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Carson McDowell – competition in the sector

Doritt-McCann Dorit McCann outlines the local relevance of UK and EU judgements.

UK and EU competition law prohibit two main types of anti-competitive activity: (i) arrangements between two or more undertakings which have the object or effect of preventing, restricting or distorting competition and which appreciably affect trade in the UK or the EU1; and (ii) abuse of a dominant position in a market by one or more undertakings2.

Investigation and enforcement of competition law

The Utility Regulator has concurrent powers with the Office of Fair Trading to investigate and take enforcement action in relation to suspected infringements of UK and EU competition law. These powers include the ability to give directions to bring an infringement to an end, accept binding commitments and impose financial penalties up to 10 per cent of worldwide turnover. To date, the Utility Regulator has not exercised its competition powers.

The UK Government has proposed a reform of competition enforcement which will involve the creation of a single Competition and Markets Authority (CMA). Proposals include giving the CMA sole competition law powers in the regulated sectors or at least encouraging a more proactive use of competition powers in these sectors. At European level, the energy sector continues to be on top of the European Commission’s agenda with a number of important cases in recent years.

Application of competition law in the energy sector

In the UK, the highest penalty to date for an abuse of dominance was imposed by Ofgem in October 2004. Ofgem fined National Grid £41.6 million (reduced to £30 million on appeal) for entering into long-term contracts with energy suppliers to supply and maintain gas meters. These contracts restricted the rate at which suppliers were able to replace National Grid’s meters with cheaper and more advanced meters from rival operators.

A more recent case involving long-term supply contracts involved EDF SA, the French electricity supplier3.

The Commission believed that EDF was abusing its dominant market position for the supply of electricity to large industrial customers through the use of long-term electricity supply contracts. EDF undertook not to conclude any new contracts which exceed five years in duration and to offer large industrial customers non-exclusive contracts.

Another recent case is E.ON4, where the Commission was concerned that E.ON had abused its dominant market position for the supply of gas in Germany by reserving to itself almost the entire capacity at key entry points into the gas network. As a result, E.ON undertook to release pipeline capacity to enable other companies to compete on the German gas transmission market.

Does regulatory supervision shield companies from competition law?

In 2010, the European Court of Justice (ECJ) delivered an important judgment with potential consequences for the energy sector5. The ECJ confirmed the decision of the European Commission that Deutsche Telekom had abused its dominant position by charging competitors prices for network access services that were higher than the retail prices which Deutsche Telekom’s end-users were charged. Deutsche Telekom was fined €12.6 million. The ECJ held that, even though Deutsche Telekom’s prices were subject to regulatory supervision, it was left with sufficient freedom to end the abuse. The Commission had therefore been entitled to find an infringement of Article 102.

What does this mean for energy companies active in Northern Ireland?

Deutsche Telekom is an important judgment for all regulated sectors as it makes clear that decisions of national regulators do not shield dominant companies from the application of competition law. In Northern Ireland, it means that energy companies remain responsible for their actions under UK and EU competition law, even if their activities or prices are approved by the Utility Regulator. Moreover, even if a network is independently owned (e.g. NIE), pricing abuses contrary to UK and EU competition law may still occur (e.g. predatory or excessive pricing).

Energy companies should therefore ensure that their activities are fully compatible with applicable competition law.

Dorit McCann, Associate

EU, Competition and Regulation

T: 028 9034 8816