The Role of Competition Law in Infrastructure Services: The Case of the European Energy Market

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Inter-American Development Bank April 23-24,
2001Washington

• The Role of Competition Law in Infrastructure
  Services The Case of the European Energy Market
• Salomé Cisnal de UgarteFreshfields Bruckhaus
  DeringerBrussels

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I. Introduction

• Goal of this presentation
• Outline
• Liberalization of the European energy markets
• Application of European Competition rules to
  energy sector
• Concluding remarks

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II. The Move towards the Liberalization of the
European Energy Markets

• Infrastructure services in Europe before the
  liberalization
• Why liberalize the European energy markets?
• Annual turnover of around EURO 250 billion
• Political integration establishment of the
  Internal Market contained in the Treaty of the
  European Union
• Economic aim Promote competition and consumer
  welfare

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How are the European energy markets being
liberalized?

• Challenge Encourage competition whilst
  maintaining a guaranteed, continuous,
  high-quality and non-discriminatory supply
• Main legal instruments
• Electricity Directive (Directive 96/92/EC)
• Gas Directive (Directive 98/30/EC)
• Areas of action

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Where are we now?

• Both Directives have been implemented (1999 and
  2000)
• Directives minimum 30 (electricity) / 20 (gas)
• In 2000 most Member States above (eg. Finland,
  Germany and UK 100 (electricity and gas)
• Towards the full opening of the EU electricity
  and gas markets in 2005
• The future European energy market will offer
  greater choice while providing all Europeans with
  a guaranteed, high-quality, universal service
  (Loyola de Palacio, Commissioner for Energy and
  Transport, 13 March 2001)

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III. The Role of Competition Law in a Liberalized
European Energy Market

• Starting point The energy sector in the EU
• Applicability of competition rules (e.g. Almelo
  v Ijsselmij)
• Basic principles of EC Competition Law
• Anti-trust rules (Article 81 EC Treaty)
• Abuse of dominant positions (Article 82 Treaty)
• Merger control (ECMR)
• State aid rules (Articles 87 et seq.)
• Exclusive rights for import/export only if
  justified by public service obligation
  considerations (Article 86 EC Treaty)

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Prohibition of anti-competitive agreements or
practices (Art. 81 EU Treaty)

• Purpose prevent companies co-operating to
  disadvantage of consumers and encourage
  achievement of the single market
• Content
• Article 81 (1) prohibits any agreement between
  undertakings that prevents, restricts or distorts
  competition within the EU with an appreciable
  effect on inter-state trade
• Article 81(2) Legal consequences
• Unenforceability of contractual provisions
• Risk of fines by the Commission
• Risk of third party actions before national
  courts or complaints to Commission
• Article 81(3) Exemptions

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• Impact on the energy sector
• Structure agreements
• Connection agreement
• Long-term exclusive supply, exclusive purchase
  agreement and similar agreements.
• Exclusive distribution agreements (demarcation)
• Upstream cooperation
• Joint purchasing and joint sales agreement

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Prohibition of abuse of dominant position (Art.
82 EU Treaty)

• Purpose to prevent undertakings with very strong
  market power from using their power to further
  inhibit or exclude competition, or to exploit
  customers
• Content
• Prohibits abuse of a dominant position (rule of
  thumb 40)
• No exemption
• Applicability to the energy sector
• Refusal of access by a dominant position acting
  as the system operator of the national grid or
  downstream pipelines without justified reasons
  (Oscar Bronner)
• Unfair transmission tariffs excessive prices
  (exceeding the value of the service provided) or
  predatory prices (below variable costs)

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Merger control

• Increasing economic concentrations (i.e.
  strategic alliances, mergers, acquisitions and
  joint ventures)
• Competition rules have to avoid that the
  structural changes in the market caused by a
  concentration have the effect of impeding
  competition in a liberalized energy sector.
• European merger control rules (European Community
  Merger Regulation - ECMR) or national rules

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• Prohibition of State Aid (Art. 87 EU Treaty)
• Art. 87 EU Treaty prohibits any aid granted by
  State or public authorities to companies which
  may distort competition
• Unless authorised by the European Commission (eg.
  aid for a French scheme for renewable energy)
• Public service obligations (Article 86)
• The concept of service of general economic
  interest
• The particular tasks entrusted to the national
  monopoly undertakings

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IV. Concluding remarks

• Liberalisation in the EU has led to the
  restructuring of the market with an increase of
  the application of the competition rules to the
  new realities
• Competition rules will not replace regulation
• Competition rules are rather a complement to
  liberalisation because they avoid pro-competitive
  liberalisation measures being circumvented,
  creating new kinds of monopolies to replace the
  old ones