German energy company RWE has agreed to sell its 4,100 km gas transmission network to settle an antitrust case, the company and the European Commission said on Saturday.
“RWE will now commit to selling off its gas transportation network in Germany to an independent third party within the next two years,” Germany’s fourth largest utility said. The European Commission welcomed the deal, saying once competitors and customers were consulted the full Commission wanted to accept it as legally binding. “The Commission would not pursue the antitrust investigation” after that, it said.
RWE said it wanted to avoid protracted litigation and the deal was unrelated to the politically contentious issue of energy unbundling. Nonetheless, the announcement came against the background of an EU energy ministers meeting set for six days from now. It will decide whether to unbundle vertically integrated utilities to open the market to new entrants and push down soaring prices for energy.
The Commission says big energy companies have an interest in making access to their networks difficult for competitors as this would mean more competition for customers, keeping prices artificially high. The German government has led the fight against energy unbundling.
Support from energy companies suffered its first blow in February, when E.ON, the world’s largest utility, broke ranks and agreed to sell its power grid and some generation plants to settle EU antitrust charges. The probe of RWE began in May 2007 when Brussels suspected that the company abused a dominant position for transport and wholesale supply of gas in the state of North Rhine-Westphalia. The Commission said at the time it believed that RWE walled competitors out of the market by preventing them from getting capacity in the gas transport infrastructure in Germany.
The company said on Saturday it “is still convinced that it has complied with the legal requirements of the gas business. The intended agreement is not an acknowledgement of guilt.” It called the decision to settle a tough one to take. But the Commission held the strong cards in talks. Companies that defy the Commission in antitrust cases can face huge fines pegged to the size of their market. They also face the possibility of private lawsuits which could be brought by wealthy customers, such as corporations.
It became clear that RWE would settle after Reuters reported the story on Wednesday, but the German government held firm. German energy Minister Michael Glos, whose portfolio includes energy policy, told Reuters that the actions of E.ON and RWE had not weakened Berlin’s bargaining position in negotiations on liberalizing the European Union’s energy market. “I deeply regret that German companies behaved in such a way that they now have to surrender to pressure from the European Commission,” he said in a brief interview.
RWE’s share price has gained 3.2% since the Reuters May 28 report that the company may sell its German gas grid, outperforming the DJ Stoxx European utilities index, which rose 2.6% in the same period. Shares in RWE, with a market value of €46 billion, are valued at 12 times prospective 2009 earnings, a discount to E.ON’s price-to-earnings multiple of 13.5, according to Reuters Estimates. (Reuters)