Germany: Federal Cartel Office publishes energy sector inquiry report – no clear evidence for abuse of dominant position

01 January 2011

Dr Jörg Witting, Fabian von Busse

On 13 January 2011 the Federal Cartel Office (“FCO”) issued the final report of its energy sector inquiry. The main subjects of the inquiry were the competitive situation and pricing mechanisms in the German markets for the production and wholesale of electricity in the years 2007 and 2008. In particular, the FCO analysed the market structure and the supply conduct of the relevant players in these markets. It came to the conclusion that – although it considered the competitive situation was unsatisfactory – there was insufficient evidence for abuse of dominant position proceedings to be initiated against particular players.

Based on the comprehensive data collected in the course of the sector inquiry, the FCO held that in the relevant market for the generation and first-time sale of electricity, at least three out of four large energy suppliers in Germany individually hold a dominant position. This conclusion was based on the finding that in a significant amount of time, the electricity demand in Germany could not be covered without the capacities of each of the suppliers.

In a further step, the FCO assessed whether suppliers had abused their dominant position by artificially withholding energy capacities in order to achieve higher prices at electricity exchanges. According to the FCO, there is an abuse of a dominant position if a dominant company, without objective justification, does not offer electricity from available capacities, although it could be sold on the market for a price exceeding the relevant marginal costs (costs for the production of a further unit of a product). The same applies if available electricity is offered, but at uncompetitive conditions.

In an analysis of the data collected the FCO identified the unused electricity generation capacities in order to assess if available electricity capacities were being withheld. Based on the figures determined, the FCO came to the conclusion that the non-use of electricity production capacities was too insignificant to initiate abuse proceedings against individual energy suppliers. In this context, the FCO specifically took into account the various objective reasons for not using generation units and the uncertainties brought about by the amount of data collected.

However, the FCO pointed out that although its analysis could not demonstrate that electricity capacities were being withheld, it could not be ruled out that such withholding actually occurred or could occur in the future. According to the FCO, market dominant energy suppliers have both the incentive and the capability to influence the market price for electricity. Against this background, the FCO stressed its demand for continued competitive surveillance and analysis by a market transparency entity for the energy sector.

In further findings, the FCO stressed that the extension of operation of nuclear power plants in Germany, as decided by the German Government, leads to a perpetuation of the market power of the dominant energy suppliers. In contrast, it explained that the extension of cogeneration units operated by municipal energy suppliers was desirable from a competitive viewpoint. Furthermore, the FCO demanded that the compensation system for electricity from renewable sources in Germany should be switched from the current fixed compensation provided by law to market-orientated compensation.

For the relevant time period of the sector inquiry (2007 and 2008), the FCO analysed data of 340 electricity generating units covering over 90% of the total electricity generated. For the analysis, a specific data bank, software and a specific analysis algorithm were created by the FCO. The conduction of the sector inquiry took almost two years. This comprehensiveness shows that the FCO – even without a concrete suspicion – is prepared to conduct complex assessments of industry sectors where it deems the competitive conditions to be unsatisfactory.