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EC considers long-term contract a barrier to entry
As Europe prepares for the deregulation of the gas industry, the European Commission has recently forced Spanish supplier Gas Natural SA to rewrite its contract with Endesa SA, an electricity producer.
The contract was initially supposed to last 20 years. Moreover, it stipulated that Endesa could only use the gas bought from Gas Natural to generate electricity--that is, it could not resell it in the spot market.
EC officials were concerned about the potential anticompetitive effects of such long-term contracts:
The contract would have raised barriers to entry into the liberalized Spanish market... Entrants [would be] losing an attractive client in terms of volumes, as electricity generators are among the larger customers of gas.
Gas Natural and Endesa responded to the Commission's probe by reducing the contract length to 12 years and removing the restrictive clause regarding resale. The EC in turn dropped its probe.
Source: The Wall Street Journal, March 28, 2000