Competition court €48M EDP fine stands

The Portuguese court of competition has ruled that a €48 million fine slapped on the country’s largest power producer EDP – the highest ever issued in the company’s history — should stand.

An appeal by the electricity producer was thrown out for the fine that was awarded in 2019 by the Portuguese Competition Authority (AdC). At the start of July, the Public Ministry asked a court that the fine should stand.
EDP was accused of manipulating tele-regulation service offer (secondary reserve services) between 2009 and 2013.
In other words the fine was handed out for “abuse of dominance”.
Between 2009 and 2013, EDP Produção manipulated its offer of tele-regulation, 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 tele-regulation, 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 tele-regulation services in the national electricity system, as well as being the main operator with tele-regulation 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 tele-regulation 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).