Recent Problems in Electricity Distribution Sector: ELDER Decision
“Great electricity energy systems are accepted as the most complex man-made machines.” Electricity energy is used in almost in every area of our highly populated modern cities. In that sense, the usage of the “most complex man-made machines” encumbers responsibility on the undertakings that own electricity distributorship networks, with regard to the provision of continual and high quality electricity to cities and industries.
In recent years, the Turkish electricity distribution sector has been experiencing a transformation. Following the privatization of Dicle Elektrik Dağıtım A.Ş. in 2013, electricity has begun to be distributed through private legal entities. However, as a result of these privatizations, distribution activities have become the most debated subject in the electricity sector.
Competition Board decisions (“Board”) with respect to distribution privatizations target the future market structure. That being said, the Board, with a view to the competitive, and liberal market structures to be formed as a result of the privatizations, frequently addresses the dangers in regard to the distributor companies’ dominant positions within their regions.
In 2014, the Board carried out pre-investigations with regard to the electricity sector and, subsequently, stated their concerns with respect to competition concerning the distributor companies’ various actions. In these decisions, however, the Board did not make infringement determinations. According to these decisions, the distributor companies face competition law issues while carrying out their daily activities in their regions. The Board’s approach “to determine some actions that may be regarded as infringements, but not opening investigations,” is highly criticized.
The Dynamics of the ELDER Decision
The ELDER decision of 2015 is significant for the reason that it explicitly addresses all of the problems in the electricity and distribution sector. From this decision, the electricity suppliers have started to develop new methods against the distributor company’s market power in their regions. The supplier companies are positioned as the strongest electricity sellers in their region, since they hold the information with regard to the customers, and their usage habits within their regions. Accordingly, the independent electricity suppliers seek various cooperation methods against these supplier companies’ power.
Yaren Elektrik, an independent electricity supplier company, and Head Office of the Mail and Telegram Organization (“PTT”), a postal service provider, have decided to issue a cooperative with regard to electricity sale activities. Therefore, they have targeted, particularly, to reach the small producers in the retail sale market. Accordingly, they have tried to provide the opportunity to consumers to conclude electricity agreements within the PTT branches. In that sense, the aim is for the customers to be offered discounted electricity prices and provider-switching opportunities in the PTT branches, to which millions of people visit on a daily basis.
The attempt was significant for the reason that the consumers, who purchase from the electricity suppliers that are connected to the distribution group in their regions, would easily receive an alternative offer from the PTT branches, and be able to switch their providers due to discounted prices. Therefore, this attempt might reduce the market power of the distribution groups (the incumbent suppliers) and create concerted competitive pressure.
According to the pre-investigation decision, the electricity distributors have taken joint action against this cooperation effort. The electricity distributors have coordinated through Elektrik Dağıtım Hizmetleri Derneği (“ELDER”) the association of undertaking of the distributors, and have applied pressure on the PTT to terminate its cooperation with Yaren Elektrik. A large number of electronic communication that the Competition Authority has identified have indicated that the distributor companies voiced their discomfort in regard to this cooperation, and ELDER coordinated various attempts to remove this cooperation.
As a consequence of ELDER’s power, which comes from its representation of the distributor companies that provide electricity to millions of people, the cooperation between PTT and Yaren Elektrik was terminated before it began. PTT and Yaren Elektrik terminated their cooperation efforts nearly one day after ELDER had taken action. It should be considered that PTT generates a large revenue from ELDER members, since ELDER’s members’ many customers’ bills are collected by the PTT. In that sense, ELDER has undertaken an active role, which in turn has made distributor companies check whether this cooperation has actually ended.
Activities of ELDER, as an association of undertakings, have the power to aggravate and even prevent the activities of Yaren Elektrik, which is an independent supplier. Yaren Elektrik is a competitor of the distributor groups in the electricity sales arena. Moreover, one of the primary goals of the liberalization in the electricity sector is to provide consumers the ability to choose their providers. In that sense, the increase in the number of the alternative suppliers and, therefore, opportunity of competition among the providers is targeted. Regulations, such as the reduction of the free consumer limits and the separation of distribution and retail activities, have been issued in support of this objective.
As of today, supplier companies that are connected to distributor companies are the largest providers in their regions, and they hold dominant positions. Moreover, these companies wield significant market power, since they can reach consumers easily, conduct efficient marketing campaigns, and have access to every kind of information with regard to customers. On the other hand, for the independent supplier companies that are not in the same group as the distributor companies, it is very difficult and costly to obtain this kind of information. Therefore, for independent suppliers, the cooperation with natural gas distributors, the postal services, cargo and telecommunication companies are very beneficial, since these companies have the updated customer information. In that sense, the independent suppliers provide the competition in the market by reaching the small scale consumers.
In the ELDER decision, the Board also determined that the distributor companies have made agreements with regard to region allocations, and they agreed to stand out from other companies’ determined regions. Furthermore, contrary to the relevant law, the distributor companies have not taken securities from each other. When it is considered that these companies are in dominant positions, these concepts, which can be regarded as the regions allocations and discriminatory practices, may constitute very important competition law infringements.
The Board regarded all of these facts as the obstacles against liberalization. Therefore, it sent opinions to these undertakings regarding the termination of the identified infringements. Moreover, the Board has reminded the Energy Market Regulatory Association (“EPDK”) of its regulatory powers, and has delivered the reviewed evidence to the EPDK. In that sense, the Board has not opened an investigation, has not made an infringement determination, nor has it imposed any administrative monetary fines.
The saying “With great power comes great responsibility,” is frequently repeated in the Spider Man movie. Accordingly, undertakings that offer us electrical energy – the essential component of our lives - hold a great responsibility. These undertakings should demonstrate the utmost of care for competition law compliance. This is because the electricity distributor companies and their groups that are responsible for the management of complex networks always garner attention, and minor mistakes they may make may cause negative consequences to millions of people.
Since 2014, the Board has set aside its role that is of an “observing and waiting” nature, and has started to examine the distribution sector. Following the Board’s examinations with regard to distribution companies, the Board has rendered the ELDER decision. With the ELDER decision, although the Board has not made an infringement determination, and has not imposed any administrative monetary fines on the incumbent companies, it has explicitly shown the actions that may constitute infringements. For this reason, the distribution companies should not forget that their dominant positions encumber them with a weighty responsibility.
The ELDER decision signals that in the next relevant pre-investigations, the Board will not only send opinions to incumbent undertakings. Accordingly, the Competition Authority’s recent Workshop in the electricity sector, and the investigation against Akdeniz Elektrik Dağıtım A.Ş., also signal that the Competition Authority will be interested in this area.