EDF/British Energy (European Commission, phase I)

The Situation

On 17 March 2008, the Board of British Energy announced that it was in discussions with interested parties in the context of its future and its plans to take a pivotal part in any new nuclear program, in line with UK government policy. On 24 September 2008, the Board recommended a cash offer and a partial contingent value rights (CVR) alternative by EDF, valuing British Energy at approximately £12.5bn. The transaction was notified to the European Commission on 3 November 2008.

EDF's UK activities included coal and gas power generation, as well as wholesale, distribution, and supply of electricity to domestic and business customers. British Energy was the largest UK electricity generator (with eight nuclear power stations and one coal-fired plant), and was also active in the supply of electricity to industrial and commercial (I&C) customers. The main horizontal overlaps related to electricity generation/wholesale and the retail supply to I&C customers.

NERA's Role

NERA advised British Energy throughout the European merger control process. The economic analysis focused particularly on non-coordinated effects, including extensive iterations on unilateral capacity withdrawal modeling for peak and off-peak demand levels on the basis of the British electricity merit order (where EDF's flexible capacity may at times be the price-setting generation unit, while British Energy's nuclear fleet with its low marginal cost operates in the baseload section), as well as on concerns around a potential reduction in wholesale market liquidity, which was examined with reference to empirical simulations in electricity economics and hedging.

NERA had already advised British Energy during the state aid and restructuring process, and also subsequently advised the merged entity in relation to the OFT merger investigation of Centrica/British Energy.

The Result

While the European Commission's initial market investigation concluded that the transaction, as initially notified, would have been likely to raise serious competition concerns, EDF committed to divest the gas-fired Sutton Bridge and the coal-fired Eggborough plants, to sell certain minimum volumes of electricity in the British wholesale market, to unconditionally divest a site that is potentially suitable for new nuclear build, and to end one of the merged entity's three power transmission grid connection agreements at Hinkley Point. On the basis of these commitments, the European Commission found that the merger would not result in a significant impediment of effective competition (SIEC) and on 22 December 2008 cleared the transaction without opening an in-depth (phase II) investigation.