Long-term Contract Regulation in EU Electricity Markets
Loyola de Palacio Series on European Energy Policy
Chapter 3: The antitrust strategy of the European Commission on domestic long-term contracts: is the new methodology truly ‘more economic’?
This third chapter aims to assess the strategy of the Commission on domestic long-term contracts in the light of the recent modernization of EU competition law, in particular with regard to the so-called ‘more economic’ approach. In short, the modernization aimed at implementing a ‘more economic’ approach based on long-term consumer welfare, which meant gradually shifting from a more (allegedly) legal ‘forms- based’ analysis of contracts to a more ‘effect-based’ approach where the real economic effects of competitive behaviours become more important than the drafting of contracts. Attempting to tailor enforcement to the specificities of each case has obvious consequences for energy markets. Applying a sort of rule of reason is indeed already a challenge for competition authorities in most sectors. Applying it in newly liberalized energy markets where the rate of technical change is too low to allow a fast development of competition, as in the telecommunication sector, could soon appear intractable in practice and in any case likely to undermine the predictability of competition enforcement. However, one could argue that the deregulation of network industries rendered the modernization of EU competition policy inevitable. The complexity of competition dynamics in these sectors would indeed render a ‘form- based’ approach very inefficient due to the absence of balancing between anti-competitive effects and potential efficiencies. However, the uncertain gains in terms of efficiency should not be offset by the inevitable welfare loss arising from less predictability.
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