E.ON, GDF Suez Fined 1.11 Billion Euros Over Gas Deal

GDF Suez SA of France and Germany’s E.ON AG were each fined 553 million euros ($768 million) for breaking European Union antitrust rules by colluding on sales of natural gas in national markets.

The European Commission, the EU’s antitrust authority, ruled that gas-transport agreements signed in 1975 violate the bloc’s regulations against sharing markets.

“This agreement deprived customers of more price competition and more choice of supplier in two of the largest gas markets in the EU,” Competition Commissioner Neelie Kroes said today in a statement. “The commission has no alternative but to impose high fines.”

The fines, totaling 1.11 billion euros, are the first for anticompetitive behavior in the energy industry, the commission said. The EU has increased scrutiny of utilities in the bloc’s 300 billion-euro power and gas market as it seeks to dismantle barriers to competition after customers gained the right to choose energy suppliers under a 2003 law.

The penalties account for less than 1 percent of 2008 sales at E.ON and GDF Suez, according to Bloomberg calculations. That compares with the 10 percent that the Brussels-based regulator is permitted to dock companies.

‘Relatively Limited’

“It’s a significant fine, but if you look at the effect on the companies’ fair value, it’s relatively limited,” Stephan Wulf, a Frankfurt-based analyst at Oppenheim Research GmbH, said today. “There won’t be any significant changes in the competitive environment” as a consequence. Oppenheim has a “buy” recommendation on GDF Suez stock and a “neutral” rating on E.ON.

GDF Suez, the world’s second-largest utility, said in a statement it disagrees with the commission ruling and will file an appeal with the EU’s Court of First Instance. E.ON Ruhrgas AG, the gas unit of Germany’s biggest utility, also said it will challenge the decision in court.

E.ON gained as much as 2.8 percent to 23.60 euros in Frankfurt trading, the biggest gain in two weeks. The stock was at 23.31 euros as of 12:56 p.m. local time, valuing the Dusseldorf-based company at 44.5 billion euros.

GDF Suez fell as much as 1.4 percent to 24.73 euros in Paris, the lowest intraday price since April 24, before trading at 24.85 euros. The stock has slumped 27 percent this year, valuing the company at 56.2 billion euros.

GDF-E.ON Accord

Gaz de France SA, which merged with Suez SA last year, and Ruhrgas AG, now E.ON Ruhrgas, signed a deal on gas deliveries through their jointly owned Megal pipeline in 1975. The investigation into the agreement started in 2006. E.ON settled a separate EU antitrust probe into potential abuse of its market position in November by agreeing to sell its German power grid and about 5 gigawatts of electricity generation capacity.

German competitor RWE AG also agreed to divest its domestic gas transmission network to resolve an EU antitrust probe.

E.ON and GDF Suez import gas from Russia and the North Sea through a network of pipelines. Germany, served by 375,000 kilometers (233,000 miles) of pipes, consumes the most gas in Europe after the U.K., according to BP Plc data.

E.ON’s sales rose 26 percent to 86.75 billion euros last year as the company added clients and power plants abroad. GDF Suez had revenue of 67.92 billion euros, according to data compiled by Bloomberg.

Remedy Concerns

Separately, the commission said GDF Suez offered commitments to “remedy concerns that it might have infringed” competition rules by abusing a dominant market position in the gas industry.

“The commission was concerned in particular that GDF Suez might be closing off competitors from access to gas import capacity into France,” the regulator said.

The Paris-based company said today that it set aside provisions at the time of its merger last year that fully cover the amount of the fine announced by the EU. The utility’s main domestic competitor is Electricite de France SA, which is also the world’s largest utility.