Part 5 Conclusion in:

Cansu D. Burkhalter

Legal and Regulatory Framework of European Energy Markets, page 253 - 270

Competition Law and Sector-Specific Regulations

1. Edition 2020, ISBN print: 978-3-8288-4429-2, ISBN online: 978-3-8288-7440-4,

Series: Wissenschaftliche Beiträge aus dem Tectum Verlag: Rechtswissenschaften, vol. 127

Tectum, Baden-Baden
Bibliographic information
Conclusion For the first time since the reforms of the Treaty of Lisbon, energy related matters are covered by a separate title (Title XXI in Part Three, Article 194 TFEU) and energy policy is considered an area of EU competence in the EU’s founding Treaties. Article 194 TFEU states the objectives of EU’s energy policy, including parameters such as ensuring the functioning of the energy markets, ensuring security of the energy supply in the EU, promoting energy efficiency along with energy optimisation, developing new and also renewable forms of energy and consequently improving the interconnection of the energy networks. Liberalisation of EU Energy Markets Development of the Regulatory Framework Energy markets can be either state monopolies or liberalised markets. Prior to the 1990s, the first option was prevalent. After the Second World War, large national monopolies were created; this movement was supported by the theory that the whole energy sector should be regarded as a natural monopoly. The reason behind this assumption was the high costs implicated by the construction and operation of energy facilities and grids. It was more cost efficient to have a monopoly than to provide these services through numerous competing entities. However, there was always the possibility that undertakings which constitute natural monopolies would abuse their position. Although the aforementioned risk was acknowledged, there was a common belief that the introduction of competition would lead to shortages. The second option, liberalised markets, is based on the principle of free competition. Liberalised markets allow several undertakings to participate in the sector, while the final user has the right to freely choose its supplier taking into consideration the price and the quality Part 5 § 10. I. 253 of services. This procedure, namely the gradual implementation of competition rules, is termed “liberalisation” or “deregulation of the market”. The EU has endeavoured to realise the objective of establishing an internal market and opening energy markets to competition through the regulatory reforms. The Commission set up a three-step process to complete the internal energy market. The EU initially adopted three Directives with the aim of integrating European energy markets. In 1990, Directive 90/377/EEC was introduced as a first measure. It aimed at eliminating discrimination against users by increasing their freedom to choose between different energy sources and different suppliers through increasing the transparency of gas and electricity prices charged to industrial end users. This Directive was followed by Directive 90/547/EEC and Directive 91/296/EEC with the aim to facilitate the transmission of electricity and natural gas. As a second step, the Directive on the conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons (Directive 94/22/EC) was adopted on 30 May 1994. After these first steps towards the integration of the European energy markets, the Commission enacted the first Electricity Directive (Directive 96/92/EC) in 1996 and the first Gas Directive (Directive 98/30/EC) in 1998, thereby constituting a cornerstone regarding the liberalisation of the electricity and gas markets. Both Directives aim at increasing efficiency in the energy markets by opening them to competition and increasing the competitive capacity of the EU economy through decreasing energy costs. The first Directives intended to liberate entry to, or exit from, the energy markets and gradually sought to open them to competition. The electricity and natural gas exchange over transmission lines between Member States was considered especially important. Although nearly all Member States fulfilled the requirements of the aforementioned Directives by September 2000, the EU could not obtain the desired results from the first Directives. It was clear that they were not sufficient to create a functioning internal energy market. The new reform package entered into force in 2003 and included two Directives (Directive 2003/54/EC and Directive 2003/55/EC) and two additional Regulations. The EU attributed specific significance to these Part 5 Conclusion 254 Regulations including the conditions of transmitting high voltage electricity and high-pressured natural gas from one country to another. The aim was to increase energy trade among Member States by disintegrating the lasting resistance related to ownership transfer in national markets. Primarily, the Second Energy Package aimed at accelerating the process of creating competitive electricity and gas markets. The new package contained more detailed sector-specific provisions on regulated third-party access, functional and legal unbundling, and regulatory authorities. The intention was to achieve further liberalisation of EU energy markets. The countries were provided a deadline of July 2004 to open their markets to non-household consumers and subsequently of July 2007 to include the household consumers so as to let consumers select their own suppliers. Another important feature of this package was that it required at least the legal unbundling of the production, transmission, distribution and supply activities. The purpose was to prevent the discriminative attitudes towards the other undertakings which endeavour to use the transmission and distribution components of such undertakings and to increase competition. Moreover, the supervision of the aforementioned types of activities through the independent national regulators was undertaken in a planned manner. In retrospect it can be said that the Second Energy Package did not yield the expected benefits either. In general, it has been observed that consumers have not been provided with as many options as were expected in terms of the alternative electricity and the natural gas suppliers. There were several complaints even in nations with a wide variety of options, pertaining to unsatisfactory service quality. This led to the investigation of the energy sector activities in terms of competition rules. In 2005, a sector inquiry was carried out by the Commission after receiving several complaints concerning entry barriers and limited possibilities to access customers. The energy sector inquiry published in 2007 stated that the Directives of the Second Energy Package were insufficient for the purpose of solving the problems peculiar to the energy markets (especially regarding competition) and could not respond to the desired goals. It identified serious shortcomings in the electricity and gas markets, such as high market concentration, lack of § 10. Liberalisation of EU Energy Markets 255 liquidity and lack of integration between Member States’ markets. The energy sector inquiry had the following results: – The amount of concentration was very high in the national markets. – There was a liquidity deficiency which prevented new entries to the markets. – The integration of the Member State markets was very weak. – A transparent information flow system had not been created to easily access information related to both electricity and natural gas markets. – Pricing mechanisms were unreliable. All of the above-mentioned issues constituted serious obstacles to the establishment of competitive energy markets. It was acknowledged by the Commission that the benefits of competition would remain out of reach without comprehensive changes in the EU energy markets. In order to address these issues, the Commission developed a strategy which included adopting a new legislative package to improve the regulatory framework and using the full range of competition tools to pursue individual cases setting precedents that could significantly help to increase the level of competition in the EU energy markets. The Commission put forth new proposals in order to compensate for the gaps existing in the first Electricity and Gas Directives enacted at the end of the decade of the 1990s and the Second Energy Package in 2003. The Third Energy Package adopted in 2009 included two Directives (Directive 2009/72/EC and 2009/73/EC) and three Regulations (Regulation 713/2009, Regulation 714/2009 and Regulation 715/2009). Unlike the two previous reform packages, the Third Energy Package included further concrete provisions on vertical unbundling and ownership transfer in order to enable the easy access of the new and relatively small energy companies to transmission and distribution networks and to prevent the anticompetitive conduct of dominant undertakings in the electricity and gas markets. Inasmuch as legal unbundling did not create the necessary motivation for competition, the Commission adopted three new options; one radical and the other two less radical. The first option endeavours to force full ownership trans- Part 5 Conclusion 256 fer. Ownership unbundling requires a structural separation of transmission activities from generation, production and supply activities. Certain Member States, such as Germany and France, considered this option to be immensely radical. Therefore a second option, independent system operator, which is an intermediate solution, is included in the Electricity and Gas Directives. With this option the supplier and the network can remain in the same group, but the network operator must be an entirely separate legal entity. This permits the vertically integrated company to still own the network even though the network must be managed by an independent system operator. Under the third option called independent transmission operator, the vertically integrated company retains ownership of the network; however, the network must be operated by another undertaking. Additionally, new provisions were added to the Third Electricity Directive in order to enable transparency by disclosing the necessary information to the public regarding issues such as usable transmission, interconnection capacities, production and system balancing. The Agency for the Cooperation of Energy Regulators (ACER), which has authority to take a decision with respect to cross-border issues, was established with the aim to develop integration among Member States. Through ACER, it is intended to create an effective cooperation mechanism among the national regulatory authorities. Furthermore, the vertically integrated incumbents are required to be effectively unbundled in order to achieve the goal of establishing liberalised, competitive electricity and gas markets. The EU introduced various unbundling regimes in order to separate the transmission and distribution activities from other activities. The concept of ownership unbundling is put forth as a default option, and alternatively, as other possible options, the independent system operator and independent transmission operator have been created. Aside from the provisions regarding unbundling and third-party access, certain additional regulations have been integrated into the new Directives in order to promote the cooperation between national regulatory authorities (NRA) and increase their authority. The NRAs are granted new powers to engage in monitoring as well as ex post control and enforcement. The Commission aimed at ensuring that the Third Energy Package – once fully transposed by Member States into their respective national § 10. Liberalisation of EU Energy Markets 257 laws – would eliminate undertakings’ incentives to further conduct anticompetitive practices and promote the development of cross-border competition within the EU. However, it can be observed that these reforms are taking longer than expected to have a real impact on European energy markets. Originally, Member States were required to transpose the third Energy Directives into their national law by 3 March 2011. However, complete and accurate implementation of the Directives was quite a challenge for several Member States’, whereby none of them had achieved full transposition by the deadline. The Commission warned Member States that they had not fully transposed the third Electricity and Gas Directives into their national laws, subsequently initiating legal actions. Moreover, the Commission began to systematically take all necessary measures in order to assist Member States in fulfilling their obligations. Furthermore, by September 2011, the Commission had opened 38 infringement proceedings against 19 Member States for not transposing or for transposing only partially the Directives. These proceedings accelerated the transposition process and motivated Member States to take the necessary steps in order to complete the process. As a second step, the Commission began to determine the obstacles which resulted from incorrect transpositions or inconsistent application of the Directives. In order to resolve these problems, the Commission undertook systematic non-conformity checks of national measures in almost all 28 Member States and as a consequence opened pilot cases on several occasions against Member States. The Commission gave priority to violations having the highest impact on the functioning of the internal market. On this basis, following the conclusion that a number of Member States’ national laws were not compatible with the Third Package, the Commission initiated “EU-Pilot” cases. As of 1 July 2016, eight of these EU-Pilot cases have resulted in infringement proceedings where, inter alia, the violation of the EU Electricity and Gas Directives is alleged. Further EU-Pilot cases remain open and might lead to more infringement proceedings. Recent reviews regarding the Third Energy Package show how far the EU rules in the energy sector evolved in the last twenty-year period and demonstrate that the process of establishing a competitive single EU energy market, although it began slowly, has evolved in a very Part 5 Conclusion 258 rapid manner. However, despite the Commission’s attempts, i.e. energy reforms, further steps have to be undertaken in order to enable full competition in European energy markets, especially at the retail level. The tendency of consumers to resist change makes it difficult to create a competitive environment. Although ten years have passed since the development of the Third Energy Package, several Member States still face obstacles as regards competition. These obstacles and discrepancies between different regulatory schemes endanger the integration of European energy markets. While provisions set forth by the Third Energy Directives are thought to be sufficient, in practice Member States have only been partially successful in implementing such provisions. Furthermore, not all of the problems identified in the energy sector inquiry have been addressed. The liberalisation process in Central and Eastern Europe is relatively slow, which negatively affects the integration process. It can be observed that dominant incumbents in these countries continue to abuse their market power. Assessment on the Current State of the Liberalisation Although certain crucial steps have been undertaken since the 1990s aiming at liberalising and opening the electricity and the natural gas markets to competition, the establishment of competitive single electricity and natural gas markets has not yet been fulfilled. The current situation demonstrates that energy markets have not been liberalised at the desired level, thus creating a substantial obstacle to competition. Electricity and gas markets continue to exhibit potential shortcomings which might affect competition within the energy markets, including: – In terms of wholesale and retail segments, electricity and gas markets are quite concentrated, which creates an activity area that can be used by the incumbents. A high level of vertical integration between energy suppliers and a high level of concentration in the energy markets lead to market distortions, i.e. lack of free and open competition in energy markets, limit efficiency, reduce consumer choice and lead to higher prices. II. § 10. Liberalisation of EU Energy Markets 259 – Today, new entrants still encounter difficulties and barriers concerning their integration in the supply market, such as lack of access to customer and market information for suppliers, lack of price transparency, and differences in processes and standards. Competition will remain limited as long as there are barriers to entry to the market. – Liberalisation of the energy markets is varying in the Member States. In many Member States, the unbundling of infrastructure activities from supply activities has not been fully realised. – State ownership of first-generation producers in electricity and gas markets in Member States still continues. – Former state monopolies, which can be considered as incumbents with few incentives to allow for market opening, often maintain a significant influence on national decision-making processes. – National grids are not well connected to one another, and this requires significant investment. – Uncoordinated national policies also hamper the integration of markets. – It can also be seen that electricity and gas prices have increased for consumers and there are high price rises. Moreover, in terms of households, there are price differences across Member States. – Across EU Member States, supplier-changing rates of consumers have remained low due to high switching costs and limited transparency, which both constitute a competition issue. It can be observed that consumers still lack awareness in respect of their ability to switch suppliers and also in respect of certain information that is crucial to make informed decisions. – Cross-border trade of electricity remains low compared to natural gas. The reason behind this is that in some Member States electricity is seen as part of state sovereignty, and reluctance to open the electricity market can be still observed. – Congestion in the transmission and distribution networks causes reduction in efficiently allocated capacity to transport electricity. Inasmuch as it constrains the ability of remote suppliers to compete with each other, it limits competition in the electricity markets. Moreover, congestion management of the transmission networks and balancing markets are currently predominantly nationally or- Part 5 Conclusion 260 ganised, which is in contradiction with the goal of an internal energy market. Cross-border integration and the opening up of these markets to new market players require a certain degree of harmonisation across Member States. To this end, harmonisation, open access to markets and a level playing field for (new) market players should be ensured by sector-specific regulations. It can be observed that the main challenges continue to be high energy prices, the slow pace of investment in the energy sector due to the lack of incentives for investing, and security of supply. These issues mostly stem from lack of competition in the market. Contrary to their objective, the regulatory measures aimed at opening and liberalising electricity and natural gas markets hardly have had a positive effect in terms of reducing energy prices, both electricity and natural gas, for industrial consumers and households. Although they have contributed to an increased number of suppliers active in the market and consequently have increased the competitiveness in the market, this has barely been reflected in the prices. It can be argued that the EU is having difficulties in finding a regulatory approach concerning energy markets that fits all its currently 28 Member States. Realising the EU’s aforementioned objectives will be possible as and once the experience obtained during the liberalisation process is reflected in the EU-level regulations and when a dynamic yet stable legal infrastructure for the markets is established alongside effective ex ante and ex post implementation of competition principles and rules. Competition law and sector-specific regulations can help to address all of the above-mentioned issues. Consistent enforcement of these two legal instruments gives investors the certainty and predictability they need. Opening infringement procedures against undertakings that harm their competitors by threatening to close to new entrants or blocking energy flows from one EU country to another might deter other incumbents. It is apparent that European energy markets need competition, transparency on pricing and genuine choice for consumers. EU competition law and sector-specific regulations address those challenges in several ways. Competition enforcement and sector-specific regulations play a key role in establishing a properly functioning internal energy market. While competition law protects competition through § 10. Liberalisation of EU Energy Markets 261 prohibiting collusion, abuse of a dominant position and mergers, all of which hamper effective competition, sector-specific regulations help to establish and maintain competition in the energy markets through unbundling and third-party access regimes. Both competition law and sector-specific regulations contribute by lifting obstacles to competition and barriers to trade between Member States. Moreover, they lead to opening markets to new players, creating a level playing field between competitors and ultimately promoting investment and innovation. The Commission continues to challenge practices that hamper the competitive environment of the internal markets. This anticompetitive conduct leads to higher energy prices. A more efficient Europe-wide grid would help to reduce prices for households and companies. Sector-Specific Regulations and Competition Law The legal and regulatory framework of the energy sector is established by two different instruments at the European level: competition law and sector-specific regulations. Although these instruments can be seen as similar in terms of their purposes, they are quite distinctive. On the one hand, both aim at developing and protecting competition; on the other hand, sector-specific regulations pursue certain other objectives in addition, such as sustainable development or consumer protection. In theory, competition law protects the market, while sector-specific regulations create the market. As a consequence, in order for competition law to function, first the sector-specific regulations must be implemented in a successful manner, which should result in the creation of the market. Competition law assumes that the market functions properly under the conventional market conditions, whereby the operational decisions are freely taken by the undertakings in the market. From the competition law perspective, in order to enable effective competition in the market, undertakings must have a level playing field and be able to take their decisions independently. The actions of undertakings can be limited by EU competition rules and merger control. Sector-specific regulations are implemented based on the assumption that the market requires the direct or indirect supervision of the state. Sector-specific regulations can interfere with the undertakings’ § 11. Part 5 Conclusion 262 decision-making procedures and, hence, require justification. For example, the intervention of sector-specific regulations in the energy sector is justified by the natural monopoly feature of networks. It has been acknowledged that the most convenient way to create a competitive environment on the network level is implementing sector-specific regulations. Another difference between these two instruments is the timing of their application. While sector-specific regulations are implemented ex ante, competition law is implemented ex post except for merger control. It has been acknowledged that in energy markets ex post measures, i.e. competition law, are not sufficient to ensure effective functioning of the market. In order to establish effectively functioning energy markets, ex ante measures, i.e. sector-specific regulations, are required. There are also differences between competition law and sectorspecific regulations with respect to their institutions. The primary duty of competition authorities is detecting anticompetitive behaviours, but they do not have the competence to impose ex ante obligations or to implement certain policies. Sector-specific regulators can, however, take prospective measures to ensure efficient competition. In other words, competition authorities instruct undertakings on what not to do, while regulators instruct them on what to do. Therefore, while the prohibitions of competition law are put forth in a general manner, regulations define a behavioural framework for undertakings. In an environment in which it is unclear whether competition law or sector-specific regulations has precedence concerning competitionrelated issues, there is a perpetual risk of overlaps in terms of jurisdiction or in terms of each institutions’ reluctance to take initiatives with respect to intervention. An institution’s intervention is likely to be solved in an efficient manner by the means of another institution. This situation may cause regulatory inconsistencies as well as jurisdictional confusion. In order to prevent such conflicts, the allocation of competencies between sector-specific regulators and competition authorities is required in the energy sector. This allocation is an ongoing challenge in most Member States and often a highly controversial issue. It can be observed that different Member States adopt different approaches. § 11. Sector-Specific Regulations and Competition Law 263 There are several ways to allocate competencies between competition authorities and sector-specific regulators: – Competition authorities have competence to enforce both competition law and sector-specific regulations. – Sector-specific regulators can have full competence to enforce competition law and sector-specific regulations. – Competition authorities and sector-specific regulators simultaneously have jurisdiction over industries, with competition law being allocated to competition authorities and sector-specific regulations being allocated to sector-specific regulators. It can be said that competition law and sector-specific regulations should be seen as complementary legal instruments. Both instruments deal with a common problem, namely the illegitimate acquisition of market power and the likelihood of it being abused, and both try to achieve a common aim: establishing a competitive internal market. Only through a combination of both tools can it be ensured that market power does not distort and hamper the development of competition in the markets. The above discussion shows that the concept of concurrent jurisdiction is the best model, since it is a practical and pragmatic solution to managing the interface between competition law and sector-specific regulations. This model has real potential to help overcome many tough challenges, e.g., the overlap between competition law and sectorspecific regulations or determining what the respective roles of competition authorities and sector-specific regulators should be. For example, the networks constitute natural monopolies and therefore the owners of the networks mostly have a dominant position in the market. Generally, sector-specific regulations handle the access regime to the network. However, refusal to grant access to the network can be considered an abuse of a dominant position on the market; therefore, the competition authorities should deal with it. In case of an overlap, authorities must consult with each other in specified areas. In this model, the functional separation of competition authorities from sector-specific regulators is necessary in order to ensure that both policies are administered by authorities suited to their enforcement powers. In order for this model to work properly, the competition authorities and the sector-specific regulators have to co-ordinate with each Part 5 Conclusion 264 other, with the respective governments and with the Commission. These complex regulatory bodies have no choice but to try to co-operate, even if the manner of such co-operation and the subjects on which co-operation occurs are determined on a pragmatic, case-by-case basis rather than a rule-based system. As regards energy markets, the objectives as well as the roles of sector-specific regulators in the energy sector are specified clearly in the third Energy Directives. These objectives include the establishment of a competitive, reliable and environmentally sustainable internal energy market, opening up the market effectively within the EU for all consumers and suppliers, enabling the efficient and reliable operating of gas and electricity networks, eliminating limitations on gas and electricity trade among Member States, empowering the integration of national markets, encouraging an effective competition environment and, finally, protecting consumers. Several duties have been allocated to the sectorspecific regulators for the purpose of fulfilling the aforementioned objectives. The competition authorities aim at enabling the continuous effective operation of free competition with respect to the effective use of resources. Whilst they pursue the realisation of those objectives, they protect the independence of the economic activities of the actors in the market. It can be said that competition law and sector-specific regulations are effective if they work together. The establishment of competitive electricity and natural gas internal markets in the EU is solely possible through the effective implementation of rules on competition and sector-specific regulations in these markets. Within this context, it is necessary that sector-specific regulations should be developed for electricity and natural gas markets which should include ex ante measures to prevent competition infringements and abuse of dominant position. Moreover, if competition infringements and an abuse of a dominant position are given in the market, ex post measures should be implemented. In other words, the establishment and conservation of competition in these markets requires a “two-layered” process. “European competition policy provides a series of powerful tools to enforce conditions of fair competition in liberalised markets […]. But competition enforcement is just one partner, one half of a ‘pas de deux’. It dances not alone, but in step with regulation. Regulation opens the market – and com- § 11. Sector-Specific Regulations and Competition Law 265 petition policy makes sure that the opened markets really work […]. And both have to adjust their movements in parallel, in line with the pace of the music. And when it comes to redefining the dancefloor – in this case fundamental restructuring of the energy marketplace – both dancers need to step into motion.” (Neelie Kroes, 2007). Competition in Energy Markets Considering the decisions discussed in Chapter 9, it can be concluded that the Commission did not only apply EU competition rules but also took into account, in order to justify intervention in the energy markets, the regulatory framework which supports liberalisation in the energy sector. The liberalisation of energy markets has led to a process of convergence between EU competition law and sector-specific regulation. The liberalisation process of the EU energy markets is realised by EU Treaty Law and the secondary EU legislation, i.e. Directives. Institutional structures established by EU Treaties enable the Commission to play a key role regarding the implementation of both instruments. As mentioned before, opening energy markets to competition began at the end of the 1990s with the introduction of sector-specific regulations, i.e., Electricity and Gas Directives. After it was realised that the second Directives did not yield the expected benefit, the Commission launched the energy sector inquiry. With the inquiry it became apparent that EU electricity and gas markets were still not competitive at the desired level. The structure of these markets and the behaviours of the dominant undertakings hinder progress. It can be observed that European energy markets are essentially comprised of fragmented national markets with incumbents in dominant positions which often own both the supply business and the transmission network. These vertically integrated undertakings do not have incentives to invest in the grid infrastructure and in long-term capacities, since this would expose them to more competition which results in lower market entry, more limited choices, lower security and lower sustainability of supply than would otherwise be the case. Since the energy sector inquiry, the Commission has opened several antitrust proceedings against energy companies in the EU energy markets. These antitrust proceedings fell into three broad categories: § 12. Part 5 Conclusion 266 – collusion between undertakings; – exclusionary abuses by undertakings in a dominant position; – exploitative abuses by undertakings in a dominant position. The first category encompasses the alleged collusion between undertakings (GFU, DONG/DUC and E.ON/GDF decision). Three main examples of infringement under Article 101 TFEU are: – joint selling, – joint marketing and – market sharing. The most notable example of anticompetitive joint selling agreements is the GFU case, which is related to the joint sales of Norwegian natural gas through a single seller. The case highlighted that introducing competition into the upstream sector is important for the successful creation of an internal gas market in Europe. Moreover, it established that the Commission is able to take into consideration the commercial interests of the concerned undertakings whilst ensuring that EU competition law is protected. With regard to anticompetitive market sharing agreements, the Commission initiated an investigation against E.ON and GDF for market-sharing in breach of the rules on cartels and restrictive business practices (Article 101). Market-sharing agreements constitute a very serious infringement of EU competition rules. In its E.ON/GDF decision, the Commission issued for the first time a fine for the antitrust infringement in the energy sector. As concerns the second category, namely exclusionary conduct, the Commission investigated whether undertakings in a dominant position had conducted the following activities: – capacity hoarding: refusing to grant access to capacity available on the transport network (RWE, ENI and ČEZ cases); – capacity degradation: granting access to capacity in a less useful way (ENI case); – capacity mismanagement: understating technically available capacity and managing the scarce transport capacities on its network (RWE case); § 12. Competition in Energy Markets 267 – margin squeeze: excluding rivals by inflating network costs and imposing stringent balancing requirements in small balancing zones (RWE case); – strategic underinvestment: failing to increase capacity in major import pipelines to protect a dominant position on supply markets (GDF and ENI cases); – long-term capacity booking: foreclosing access to markets by a combination of long-term upstream supply contracts and longterm capacity reservations (GDF and E.ON cases); – long-term supply contracts: trying to foreclose customers through supply contracts with an extremely long duration (Distrigas and EDF cases). The third category, namely exploitative abuse, includes conducts carried out by undertakings in a dominant position to harm customers directly, e.g., increasing prices to the detriment of consumers via withholding available generation capacity or discriminating certain type of consumers. To ensure that competition in the energy sector is not distorted, the Commission also focused on state aid which is not compatible with the internal market. The Commission takes into consideration the criteria used by the CJ regarding state aids, the presence of an intervention through the state or state resources, the potential of this intervention to affect trade between Member States, an advantage for the recipient and the distortion of competition. Moreover, the Commission applied the “private investor test” to determine whether or not aid distorts or threatens to distort competition. In addition to the infringements within the scope of Articles 101, 102 and 107 TFEU, the Commission also focused on mergers which may have anticompetitive effects, e.g., ENI/EDP/GDP, E.ON/MOL and GDF/ Suez. In order to eliminate the anticompetitive effects of a transaction – for example when such a transaction would directly have resulted in the creation of a vertically integrated company –, the Commission usually imposed structural remedies such as ownership unbundling or divesture of certain market segments. Moreover, if the remedies offered by the parties to the transactions did not seem to be sufficient to address competition issues, the Commission did not hesitate to prohibit the transaction. Part 5 Conclusion 268 Together with Article 101 and 102 TFEU, EU merger control is an important instrument to develop a market structure in which competition is respected and to reduce horizontal and vertical integration in energy markets. In the decisions of the Commission regarding energy markets, it can be seen that concentrations are not banned. In many cases, the Commission applied remedies to eliminate the potential competition-restricting effects of mergers. Moreover, these remedies also contributed to the support of liberalisation in energy markets. In most of the decisions, concentrations that significantly affected competition were permitted only on certain conditions. This method enables the realisation of concentration without allowing it to prevent the market’s proper functioning. Hence, the market develops, and the competitive structure is protected. Even new entries to markets with the characteristic of dominant position become possible. Consideration of the conditions set out in commitments given by undertakings who are parties to concentrations enables the functioning of this mechanism. Such commitments address the concerns of the Commission and are in accordance with the capabilities of the parties concerned. The Commission exercises control mechanisms after the decision. This practice increases the rate of correct implementation of the conditions by the parties to the concentration. The favoured conditions in the decisions regarding the energy markets include ownership unbundling, transfer of long-term agreements, natural gas sale and granting access to third persons. In other words, these conditions are the most effective measures applied to eliminate the anticompetitive effects that concentrations in the energy markets have. With these methods permitted by EU competition law, the aim is to establish a single energy market through the entry of new actors into a market which has high entry obstacles, the facilitation of third-party access to the system and the prevention of discriminatory practices. In practice, the Commission handled around 540 merger and anti-trust cases in the gas and electricity markets across Europe in the time period between 1994 and 2019. Based on the above-mentioned cases, it can be stated that, even though the Commission can achieve significant results in terms of opening EU energy markets to competition by using the competition tools, some issues in the energy sector may be best dealt with by means § 12. Competition in Energy Markets 269 of sector-specific regulations rather than enforcing competition rules. It should be noted that one of the most important outcomes of the energy sector inquiry was that the Commission was able to determine where regulatory changes would be necessary to enhance competition in the EU energy markets and where it could achieve better results by enforcing competition rules. The initiatives regarding the liberalisation of energy markets have had a varying success, and the establishment of a competition environment takes a long time. As mentioned above, despite past efforts of the Commission to liberalise EU electricity and gas markets and subsequently open them to competition, entry barriers still exist and are leading to market concentration. The impact of these barriers is especially severe with regard to new market players. For this reason, the Commission uses all possible competition law instruments for developing the functioning of the energy markets. The energy markets have been highly regulated historically and will remain so in the future. The already significant role of sector-specific regulations will become even more important in the near future, given the ambitious policy objectives outlined by the EU. The role of competition law instruments has been and will continue to be important to protect and maintain effective competition as well as to achieve the EU’s objective concerning the establishment of an internal energy market. Part 5 Conclusion 270

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Since the beginning of the 1990s, Europe has been struggling to establish a competitive as well as a fully integrated internal energy market. Until the early 1990s, the European energy markets consisted of national monopolies possessing vertically integrated structures. They were also still nationally segregated. Since, the EU has made the decision to open European energy markets to competition and subsequently establish an internal energy market.

The European energy markets are currently controlled by a dual structure consisting of two different regulatory frameworks: competition law and sector-specific regulations. The primary goal of these legal instruments is the establishment of an internal energy market.

This book aims at analysing the development of the European energy markets and policies from the perspective of competition law as well as sector-specific regulations and, hence, identifying the problems regarding the introduction of competition into the energy markets.