UK authority clears Centrica-EdF deal
10 August 2009
Plans by gas and electricity supplier Centrica to acquire a minority stake in nuclear utility British Energy (BE) from Electricité de France (EdF) have been approved by the UK's consumer and competition authority, the Office of Fair Trading (OFT).
Under the joint venture arrangements with EdF announced in May, Centrica will acquire a 20% interest in BE, the operator of eight existing nuclear power stations of which EdF acquired control in January 2009, and will offtake 20% of the uncontracted power from the BE fleet.
EdF and Centrica will also form a separate 80/20 joint venture through which they will undertake the pre-development activities for a planned nuclear new build programme, with the intention of constructing, operating and decommissioning four European Pressurised Reactors (EPRs). EdF will also provide Centrica with an additional 18TWh of power at market prices over five years from 2011.
One effect of the £2.3 billion ($3.4 billion) deal will be a significant presence in Belgium for EdF.
The OFT said that its inquiry generated a large response from the energy industry, with many raising concerns about potential adverse competition effects from the proposed transaction. The main concern related to a possible decrease in liquidity in the wholesale electricity market in the UK, which could lead to more price volatility and, potentially, increase barriers to entry or expansion in electricity generation or supply.
A number of these concerns related, at least in part, to uncertainty about the effect of EdF's recent acquisition of BE, and the remedies given to the European Commission (EC) as part of that case, on EdF's position on the wholesale electricity market.
Amelia Fletcher, OFT senior director of mergers, said: "This transaction attracted a great deal of interest and raised a number of complex issues. After careful and detailed analysis, which included close liaison with Ofgem [the Office of the Gas and Electricity Markets] and positive co-operation from the parties, we were able to rule out any competition concerns."
Centrica welcomed the OFT's decision, but noted that completion of the BE acquisition "remains conditional upon, and will take place simultaneously with, the sale of Centrica's majority holding in its Belgian business, SPE, to EdF for €1.325 billion ($1.9 billion). The SPE sale requires approval from the European Commission, which is expected in the coming months."
A major reason for the purchase has been to reduce Centrica's exposure to fluctuating gas prices. The company currently supplies about 43% of the UK's gas as well as 22% of electricity, which it generates by burning further gas. It said that it can currently generate about 57% of its supply customers' peak electricity demand, with the remainder being bought on the wholesale market, which is also subject to fluctuating gas prices. With the addition of its share of BE's nuclear generation, Centrica will be able to meet about 85% of its customers' peak needs.
The EC cleared EdF's proposed acquisition of BE, subject to conditions, in December 2008.