AdC imposes fine of 48 million euros on EDP Produção for abuse of dominance

​Press Release 19/2019
 
AdC imposes fine of 48 million euros on EDP Produção for abuse of dominance
 
The AdC (Autoridade da Concorrência – Portuguese Competition Authority) imposed a fine of 48 million euros on EDP – Gestão da Produção de Energia, S.A., (EDP Produção), for abuse of dominance in the market for secondary reserve services in mainland Portugal, over a period of five years.
 
Between 2009 and 2013, EDP Produção manipulated its offer of teleregulation, or secondary reserve services, limiting the offer from its generating units subject to the CMEC regime, so as to increase the offer from its units in the open market, thus being paid twice, to the detriment of consumers.
 
Secondary reserve, or teleregulation, is the balancing service that ensures that consumers have available the electricity they require at any moment, by balancing instantaneously the offer from generating units with the demand from families and enterprises.
 
The CMEC regime (Custos de Manutenção do Equilíbrio Contratual or the cost of maintaining the contractual equilibrium) was the mechanism created by the Portuguese government in 2004, to guarantee that, in the open market context then introduced, generating plants received a remuneration equivalent to what they would have received under the Power Purchase Agreements (PPAs) signed with the system operator, REN, and still in effect.
 
By means of the practice it developed, EDP Produção could, simultaneously, obtain higher compensation payments in the context of the CMEC regime as well as higher revenues from the placement in the open market of reserve services from its non-CMEC generating units.
 
This was achieved by two ways. On the one hand, the price of energy rose as a result of secondary reserve becoming more expensive; on the other, the higher CMEC compensations raised the costs of a general economic nature (Custos de Interesse Económico Geral - CIEG), included in final electricity tariffs.
 
EDP Produção is, by far, the principal supplier of teleregulation services in the national electricity system as well as being the main operator with teleregulation capacity, making it an indispensable player in this market.
 
This dominant position, in the face of inelastic demand, gave EDP Produção the opportunity to influence price formation in the teleregulation market, an opportunity the firm availed itself of.
 
The behaviour of EDP Produção constitutes a serious restriction of competition, prohibited by Article 11 of Law n.º 19/2012 (the Competition Act) and by Article 102 of the Treaty on the Functioning of the European Union (TFEU).
 
The market concerned deals with ensuring the continuous equilibrium of the national electricity grid, thus being of crucial importance to the national economy and its competitiveness, as well as to consumer well-being.
 
This decision by the AdC brings to a close the proceedings initiated on September 8, 2016.  On September 2, 2018, the AdC issued its statement of objections (SO). EDP Produção had the opportunity to use its right to a hearing and the presentation of its defence, which it did on November 29, 2018, and its statements were duly evaluated and taken into consideration in the final decision.
 
The AdC gives priority to detecting and sanctioning contraventions of the Competition Act, such as that described herein, that impact directly on consumer welfare, on the competitiveness of firms and on the economy as a whole. 
 
Lisbon, 18 September 2019

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