1 THE ENFORCEMENT OF EU COMPETITION LAW IN THE ENERGY SECTOR THROUGH NON-ADVERSARIAL COMMITMENTS Yane Svetiev and Lucila de Almeida (EUI)

2 Introduction and Structure 1.Role of Art. 9 Commitments in competition enforcement 2.Commitments Decisions in the Energy Sector 2.1. Tailoring Commitment Remedies 2.2. Accountability Mechanisms for Article 9 decisions

3 1. Commitment Decisions under the Article 9 Non-adversarial case resolutions – Characterized as being among the most “high profile activities” of the EU Commission and – Also used by National Competition Authorities (NCAs); Many cases in the energy sector decided through commitments procedure – Literature: Article 9 is most commonly used in energy sector and in cases involving intellectual property

4 1. Commitment Decisions under the Article Repsol Oil COM April Distrigaz Gas COM October 2007 E.ON. Electricity COM COM November 2008 RWE Gas COM March 2009 GDF Gas COM December 2008 EDF Electricity COM March 2010 SvK Electricity COM April 2010 E.ON. Gas COM May 2010 ENI Gas COM September 2010 Siemens/Areva Electricity COM June Commitment Decisions in the energy sector

5 1. Commitment Decisions under the Article 9 Research Questions What are the reasons for the extensive use of non-adversarial procedures both by the Commission and by national authorities in the energy sector? – peculiar sectoral characteristics that make such a procedure particularly adapted to the energy context? What are the distinguishing features of the use of non- adversarial procedures to restructure private relationships in the energy sector by the Commission? What role do national actors play in this process and are they a check and source of accountability on the Commission’s interventions?

6 1. Commitment Decisions under the Article 9 Characterizing the Article 9 procedure 1. Settlements 1.1. Procedural: non-adversarial closure of cases 1.2. Substantive: clear-cut / non-serious cases 2. Tools of dynamic learning 2.1. Procedural: shift to monitoring 2.2. Substance: liability rules for an effects based policy

7 1. Commitment Decisions under the Article 9 1. It is difficult to argue that energy commitment decisions stem from cases in which the infringement is relatively clear based on extant community law. The majority of the cases based on abuse of dominance theory.

8 1. Commitment Decisions under the Article 9 Impugned conduct has involved 1.1. the manner in which a vertically-integrated company uses its own infrastructure or even its own capacity; Compa ny Economic ActivityImpugned Conduct E.ON.Electricity generation and transmission system (i) withdraw available capacity in its transmission system and (ii) avoid third parties from making new investments in electricity generation RWEGas Transmission system and supply market (i) refuse to supply gas transmission services to third parties and (ii) behavior aiming at lowering the margins of RWE's downstream competitors in gas supply (‘margin squeeze’) GDFGas Transmission System and supply market Foreclose access to gas import capacities E.ON.Gas Transmission systemBook large parts of the available firm and freely allocable entry capacities on its gas transmission grid ENIGas transmission systemRefuse to supply transportation capacity on its natural gas pipelines SvKElectricity generation and transmission system Anticipate internal congestion by reducing interconnection capacity for trade between Sweden and neighboring Member States

9 1. Commitment Decisions under the Article 9 CompanyEconomic ActivityImpugned Conduct DistrigazGas Supply MarketLimit the scope of long-term gas supply contractors for other gas suppliers concluding contracts with customers. EDFElectricity Supply Market Conclude supply contracts that limit the possibilities of other undertakings of concluding contracts for the supply of electricity to large industrial customers in France Impugned conduct has involved also 1.2. the length of the contracts that energy supplier has concluded with its customers

10 ComapnyEcononomic ActivityCommitment E.ON.Electricity generation and transmission system (i) Divest its shares on electricity generation, which sum the generation capacity of approximately MW, (ii) divest its stakes on the transmission system business consisting of its 380/220 kV-line network. 2. The commitments procedure is not limited to the cases that do not raise novel or disputes issues of law or its application to the facts (i.e. E.ON. Case) 1. Commitment Decisions under the Article 9

11 1. Commitment Decisions under the Article 9 3. It cannot be said that the cases concluded pursuant to commitments in the energy sector are non-serious. CompanyEconomic ActivityImpugned Conduct E.ON.Electricity generation and transmission system (i) withdraw available capacity in its transmission system and; (ii) avoid third parties from making new investments in electricity generation.

12 1. Commitment Decisions under the Article 9 The substance of the cases often raises complex issues, requiring both weighing and trading off both arguments and likely effects. The use of commitment decisions in the enforcement of EU competition law has been driven by the transformation of competition policy from a relatively blunt tool of economic integration towards a policy instrument increasingly sensitive to the effects of market conduct on policy relevant variables.

13 2. Commitment Decisions in Energy Sector 2.1. Types of Commitments and their tailoring Decisions that involve divestment capacity for generation or transmission of energy. CompanyEconomic ActivityTailoring of Commitment E.ON.Electricity generation and transmission system (i) Divest its shares on electricity generation, which sum the generation capacity of approximately MW, (ii) divest its stakes on the transmission system business consisting of its 380/220 kV-line network. RWEGas Transmission system and supply market (i) Divest its entire current German high-pressure gas transmission system including networks co-owned with other parties, (ii) supply the purchaser for a limited period of up to five gas years. ENIGas transmission system (i) Divest its current shareholdings in companies related to international gas transmission pipelines; (ii) Not prolong, renew or enter into any new transport contract to Italy for its benefit on these pipelines.

14 2. Commitment Decisions in Energy Sector CompanyEconomic ActivityTailoring of Commitment DistrigazGas Supply Market(i) Return to the market an average minimum of 70% of the gas volume supplied by Distrigaz to industrial users every year; (ii) restrict the term of its contracts with them to five years. GDFGas Transmission System and supply market (i) Release 15% of the H gas consumption in whole France; (ii) release significant firm long-term capacities in two terminals; (iii) limit to less than 50% its long-term booking capacity in two balancing zones. EDFElectricity Supply Market (i) Return to the market 65% of the electricity supplied by EDF every year; (ii) sign contracts no longer than five years; (ii) customers would choose to obtain electricity from several suppliers. E.ON.Gas Transmission system (i) reduce its booking share in the available capacity in immediate and long-terms to 15-20% of capacities; (ii) reduce its booking share into the NCG and the L-gas grid to 50% and 64% Types of Commitments and their tailoring Decisions that adopts more flexible approaches towards stimulating entry, by seeking to constrain autonomy and contract behaviour of investigated undertakings

15 2. Commitment Decisions in Energy Sector CompanyEconomic ActivityTailoring of Commitment Siemens/A reva Electricity Generation (i) Reduce the effects of the non-compete clause from 11 years to 3 years in the joint venture Areva NP Types of Commitments and their tailoring Decision that are less intrusive, in part reflecting differences in conduct and context investigated and in part different remedial commitments that parties were prepared to offer or agreed to.

16 2. Commitment Decisions in Energy Sector 2.2. Accountability Mechanisms under Article 9 The review mechanisms are distinguished along two dimensions: Timing of input Source of review between judicial and peer input into the commitments proposed and adopted as part of an Art. 9 decision.

17 2. Commitment Decisions in Energy Sector Ex Ante Review: Market Testing of the Commitments ECN Advisory Committee (made-up of NCA representatives) Ex Post Review: Reports provided either by the entities offered to the commitment or by external “trustees” involved in monitoring the implementation of the remedies. Administrative or Private Law enforcement at the national level.

18 3. National Dimension as a source of accountability In the remainder of the paper, we aim to explore three principal arguments: Characterize non-adversarial resolution practice of national competition authorities in energy sector; Compare objectives pursued by national competition authorities in energy market through commitments with objectives of national energy regulators; Understand the role that actions before national courts play in overall mix of interventions

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