NMa publishes vision document on mergers energy markets

Electricity markets in Europe still retain their predominantly national character. The Netherlands Competition Authority (NMa) would therefore have to impose conditions on a merger between two major Dutch energy companies, in order to avoid welfare loss to end users. This is put forward in the vision document 'Mergers on the Energy Markets' published by the NMa today. The competition authority here specifies how it will assess national and cross-border mergers and acquisitions in the electricity sector.

The vision document shows that possible future concentrations that involve at least two major Dutch energy companies, may pose a problem to competition on the electricity production and wholesale market during peak hours (from 7.00 to 23.00 hours) and on the electricity supply market for consumers. The market power of companies involved would increase substantially, whilst international competition in these markets is insufficiently strong to discipline merged parties. Gert Zijl, Member of the Board with the NMa: 'Dutch companies should take into account that the conditions we impose on such a merger will entail a substantial reduction in production capacity and retail customers.'

Though some developments indicate that a North West European market is emerging, the NMa has established that electricity markets in Europe are predominantly national in their outlook. Substantial price differences exist between the Netherlands, Germany and Belgium. Currently, the effectively available import capacity (of a range between 3600 to 3850 Megawatt) is insufficiently large to allow the Dutch industrial user and small consumer to benefit from the lower price level abroad. This finding is relevant to future assessments of mergers and acquisitions. The effectively available import capacity needs to be expanded by an amount of at least 3000 Megawatt for a North West European market to materialise. Zijl: 'With a view to competition, it is high time for the national electricity network operators in the Netherlands, Germany and Belgium to develop a capacity and investment plan that deals with the issue of interconnection capacity to be realised among national networks on a North West European level.'

In assessing the effect of mergers on Dutch markets, the NMa will take into account market dynamics on both a national and international scale. In so doing, the NMa does not rule out that merger conditions of a temporary kind, with a period of validity linked to the actual emergence of a North West European market, may be accepted. In this respect, the NMa points out that a temporary auction of production capacity is among options to be considered.

As the energy markets are in continuous change both nationally and internationally, the NMa considered it necessary to reassess these markets within the framework of its concentration control regime. In June 2006 the competition authority consulted the energy sector on conditions that may be set for national and cross-border concentrations in the present phase of market development. The NMa has received about twenty reactions, which endorse the basic findings of the consultation document.

The vision document and submitted response are available on the NMa website as from today (www.acm.nl). The vision document and submitted responses are available on the NMa website.

Vision Document: Mergers on the Energy Markets - november 2006