On 24 June 2016, the Italian energy authority (Autorità per l’energia elettrica il gas e il sistema idrico—“AEEGSI”) issued a Resolution (Resolution 342/2016/R/eel) opening the first Italian proceeding for an alleged violation of Regulation EU 1227/2011 (“REMIT”), the EU regulation concerning the integrity and transparency of the wholesale energy markets and prohibiting market manipulation, and other national regulatory provisions applicable to the electricity sector.
I. Relevant Conducts
Over recent weeks, AEEGSI—in the context of the Consultation Document 316/2016/R/eel—monitored the behaviors of certain players in the Italian electricity market which were under scrutiny of the AEEGSI. In particular, the scheduling strategies of electricity players owning consumption and production units (especially fed by nonprogrammable renewable sources) were examined in light of the principles under AEEGSI Resolution 111/06. This Resolution sets out an obligation on electricity players to make their scheduling according to diligence, prudence, and proficiency principles. The Regulator’s goal is to avoid unbalancing which may affect the electricity system as a whole.
AEEGSI observed that, in certain instances, voluntary unbalancing may grant an economic benefit to players implementing those strategies, while negatively affecting the price in the energy markets and the dispatching charges. Those behaviors are now under investigation according to Resolution 342/2016/R/eel.
Indeed, according to AEEGSI, the economic benefit achieved by some electricity players arising from voluntary unbalancing may have distorting effects on the wholesale markets to the detriment of those players scheduling their units in compliance with the requested diligence, prudence, and proficiency principles. More particularly, in the AEEGSI’s opinion, the main consequences arising from the adoption of the voluntary unbalancing would be (i) a distortion of the fair and competitive interaction between the offer and the demand in the energy markets, with a consequent alteration of prices, and (ii) the increase in costs of the dispatching resources for Terna (the Italian TSO), which are ultimately borne by end users.
Furthermore, AEEGSI also focuses on another allegedly illegitimate behavior. In particular, according to AEEGSI, certain producers adopted strategies of economic (i.e. offers at very high prices) or physical withholding of capacity. This would have led to significant price increases on the Italian energy markets and the need for Terna, in order to guarantee the safe operation of the grid, to buy at very high prices the dispatching sources on the MSD (the Italian market for dispatching services).
In addition, systematic acceptance by Terna of certain offers (caused by the behaviors above) could have also determined a more predictable imbalance sign (negative or positive), hence favoring the adoption of the abovementioned voluntary unbalancing.
In sum, withholding of capacity by certain generators may have magnified the already negative effects caused on the market by voluntary unbalancing (mainly carried out by consumption and renewable production units).
The above described behaviors have been carried out in different market zones, including the Sardinia Region, whose market conditions had already forced AEEGSI to intervene in order to minimize and stabilize the dispatching costs.
The identities of the players involved in the investigation have not been disclosed by AEEGSI.
II. Measures Taken by the Regulator
The behaviors under investigation may, according to AEEGSI, amount to a violation under REMIT, in particular, as market manipulation, and of Resolution 111/06. AEEGSI will, therefore, assess whether any such violations have been effectively carried out during the course of the proceeding, which shall be closed in 60 days.
In the meantime, AEEGSI ordered to immediately cease any conduct aimed at adopting voluntary unbalancing contrary to the principles under Resolution 111/06 and any offering behavior altering the price formation in the electric markets.
AEEGSI also informed the Italian Antitrust Authority (Autorità garante della concorrenza e del mercato—“AGCM”) and the Agency for the Cooperation of Energy Regulators (“ACER”).
III. Possible Sanctions
AEEGSI will need to assess whether the above described behaviors have been carried out by each of the players involved in the proceeding and if such conducts effectively amount to a “market manipulation” according to the definition under REMIT (or, to a violation of a national regulatory provision). If a market manipulation under REMIT is found, AEEGSI may impose fines from €20.000 to €5.000.000. However, the maximum amount can be increased if considered inadequate taking into account either the features of the relevant offender, the characteristics of the guilty party (e.g. if it committed similar infringements in the past), or the benefit gained through the relevant infringement.[i]