1. Hungarian Practice: Competition law and energy markets
EU Support to strengthening competition in Serbia
Hungarian Practice: Competition law and energy markets
Arpad Hargita
EU-SCS
A project financed by EU
Implementing consortium lead by

2. Introduction
I. Short story of liberalization II. GVH activity in the energy sector: a) consumer deception cases b) abuse of dominance cases c) sectoral investigation and competition advocacy III. Regulation/Competition - Cooperation with the regulator

3. I. Liberalisation of energy markets in Hungary
Liberalization of the Hungarian Energy market
from 01/01/2003 : opening for large customers (over 6.5 GW), public lighting, certain local governments → 33 % of the consumption
from 01/06/2004: all non-household customers → 65 % of the consumption
from 01/07/2007: for all customers
until twin model public utility market – open market
→ customers could choose where they buy from - not a good solution as public utility market owned 95 % of the purchase agreements – no real room for competition
from 2008 open market: universal market
(for households and small customers) and
open market for others
1. Significant delays in the transposition of the Directive:
Due to full harmonisation character of the Directive Member States had to carry out an extensive review of their national legislation to bring it into line.
2. Full harmonization effect
of the Directive and prevents Member States from deviating from its rules.
Telekom: Polish Act on Telecom: Art. 57: service provider may not make the conclusion of a contract contingent of a conclusion of another service contract (broadband internet access contingent on telephone service contract) → LEGISLATION THAT GENERALLY AND WITHOUT DISCRIMINATION PROHIBITS LINKED SALES
3. Aim:
major simplification of the rules on misleading advertising and unfair commercial practices in business-to-consumer transactions across the EU, by replacing the 27 national regimes with one set of rules, whilst maintaining a high level of consumer protection. It was essential to overcome the specific legal barriers caused by the fragmented regulation of unfair commercial practices, which gave rise to cost, complexity and uncertainty for both businesses and consumers.

4. I. Liberalisation of energy markets in Hungary – one key problem
Long terms contracts:
between privatisation of generating companies → in order to make it work and to facilitate the returns on the considerable investments
lasting until – representing 80 % of electricity demand in Hungary → closing market: selling only to the former incumbent, hindering new entrants, and hindering competition because of the fix prices (some of the generating companies had profit even with 10 % capacity usage)
EU Comission decision: agreements has to be ended before the end of 2008 ( same situation in Poland): unlawful state aid and restricting competition

5. I. Liberalisation of energy markets – past trends
EU policy:
liberalization in the first sectors (air-transport and telecommunication) was bringing good results
the main goals in energy were always: (i) security – (ii) sustainability – (iii) competitive price
2007 Sector investigation showed serious problems:
still national markets,
high concentration,
insufficient unbundling of production and distribution
→ consquence: series of cases started ended up with commitment decisions, e.g.:
a) E-On (2008) divesting appr. 20 % of its generation capacity,
b) RWE (2009) divesting its gas transmission system,
c) ENI (2010) selling its shares in certain transport capacities

6. I. Liberalisation of energy markets – recent trends
2014
Commission report - January: falling of wholesale prices between between %
Commission communication - October: completion of internal market gives billion EUR benefits/year, further interconnection of the energy market needed, and also the level of renewable energy sources has to be increased from 23,5 % to 27 % until 2030
EU position on Hungary
- NRA should have the power to set network tariffs → more independence needed: now Ministry sets key parameters and NRA calculates
- because of energy prices were cut 20 % in 2013 and further cut is foreseen there is no private investment in the sector

7. II. GVH activity in the energy sector
The role of the competition authority is to protect competition – in case of the Hungarian energy sector:
help the process of liberalization by hindering abuse of incumbents (see cases also in railway/telecom),
consumer protection in order that consumers are able to chose the offer that is the most advantageous for them,
cooperation with the regulator,
competition advocacy.
Conflict occurs
because the lex specialis contains more detailed pre-contractual information requirements, or stricter rules on the way information is presented to consumers (see Recital 10 of the Directive). H
however, the existence of specific EU rules in a given sector does not exclude the application of the Directive: in these cases and in relation to all the aspects not covered by the lex specialis, the UCPD complements these sectoral provisions and fills any remaining gaps in the protection of consumers against unfair commercial practices.
2. Air Services Regulation
contains specific provisions on the price information to be made available to the general public. According to Article 23 of the Regulation, in addition to the final price, which must include all applicable taxes, charges, surcharges and fees, air carriers should also provide a breakdown of the final price. Therefore, in respect of pre-contractual information regarding prices for air fares, these more specific provisions will apply.
The Directive’s provisions come into play to prohibit commercial practices which are likely to deceive the average consumer (such as ‘bait’ advertising and marketing of air fares), and practices which constitute aggressive conduct (such as onerous and disproportionate non-contractual barriers imposed on consumers who wish to exercise a contractual right to terminate a contract).

8. II. Hungarian cases – Abuse cases
DÉMÁSZ/ TITÁSZ cases (2002)
concluding with certain municipalities long-term contracts (10-15 years) on providing all the services related to street lighting with penalty provisions that impeded or at least limited the municipalities’ possibility to purchase as eligible customer electricity for street-lighting from other distributors after the liberalisation → infringement decisions
EMFESZ case (2008)
- tender published by a huge fertilizer manufacturer (PNM) for supply agreement of natural gas – agreement concluded with winner (EMFESZ)
- after one year parties could not agree on the modifications of the price formula → manufacturer claiming that the supplier is in dominant position and abusing it
- Competition Council stated that the contract itself does not create dominance, the market situation in the moment of signing the agreement has to be taken into account → no dominance at that moment (EMFESZ had 5 % market share)
- stopping of gas supply may be a breach of contract but not abuse of dominance

9. II. Hungarian cases – Abuse cases
DÉMÁSZ/ TITÁSZ/ E-On/ ELMU/ DÉDÁSZ/ ÉMÁSZ cases (2006)
as a result of the sector investigation, procedures started against all the six previous local monopoly energy suppliers for long-term contracts ( years) containing “English clause” (possibility of last offer) for large customers
Theory of harm: foreclosing the liberalized market using monopoly position with contracts concluded before liberalization on the retail market
Conclusion: no infringement as,
the share of the customers tied (15-20 %) and the share in the overall share of these contracts (1-2 %) was too low,
english clause was not applied,
customers did not feel that they were hindered in switching
other players appeared on the market

10. II. Hungarian cases – Consumer deception cases
Hungarian Telekom (subsidiary of Deutsche Telekom) – former incumbent of fixed telephony entered the gas retail market for households → a) 09/ /2012 campaign promising 5 and 8 % lower gas prices – compared to universal gas price - for customers of MT (in part of this period a 12 month loyalty contract was an additional option) b) 09/2012 the price of gas changed – 3 and 5 % reduction instead of 5 and 8% c) One key sentence of the campaign was „ the possible yearly saving is HUF” d) Calculators created on the webpage of MT showing yearly savings

11. II. Hungarian cases – Consumer deception cases

12. II. Hungarian cases – Consumer deception cases

13. II. Hungarian cases – Consumer deception cases
Competition Council stated that - the advertisements constituted an unfair commercial practice/misleading advertisement as an average customer believed that the price reduction would last for a longer period based on the main message emphasizing yearly savings, - the cost savings presented in the advertisment were not achieved because of the price raising. 20 million HUF fines were imposed

14. II. Hungarian cases – sectoral investigation and competition advocacy
GVH adviced Government already in 2000 that liberalization is essential and an independent regulatory agency is needed
sectoral investigation on why the proposed level of competition was not reached → suggestions of the GVH:
renegotiation of the long term contracts as they restrict competition on the market foreclosing it from competitors,
creation of a regional market (done in 2012) and common exploitation of cross border capacities (e.g. joint auctions),
opening new competitive energy generation capacities,
raising consumers awareness.

15. III. Cooperation with the regulator – regulation vs. competition
Competition law
Where
In sectors where markets were regarded as natural monopoly- liberalisation
In all sectors-usually sector neutral
Aim
Protecting competitors by generating maintainable competition ex ante
Protecting competition and ensuring consumer welfare ex post
Tools
Prescribing what to do: e.g. cost based pricing, giving access, non discrimination
Prohibiting certain behaviours (e.g. discrimination)

16. III. Cooperation with the regulator – regulation and competition
Cooperation is essential because of possible parallel application is possible and convergence (e.g. SMP/dominance, market definition) → Cooperation agreement between GVH and the sector regulator a) executive level: yearly meeting b) decision making level: nonstop cooperation → information sharing on cases (sending order opening the procedure and decision ending it) c) international cooperation: harmonizing positions towards international organizations (OECD) d) joint researches – joint awareness making campaings

17. Thank you for your attention! arpad.hargita@giz.de