What's New in the EU: EC warns French electric company

The European Commission is concerned contracts may prevent industrial customers from switching to other providers.

By ARI SYRQUIN
eu flag biz 88 (photo credit: )
eu flag biz 88
(photo credit: )
The European Commission confirmed this week that it sent a Statement of Objections to the French state-controlled power giant Electricite de France (EDF). The EDF group is the largest supplier of electricity in France and one of the largest players in the European electricity industry. The Statement of Objections relates to contracts concluded by EDF with industrial customers in France. The Commission is concerned that these contracts may prevent customers from switching to other providers, thereby reducing competition on the market, given the exclusive nature and duration of the contracts and the share of the market that is tied by them. Under the same contracts, the resale of electricity appears to be restricted. These practices may constitute infringements of the EC Treaty rules on abuse of dominant market positions (Article 82). In particular, these practices may have made it difficult for suppliers to enter and expand in the French electricity markets and may have rendered the wholesale market for electricity less liquid. Following an ex officio investigation, the Commission opened formal proceedings in July 2007 against Electrabel, which is the incumbent electricity company in Belgium and part of the French SUEZ group, and one against EDF, the incumbent electricity supplier in France, for possible breaches of the EC Treaty's rules on abuse of a dominant market position. The Commission believes that Electrabel and EDF may have introduced long-term exclusive purchase obligations in their supply contracts with industrial consumers that make it difficult for new-entrant electricity suppliers to acquire these consumers as clients in Belgium and France. As a result, the development of a more competitive electricity market in these Member States might be delayed. Such a delay in introducing competition on the market could lead to higher prices and lower quality of service for all electricity consumers in these countries, both companies and private individuals. This initiation of proceedings does not imply that the Commission has conclusive proof of an infringement; it only signifies that the Commission will conduct an in-depth investigation of the case as a matter of priority. There is no strict deadline to complete inquiries into anticompetitive conduct; their duration depends on a number of factors, including the complexity of each case, the extent to which the undertakings concerned cooperate with the Commission and the exercise of the rights of defense. The alleged infringements that are investigated concern the contracts concluded by Electrabel and EDF with industrial customers in their respective home markets, Belgium and France. It is suspected that these contracts prevent customer switching, thereby significantly foreclosing the markets concerned, in particular when considering their exclusive nature, duration and the share of the market that is tied by these agreements. These practices may constitute infringements of the EC Treaty's rules on abuse of a dominant market position. The removal of the barriers to competition is expected to make it easier for suppliers to enter and expand in the Belgian and French electricity markets, thereby bringing more competition to markets that currently are still highly concentrated. The investigation concentrates on the markets for large industrial electricity consumers. The legal base of this procedural step is Article 11(6) of Council Regulation No. 1/2003 and article 2(1) of Commission Regulation No. 773/2004. Article 11(6) of Regulation No. 1/2003 provides that the initiation of proceedings relieves the competition authorities of the Member States of their authority to apply Articles 81 and 82 of the Treaty. Moreover, Article 16(1) of the same Regulation provides that national courts must avoid giving decisions that would conflict with a decision contemplated by the Commission in proceedings that it has initiated. Article 2 of Regulation No. 773/2004 provides that the Commission can initiate proceedings with a view to adopting at a later stage a decision on substance according to Articles 7-10 of Regulation No. 1/2003 at any point in time, but at the latest when issuing a statement of objections or a preliminary assessment notice in a settlement procedure. In the cases at stake, the Commission has chosen to open proceedings before such further steps. A Statement of Objections is a formal step in Commission antitrust investigations in which the Commission informs in writing the parties concerned of the objections raised against them. The addressee of a Statement of Objections can reply in writing to the Statement of Objections, setting out all facts known to it that are relevant to its defense against the objections raised by the Commission. The Commission may then take a decision on whether conduct addressed in the Statement of Objections is compatible with the EC Treaty's antitrust rules. Sending a Statement of Objections does not prejudge the final outcome of the procedure. syrquin@013.net Ari Syrquin is the head of the international department at GSCB Law Firm.