GIANT EU UTILITY TO GIVE UP ITS GRID

The European Commission (EC) of the European Union (EU) is seeking to re-establish the market competition lost when EU power and transmission companies began merging into mega-companies over the last few years in order to remain competitive with Russian state-controlled power giants like Gazprom. As EU power prices rose, consumer groups demanded action from the EC.

The EC decided to call for transmission and power generating giants like Germany’s E.ON to separate the upstream (power generation) and downstream (transmission) portions their businesses and threatened them with anti-trust lawsuits if they would not comply.

Separating upstream from downstream is an effort to reduce the leverage of the mega-companies on electricity and natural gas supplies and prices. The idea: Decreasing the leverage of the giants opens up the field to competition, creates the potential for players who will build new cross-border transmission and pipelines to get into the game and creates the potential for suppliers of New Energy to compete against suppliers with in-place infrastructure.

The German government, the French government and 6 other EU-member governments have been pressuring the EC to drop this approach to opening power and transmission markets in favor of a comparable plan that has the giants splitting into subsidiary groups under a single parent mega-company. This theoretically accomplishes part of the goal at less cost to the companies.

German power giants RWE, EnBW and Vattenfall were under the same pressure from the EC as E.ON, will be affected by E.ON's decision and may have to follow E.ON’s lead. They will not necessarily follow happily. RWE’s head recently predicted blackouts for Europe later in 2008 when power demand exceeds a supply compromised by EC pressures.

Some EC observers are predicting Gazprom and other Russian giants will buy up pieces of the EU mega-companies as they divest. This would put Russia in a position to exert even more control over European power supplies.

Nobody seems especially happy with the situation except a few deeply committed EC Commissioners. Europe’s energy future hangs in the balance.

The good news is that the world will learn much from how events play out.

The European Union. A triumph of diplomacy. A work in progress. (click to enlarge)

German EON bows to EU liberalization demands
Aurelia End, February 28, 2007 (AFP via Yahoo News)
and
European energy giant EON 2007 net profit up 9 pct
March 6, 2008 (AFP via Yahoo News)

WHO
German power giant E.ON (Wulf Bernotat, Chairman/CEO); The European Commission (EC) of the European Union (EU); Angela Merkel, Chancellor, Germany; RWE, EnBW and Vattenfall

The EU grid is composed of several poorly interconnected sectional grids. (click to enlarge)

WHAT
E.ON will sell its transmission network and 4800 megawatts of generating capacity to avoid going forward against the EC’s threatened anti-trust lawsuit.

WHEN
- E.ON’s decision was announced February28.
- 2007 E.ON net profit: e5.1 billion ($7.8 billion).
- 2007 E.ON sales: e68.7 billion (up 7%).
- 2007 E.ON profit: e9.2 billion (up 10%).

The EU natural gas suppliers are intensely competitive and, allegedly, also collusive. (click to enlarge)

WHERE
- The EC is based in Brussels.
- E.ON is based in Dusseldorf, Germany.

WHY
French European Affairs Minister Jean-Pierre Jouyet claims the EC is being driven by an "ideological position" of Commissioners like Competition head Neelie Kroes.
E.ON is one of 35 German gas suppliers under investigation for excessive pricing.
E.ON announced it e9 billion in new investments over the next 2 years, e6 billion in New Energy.

The European Commission wants to get the power generators out of transmission and integrate the lines of supply to promote competitiveness and cut prices. (click to enlarge)

QUOTES
E.ON statement: "The European Commission welcomes these proposed commitments in so far as they could remedy the concerns that it has regards E.ON…These proposals, if adopted, would structurally change the electricity sector in Germany and could spur competition in the sector to the benefit of domestic and industrial customers."