E.ON Settles EU Probe, Sells Power Capacity, Network

By Karin Matussek

Nov. 26 (Bloomberg) -- E.ON AG, Germany’s largest utility, settled a European Union antitrust investigation by agreeing to sell its extra-high voltage network and divest about 5,000 megawatts of generation capacity.

The European Commission accepted E.ON’s offer to make the divestitures and will end its investigation into claims the utility may have abused its market position, the Brussels-based agency said in a statement today. E.ON shares dropped as much as 5.1 percent in Frankfurt trading.

E.ON has been trying to settle the probe since February when it offered to sell its grid and divest the generation capacity. German power prices for next year have slid about 40 percent since July, dragged down by plunging oil and coal prices as the country slid into a recession.

“The expected outcome of the selling process may be a little bit below previous expectations,” said Ulrich Huwald, an analyst at M.M. Warburg in Hamburg who has a “hold” rating on the stock. “They will probably get less for their assets now than let’s say six months ago,” because of higher finance costs and lower energy prices, he said in a phone interview.

The commission began investigating the Dusseldorf-based company in October 2006. EU and German competition officials two months later raided E.ON Energie’s Munich offices. In January, the commission fined E.ON 38 million euros ($49 million) for obstructing the investigation.

‘Unprecedented’ Remedies

“This unprecedented set of remedies will fundamentally change the landscape of German electricity markets and bring the prospect of more competition and more customer choice,” EU Competition Commissioner Neelie Kroes said. “For the first time in European antitrust history, a company is divesting very significant assets to address competition concerns.”

E.ON shares fell 1.28 euros, or 4.7 percent, to 26.03 euros in Frankfurt at 1:53 p.m. after falling as low as 25.92 euros. The shares have fallen 45 percent so far this year.

“Prior to making its decision, the commission conducted a market test in which it received positive feedback on the initiatives from market participants and competitors across Europe,” E.ON said in an e-mailed statement.

By settling E.ON avoids a potential penalty of as much as 10 percent of annual sales for violating EU antitrust rules.

Kroes has threatened legal action against utilities that block competitors from using power grids and pipelines. Kroes has said she will fine or impose restraints on utilities that abuse their dominance in energy markets.

After today’s decision, more than 20 percent of generation capacity will be available for competitors and newcomers, Kroes said. The ruling doesn’t find E.ON liable for any infringements of EU law, according to the statement.

The regulators had concerns that E.ON may have withdrawn available generation capacity from the German wholesale electricity markets to raise prices and may have deterred new investors, the commission said.

E.ON may also have favored its affiliate for providing balancing services while passing the costs of higher prices on to consumers. It may have prevented other producers from exporting balancing energy into its transmission zone, according to the statement. Balancing energy is last minute electricity supply to maintain electricity frequency in the grid.

To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net