E.On-Innogy deal doesn't show threat of data monopoly, despite rival's claims

16 April 2019 10:35am

15 April 2019. By Michael Acton and Fiona Murphy.

E.On's merger with Innogy has drawn criticism from rival LichtBlick, which has said the deal will create “the leading Big Data conglomerate in the German energy market,” comparing it unfavorably to tech giants such as Google and Amazon.

Such comparisons are in vogue these days. It echoes criticism made by RTL in its efforts to hamper Vodafone’s tie-up with Liberty Global, as well as by opponents of Bayer’s acquisition of Monsanto.

But direct comparisons between E.On and the data giants are problematic given the specificities of the energy market. Despite the EU watchdog’s heightened interest in the issue of late, this doesn’t look like the data-centric merger case it’s been looking for.

​The merger drew early questions from the EU over its potential data implications, with questionnaires to competitors asking whether the combined company could gain unfair advantages when developing the energy products of the future due to its access to “smart meters.”

But now the European Commission is focusing on the impact the deal could have on energy prices for consumers in Germany, the Czech Republic, Slovakia and Hungary. It stopped the clock on the review three weeks ago, to allow E.On more time to supply it with the information it needs.

The companies expect to receive regulatory approval for the transaction — which forms one half of a broader asset-swap deal with RWE — by September, MLex understands.

Smart meters

LichtBlick’s argument centers around smart meters, which are being promoted by Germany as part of its attempts to make the grid network more efficient. These meters allow consumers to more effectively manage and reduce energy consumption, or facilitate the connection of electric vehicles to home charging stations.

They are also capable of recording detailed information about consumer energy consumption. Companies such as E.On and Innogy operating local grid networks as “distribution system operators,” or DSOs, accumulate the data from these meters.

If E.On absorbs Innogy’s grid assets, LichtBlick says, it will have access to huge amounts of customer data which will allow it to get ahead of competitors when developing “smart” energy product markets.

“With its dominant position in the end-customer and smart-meter markets, the new E.On secures the ideal starting point for a dominant position in competition for German consumers’ energy data,” the company said in a position paper published in February.

The commission, keen to show it was acknowledging these concerns, ran this idea past competitors in its initial questionnaire.

It asked companies developing new energy products and services — such as “smart home” and e-mobility services — who owns the necessary data to develop these products, and whether privileged access could be exploited to gain a competitive advantage in these budding markets.

Unbundling

The idea of E.On self-preferencing as a vertically integrated company, in the same way regulators suspect dominant tech companies of doing, doesn’t quite hold up under scrutiny.

The DSOs that collect the smart-meter data must be “unbundled” from energy retail companies in Germany — with the exception of those with fewer than 100,000 customers, mostly municipal utilities companies.

These rules ought to prevent the combined E.On-Innogy from using the data it receives through its DSO activities, including from smart meters, to privilege its retail arm.

And so far, the barriers to entry to Germany's energy retail market in general don't seem that high: According to a 2017 report from the Council of European Energy Regulators, Germany’s retail market has the highest level of entry into the electricity retail market, with 89 new entrants that year alone.

Oversight

The regulatory discussion over the role of DSOs as data “hubs” is also pretty advanced, even beyond Germany, which already has its own rules ensuring fair access to smart-meter data.

An EU directive establishing common rules for the internal electricity market is in the final stages of approval by national governments.

Once adopted, governments across the bloc will be required to regulate DSOs to ensure that they are indeed offering equal access to customer data, subject to data-privacy rules.

They will ensure “the exchange of data between market participants engaged in aggregation and other electricity undertakings that ensure easy access to data on equal and non-discriminatory terms.”

This is in line with a report compiled for the commission in 2016 by Copenhagen Economics and VVA Europe, which called for EU-level action “to ensure neutrality of the DSOs and non-discrimination of third parties operating in the markets.”

So even in the eastern European electricity markets — which might not be as liberalized as the German market and also be affected by the E.On-Innogy deal — smart-meter data regulation is coming.

Other priorities

The commission’s press release, announcing its in-depth review of the merger, didn’t even mention data. The watchdog is typically upfront about where it has serious concerns.

And E.On isn’t concerned that data might become a sticking point with the commission, MLex understands. Neither are German data regulators, who spoke to MLex on condition of anonymity.

Of course, none of this is to say that there aren’t broader competition concerns with the deal. The commission is clearly worried about the power of the combined entity to influence prices at regional level, both in Germany and in eastern Europe.

But a quick dive into the reality of the energy market shows that claims of an imminent data monopoly are overblown.

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