On February 23, 2021, the Italian Competition Authority (the “ICA”) made legally binding the commitments offered by Italgas Reti S.p.A. (“Italgas”), a company active in the gas distribution sector in the province of Venice, which belongs to the Italgas group (the “Decision”).[1] Italgas’ commitments were found to address adequately the ICA’s concerns that the company may have abused its dominant position in the local market for the provision of natural gas distribution services, in violation of Article 102 TFEU. According to the ICA’s decision to open the investigation, Italgas’ conduct was allegedly aimed at delaying the launch in 2018 of an open tender procedure for the provision of gas distribution services in a number of municipalities in the province of Venice (the “Tender”).

The relevant legal framework

Article 14 of Legislative Decree No. 164/2000 (the “Letta Decree”) characterizes natural gas distribution as a public service, to be provided under an exclusive concession granted by each municipality for its own territory.

According to Article 15(1) of the Letta Decree, the gas distribution service is entrusted by local authorities exclusively through competitive tender procedures, for a period not exceeding 12 years, without prejudice to the obligation of the outgoing operator to continue the management of the service until the effective date of the new assignment.

Pursuant to Decree Law No. 159/2007 laying down urgent economic measures for social development and equity, converted with amendments into Law No. 222/2007, the existing municipal concessions were consolidated into area concessions (“concessioni di ambito”) and 177 such areas were identified (so-called “ATEMs”). According to Article 24(4) of Legislative Decree No. 93/2011, implementing Directives 2009/72/CE and 2009/73/CE concerning common rules for the internal market in electricity and gas, respectively, ATEMs are the geographic areas for the award, through competitive tender procedures, of natural gas distribution concessions.

The legal framework currently in force imposes disclosure obligations on outgoing operators in favor of contracting authorities. In particular, two categories of information are deemed to be necessary for a tender to be launched, and must be provided:

  • information on the structure and the ownership of the gas distribution network, pursuant to Articles 4 and 5 of Ministerial Decree 226/2011, laying down the criteria for the entrustment of the gas distribution service (as amended in 2015), including, in particular, the inventory of the network[2] and additional information necessary for the preparation of the call for tender;[3]and
  • information relating to the enhancement of the gas distribution network,[4] according to paragraph 19 of the Ministry of Economic Development’s Guidelines of May 22, 2014 (the “MISE Guidelines”).

The Tender and the opening of the investigation

The Tender involves an ATEM comprising eight municipalities in the province of Venice (“ATEM Venezia 1”). Italgas is entrusted with the provision of gas distribution services in most of the municipalities included in ATEM Venezia 1, namely Venezia, Chioggia, Jesolo, Cavallino Treporti, Caorle and Eraclea. In the municipalities of Venezia and Chioggia, 2I Reti gas has a marginal position. Another competitor, Infrastrutture Distribuzione gas S.p.A. is entrusted with the provision of gas distribution services in the municipalities of Cavarzese and Cona. According to the Italian Regulatory Authority for Energy, Networks and Environment, Italgas controls roughly 97% of the natural gas distribution market in the province of Venice.

Italgas operated under a legal monopoly for more than 40 years by virtue of a concession agreement with the City of Venice, which expired in 2012.

Following an open tender procedure in which ATEM Venezia 1 participated in 2015, which the City of Venice later cancelled, the two parties were embroiled in a long-running administrative dispute over the ownership of certain distribution networks in ATEM Venezia 1.

The ICA started its investigation into Italgas’ alleged abusive conduct on the basis of a complaint filed by the City of Venice. According to the said complaint, Italgas stalled efforts to establish competitive bidding procedures for gas distribution by refusing to supply the necessary data and information to prepare tender documents, as required by Articles 4 and 5 of Decree No. 226/2011 and paragraph 19 of the MISE Guidelines.

Definition of the relevant market and Italgas Reti’s dominant position

The sector affected by the alleged abuse of dominance relates to the gas distribution service, which is provided under a legal monopoly. Its boundaries reflect the geographic scope of each exclusive concession, which currently have a municipal dimension. In the vast majority of local markets, the gas distribution service is provided under an extension regime, since, on the one hand, the initial concessions expired and, on the other hand, calls for tenders involving the ATEMs have not been launched yet.

Currently, Italgas has a legal monopoly in four of the eight municipalities of the Venice province (Jesolo, Cavallino Treporti, Caorle and Eraclea) and is the main operator in the municipalities of Chioggia and Venice.

The allegedly abusive conduct

According to the Decision, Italgas allegedly abused its market power by refusing or delaying the submission to the City of Venice as the contracting authority of certain data and information essential to prepare the Tender documents and to launch future gas tenders to increase competition in the market.

The ICA asserted that such information was available exclusively to the company. Therefore, its refusal or delay in supplying it to the City of Venice likely amounted to an abuse aimed at slowing down the Tender.

The ICA also took the view that the conduct in question could affect the opportunities for other qualified national and EU competitors to participate in future tenders for the assignment of the gas distribution service in ATEM Venezia 1, so as negatively to affect the conditions of provision of the service to end users.

The commitments

In order to address the ICA’s concerns, Italgas offered the following commitments (the “Commitments”):

  • To hand over to the City of Venice all essential data and financial information – updated as at December 31, 2017 and December 31, 2018– necessary to launch the Tender (the “First Commitment”). The ICA took the view that, as a result of this commitment, the competition concerns relating to the delay in preparing the documents necessary to launch the Tender would be overcome, also considering that Italgas committed proactively to assist the City of Venice significantly to speed up the process for the publication of the call for tender;
  • To provide the City of Venice with detailed maps of its distribution network in shapefile format, including data on communication protocols, equipment measurements, public and private contracts related to plant ownership and status reports on the current distribution networks (the “Second Commitment”). The ICA noted that the Second Commitment is complementary to the First one, to the extent that it allows the City of Venice to proceed more quickly with the preparation of the Tender documents, and at the same time facilitates competitors’ access to such documents and strengthens their ability to present competitive offers;
  • To provide the City of Venice with data and information as per the First Commitment, updated as at December 31, 2019 (the “Third Commitment”). According to the ICA, although outgoing service providers’ compliance with disclosure obligations is required by law, pursuant to Article 4(3) of Decree No. 226/2011, the Third Commitment allows a significant reduction of the time required for publication of the call for tender, considering that Italgas committed to provide the essential data and information on a purely voluntary basis, in the absence of any previous request from the City of Venice;
  • With respect to all future ATEM tenders, to hand over to all contracting authorities detailed plans concerning the process of providing essential data and

Italgas also agreed to appoint a contact to assist the contracting authority in processing (and understanding) the data supplied, and to provide the ICA with a half-yearly report concerning the above mentioned planning (the “Fourth Commitment”). The ICA took the view that the Fourth Commitment will result in the setting-up of a new procedure making it possible for Italgas to engage in formal dialogue with contracting authorities of the ATEMs in which it is the outgoing operator. In particular, systematic planning of information flows from Italgas Reti to the contracting authorities (through the definition of a binding time schedule) could make the relevant tender procedures easier and quicker to set up, ensuring the development of effective competition; and

  • With respect to all future ATEM tenders in Italy, as opposed to those to be organized by the contracting authorities of the Venice province only, to submit to contracting authorities also a methodological note clarifying the criteria followed by Italgas in the performance of its disclosure obligations (the “Fifth Commitment”). The ICA noted that this commitment will contribute to the speeding up of the process for collecting all essential data and information. Moreover, considering that it will be implemented by the most important operator at the national level, it will would be capable of reducing any possible competitive concerns in other ATEMs.

The said commitments were offered until completion of all tenders for the assignment of the natural gas distribution service in Italy.

In light of the above, the ICA concluded that the Commitments – as clarified by Italgas in light of the results of the market test – are suitable for remedying the competition concerns that led the ICA to open the investigation. Indeed, the implementation of the Commitments will facilitate the launch of the Tender and allow competitors to participate on a more equal footing, because no single operator will hold all of the essential information for the entire municipality’s gas distribution network. The ICA also took the view that the commitments would improve competition in future tenders.

The ICA also noted that certain Commitments were implemented by Italgas even before the ICA closed its investigation.

[1] ICA Decision No. 28585, Case A540 – Condotte abusive Italgas/Atem Venezia 1.

[2] Pursuant to Article 1(1) of Decree No. 226/2011, such inventory consists of the maps and the description of the networks and plants relating to the natural gas distribution service. The maps consist of the representation, at least graphic, of the plants and networks, which includes information on the material of the pipes, their diameter and the operating pressure. Such information must be provided in an open format and interoperable, as clarified by Article 2 of the MISE Decree of May 11, 2016.

[3] This includes a status report on the distribution network, as well as data and information on communication protocols concerning equipment measurements, and the financial obligations relating to investments made in the previous period of assignment and on public and private contracts relating to the performance of the distribution service and to plant ownership.

[4] In particular, summaries of: (i) the main characteristics of the plant; (ii) the methodology used for the enhancement of the plant; and (iii) the economic data for the evaluation of the reimbursement value as well as the economic data relating to tariff regulation, and various economic indicators. Such information must be updated at least on December 31 of the second year preceding the one in which the call for tender is published.