Competition Remedies in Electricity Sectors

1. Introduction

Competition remedies are legal measures used to correct anti-competitive conduct and restore effective competition. In the electricity sector, remedies are especially important because electricity markets often contain natural monopolies, dominant utilities, essential infrastructure and high barriers to entry.

Competition problems may arise in generation, wholesale trading, electricity retail, procurement, transmission, distribution and energy-storage markets. Remedies must therefore address the particular nature of the electricity market while maintaining reliability and security of supply.

In South Africa, the Competition Act 89 of 1998 provides the main competition-law framework, while electricity-sector regulation operates alongside it.

2. Meaning of Competition Remedies

A competition remedy is an order or measure designed to stop, correct or prevent anti-competitive conduct.

Common remedies include:

prohibition of anti-competitive conduct;

behavioural commitments;

access obligations;

non-discrimination requirements;

structural separation;

divestiture;

modification of contracts;

termination of restrictive agreements;

administrative penalties; and

merger conditions.

The objective is not simply to punish a company. A remedy should address the competition problem and restore or protect competitive conditions.

3. Behavioural Remedies

A behavioural remedy regulates how a company conducts its business.

In electricity markets, this may require a dominant utility to:

provide network access on non-discriminatory terms;

publish transparent tariffs;

follow objective connection procedures;

avoid discriminatory treatment of competitors; or

maintain separate information systems.

Such remedies can be useful where the underlying infrastructure remains a natural monopoly.

4. Structural Remedies

Structural remedies change the organisation or ownership of a business.

Examples include:

divestiture of assets;

separation of generation and transmission;

separation of network operations from competitive businesses; and

prohibition of certain mergers.

Structural remedies may be particularly important where behavioural regulation cannot adequately prevent a dominant firm from favouring its own competitive activities.

However, structural remedies can be complex because electricity systems require technical coordination.

5. Network Access Remedies

Transmission and distribution networks are essential facilities for electricity suppliers.

If a network operator refuses or unfairly restricts access, independent generators may be unable to compete.

A competition remedy may therefore require:

transparent access rules;

objective connection criteria;

non-discriminatory treatment;

transparent network charges; and

effective dispute-resolution mechanisms.

These measures allow competition in generation and retail while recognising that physical electricity networks may remain natural monopolies.

6. Senwes Case

The Constitutional Court's decision in Competition Commission of South Africa v Senwes Ltd is important for understanding competition remedies.

The case involved alleged exclusionary conduct by a dominant firm controlling grain-storage infrastructure. The Constitutional Court explained that, once prohibited conduct is established, the Competition Tribunal has power to impose an appropriate remedy under the Competition Act.

The subsequent Senwes proceedings demonstrate how remedies can address discriminatory storage arrangements. The Tribunal's settlement included restrictions concerning different storage tariffs and conditions for different categories of customers.

Although Senwes was not an electricity case, it provides a useful analogy for electricity networks and other essential infrastructure.

7. Remedies for Excessive Pricing

Excessive pricing can be particularly important where electricity consumers have limited alternatives.

A competition authority may investigate whether a dominant supplier's pricing amounts to prohibited excessive pricing under the Competition Act.

However, the remedy must distinguish between:

legitimate recovery of infrastructure costs;

investment returns;

genuine scarcity pricing; and

unlawful exploitation of market power.

A price reduction may sometimes be appropriate, but competition authorities must avoid undermining legitimate investment incentives.

8. Remedies for Collusion

Electricity procurement can involve substantial contracts for:

power stations;

transmission equipment;

transformers;

maintenance;

fuel;

renewable-energy projects; and

grid infrastructure.

Collusive tendering can increase costs and reduce the value obtained by utilities.

In Competition Commission v Waco Africa, the Competition Tribunal considered allegations that firms had engaged in price fixing and collusive tendering in relation to an Eskom procurement process. The case illustrates the importance of enforcement against procurement collusion in the electricity sector.

Appropriate remedies can include administrative penalties and orders preventing continuation of the prohibited conduct.

9. Merger Remedies

Competition authorities may impose conditions on electricity-sector mergers where a transaction creates competition concerns.

Possible remedies include:

asset divestiture;

access commitments;

restrictions on exclusive contracts;

supply commitments;

information safeguards; and

non-discrimination obligations.

The purpose is to allow beneficial investment while preventing excessive concentration.

10. Contractual Remedies

Long-term electricity contracts can sometimes restrict market entry.

Examples include:

exclusive supply agreements;

long-term power-purchase arrangements;

restrictive network contracts; and

agreements preventing customers from changing suppliers.

Where such contracts unlawfully exclude competitors, remedies may involve modifying or terminating the restrictive provisions.

The Senwes litigation is useful by analogy because the Tribunal considered conduct involving conditions that could affect whether customers dealt with competitors.

11. Penalties and Deterrence

Financial penalties are another important remedy.

They can deter companies from engaging in:

price fixing;

market allocation;

collusive tendering;

exclusionary conduct; and

other prohibited practices.

The remedy should be proportionate to the seriousness and duration of the infringement and the requirements of the Competition Act.

12. Interaction With Electricity Regulation

Competition remedies must operate together with energy regulation.

For example, an access remedy involving a transmission network may need to be coordinated with:

grid codes;

licensing requirements;

system-operation rules;

connection standards; and

electricity tariffs.

Competition authorities therefore need technical information from energy regulators and system operators.

13. Consumer Protection

Ultimately, competition remedies should benefit electricity consumers.

Effective remedies can promote:

lower prices;

better service;

greater supplier choice;

improved innovation;

renewable-energy participation; and

reliable electricity supply.

However, consumer protection should not be pursued through remedies that undermine grid stability or necessary investment.

14. Conclusion

Competition remedies are essential for maintaining competitive electricity markets. The main remedies include behavioural obligations, structural separation, network-access requirements, contractual restrictions, merger conditions and financial penalties.

The Senwes case demonstrates the importance of effective remedies for exclusionary conduct involving important infrastructure, while Waco Africa demonstrates the relevance of competition enforcement to Eskom-related procurement.

For electricity markets, the most effective approach is usually one that combines competition law with sector regulation. Remedies should address the specific source of market power while preserving reliability, investment incentives and security of electricity supply.