On 10 April 2013, the European Commission (“EC”) announced that it had decided to conclude its antitrust investigation against ČEZ, the incumbent electricity producer in the Czech Republic, by accepting (through a binding decision) a set of commitments ČEZ had offered.
The EC opened formal proceedings against ČEZ in July 2009 to investigate whether the company abused its dominant position on the Czech market for the generation and wholesale supply of electricity. In particular, the EC was concerned that, by pre-emptively booking capacity in the transmission network, ČEZ hindered the entry of competitors into that market. In order to resolve the EC’s concerns, ČEZ has committed to divest one of the following power plants: (i) Počerady; (ii) Chvaletice; or (iii) Tisová/Mělník.
This is not the first time that the EC has resolved abuse of dominance concerns in the energy sector via the adoption of a commitment decision. Since the entry into force of the Modernisation Regulation in 2004, the EC has resorted to commitment decisions to resolve such concerns in 10 energy cases. The EC’s readiness to reach for Article 9 of Regulation 1/2003 when it comes to the energy sector may be owed to at least two factors; namely, the potential of commitment decisions to: (i) open markets more swiftly than prohibition decisions; and (ii) achieve market outcomes that would be difficult to produce through sector regulation or prohibition decisions.
Commitment proceedings have the potential to open markets more swiftly than prohibition decisions, primarily due to their flexible and consensual nature. The few substantive and procedural rules governing commitment proceedings significantly impact the time-span of the EC’s investigation. Remedies may be designed and put into place much more quickly. Further, the investigated company’s active involvement in formulating the remedies may affect their quality. Presumably, the investigated company has assessed the feasibility of implementing the remedies and has formulated a clear and easily executable plan in that regard.
Commitment proceedings also have the potential to achieve market outcomes that would be difficult to produce through sector regulation or prohibition decisions. This is because the regulation of the energy sector has to a large extent been the product of political compromises and, therefore, not gone as far as the EC would like it to (e.g. regarding unbundling). For their part, prohibition decisions considerably constrain the scope of the EC’s remedial action due to the need to abide by a strict proportionality test. In contrast, commitment decisions allow the EC to secure structural remedies which may otherwise not be easy to devise in an adversarial context: the fact that the investigated companies offer such remedies themselves leaves little scope for legal controversies and, in particular, proportionality-related challenges.
While the commitment procedure may be a convenient means by which the EC can further liberalise the energy sector, commitment decisions provide limited guidance to the business community as to why the EC had concerns about a certain conduct in the first place. This absence of clarity is due to the laconic language and rather high-level legal and economic analysis contained in the decisions. In addition, commitment decisions provide limited guidance to national competition/regulatory authorities (“NCAs”) and national courts on how to apply Article 102 TFEU in domestic energy cases.
Legal uncertainty is a powerful thing. The EC should not underestimate the adverse effect it may have on the energy sector’s liberalisation process: not only may legal uncertainty impact the level of investments made in the sector, but it may also lead to instances of underperformance – and, therefore, decreased competitiveness – of energy operators. It is crucial that the EC keeps perspective of such risks and proceeds with caution as it continues to use commitment decisions in the energy sector.