On September 27, 2019, the FCO and the Federal Network Agency (“FNA”) jointly published guidelines on the control of the abuse of a dominant position in relation to electricity generation and wholesale trade (“Guidelines”).[1]
The Guidelines describe the application and scope of competition law rules on the abuse of a dominant position in relation to electricity generation and wholesale trade. In particular, the Guidelines provide guidance on legitimate price peaks on the electricity wholesale market, i.e., price increases resulting from a fair balancing of supply and demand, as opposed to price increases due to scarcity that results from deliberate reductions of capacity by dominant electricity providers:[2]
To assess market dominance, the Guidelines refer to the Residual Supply Index (“RSI”), which is also used by the European Commission to quantify whether, and to what extent, an electricity provider is indispensable to meet demand.[3] The Guidelines consider an electricity provider dominant if the provider is deemed indispensable for meeting electricity demand in at least 5% of the hours of a year.[4]
The Guidelines consider deliberate shortages of energy supply abusive, including (i) physical capacity restraints, i.e., situations in which a provider does not offer available capacity that could be sold at a price above the short-term marginal costs, and (ii) financial capacity restraints, i.e., situations in which a provider offers capacity only at such a high price that it is not used to meet supply and demand.
The Guidelines only provide few non-exhaustive examples of potential justifications for capacity restraints , e.g., if a provider can only recover its full cost when withholding certain capacities.
[1] FCO/FNA, Guidelines on the control of abusive practices in electricity generation/wholesale trade, September 27, 2019, only available in German here.
[2] In addition to the application of competition law, the Guidelines provide guidance for interpreting the “Regulation on the Integrity and Transparency of the Wholesale Energy Market” (“REMIT”) which applies to all providers (i.e., including non-dominant providers) and aims at preventing market manipulations by, e.g., spreading of false or misleading information regarding the availability of capacity using urgent market messages.
[3] The FCO already suggested the use of the RSI in its Sector Inquiry into Electricity Generation and Wholesale Markets of January 11, 2011, available in English here.
[4] However, in the 7th Sector Report on Energy Markets (see more in this issue’s next article), the Monopolies Commission recommended applying the 5% threshold to each price peak, arguing that the period of a whole year would create uncertainties as a price peak during the year may only become illegal when the undertaking has reached the 5% threshold at the end of that year. Although the FCO maintained the 5% of the hours of a year, it clarified that it would also consider periods of less than a year.