National Regulatory Authorities (“NRA”) in the energy sector are significantly stepping up investigations and fines pursuant to the Regulation (EU) No 1227/2011 on Wholesale Energy Market Integrity and Transparency (“REMIT”) across Europe.
In December 2018 alone it has been announced that:
- the Spanish NRA, Comisión Nacional de los Mercados y la Competencia (“CNMC”) fined Galp Gas Natural S.A. (“Galp”) and Multienergía Verde, S.L.U (“Multienergía”) for market manipulation; and
- Energitilsynet, the Danish NRA, issued a fine to Energi Danmark A/S for 10 counts of market manipulation,
in each case for breaches of REMIT, as further detailed below. This comes shortly after a series of other fines under REMIT were announced across Europe this year.
Evidence suggests that NRAs have been increasingly exercising their authority to monitor, investigate and enforce breaches of REMIT. Over the course of 2018, there have been 5 main instances when fines have been issued under REMIT by NRAs, the first three being:
- in April 2018, the Spanish NRA, CNMC, fined five companies a total of EUR 10,200 for a breach of their obligation to register as market participants under REMIT, as summarised in a recent ACER report;
- in May 2018 the Hungarian NRA, Magyar Energetikai és Közmű-szabályozási Hivatal sanctioned an organised market place with a fine of approximately EUR 40,000 for a breach of reporting obligations under REMIT, as summarised in a recent ACER report;
- in October 2018, the disciplinary tribunal of the French Regulatory Commission fined VITOL S.A EUR 5 million for engaging in market manipulation on the French Southern virtual Gas Trading Point, as reported in a recent ACER report and our previous lawnow.
As briefly mentioned above, the Agency for Cooperation of Energy Regulators (“ACER”) has now reported the issuing of two more NRA fines under REMIT, as further described below. To the extent that recent activity is a guide to the future, these developments suggest that energy companies should prepare for more assertive policing by NRAs in respect of their REMIT compliance.
Spanish NRA, CNMC published a press release announcing its decision to fine Galp and Multienergía EUR 80,000 and EUR 120,000 respectively for market manipulation under REMIT. CNMC determined that from 12 to 20 January 2017 and on 17 January 2017, Multienergía and Galp respectively secured or attempted to secure the price of several natural gas wholesale products for delivery in Spain, traded at an artificial level. Multienergía sold MIBGas for next day delivery at an artificially high level in the final seconds before market close breaching Article 5 of REMIT that prohibits market manipulation. Similarly, Galp secured the prices of the natural gas day-ahead product for delivery in Spain at an artificial level.
Energitilsynet, the Danish NRA, issued a fine to Energi Danmark A/S of approx. EUR 100,000 and, in addition, the Danish State Prosecutor for Serious Economic and International Crime has confiscated the revenue of EUR 47,000 obtained through the 10 counts of market manipulation. It was reported that according to Energitilsynet, Energi Danmark A/S breached the prohibition on market manipulation set out in article 5 of REMIT by capacity hoarding. In a published ACER guidance note, capacity hoarding is described as the act of acquiring all or part of the available transmission capacity without using it or without using it effectively. Energi Danmark A/S hoarded capacity on the electricity interconnectors by trading with itself managing to exclude third party traders and thereby hinder competition. These trades led to or could have potentially led to the creation of misleading or artificial prices on the intraday wholesale market for electricity.
Due to the liberalisation of the European energy markets through the passing of the Third Package, there is less scope for abusive monopolistic behaviours to emerge. Nevertheless, there has been a corresponding increase in fines that NRAs are issuing under REMIT relating to market participants seeking to allegedly manipulate markets to make wrongful commercial gains.
Energy companies can expect increased scrutiny from NRAs. The experience from the United States suggests that liberalised energy markets are prone to manipulation and energy regulators, over time, step up investigations and fines into such perceived activities. As the VITOL fine demonstrates these fines can be substantial. Also, as the recent other cases demonstrate, alleged manipulation can operate in a number of ways. The quasi-liberalised nature of many of Europe’s national natural gas markets, with capacity constraints, and a mixture of legacy and short-term gas sales contracts, leave them particularly vulnerable to manipulation.
As highlighted in our our previous lawnow, breaching the REMIT prohibition on market manipulation does not necessarily require that the market participant intends to do so; a market participant can be found in breach of the market manipulation prohibition if it enters into any transaction or issues an order to trade that gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of wholesale energy products – i.e. it is an objective test. However, where intention can be established, a market participant can be found to be in breach of both actual and attempted market manipulation, as the latter requires an intention to do so.
Ensuring those taking commercial decisions concerning energy transactions understand the scope of REMIT is critical to avoiding investigations and fines, and protecting corporate reputation.