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Friday, November 9, 2007

Big power groups warned on long-term contracts

Big power groups warned on long-term contracts

Dominant European gas and electricity distributors should free customers from long-term contracts or face legal action, the European Commission said on Thursday, citing an agreement with Distrigas, the Belgian company, as a blueprint.

The Commission on Thursday dropped an antitrust action against Distrigas, which has a more than 80 per cent share of its home market, in return for guarantees that it would make more gas available to competitors.

The case is one of a series of actions by the EU’s leading antitrust authority against incumbent energy companies, which it believes are freezing out newcomers with long-term deals.

Distrigas, owned by the private French utility, Suez, said it would not sign any new contracts with gas retailers that are longer than two years or with industrial customers for longer than five years, with the exception of new power stations. Some 70 per cent of the gas it had contracted to supply would be available on the market each year.

It could tie only about 20 per cent of the total market to long-term contracts, according to the agreement, which lasts until the end of 2010.

Neelie Kroes, the competition commissioner, said Distrigas’s dominance of the volume and duration of supply kept new entrants from recruiting customers. “Its long-term gas supply contracts make it difficult for competitors to build up a customer base and delay the development of competition.”

The Commission indicated other companies should follow suit. It has launched a formal investigation into EDF of France and Electrabel of Belgium for excluding competition in their respective home electricity markets with similar long-term contracts.

“If they (companies)were to behave in a way similar to Distrigas with its commitments then they would normally not be subject to an antitrust case by the Commission,” said a spokesman for Ms Kroes. “This is applicable in the electricity sector too.”

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