On 15 June 2007, Electrabel publicly announced that it would increase its price of electricity and gas on 1 October 2007 due to the price increases on international markets. Three days after this announcement, the Belgian Minister of Economy lodged a request with the Auditorat, the prosecuting body of the Competition Council, to investigate whether Electrabel abused its dominant position on the markets for supply of electricity and gas by charging excessive prices, thereby infringing Article 3 of Belgian Competition Act and Article 82 of the EC Treaty. In parallel, the Belgian Minister of Economy also requested the Belgian energy regulator (the CREG) to carry out a study analysing the allegedly abusive behaviour of Electrabel.
As the Belgian Minister of Economy did not submit his request according to the form imposed by Belgian competition law, the Auditorat considered that the request for opening proceedings against Electrabel was inadmissible. However, as the Auditorat also considered that there were serious indications of a competition law infringement, it decided to open proceedings against Electrabel on its own initiative.
The study of the CREG was submitted on 27 July 2007 and concluded that the price increases implemented by Electrabel were not always justified by price increases on international markets. The CREG further found that the gas prices of Electrabel were very low on 1 January 2007, i.e. when the local markets for supply of gas to household consumers were liberalised in Wallonia and Brussels (the Flemish local market had already been liberalised since 2003). The CREG concluded that such a strategy, i.e. lower prices at the beginning of the liberalisation process followed by a significant increase of price six months thereafter, could constitute a predatory pricing strategy, which is prohibited under Article 3 of the Belgian Competition Act and Article 82 of the EC Treaty. On the basis of the CREG’s study, the Auditorat decided to investigate both allegations of excessive price for the period after 1 October 2007 and predatory pricing for the period after 1 January 2007.
As the electricity price increases were small and limited to industrial and commercial customers, the Auditorat decided to focus its investigation on the price increases in the markets for the supply of gas to household customers and the supply of gas to small industrial and commercial customers. The Auditorat also considered that the markets for the supply of gas were national, in particular, after the liberalisation in Brussels and Wallonia.
In order to establish an abuse of a dominant position by Electrabel, the Auditorat must first establish that Electrabel has a dominant position on the Belgian markets for the supply of gas to household customers and the supply of gas to small industrial and commercial customers. The Auditorat found that Electrabel had such a dominant position for the following reasons. First, all the structural indicators showed a strong position of Electrabel: (i) Electrabel had a market share above 60% on all local markets (Flanders, Wallonia and Brussels); (ii) the closest competitors had a significantly lower market share than Electrabel; and (iii) the Herfindahl-Hirschman Index was above 5,000 in local markets. Secondly, the Auditorat indicated that (i) Electrabel benefited from a strong vertical integration, (ii) the market had been recently liberalised and (iii) the barriers to entry were high.
With regards to the allegation of excessive prices, the Auditorat considered that it would only carry out a cost-price analysis of Electrabel if the prices charged by Electrabel on 1st October 2007 were above the benchmark prices used as proxies for competitive prices. The three benchmark prices used by the Auditorat were the following: (i) the prices charged by the competitors of Electrabel; (ii) the prices which resulted from the former regulation of the CREG; and (iii) the average price charged in neighbouring Member States of the EU from 1996 to 2007. First, the Auditorat found that the price charged by Electrabel was 12% higher than the average price in October 2007 but that this difference was reduced to 2% in December 2007, after which the new competitors of Electrabel also decided to increase their prices. Secondly, the Auditorat took the view that the price charged by Electrabel was 10% higher than the price which would result from the former regulation of the CREG. However, the Auditorat also found that the variables and parameters used by the CREG to calculate the regulated price were no longer relevant. Finally, the Auditorat found that Belgian prices were significantly below the European average prices in 2007. Based on this benchmark analysis, the Auditorat concluded that there were no sufficient indications that the prices charged by Electrabel could be excessive and decided that it was not necessary to carry out a cost-price analysis.
With regards to the allegation of predatory pricing, the Auditorat also considered that it would only carry out a cost-price analysis of Electrabel if the prices charged between 1 January and 1 October 2007 were questionably too low and could be considered as being part of a predatory scheme. The Auditorat found that these prices were too low because they were always the lowest (4% to 9% lower than the average prices charged by all gas suppliers active on the Belgian market) and that the questionable character of these prices could not be excluded by the explanations provided by Electrabel. However, the Auditorat took the view that these questionably low prices could not be considered as part of a predatory scheme for the following reasons: (i) the period during which low prices were charged was too short; (ii) no competitor was forced to exit the market; and (iii) the price increase of 1 October 2007 did not lead to any additional entry in the Belgian market for the supply of gas. Therefore, the fact that Electrabel charged low prices in January 2007 did not impede operators from entering the markets. Fourthly, as on 1 December 2007 only 52% of the consumers had signed a new contract with a gas supplier, the alleged predatory strategy could only concern this proportion of the consumers . Finally, despite its low price policy, Electrabel lost a market share of approximately 5% to its competitors. The Auditorat therefore concluded that there were no sufficient indications that the prices charged by Electrabel could constitute predatory prices and decided that it was not necessary to carry out a cost-price analysis.
On this basis, the Auditorat decided to close the file. In reaction to this decision, the CREG published a study on 17 July 2008 denouncing different failures in the analysis of the Auditorat. Concerning the analysis of excessive prices by the Auditorat, the CREG noted in particular that the comparison of the average prices charged in several EU Member States could not be relevant as the liberalisation was achieved to different degrees in those Member States. With regards to the analysis of predatory pricing by the Auditorat, the CREG indicated that the duration of the low price policy of Electrabel should have been considered in light of consumer behaviour before concluding that this duration was “too short”.
1 After 1 January 2007, consumers had the right to change their gas supplier. In order to do so, they had to sign a new contract with a gas supplier.