  of  Ireland.  Its
       activities are limited to selling gas in the UK. Although the Parties do not exclude that some of these sales  are  then  shipped  to  the
       Republic of Ireland, the Parties note that Centrica generally has no knowledge of  or  influence  over  where  its  customers  ship  their
       supplies.

   27) Based on the available information, the Commission considers that it can be expected that the Parties' market  share  will  remain  modest
       under any plausible geographic market definition and that the  Parties  will  continue  to  face  competition  from  numerous  significant
       competitors. Therefore, the Commission considers it unlikely that non-coordinated horizontal effects will result from the concentration.

   28) In view of the above and all available evidence, the Commission considers that the concentration does not give rise to serious  doubts  as
       to its compatibility with the internal market in relation to the market for the wholesale supply (and trading) of gas under any geographic
       market definition considered, that is the UK and the Republic of Ireland as one geographic market or as separate geographic markets.

       Vertical effects

       Wholesale Supply and Retail Supply to Large Industrial Customers in the Republic of Ireland

   29) The Parties estimate that – while Centrica is not active in this market - the Target’s share in the market for the retail supply of gas to
       large industrial customers in the Republic of Ireland amounts to [50-60]%. The Target’s main competitors are Vayu  ([20-30]%),  SSE  ([10-
       20]%), Viridian ([5-10]%), Gazprom ([0-5]%) and ESB ([0-5]%).

   30) Based on the available information, the Commission considers that the merged  entity  will  not  have  the  ability  to  engage  in  input
       foreclosure to the detriment of its downstream competitors in the retail supply of gas to large customers.  This is because  the  combined
       entity’s share in the upstream market for the wholesale supply of gas is less than 20%. The Target’s competitors in the retail  supply  of
       gas to large customers can easily source their supplies at the NBP in the UK and there are no constraints regarding the transport of  such
       volumes to the Republic of Ireland.

   31) Moreover, the Parties submit that the merged entity will not have the ability to engage in customer foreclosure to the  detriment  of  its
       upstream competitors in the market for wholesale supply of gas.

   32) Indeed, in the Commission's view it is unlikely that the merged entity will have the ability to engage in customer foreclosure.

   33) Firstly, competing wholesale gas suppliers will still be able to sell their gas  to  the  remaining  large  industrial  customers  in  the
       Republic of Ireland, which account for [50-60]% of this market.

   34) Secondly, competing wholesale gas suppliers will also be able to sell their gas to small customers in the Republic of Ireland,  where  the
       new entity's share accounts for less than half of the market.

   35) Thirdly, competing wholesale suppliers will also be able to sell gas to the remaining customers in the markets for the  retail  supply  of
       gas in the UK. Here the new entity's market share does not exceed [30-40]% in the market for small customers and not more than [30-40]% in
       the market for large industrial customers.

   36) It follows that competing wholesale suppliers will have sufficient economic alternatives to sell their output, if the new  entity  engages
       in customer foreclosure.

   37) In view of the above and all available evidence, the Commission considers that the concentration does not give rise to serious  doubts  as
       to its compatibility with the internal market as a result of the vertical relationship between the wholesale supply and retail  supply  of
       gas to large industrial customers in the Republic of Ireland.

       Wholesale Supply and Retail Supply to Small Commercial Customers and Households in the Republic of Ireland

   38) The Parties estimate that – while Centrica is not active in this market – the Target’s share in the market for the retail supply of gas to
       small commercial customers and households amounts to [40-50]%. The Target’s main competitors are SSE ([10-20]%), Viridian ([10-20]%), Vayu
       ([5-10]%), Flogas ([5-10]%), Gazprom ([5-10]%) and ESB ([5-10]%).

   39) The Commission agrees that in view of these facts, and in particular the fact that the Target has at least 6 competitors in  this  market,
       all of which have a non-negligible market share as well as the facts set out in paragraphs 30 to 35 above, the concentration  is  unlikely
       to give rise to any form of input or customer foreclosure.

   40) In view of the above and all available evidence, the Commission considers that the concentration does not give rise to serious  doubts  as
       to its compatibility with the internal market as a result of the vertical relationship between the wholesale supply and retail  supply  of
       gas to small commercial customers and households in the Republic of Ireland.

       Wholesale Supply and Retail Supply to Small Commercial Customers and Households in the UK

   41) The Parties estimate that – while the Target is not active in this market – Centrica’s share in the market for the retail supply of gas to
       small commercial customers and households amounts to [30-40]%.

   42) The Commission agrees that in view of these facts, as well as the facts set out in paragraphs 30-35 above, the concentration  is  unlikely
       to give rise to any form of customer or input foreclosure.

   43) In view of the above and all available evidence, the Commission considers that the concentration does not give rise to serious  doubts  as
       to its compatibility with the internal market as a result of the vertical relationship between the wholesale supply and retail  supply  of
       gas to small commercial customers and households in the UK.

       CONCLUSION

   44) 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 Commission

                                        (Signed)
                                        Maroš Šefčovič
                                        Vice-President

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[1]   OJ L 24, 29.1.2004,  p.  1  ('the  Merger  Regulation').  With  effect  from  1  December  2009, the  Treaty  on  the  Functioning  of  the
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the replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The terminology of the TFEU  will  be  used  throughout  this
decision.
[2]   Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the  Commission  Consolidated  Jurisdictional  Notice  (OJ
C95, 16.04.2008, p1).
[3]   COMP/39.315 – ENI, of 29 September 2010.
[4]   See Case M.4180 GDF/Suez (2006), paragraph 72.
[5]   See Case M.5467 RWE/Essent (2009), paragraphs 119-121.
[6]   This distinction may however only apply to certain types of power plants: depending on  their  technical  characteristics,  some  types  of
power plants may come within the market for industrial customers. For a discussion of that issue, see Case  M.4180  GDF/Suez  (2006),  paragraphs
362-367,  Case M.3696 E.ON/MOL (2005) paragraphs 107- 118 or COMP/39.316 – Gaz de France paragraph 13.
[7]   See Case M.4180 GDF/Suez (2006), paragraphs 78-81.
[8]   See e.g. Cases 39.315 ENI (2010) and 39.316 GDF gas foreclosure (2009) as well as Cases M.3440 EDP/GDP/ENI (2004), M.3696  E.ON/MOL  (2005)
and M.3868 DONG/Elsam/Energi E2 (2006).
[9]   There is no physical reverse flow capacity on IC1, IC2 or SNIP and therefore there is no export from Ireland to GB.
[10]  COMP/39.316 – Gaz de France, of 3 December 2009; COMP/M.4180 Gaz de France / Suez, of 14 November 2006; COMP/M.3410 Total / Gaz de  France,
of 8 October 2004. A balancing zone should be understood as an entry-exit system, which may consist of  more  than  one  system,  as  defined  in
Article 2(13) of the Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the  internal
market in natural gas (OJ L 211, 14.8.2009, p.94), to which a specific balancing regime (for injections and off takes of gas) is applicable.
[11]  COMP/M.6068 ENI/ ACEGASAPS/ JV, of 11 April 2011; COMP/M.5740 Gazprom / A2A / JV, of 16 June 2010; COMP/M.5496 Vattenfall  /  Nuon  Energy,
of 22 June 2009; COMP/M.4672 E.on / Endesa Europa / Viesgo, of 6 August 2007; COMP/M. 4110 EON / Endesa, of 25 April 2006; COMP/M.3230 Statoil  /
BP / Sonatrach / In Salah JV, of 19 December 2003; COMP/M.3007 E.on / TXU Europe Group, of 18 December 2002.
[12]  COMP/M.5585 Centrica / Venture Productions, para. 26.

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 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.

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