CN04 - Commitments accepted in long-running Greek Lignite abuse case

The European Commission accepted commitments from Greece requiring Public Power Corporation (PPC), the state-owned electricity incumbent, to maintain a fixed net seller position for electricity baseload futures on certain energy exchanges in order to address competition concerns raised by exclusive access to lignite-fired electricity generation.

Key takeaways

• In some circumstances, EU Member States can breach competition law when they grant special or exclusive rights to public undertakings.
• The commitments accepted by the European Commission require PPC to supply a minimum volume of electricity on to the wholesale market on a quarterly basis, corresponding to between 40-50% of the volume of energy produced from Lignite by PPC in the same quarter of the preceding year.
• PPC is required to supply these quarterly volumes through electricity baseload futures contracts traded on the Hellenic Energy Exchange or the European Energy Exchange.

On 10 September 2021, the European Commission approved commitments ("Commitments") submitted by Greece to address the competition concerns set out in its decision ("Decision") of 5 March 2008 in case AT.38700 – Greek lignite and electricity markets. 

The Decision

In the Decision, the European Commission found that PPC held a dominant position both on the market for the supply of lignite (also known as 'brown coal') in Greece and the downstream market for the wholesale supply of electricity in Greece.

PPC had been granted exclusive exploitation rights to practically all reserves of lignite in Greece through a series of legislative measures enacted by the Greek state. PPC had also obtained exploration rights, in the absence of any competitive tender process, for the remaining exploitable deposits in Greece as well as special rights to request exploitation rights with respect to those deposits.

Lignite-fuelled plants were the cheapest and most extensively used plants in Greece at the time of the Decision, representing around 60% of energy generation used to supply Greece's interconnected electricity network. 

At the time of the Decision, PPC generated electricity that was considered to represent 85% of total electricity traded on the wholesale electricity market. 

Article 106(1) TFEU prohibits Member States from enacting or maintaining in force measures contrary to Article 102 TFEU where these measures benefit 'public undertakings' or 'undertakings to which Member States grant special or exclusive rights'.

The European Commission found that Greece had breached Article 106(1) TFEU, read in conjunction with Article 102 TFEU, by granting and maintaining quasi-monopolistic rights for lignite exploration and exploitation in favour of PPC.  In particular, this distorted competition in PPC's favour and reinforced PPC's dominance on the wholesale electricity market.

PPC was initially successful in obtaining the annulment of the European Commission's Decision before the General Court following an appeal in 2008 (T-169/08).  However, the General Court's judgment was set aside by the Court of Justice on appeal in 2014 (C‑553/12 P) and the case was referred back to the General Court.  PPC's action was ultimately dismissed by the General Court in 2016 (T‑169/08 RENV).

The Commitments

The Commitments mark the end of a procedure initiated by the European Commission in 2004.  

Greece has agreed to ensure that PPC will sell certain minimum volumes of electricity onto the wholesale market via electricity baseload futures contracts traded on either the Hellenic Energy Exchange ("HEnHx") or the European Energy Exchange ("EEX"). 

PPC will also be required to maintain a net seller position with respect to its transactions on both the HEnHx and EEX (taken together).  The extent of this net seller position is determined by reference to a percentage of the volume of lignite energy produced by PPC in the same quarter of the preceding year: 

• from Q4 of 2021 to end of Q3 2022, PPC is required to maintain a net seller position in each quarter corresponding to 50% of the lignite energy produced in the same quarter of the preceding year; and
• from Q4 of 2022 until, at the latest, Q4 of 2023, PPC's net seller position will be reduced to 40% of its lignite energy production in the same quarter of the preceding year.

Comments

This case is a rare example of a finding of a breach of competition law by a Member State, on the basis of Article 106(1) TFEU read in conjunction with 102 TFEU. 

The remedies package submitted by Greece provides an interesting insight into the types of remedies the Commission is willing to accept to address a situation in which an undertaking enjoys entrenched privileged access to a resource which is a primary input in a downstream market. 

With thanks to Zac Davies of Ashurst for his contribution.