Ercüment Erdem Att. Mert Karamustafaoglu

Competition Board’s Recent Examinations in the Electricity Sector: Back to the Past

February 2017

Introduction

By its recently initiated three investigations, Akdeniz Elektrik Dağıtım A.Ş.[1] (“Akdeniz Elektrik), Enerjisa[2], and Gediz-Aydem[3], the Competition Board signals that it will adopt a more active policy in the coming days in the electricity sector. The problems with regard to the dominant positions of electricity distribution companies due to their market power in their areas, and the adaptation difficulties with respect to the legal unbundling principles, are familiar problems in the electricity sector.[4] However, in 2014, it was claimed that the distribution companies engaged in various practices to complicate the operations of independent providers and prevent the exercise of consumers’ rights to choose their own providers.[5] Moreover, although the Competition Board’s Sector Inquiry in Electricity Wholesale and Retail Sale Markets (“Sector Inquiry”) examined these claims in detail, the Competition Board decisions did not made any determinations as to breach.

The Competition Board’s repetitive approach with regard to the pre-investigations of distribution companies was the most debated issue: This is because the Competition Board was not initiating investigations, but stating that the pre-investigation claims may be considered to be anti-competitive acts. This issue is the most debated issue in the aforementioned decisions. These decisions state that the distribution companies engaged in various practices to complicate the operations of independent providers, thereby preventing the exercise of consumers’ rights to choose their own providers.

These anti-competitive acts may deeply affect the liberalization process in the electricity sector. The dissenting votes almost always addressed that the above-mentioned claims are very significant, which must be followed through investigations. Moreover, in the aforementioned decisions, the case handlers also requested investigations to be conducted, but the Competition Board refused these requests in turn. However, approximately two years afterward, the Competition Board has taken much the same claims more seriously, and has opened investigations. The change of action indicates the future attitude of the Competition Board.

The Previous Decisions in the Distribution Sector

The privatization process in the electricity distribution sector, which started with the privatization of TEDAŞ in 2005, is completed through the privatization of Dicle Elektrik Dağıtım A.Ş.[6] The above-mentioned decisions, and particularly the 2014 decisions, signal today’s developments in many aspects.

The complaints with regard to the distributor’s activities in the electricity sector frequently appeared before the Competition Board prior to 2014[7]. However, the above-mentioned decisions indicate that these complaints were rejected by the Competition Board on the grounds that the specializations were recently completed, and the legal unbundling activities had recently begun. These decisions state that there is insufficient evidence to prove the allegations, and the preliminary examinations were sufficient to warn the distribution companies.

However, within the same year, the Competition Board opened new pre-investigations with regard to much the same undertakings, with similar allegations. In that period, the Competition Board’s application of Article 9/3 of the Protection of the Competition Act numbered 4054 (“Competition Act”), instead of opening investigations, was highly criticized. According to Article 9/3 of the Competition Act, the Competition Board may send an opinion to the undertakings concerned regarding how to terminate the infringement. Accordingly, in the aforesaid decisions, the Competition Board decided to send a warning to the undertakings concerned intending to terminate the examinations against liberalization. Moreover, the Competition Board decided that the acquired information and documents should also be sent to the Energy Market Regulatory Board (“EMRA”), which was conducting a similar examination at that point.

This situation was complex at first glance. Firstly, the Competition Board had not qualified the claims as insignificant or insufficient. At the same time, it had not opened an investigation, nor had it made a more detailed examination. The Competition Board clearly stated that according to the obtained evidence, the activities of distributors cause problems in terms of liberating the electricity sector, meaning that these activities cause problems in terms of providing proper competition; however, it did send a written warning on this issue. In addition, it intended for the EMRA to examine this issue within the scope of sectoral regulations by sending it the obtained information and documents. In other words, the Competition Board preferred the EMRA to solve this issue, which may be considered to be a violation of competition, according to the regulation. In a sense, the Competition Board preferred to terminate the violation by way of sectoral regulation, instead of through the application of competition law.

Another interesting issue about the decisions in the aforesaid period is that the case handlers who had requested that an investigation be initiated concerning CLK and Enerjisa, despite the Competition Board’s view, had also adopted the Competition Board’s view in the subsequent Gediz-Aydem decision. Accordingly, the case handlers found sufficient it expedient to send a warning according to Article 9/3, instead of opening an investigation. On the one hand, the case handlers in the Gediz-Aydem decision found it unfair to request an investigation against the undertakings concerned, considering the resolution of the CLK and Enerjisa decisions.

Sector Inquiry and Future Signals

The Sector Inquiry was published in the year following the Competition Board’s highly disputed distribution decisions. The expert group that wrote the Sector Inquiry are virtually identical to the case handlers in the above-mentioned decisions in the distribution market. On the other hand, the Sector Inquiry comprises more stable and accurate observations than the aforesaid decisions. The Sector Inquiry particularly states that the authorized supply companies, which are of the same economic integrity as the distribution companies, engage in various practices to complicate the operations of independent providers and prevent the exercise of consumers’ right to choose their own providers[8]. The Sector Inquiry provides that the above-described action hinders the competition in the electricity sector. In this sense, the Sector Inquiry makes more specific determinations about the reasons for these problems, and also determines several “to do lists” for the future[9]. It highlights that more effort should be made as to legal unbundling, as it not at a desired level. Also, it states that it is important to inform consumers about alternative suppliers, as well as supplier changing opportunities. It is emphasized that for this purpose, the consumers should be informed particularly concerning the prices. Accordingly, several obstacles to consumers to change their suppliers should be abolished. The Sector Inquiry’s most important message for future is that problems arising from insufficient legal unbundling between distribution companies and independent supplier companies, such as information exchange, are important obstacles with respect to liberalization. The Sector Inquiry expresses that the recommended manner through which to abolish these issues is efficient supervision and detailed regulations. In other words, the Sector Inquiry highlights the need for efficient supervision on this issue and, therefore, requests opening investigations on these actions.

Conclusion: Back to the Past

“Crazy Ivan maneuver” is a maneuver type that was used by Soviet submarines during the cold war era, in order to clear their baffles to ascertain whether or not they were being followed. These submarines were easily followed by minor American submarines, since their back fans were black spots, thereby rendering American submarines to be invisible. For this reason, according to this maneuver, submarines turn 180 degrees, instantly, to see if they are being followed by an enemy submarine that the black spot on the back of their submarines have rendered invisible.[10] It is said that this maneuver builds great fear and is very efficient.

The Competition Board’s investigations in the electricity distribution sector, which began in late 2016, and in the beginning of 2017, are actually a continuation of a process that began in the past. These decisions are almost identical to distribution decisions from 2014, including the companies within the scope of investigation and order. In this sense, the Competition Board has made a “Crazy Ivan Maneuver.” However, this is not a surprise for those who follow the sector closely, and who read the Sector Inquiry, carefully. Indeed, the Board is doing the things that it stated before, and follows the route that it previously determined. These recently begun investigations will indicate how seriously these warnings have been taken by the electricity distribution sector since 2014. The following period will be a test of competition law in the electric distribution sector.

[1] For the announcement dated 9.8.2016 of investigations concerning Akdeniz Elektrik Dağıtım A.Ş., CLK Akdeniz Elektrik Perakende Satış A.Ş. ve Ak Den Enerji Dağıtım ve Perakende Satış Hizmetleri A.Ş., see; http://www.rekabet.gov.tr/tr-TR/Guncel/Akdeniz-Elektrik-Dagitim-AS-CLK-Akdeniz-Elektrik-Perakende-Satis-AS-Ve-Ak-Den-Enerji-Dagitim-Ve-Perakende-Satis-Hizmetleri-AS-Hakkinda-Sorusturma-Acildi (Date of access: 06.03.2017).

[2] For the announcement dated 27.1.2017 of investigations concerning distribution areas that are included in the Enerjisa Group, see; http://www.rekabet.gov.tr/tr-TR/Guncel/Enerjisa-Enerji-AS-Toroslar-Elektrik-Dagitim-AS-Enerjisa-Toroslar-Elektrik-Perakende-Satis-AS-Baskent-Elektrik-Dagitim-AS-Enerjisa-Baskent-Elektrik-Perakende-Satis-AS-Istanbul-Anadolu-Yakasi-Elektrik-Dagitim-AS-ve-Enerjisa- (Date of access: 06.03.2017).

[3] For the investigation concerning Bereket Enerji, see .http://www.rekabet.gov.tr/tr-TR/Guncel/ADM-Elektrik-Dagitim-AS-Aydem-Elektrik-Perakende-Satis-AS-GDZ-Elektrik-Dagitim-AS-Gediz-Elektrik-Perakende-Satis-AS-Bereket-Enerji-Grubu-AS-Ve-GDZ-Enerji-Yatirimlari-AS-Hakkinda-Sorusturma-Acildi (Date of access:16.03.2017).

[4] For more information, see the Research of the Competition Board in Electric Wholesale and Retail Sector (Sector Research), http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fSekt%C3%B6r+Raporu%2felektriksektor.pdf (Date of access: 06.03.2017)

[5] For the decisions concerning this issue, see; AYEDAŞ Decision dated 22.10.2014, numbered 14-42/761-337, http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%C3%A7eli+Kurul+Karar%C4%B1%2f14-42-761-337.pdf (Date of access: 06.03.2017); CLK Decision dated 22.10.2014, numbered 14-42/762-338,http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%C3%A7eli+Kurul+Karar%C4%B1%2f14-42-762-338.pdf (Date of access: 06.03.2017) ; Gediz-Aydem Decision dated 03.12.2014, numbered 14-47/860-390, http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%C3%A7eli+Kurul+Karar%C4%B1%2f14-47-860-390.pdf (Date of access: 06.03.2017).

[6] The Competition Board’s decision dated 11.04.2013 and numbered 13-21/285-136 http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%C3%A7eli+Kurul+Karar%C4%B1%2f13-21-285-136.pdf (Date of access: 11.03.2017).

[7] The Competition Board’s decision of “Başkent Elektrik Dağıtım A.Ş.” dated 6.11.2013 and numbered 13-62/857-365; The decision of “Sakarya Elektrik Dağıtım A.Ş” dated 6.11.2013 and numbered 13-62/856-364, The decision of “Boğaziçi& Akdeniz Elektrik Dağıtım A.Ş.” dated 29.1.2014 and numbered 14-05/83-36.

[8] For more information, see p. 82 ff. of the sector research report.

[9] p. 130-133.

[10] https://en.wikipedia.org/wiki/Crazy_Ivan (Date of access: 17.03.2017).