Belgium: Belgian Competition Authority Closes Investigation Into Electrabel's Pricing Policy

On 11 May 2015, the College of Competition Prosecutors (Auditoraat / Auditorat) of the Belgian Competition Authority (Belgische Mededingingsautoriteit / Autorité belge de la concurrence) ("BCA") decided to close its investigation into Electrabel's alleged abuse of dominant position in the context of the greenhouse gas emission trading scheme.

Under the European greenhouse gas emission trading scheme, industrial firms are required to cover their emissions of greenhouse gasses with an amount of emission allowances corresponding to their actual emissions. In Belgium, this scheme is implemented by the Regions which each year allocate these allowances among undertakings on the basis of past emissions. Electrabel made so-called "windfall profits" by incorporating the cost of greenhouse gas emission allowances in its prices although it had received these allowances for free. Lampiris S.A., a Belgian company which buys electricity from Electrabel on the wholesale electricity market and competes with Electrabel at the retail level, complained to the BCA that the incorporation of this fictional cost into Electrabel's prices amounted to several abuses of Electrabel's dominant position, namely: (1) excessive prices; (2) discrimination between Electrabel's wholesale and retail prices; and (3) margin squeeze, which are contrary to Article IV.2 of the Code of Economic Law and Article 102 of the Treaty on the Functioning of the European Union.

The College of Competition Prosecutors first identified two relevant markets: the wholesale market for electricity and the retail market for the supply of electricity to end users. This latter market is segmented according to the type of user (large industrial and commercial customers connected to the transportation network with voltage exceeding 70kV, smaller industrial and commercial customers connected to the transportation/distribution network with voltage less than or equal to 70kV, and residential customers). Both markets were provisionally found to be national in scope, although market definitions were ultimately left open.

The College of Competition Prosecutors found Electrabel to be dominant on the wholesale market by reference to a decision of the Competition College (Mededingingscollege / Collège de la concurrence), the jurisdictional body of the BCA, which held, in a decision of 18 July 2014, that Electrabel was dominant on the wholesale market during the relevant period (from 2007 to 2009). The College of Competition Prosecutors also considered that a prima facie assessment of Electrabel's position on the retail market showed its dominance on all three segments of this market.

However, the College of Competition Prosecutors found none of the three abuses that Lampiris had complained of.

First, the College of Competition Prosecutors observed that the incorporation of the cost of allowances in Electrabel's prices did not, per se, suffice to consider Electrabel's prices to be excessive. This incorporation could be economically justified by the fact that each allowance used by Electrabel constitutes a loss of the profit that Electrabel could have made by selling the allowance to other companies and therefore has a cost that can be added to Electrabel's prices.

Furthermore, the College of Competition Prosecutors found no discrimination between the prices applied by Electrabel on the wholesale market and its prices on the retail market, since the services offered on these markets are not equivalent and these markets are distinct.

Finally, the College of Competition Prosecutors considered that there was no margin squeeze between the wholesale price offered by Electrabel to Lampiris and the retail price set by Electrabel's subsidiary ECS on the retail market. The College applied the "as efficient competitor test", which showed that a competitor as efficient as Electrabel could make profits on the retail market even if it had to pay the electricity price that Electrabel imposed on its customers at the wholesale level. The College also underlined that Lampiris' prices were lower or equivalent to Electrabel's retail prices during the relevant period and that Lampiris declared to have positive margins, which entails that its costs were below its prices. The College finally noted that Lampiris had grown over this period.

As a result, the College of Competition Prosecutors decided that no objections could be issued against Electrabel on these accounts and therefore decided to stop investigating this case.

This decision is in line with the judgment of 14 January 2015 handed down by the Brussels Court of Appeal (Hof van Beroep / Cour d'appel) in which the Court rejected a similar action by the Belgian railway company NMBS/SNCB against Electrabel (See, VBB on Belgian Business Law, Volume 2015, no. 3, p. 6, available at www.vbb.com).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.