Key industry sectors
Increasing competition in the energy sector through antitrust enforcement and regulation is a key priority of the European Union (EU).1 Although many of the principles underlying EU antitrust law and energy-sector regulation are similar to those applicable in the United States and Canada, there are also significant differences. Energy companies with activities in the EU need to be aware of the differences and take precautions to avoid exposure to significant fines, time-consuming and expensive investigations and reputational damage.
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This short guide identifies 10 key EU antitrust and regulatory issues that are relevant for energy companies whose activities have an impact on EU markets.
EU antitrust rules apply to energy companies/projects both in and outside the EU
EU antitrust laws apply to conduct that has an effect in the EU, even if the conduct occurs outside the EU. For example, in 2012 the European Commission launched an investigation into whether Gazprom, the Russian State-owned producer and supplier of natural gas, might be hindering competition in Central and Eastern European gas markets by (i) dividing gas markets by preventing the free flow of gas across EU Member States; (ii) preventing the diversification of gas supplies; and (iii) imposing unfair prices on its customers by linking gas and oil prices. Companies should therefore never assume that because their negotiations and/or transactions occur outside the EU, EU antitrust laws would not apply.
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EU regulatory regime applies in parallel to antitrust rules
The EU electricity and gas markets were historically dominated by national State-owned monopolies. A specific regulatory regime for the EU electricity and gas sectors, which applies in parallel to the EU antitrust laws, has led to greater competition, but conduct by former monopolies continues to be an enforcement priority for EU antitrust authorities.
Access to infrastructure
EU antitrust and regulatory regimes overlap in certain areas, in particular the requirement for network infrastructure operators to grant third parties access to spare infrastructure capacity (e.g., in or on a gas pipeline or electricity interconnector). In 2013, for instance, the European Commission launched an investigation into whether the Bulgarian energy incumbent and its gas supply and infrastructure subsidiaries are hindering competitors from accessing the national Bulgarian gas transmission network and certain gas storage facilities by explicitly or tacitly refusing or delaying access to third parties. As a general rule, EU law requires third parties to be granted access where capacity is available on the basis of non-discriminatory and cost-effective tariffs, though major new infrastructure may be granted limited exemptions.
EU merger review rules differ significantly from rules applicable in the US and elsewhere
EU merger control is a one-stop-shop, so a transaction that is notified to the European Commission need not be notified to any EU national antitrust authority.
Any transaction giving rise to an acquisition of “control” may qualify as a “concentration” under the EU merger rules and require notification if the jurisdictional thresholds are met. “Control” may be conferred not only by a majority shareholding, but also by acquisition of significant rights (such as the right to approve senior management or the target’s budget or business plan) by virtue of a shareholders agreement or even with no equity participation at all.
The establishment of a “full function” joint venture is treated as a “concentration” if the joint venture is controlled by two or more parties and has its own market presence. Since EU merger control thresholds can be satisfied by any two “undertakings concerned” by a transaction, including all controlling entities, joint ventures easily trigger EU merger filing requirements by virtue of their parents’ turnover.
A notifiable concentration can arise at any time, including through a restructuring of a transaction that was not originally notifiable.
A transaction that is not notifiable to the European Commission may still require notification to EU national authorities, and national merger control regimes differ significantly. A number of countries, such as Germany, apply a broader definition of notifiable transactions than the EU and/or very low turnover thresholds.
Information exchange is a major antitrust enforcement priority
Energy-sector transactions often require competitors to exchange commercially sensitive information in the course of the due diligence or structuring of a project or its day-to-day operations, or even in the context of long-term commercial agreements. The exchange of competitively sensitive information among competitors is a major enforcement priority for EU antitrust authorities. For instance, EU and other antitrust authorities increasingly scrutinize most-favored-nations pricing provisions. Exchanges of confidential information in energy-sector projects, joint ventures and even commercial contracts should be limited to the minimum necessary, and precautions such as clean teams adopted for especially sensitive information, such as current, recent or predicted prices and pricing policy.
Dealings with suppliers, distributors or customers may give rise to antitrust risks
EU competition rules take a stricter approach than US antitrust rules to vertical agreements, such as long-term supply/offtake agreements and exclusivity agreements under which a distributor is required to buy all (or a minimum percentage of) its requirements only from one supplier, or is restricted from selling into territories that have been allocated exclusively to other distributors or suppliers. Agreements restricting a buyer’s freedom to market the purchased products as the buyer sees fit (e.g., agreements seeking to fix a buyer’s resale prices (resale price maintenance) or prescribing where or to whom a buyer may sell energy supplies (including profit-splitting mechanisms)), are normally prohibited and at the very least require careful consideration.
Ownership and operation of EU gas/electricity transmission systems must be unbundled from gas/electricity production or supply operations
The EU regulatory regime requires the ownership and operation of electricity/gas transmission systems to be separated (“unbundled”) from electricity/gas generation/production and supply operations. EU rules provide for three principal unbundling models, with the most restrictive -- which is being implemented in many EU Member States -- being full ownership unbundling (OU), whereby the ownership of the transmission system and its operation must be fully separated from any production and supply operations (with an exception for the ownership of small scale generation, production or supply activities with no apparent connection or interdependency with transmission assets). The effect is that a company cannot “control” a transmission system (including any offshore transmission systems) and at the same time “control” or “exercise any right” (such as any voting rights or the power to appoint any board members) in a production or supply company; or conversely “control” a production or supply company and at the same time “control” or “exercise any right” in a transmission system. There are also certain restrictions on board representation. The OU model takes account of companies’ interests across the EU and globally, so that a company with an interest in an electricity or gas production/supply company in any other EU country (not just the country in question) will be prevented from having an interest in a transmission system in the country in question.
Companies that receive benefits from any EU governmental bodies or through EU State resources need to ensure that they are not in receipt of illegal State aid. If so, the company will be required to repay the aid to the government. Benefits for these purposes include: subsidies, grants, favourable tax treatment, guarantees or any other preferential terms favoring only certain firms or products within the market. A benefit may constitute illegal State aid where it does not conform to EU approved programs or has not been approved beforehand by the European Commission by way of a notification and review process.
Significant consequences for breach
The consequences of a breach of EU antitrust or regulatory requirements can be severe. Transactions or contracts may be partly or wholly void and unenforceable. Fines may be imposed of up to 10 per cent of global group turnover. Third parties who have suffered loss may be able to sue for damages. Antitrust and regulatory investigations involve significant time and expense and result in adverse publicity, reputational damage, and damaged relationships with government authorities.
Antitrust compliance programs must take account of particularities of EU law
Energy companies active in Europe should review their antitrust compliance and training policies to confirm that these policies take account of the particularities of EU law and procedure, including not only antitrust issues but procedural issues such as companies’ obligations in connection with European Commission inspections (or “dawn raids”), the absence of legal privilege for in-house counsel under EU law, data privacy rules, and so on. In some EU countries, antitrust authorities have published guidelines on elements that compliance policies should contain to qualify for more favourable treatment.
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