Electrabel decision outlines application of competition rules to withholding capacity and electricity pricing

29 August 2014

Peter Willis, Marc Martens

On 18 August, the Belgian competition authority published a decision, issued a month earlier, fining Electrabel €2 million for an abuse of Article 102 through excessive pricing in the wholesale electricity market. It cleared Electrabel of abusing its dominant position by withholding capacity from the market.  The facts and analysis are not entirely clear, partly because the decision refers throughout to the analysis contained in a detailed (unpublished) draft decision. It appears that an 861-page public version will be published in due course. In spite of these issues, the decision makes some useful points.

Electrabel seems to have engaged in two practices - withholding up to about 300MW of capacity from the market, and selling the power at up to €60/MWh above its marginal cost. This capacity seems to be an additional reserve on top of a reserve of 1050MW that Electrabel had contracted to provide to the system operator.

The authority concluded that the relevant market was the Belgian market for electricity generation, wholesale and trading. It rejected Electrabel's argument that the market was limited to the day-ahead market.  Electrabel seems to have submitted evidence that it was not a price-setter but a price-taker on the Belpex day-ahead market, and also submitted evidence of its lack of indispensability (pivotality) on the Belgian generation, wholesale and trading market. There seems to have been some analysis of the impact of market coupling on price and market definition. The authority rejected Electrabel's arguments on dominance, and it will be interesting to see its detailed analysis, in which it seems to have noted Electrabel's lack of pivotality, but taken account of other factors, including market liquidity, downstream positions, etc., in order to conclude that Electrabel was dominant.

On the alleged withholding abuse, the authority concluded that Electrabel had not abused its dominant position by withholding capacity, because it had kept this capacity as an additional reserve to reduce the risk that it would be required to pay penalties for negative imbalance positions in the market. The authority also noted that even if Electrabel had withheld the capacity for 24 hours a day, every day of the year, the capacity withheld would have amounted to only around 1.1% of the market volume.

In contrast, the authority concluded that Electrabel had abused its dominant position by instructing its traders to sell part of its reserve capacity at a margin of €60 per MWh above its marginal costs. The authority started with the two-stage United Brands test established by the European Court of Justice [FN Case C-27/76 United Brands v. Commission], Belgian case law, and interestingly also referring to the decisions of the Danish authority in its investigations into Elsam and E2, the Belgian authority concluded that Electrabel had priced at an abnormal level. This was an abuse even though the volumes concerned were small.

The decision is something of a setback for the Belgian energy regulator, the CREG, which had argued that Electrabel had a duty to offer all capacity to the market, and had "congratulated" itself at an earlier stage in the proceedings before the authority when the investigation team passed its report to the council.  The CREG had also said that it would use REMIT in future to investigate similar conduct. Meanwhile, the outline conclusions in this decision, and the more detailed analysis in the full decision when it is published, will be an important point of reference on this issue, not least in GB where the energy market inquiry currently being conducted by the Competition and Markets Authority is focusing on possible withholding, market manipulation and market power issues.

For further information, please contact Peter Willis, Marc Martens or the partner or member of our Competition & EU Group with whom you normally deal.