On 7 February 2012, the French Competition Authority (FCA) authorised the acquisition by Electricité de Strasbourg (ES), a subsidiary of EDF responsible for supplying electricity at an administered price in the French department of Bas-Rhin, of Enerest, a company which has a monopoly for the distribution of natural gas at an administered price in the city of Strasbourg and its suburbs. While this transaction shows the dynamism of electricity and gas sectors which were recently opened to competition, the FCA authorised the merger subject to the agreement by the parties to provide commitments intended to preserve the rise of new entrants on the market which are competitors of the parties to the concentration on the free market, even if it means that the expected benefits for consumers will be limited.
The transaction will result in the integration of two local distribution companies, one which is active in the electricity sector and the other in the gas sector. Given this geographic factor, the FCA did not follow its standard definition of the relevant market for the distribution of electricity on the retail market, which is usually considered to be of a national dimension, but decided to envisage the conglomerate effects of the operation at the level of the relevant department only.
Noting that the new entity would locally hold the legal monopolies for the distribution of electricity and gas at administered prices, and would also operate on the free market, the FCA considered that the envisaged concentration raised several competition concerns.
The FCA observed that the new entity could use its position as the incumbent operator to supplant its competitors by offering household and small industrial customers dual offers that none of the competitors would be able to replicate, either by combining the distribution of both energies at administered prices, or by combining the distribution of one energy at an administered price with the supply of the other at a free price. For new entrants, dual offers constitute a major axis of development and conquest of the market. While the FCA was careful to point out that dual offers are not, as such, anticompetitive, in the present case it noted that they are particularly attractive for consumers, given the relatively low level of administered prices and the security they represent, but also the corporate image which is often attached to the incumbent operator.
The FCA also found that the new entity would benefit from privileged information on the levels and consumption habits of the historical customers of the two undertakings party to the concentration. Thus, the new entity will be able to put together offers for consumers which are specifically adapted to their needs and, as a consequence, will have a significant commercial advantage over its competitors and may slow down their development on the market.
Given these competition concerns, the concentration was only authorised after the parties offered behavioural commitments which will have to be implemented until 2015, which is the date when administered prices of electricity will become neutral.
- On the one hand, the new entity will not propose offers combining either administered prices or an administered price in one energy with a freely determined price in the other. Only the combination of dual offers on the free market remains possible. In practice, the commercial teams will have to be separated, those in charge of selling electricity not being able to propose a dual offer with gas, and vice versa.
- On the other hand, ES undertook that the new entity will provide access to necessary commercial information to any competitor asking, in writing, for such information (subject to the acceptance of customers), in order to allow them to put together offers for consumers specifically adapted to their needs.
The scrutiny undertaken by the FCA in the present concentration illustrates the importance it grants to the development of genuine competition on formerly regulated markets, even if it means that the interest of some operations may be limited, both for undertakings and consumers.