AdC issues Statement of Objections to EDP Produção for abuse of dominance to the detriment of consumers

​Press Release 12/2018
 
AdC issues Statement of Objections to EDP Produção for abuse of dominance to the detriment of consumers
 
The Portuguese Competition Authority (Autoridade da Concorrência – AdC) issued a Statement of Objections against EDP – Gestão da Produção de Energia, S.A. (EDP Produção) for abuse of dominance in the market, a practice that led to price increases in electricity paid by Portuguese consumers.
 
The AdC concluded that, between 2009 and 2013, EDP Produção limited the supply of secondary balancing reserve by the power plants under the CMEC regime in order to provide the service through its market-based power plants, not covered by the CMEC regime, thus obtaining double compensation, at the expense of consumers.
 
On the one hand, EDP Produção obtained public compensation that increased with the underproduction of plants operating under the CMEC regime. On the other hand, EDP Produção benefited from higher revenues in its market based power plants, maximized by the increase in market prices.
 
The conduct of EDP Produção generated an estimated damage to the national electric system and consumers of around 140 million euros. The EDP Produção is overwhelmingly the main supplier of secondary balancing reserve in the national electric system as well as the main operator in terms of the capacity to supply that service, making it indispensable to satisfy demand.
 
This dominant position, in a context of rigid demand, granted EDP Produção the ability to influence price formation in the market for providing secondary balancing reserve.
 
As an example of the impact of the behaviour of EDP Produção, the overall turnover of the secondary balancing reserve market in mainland Portugal decreased from 114 million euros in 2012 to only 37 million euros in 2016, although both years registered similar levels of demand.This behaviour of EDP Produção of continued limitation of its supply of secondary balancing reserve infringes national and EU competition rules. 
 
If confirmed, the conduct of EDP Produção is serious, having occurred following the liberalisation of the electricity sector, as determined by Decree-Law 29/2006, of 15 February. The sector is also of primary importance for the competitiveness of the economy, as well as for the welfare and purchasing power of consumers.
 
The secondary balancing reserve guarantees the permanent balance in the national electric system and can only be provided by the power plants equipped for that purpose.
 
The ‘Custos de Manutenção do Equilíbrio Contratual’ (CMEC) is a mechanism created by the Portuguese Government in 2004 for the recovery of stranded costs, to guarantee power plants’ revenues equivalent to those they would have obtained under the Power Purchase Agreements, previously entered into with the System Operator, REN, in exchange for the early termination of those agreements.
 
The AdC emphasizes that issuing a Statement of Objections does not prejudge the final outcome of the procedure, which started in September 2016.
 
At this stage of the procedure, EDP Produção is given the opportunity to exercise its rights of defence against the alleged infringement and possible applicable sanctions.
The Statement of Objections was issued on 3 September 2018.
 
 3 September 2018

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