CELEX: 32020M9968
Language: en
Date: 2020-12-14 00:00:00
Title: Commission Decision of 14/12/2020 declaring a concentration to be compatible with the common market (Case No COMP/M.9968 - TOTAL / ØRSTED UK) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 14.12.2020
                                                                C(2020) 9233 final
                                                                                 PUBLIC VERSION
                                                                 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                                                                 information omitted has been replaced by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.
                                                                To the notifying party
Subject:            Case M.9968 – TOTAL/Ørsted UK
                    Commission decision pursuant to Article 6(1)(b) of Council Regulation
                    No 139/20041 and Article 57 of the Agreement on the European Economic
                    Area2
Dear Sir or Madam,
(1)       On 16 November 2020, the Commission received notification of a concentration
          pursuant to Article 4 of the Merger Regulation which would result from a proposed
          transaction by which TOTAL S.E. (“TOTAL”), through its wholly owned
          subsidiary, Total Gas and Power Limited, intends to acquire control, within the
          meaning of Article 3(1)(b) of the Merger Regulation over the whole of a portfolio of
          electricity and gas contracts for business customers located in Great Britain3 and
          some related assets4 (the “Target”) from Ørsted Sales Limited and Ørsted Power
          Sales Limited which are both wholly owned subsidiaries of Ørsted A/S (“Ørsted”)5.
          In this Decision, TOTAL and the Target are referred to as ‘the Parties’.
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 European Union (“TFEU”) 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.
2    OJ L 1, 3.1.1994, p. 3 (the “EEA Agreement”).
3    Great Britain includes England, Wales and Scotland.
4    See paragraph 3.
5    Publication in the Official Journal of the European Union No C 402, 25..11.2020, p. 5.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 1.       THE PARTIES
(2)      TOTAL is a French multinational company that is active across the oil and gas
         supply chain, including upstream activities (hydrocarbon exploration, development
         and production), wholesale activities (refining, petrochemicals, specialty chemicals,
         trading and shipping of crude oil and petroleum) and retail supply of oil and energy.
         TOTAL is also active in the electricity generation and carbon neutrality businesses
         (energy efficiency, carbon capture usage and storage, hydrogen and nature-based
         solutions). TOTAL operates in more than 130 countries. In Great Britain TOTAL is
         present through its wholly-owned subsidiary Total Gas and Power Limited, and it is
         active in the trading of energy commodities and the supply of gas and electricity to
         industrial, commercial and public sector companies.
(3)      The Target comprises the majority of the Ørsted's portfolio of electricity and gas
         industrial and commercial (I&C) customer contracts in Great Britain, in particular
         the following assets:6
         (a)      Around […] I&C customer contracts in Great Britain, with a total contracted
                  volume of approximately […] TWh gas and electricity from […];
         (b)      related customer data, hedges, green certificates (renewable obligation
                  certificates (ROCs) and Renewable Energy Guarantees of Origin (REGOs));
         (c)      the benefit of commission pre-paid to third party intermediaries (but not yet
                  recovered from customers); and
         (d)      up to […] full-time equivalent employees all of whom will transfer to the
                  acquirer under local employment laws.
2.       THE TRANSACTION
(4)      The Transaction is to be achieved by means of the execution of a business purchase
         agreement concluded between TOTAL and Ørsted, pursuant to which TOTAL is to
         acquire the Target from Ørsted and hence to acquire control of the whole of the
         Target.
(5)      The acquisition of control over intangible assets can be considered a concentration if
         these assets constitute a part of an undertaking, that is to say a business with a
         market presence, to which market turnover can be attributed. In particular, the
         transfer of the client base of a business can fulfil the above criteria if this is sufficient
         to transfer a business with a market turnover.7 In the present case, the Target
         constitutes an undertaking to which a market turnover can be attributed because the
         assets listed in paragraph 3 above generated turnover in the financial year prior to the
         Transaction Also, the Transaction involves the acquisition of assets enabling the
         acquirer to access the market. Therefore, the Target constitutes an undertaking
         within the meaning of Article 3(1)(b) of the Merger Regulation.
6   The Target does not include a number of Large Industrial customer contracts (i.e. […] large corporate
    clients with consumption above […]GWh) [which will be retained by Ørsted].
7   See ‘Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the
    control of concentrations between undertakings (2008/C 95/01)’, in particular paragraph 24.
                                                        2
 ---pagebreak--- (6)      It follows that the Transaction would result in a concentration within the meaning of
         Article 3(1)(b) of the Merger Regulation.
3.       UNION DIMENSION
(7)      The Parties have a combined aggregate worldwide turnover of more than EUR 5 000
         million [TOTAL: EUR […] million; the Target: EUR […] million].8 Each of them
         has an Union-wide turnover in excess of EUR 250 million [TOTAL: EUR […]
         million; the Target: EUR […] million], but they do not achieve more than two-thirds
         of their aggregate Union-wide turnover within one and the same Member State.
         Therefore, the concentration has a Union dimension within the meaning of Article
         1(2) of the Merger Regulation.
4.       COMPETITIVE ASSESSMENT
(8)      The Parties overlap in relation to the retail supply of (i) electricity and (ii) gas to
         business customers in Great Britain. However, affected market arise only in relation
         to the retail supply of gas.9
         Product market definition
(9)      In the past10 the Commission considered the retail supply of gas as a separate market
         and subdivided it between (i) households, (ii) SMEs, (iii) large industrial customers
         and (iv) gas-fired power plants.11 That definition, which is not contested by the
         Parties, is to be retained for the purposes of this Decision.
         Geographic market definition
(10)     The Commission has previously considered the retail supply of gas to be national in
         scope. In the context of the United Kingdom, the Commission has defined the
         geographic market as encompassing Great Britain, excluding Northern Ireland.12 The
         Parties do not contest this geographic market definition and it is retained for the
         purposes of this decision.
8   Turnover calculated in accordance with Article 5 of the Merger Regulation.
9   The Transaction gives rise to overlaps in the markets for the retail supply of electricity to SMEs (with a
    combined market share of [5-10]%) and the retail supply of electricity to large industrial customers ([5-
    10]%). These markets are therefore not affected and thus not discussed further in this Decision.
10 See e.g. M.8870 E.ON/Innogy, M.8358 Macquarie/National Grid/Gas Distribution Business of National
    Grid.
11 In many recent cases, it has not been necessary to decide on a precise threshold to distinguish between
    customers in the different relevant product markets. Earlier Commission decisions have variously used
    thresholds based on consumption, metering or connection type, although the precise threshold has differed
    according to the national market concerned. See e.g. COMP/M.4180 GDF/Suez.
12 COMP/M.8870 – E.ON/Innogy, COMP/M.7228 – Centrica/Bord Gais Energy; COMP/M.5224 –
    EDF/British Energy; COMP/M.4517 – Iberdrola/Scottish Power.
                                                          3
 ---pagebreak---        Competitive assessment
(11)   The Transaction gives rise to the following affected markets13:
       (a)      The supply of gas to SMEs in Great Britain; and
       (b)      The supply of gas to large industrial customers in Great Britain.
(12)   The Parties argue that the Transaction raises no competition concerns because (i) the
       combined market shares are modest with a limited increment, (ii) post-transaction
       TOTAL will continue to face strong competition in Great Britain from a number of
       strong suppliers, (iii) customers have countervailing buyer power, (iv) there is
       limited customer loyalty and switching is easy and (v) barriers to entry are low.
(13)   On the basis of the information available to it and in the light of the results of the
       market investigation, the Commission considers that the Transaction is unlikely to
       raise competition concerns for the following reasons.
(14)   First, the Parties have a moderate combined market share and the increment brought
       about by the Transaction is limited. Post-transaction the Parties’ combined market
       share will be [20-30]% in the market for the retail supply of gas to SMEs (with an
       increment of [0-5]%) and [20-30]% in the market for the retail supply of gas to large
       industrial customers (with an increment of [5-10]%).
(15)   Second, there is a significant number of credible alternatives to the Parties that will
       remain active in the relevant markets post-merger.
(16)   With particular regard to the retail supply of gas to SMEs, the Parties’ competitors
       include several sizeable players some of which are large international energy
       companies with activities in several countries: Corona Energy (with a market share
       of [10-20]%), British Gas ([5-10]%), Gazprom Energy ([10-20]%), SSE ([5-10]%),
       ENGIE ([0-5]%) and E.ON UK ([0-5]%).
       Table 1: Market shares in the retail supply of gas to SMEs in Great Britain (by
       volume)
                                               Volume (in GWh)                        Market share
       TOTAL                                            […]                              [20-30]%
       Target                                           […]                               [0-5]%
       Combined                                         […]                              [20-30]%
       Corona Energy                                    […]                              [10-20]%
       British Gas                                      […]                               [5-10]%
13 The retail supply of gas to households is not relevant to the Transaction, as neither Party is active in that
   market.
                                                         4
 ---pagebreak---                                        Volume (in GWh)                Market share
     Gazprom Energy                            […]                      [10-20]%
     SSE                                       […]                       [5-10]%
     ENGIE                                     […]                        [0-5]%
     E.ON UK                                   […]                        [0-5]%
     Others                                    […]                      [10-20]%
     Total                                     […]                         100%
     Source: Parties’ estimates
(17) Similarly, for the retail supply of gas to large industrial customers the Parties will
     continue to face competition from large international players. These include:
     Gazprom Energy - that with a share of [20-30] % will remain the largest supplier
     even post-merger, ENI ([5-10]%), Corona Energy ([5-10]%), E.ON UK ([0-5]%)
     and ENGIE ([0-5]%).
     Table 2: Market shares in the retail supply of gas to large industrial customers
     in Great Britain (by volume)
                                       Volume (in GWh)                Market share
     TOTAL                                     […]                      [20-30]%
     Target                                    […]                       [5-10]%
     Combined                                  […]                      [20-30]%
     Gazprom Energy                            […]                      [20-30]%
     ENI                                       […]                       [5-10]%
     Corona Energy                             […]                       [5-10]%
     E.ON UK                                   […]                        [0-5]%
     ENGIE                                     […]                        [0-5]%
     Others                                    […]                      [20-30]%
     Total                                     […]                         100%
     Source: Parties’ estimates
(18) Third, the evidence gathered by the Commission consistently points to the Parties
     not being particularly close competitors.
                                                5
 ---pagebreak---        (a)       Diversion ratios: the Parties estimated that in 2019 only a small proportion of
                 all gas customers TOTAL lost across the two markets under investigation14
                 diverted to Ørsted, and vice versa, evidencing that the Parties do not compete
                 closely. The diversion ratio from Total to Ørsted in 2019 is estimated to be
                 less than [0-5]%. The diversion ratio from Ørsted to Total is larger
                 (approximately [10-20]%) but it is significantly lower than would be
                 expected if Ørsted customers diverted to TOTAL proportionally to TOTAL’s
                 market share (approximately [20-30]%) which further points to the lack of
                 any significant closeness between the Parties.
       (b)       TOTAL’s internal documents: TOTAL prepares monthly internal reports that
                 summarise the aggregate gains and losses across the two markets under
                 investigation for the month, as well as the year to date. TOTAL’s internal
                 assessment suggests that TOTAL gains and loses volume to a wide set of
                 rivals, […]. Other [than Ørsted] suppliers, for example, […], appear to be
                 competing more closely with TOTAL.
       (c)       The Commission’s market investigation questionnaire: during the market
                 investigation only one respondent indicated that it sourced gas from both
                 TOTAL and Ørsted.15 When asked to which supplier they would switch
                 should its supplier (i.e. TOTAL or Ørsted) stop supplying them, the vast
                 majority of respondents did not indicate the other Party as an alternative. The
                 vast majority of respondents submitted that they would conduct a competitive
                 tender process and would invite several suppliers to bid. In particular,
                 respondents indicated that “there are now a number of large gas suppliers in
                 the UK, examples include – Centrica (British Gas), EDF Energy, Scottish &
                 Southern Energy, E.ON & Scottish Power. In the absence of a full
                 competitive tender process, [we are] unable to confirm which competitor it
                 would be most likely to switch to in place of Total but [consider] that there
                 are a large number of credible alternatives to which it could switch”, that “in
                 the event that Total were no longer able to supply gas, we would conduct a
                 tendering process for a new supplier (…) Ørsted have not been included in
                 any tender process for supply of gas”, and that “in this scenario, [we] would
                 conduct a tender exercise on the open market to get the best value for the
                 volume of gas”.16
(19)   Fourth, the vast majority of respondents (including both SMEs and large industrial
       customers) to the market investigation indicated that the Transaction would have
       little or no material impact on the intensity of competition. Several of the
       respondents to the Commission’s market investigation replied that the market for gas
       supply to end customers in the UK is highly competitive, and thus would not
       anticipate the Transaction to adversely affect competition. One of the respondents
       stated that it would not expect any impact on the intensity of competition since
       “[t]he UK Gas supply market is very competitive with multiple suppliers available to
       provide pricing”. Similarly, other respondents submitted that “we do not consider
14 The available data refers to the meters and volumes each Party gained / lost in 2019 for non-domestic gas
   customers altogether because the Parties were not able to segment this data between SMEs and large
   industrial customers.
15 See questionnaire Q1 (gas customers), replies to question 1.
16 See questionnaire Q1 (gas customers), replies to question 2.
                                                         6
 ---pagebreak---         that there will be a significant impact on the intensity of competition, due to the
        competing suppliers in the UK market and with new potential suppliers entering the
        market place”, that “there are several suppliers in the market for the retail supply of
        gas in the UK already, including Gazprom, SSE, BPG, Corona, British Gas, EDF,
        Eon, Scottish Power. In our view, the Transaction will not affect the intensity of
        competition in this market”, and that “this transaction is unlikely to have any impact
        on the intensity of competition. While Total has been (and continues to be) our gas
        supplier, historically we have not considered Ørsted as a potential alternative and
        they have not been included in our tender processes for supply of gas”.17
(20)    Fifth, in its most recent report on the State of the Energy Market (2019), 18 OFGEM,
        the energy regulator in the United Kingdom, looked across the whole non-
        domestic/business retail segment and noted that there were a large number (86) of
        active licensed suppliers, the HHI19 levels were moderate20, at or just below 1,000
        for the large gas business segment and slightly above 1,000 (1,148) for the small gas
        business segment, and concentration levels continued to decline.
(21)    In light of the above, the Commission considers that the Transaction does not give
        rise to serious doubts as to its compatibility with the internal market with regard to
        the retail supply of gas to SMEs and large industrial customers in Great Britain.
5.      CONCLUSION
(22)    For the above reasons, the 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 and Article 57 of the EEA Agreement.
                                                              For the Commission
                                                              (Signed)
                                                              Margrethe VESTAGER
                                                              Executive Vice-President
17 See questionnaire Q1 (gas customers), replies to question 5.
18 https://www.ofgem.gov.uk/system/files/docs/2019/11/20191030_state_of_energy_market_revised.pdf
19 The Herfindahl-Hirschman Index (HHI) measures market concentration by summing the squares of
   the market share of each player.
20 According to its Horizontal Merger Guidelines (paragraph 19), the Commission “is unlikely to identify
   horizontal competition concerns in a market with a post-merger HHI below 1 000. Such markets normally
   do not require extensive analysis”.
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