Justwhat is the scope of the essential facilities doctrine in the energy sector?: Third party access-friendly interpretation in the EU v. Contractual freedom in the us

Common Market Law Review

Volumn 48, Issue 5, 2011, Pages 1571-1598

  Talus, Kim ^a  

^a UNIVERSITY COLLEGE LONDON   (United Kingdom)

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EID: 84858852490     PISSN: 01650750     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (83)

1. Inquiry pursuant to Art. 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors, final report, COM(2006)851 final, 10 Jan. 2007.
2. E.g. see the article by the Commission staff. Cardoso, Kijewski, Koch, Lindberg and Nagy, "The Commission's GDF and E.ON Gas decisions concerning long-term capacity bookings: Use of own infrastructure as possible abuse under Article 102 TFEU", 3 Competition Policy news letter 2010.
3. This article explicitly notes the application of the essential facilities doctrine. Also, the decisions in E.ON (Case COMP/39.317 - E.ON gas foreclosure) and in GDF Suez (Case COMP/39.316 - GDF foreclosure), refer to various pipeline sections as being "essential" facilities or constituting an "essential input" and are clearly based on the essential facilities doctrine. The application of this doctrine is explicitly carried out in ENI (Case COMP/39.315 - ENI).
4. Case C-52/09, Konkurrensverket v. TeliaSonera Sverige AB, judgement of 17 Feb. 2011, nyr.4.
5. Motta, Competition Policy: Theory and Practice (CUP, 2005), p. 411.
6. The same point is raised in O'Donoghue and Padilla, The Law and Economics of Article 82 EC (Hart Publishing, 2007), p. 409.
7. Whish, Competition Law (OUP, 2009), p. 691.
8. E.g., Case 27/76, United Brands v. Commission, [1978] ECR 207, para 189.
9. O'Donoghue, "The Article 82 Guidance: Two Steps Forward, One Step Back?", IEJE Conference, Brussels, 11 May 2009
10. Here, the risk of false negatives or false positives is present, as was highlighted in the US Supreme Court decision in Trinko and discussed further in Petit, "Circumscribing the scope of EC competition lawin network industries? Acomparative approach to the US Supreme Court ruling in the Trinko case", 13 Utilities Law Review (2004)
11. For an overview, see Hauteclocque, Marty and Pillot, "The essential facilities doctrine in European competition policy: The case of the energy markets", in Glachant, Finon and Hauteclocque (Eds.), Competition, Contracts and Electricity Markets: A New Perspective (Edward Elgar, 2011).
12. For electricity, the French nuclear in particular, see Defeuilley and Hauteclocque, "La production d'electricité est-elle une facilite essentielle?", LARSEN Working Paper 2010
13. Case COMP/B-1/39.316 - Gaz de France (gas market foreclosure).
14. Cases COMP/39.388 - German Electricity Wholesale Market and COMP/39.389 - German Electricity Balancing Market.
15. Case COMP/39.402 - RWE Gas Foreclosure.
16. For this, see Talus, Vertical natural gas transportation capacity, upstream commodity contracts and EU competition law (Kluwer Law International, 2011)
17. This is the situation, e.g. in the E.ON, ENI and GDF Suez proceedings. See Commission press release, "Antitrust: Commission confirms sending statement of objections to ENI concerning the Italian gas market", MEMO/09/120, Brussels, 19 March 2009, Commission press release, "Antitrust: Commission initiates proceedings against the ENI Group concerning suspected foreclosure of Italian gas supply markets", MEMO/07/187, 11 May 2007 and Commission press release, "Antitrust: Commission opens formal proceedings against Gaz de France concerning suspected gas supply restrictions", MEMO/08/328, 22 May 2008.
18. In addition to E.ON, ENI and GDF Suez proceedings, see also Commission press release, "Antitrust: Commission confirms sending Statement of Objections to E.ON and Gaz de France concerning alleged sharing of French and German gas markets", MEMO/08/394, 12 June 2008 and Commission press release, "Antitrust: Commission opens formal proceedings against E.ON and Gaz de France concerning suspected market-sharing", MEMO/07/316, 30 July 2007.
19. The main exceptions being Denmark and the Netherlands, although a significant volume of liquefied natural gas is imported to or through the Dutch gas markets
20. Capacity reservations may also be caught under Art. 101 TFEU where the agreement is made between the transmission system operator and a non-related third party or in certain joint venture situations. These scenarios will not be discussed here.
21. For this alternative, see Talus and Wälde, "Electricity interconnectors - A serious challenge for EC competition law", 3 Competition and Regulation in Network Industries (2006), 355-390
22. Kjolby, "Horizontal agreements", in Jones, EU Energy Law: EU Competition Law and Energy Markets (Claeys & Casteels, 2007), pp. 198-205.
23. An interesting example of the use of a pipeline to block competition is the GDF Suez - E.ON Ruhrgas case, which concerned a market-sharing arrangement by which the companies agreed not to sell gas over the Megal pipeline, which the companies jointly constructed in 1975, to each other's home markets. This arrangement was maintained even after the abolition of the legal or contractual monopolies of the companies and the liberalization of the EU natural gas markets. While the parties to the contract have declared that they regarded the agreement as null and void, obviously confirming that both companies understood that the arrangement violated EU competition rules, they continued to abide by this arrangement until Sept. 2005. According to the Commission, this market-sharing arrangement contributed to the strong market positions that the companies maintained even after liberalization. This decision, with the second largest fine in a cartel case at that time, certainly set the tone for the access related cases. In commenting on the decision, Competition Commissioner, Neelie Kroes, noted how "This decision sends a strong signal to energy incumbents that the Commission will not tolerate any form of anti-competitive behaviour." For this, see Commission press release, "Antitrust: Commission fines E.ON and GDF Suez {currency sign}553 million each for market-sharing in French and German gas markets", IP/09/1099, 8 July 2009 and Commission press release, "Antitrust: Commission action against cartels - Questions and answers", MEMO/09/323, 8 July 2009.
24. The samewas noted in the US already in State of Illinois ex rel. Burris v. Panhandle Eastern Pipe Line Co. 935 F.2d 1469 (7th Cir. 1991). Depending on the circumstances and the methods employed, an access refusal may also be seen as imposing unfair purchase prices or as discrimination between other trading parties.
25. For these alternatives see Kotlowski, "Third-party access in the energy sector: A competition law perspective", 16 Utilities Law Review (2006/2007)
26. Kotlowski, "Access rights to European energy networks:A construction site revisited", in Delvaux, Hunt and Talus (Eds.), EU energy law and policy issues (Euroconfidentiel, 2010).
27. Commission Decision of 21 Dec. 1993, Port of Rodby, O.J. 1994, L 55/52, Commission Decision of 21 Dec. 1993, Sea Containers/Stena Sealink, O.J. 1994, L 15/8, Commission Decision of 11 June 1992, Sealink/B&I-Holyhead, interim measures, not published, among many others.
28. Evrard, "Essential facilities in the EU: Bronner and beyond", 10 CJEL (2004), pp. 2-15.
29. The author illustrates how under the pre-Bronner case law a company was, under certain circumstances, required to provide access just because it held a dominant position and how Bronner provided the opportunity for the ECJ to interfere with this approach
30. See also Areeda, "Essential facilities: An epithet in need of limiting principles", 841 Antitrust Law Journal (1990)
31. Temple Lang, "Defining legitimate competition: Company's duties to supply competitors and access to essential facilities", 2 Fordham International Law Journal (1994)
32. Geradin, "Limiting the scope of Article 82 EC: What can the EU learn from the U.S. Supreme Court's judgment inTrinko in the wake of Microsoft, IMS, And Deutsche Telekom?", 6 CML Rev. (2004), 1519-1553.
33. Pipelines were held to be essential facilities in the Disma case. See XXVII Report on Competition Policy (1997), paras. 223-224.
34. Energy 2020: A strategy for competitive, sustainable and secure energy, COM(2010)639 final
35. This was also discussed in Talus, "Revocation and cancellation of concessions, operating licenses and other beneficial administrative acts", in Schill, International Investment Law and Comparative Public Law (OUP, 2010)
36. Talus, "Access to gas markets - A comparative study on the access to LNG terminals in EU and US", 2 Houston Journal of International Law (2009)
37. While the essential facilities doctrine first emerged in the US antitrust practice (United States v. Terminal RailroadAssociation of St. Louis, 224 US 383, [1912], then later in the energy specific Otter Tail Power Co. v. United States, 410 US 366, [1973], the applicability of the doctrine in partially de-regulated industries in the post-Trinko (Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, L.L.P., 540 U.S. 398) world remains somewhat unclear. The judgment did however clearly restrict the application of the doctrine.
38. See Holmes, Antitrust Law Handbook (ThomsonWest, 2008), pp. 9 and 59-60.
39. MCI Communications Corp. v. AT&T Co., 708 F.2d 1081 (7th Cir.1983), Otter Tail Power Co. v. United States, 410 US 366 (1973).
40. See alsoABA Section of Antitrust Law, Energy Antitrust Handbook: A Guide to the Electric and Gas Industries (American Bar Association, 2002), p.175.
41. City of Chanute, Kansas v. Williams Natural Gas Co. 955 F.2d (10th Cir. 1992).
42. The background to the difficulties with take-or-pay contracts in the US has been examined in detail in Talus, Long-Term Natural Gas Contracts and Antitrust Law in the European Union and in the United States (AIPN Research Paper 2010, available at).
43. Interestingly, the Court also noted that this prerequisite for essential facility liability suggests that essential facilities cases are no different conceptually from cases involving other monopolization theories, because it reintroduces "intent" (i.e., "business justification") back into the monopolization equation and excuses refusals to provide access justified by the owner's legitimate business concerns.
44. American Central Eastern Texas Gas Company v. Union Pacific Resources Group Inc. (et al.), no. 02-41010 (5th Cir. 2004.)
45. See also Indeck Energy Services v. Consumers Energy Co. 250 F.2d 972 (6th Cir.) cert. denied 533 US 964, [2001], in which the company was sued for alleged anti-competitive behaviour involving customer lock-ins in the wake of new competition.
46. Midwest Gas Services, inc. v. Indiana Gas Co., Inc. 317 F3d 703 (7th Cir. 2003).
47. Paladin Associates, Inc. v. Montana Power Co., 328 F.3d 1145 (9th Cir. 2003).
48. With references to Alaska Airlines Inc. v. United Airlines, Inc., 948 F.2d 536, 544 (9th Cir.1991).
49. For more detail, see .
50. For production from conventional fields see in particular .
51. This was the case in the Gazprom/ENI case (see Commission press release "Commission Reaches breakthrough with Gazprom and ENI on territorial restriction clauses", IP/03/1345, Brussels, 6 Oct. 2003).
52. Commission press release, "Antitrust: Commission accepts commitments by GDF Suez to boost competition in French gas market - Frequently asked questions", MEMO/09/536, 3 Dec. 2009.
53. With certain restrictions on, for example, the potential buyers profile in terms of demand, payment guarantees to be provided and availability or likely availability of specified natural gas volumes
54. Case COMP/39.316 - GDF foreclosure. Proposed commitments available at: .
55. Commission Press Release, "Antitrust: Commission accepts commitments by GDF Suez to boost competition in French gas market", IP/09/1872, 3 Dec. 2009.
56. Commission press release, "Antitrust: E.ON's commitments open up German gas market to competitors", IP/08/328, 4 May 2010.
57. The outcome in these two cases follows the same rationale that was adopted on the regulatory front in relation to the Nabucco pipeline. Here, the exemption decision under Art. 22 of the Directive 55/2003/EC imposes a capacity cap on the share of annual capacity which the shareholders, all dominant undertakings in their home-markets, can book at the total of all exit points.As such, the exemption fromTPA only covers half of the pipeline capacity. The intention is undoubtedly that the decision complies with the requirement that an exemption must enhance competition and that it cannot be detrimental to competition. Commission exemption decision in Nabucco, CAB D/2008/142, 8 Feb. 2008.
58. Regulation (EC) No 1/2003 of 16 Dec. 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, O.J. 2003, L 1/1-25.
59. Case C-441/07 P, Commission v. Alrosa, judgment of 29 June 2010, nyr.
60. Just consider the E.ON seal case where a procedural violation brought a 38 million euro fine. In subsequent proceedings the company agreed to dispose of its network assets to stop the inquiry, in line with Commission (unsuccessful) objectives in the negotiations towards the third legislative package. Commission Press Release, "Antitrust: Commission imposes {currency sign} 38 million fine on E.ON for breach of a seal during an inspection", IP/08/108, 30 Jan. 2008.
61. For this, see Talus and Hunt, "Ownership unbundling: What end to the saga?", in Hirsbrunner, Buschle and Kaddous (Eds.) European Energy Law / Droit européen de l'énergie (Bruylant, 2011).
62. Commission Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, C(2009) 864 final, 9 Feb. 2009, pp. 23-24.
63. Commission press release, "Antitrust: Commission initiates proceedings against RWE Group concerning suspected foreclosure of German gas supply markets", MEMO/07/186, 11 May 2007
64. Preamble 8 of Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005, O.J. 2009, L 211/36-54.
65. The Sector Inquiry notes that existing import contracts cover the production from almost all existing gas fields from which gas can be transported to Europe by pipeline (Sector Inquiry, p. 47). The Nabucco pipeline also seems to have some difficulties in filling the pipeline.
66. Taking France as the example, the LNG regasification terminals are also largely under the control of GDF Suez and do not offer an alternative to the GDF Suez controlled network. (CRE-Activity Report-June 2007, pp. 131-141.) In addition to imports, exports were also dominated by GDF. Even where the LNG terminals are controlled by an alternative operator, LNG still only allows for small-scale entry.
67. The annual capacity of the South Hook LNG terminal in the UK, for example, is planned to be 21 bcm
68. See . In this case, volumes imported as LNG are comparable to pipeline gas.
69. Case C-239/07, Julius Sabatauskas and Others, [2008] ECR I-7523, Case C-439/06, Citiworks AG Flughafen Leipzig v. Halle GmbH, Bundesnetzagentur, [2008] ECR I-3913 and Case C-17/03, VEMW and others, [2005] ECR I-4983.
70. Lloreda and Sanz, The Spanish Competition Authority fines the leading gas supplier for an abuse of dominant position (Gas Natural 2), (2009) 28439 e.-Competitions.Available at: .
71. A recent example of this third party access friendly interpretation of EU energy law is the Opinion of A.G. Jääskinen in Case C-264/09, Commission v. Slovakia, delivered on 15 March 2011.
72. One possible objective justificationwould be lack of capacity due to underlying supply commitments, i.e. the capacity is in full use. The Commission explicitly notes that the fact that "the current capacities may have been actually used by the essential facility holder for its supply business is not sufficient to exclude an abuse under Article 102 TFEU". This is in stark contrast with the US case law where the take-or-pay contracts were accepted as justifications for access refusals. It must also be noted that lack of capacity due to take-or-pay contracts can under certain circumstances be used as grounds for legitimate access refusal underArt. 35 of Directive 2009/73/EC.
73. Hauteclocque notes the same for electricity sector. See Hauteclocque, Long-term supply contracts in European decentralized electricity markets:An antitrust perspective. (2009) PhD Thesis, University of Manchester School of Law.
74. Destination clauses and other territorial sales restriction clauses prohibit the buyer from reselling the gas into other countries or other areas than those for which it is intended. By limiting the freedom of the buyer to resell the gas outside a certain area, these clauses enable a supplier to maintain different price areas for the same product. In a series of cases ranging from 2002 to 2007 the Commission negotiated the exclusion of these contracts from long-term gas contracts between the external producers and the EU purchasers.
75. For this case law, see Talus, "Long-term gas agreements and security of supply - Between law and politics", 32 EL Rev. (2007), 535-548.
76. Geradin, "Refusal to supply and Article 82", available at: .
77. For this, see De Hauteclocque and Talus, "Capacity to compete: Recent trends in access regimes in electricity and natural gas networks", EUI working paper RSCAS 2011/09
78. Opinion of A.G. Maduro in Case C-109/03, KPN Telecom BV v. OPTA, [2004] ECR I-11273, at para 55. Similar references were made in the Joined Cases C-544 & 545/03, Mobistar SA v. Commune de Fléron, [2005] ECR I-7723, para, 49 and in Case T-328/03, O2 (Germany) v. Commission, [2006] ECR II-1231, para 107.
79. Stawicki, "Waiting for the Polish Trinko", 1 OGEL (2010), available at: .
80. The same point was argued in Talus and Kuoppamaki "Relationship between general competition laws and sector specific energy regulation", 1 OGEL (2010), available at: .
81. "Adegree of competition necessary to ensure the observance of the basic requirements and the attainment of the objectives of the Treaty, in particular the creation of a single market achieving conditions similar to those of a domestic market". See Case 26-76, Metro SB-Großmärkte GmbH & Co. KG v. Commission, [1977] ECR 1875, para 20. However, the nature and intensity of competition may vary to an extent dictated by the products in question and the economic structure of the relevant sector. See Case 6-72, Europemballage Corporation and Continental Can Company Inc. v. Commission, [1973] ECR 215, para 24.
82. Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, O.J. 2009, L 211/94-136.
83. Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005, O.J. 2009, L 211/36-54.