The CPC adopted a sector inquiry of the competitive environment on the wholesale electricity market at freely agreed prices in Bulgaria

By Decision No. 152/13.02.2020 CPC adopted a sector inquiry of the competitive environment on the wholesale electricity market at freely agreed prices in Bulgaria. The inquiry covers the period from 01.01.2016. to 30.09.2019. In view of the signals received in the course of the proceedings, the Commission examined the specifics and functioning of the electricity exchange market where the wholesale of electricity takes place.

During the proceedings, information and data have been collected from over 50 entities, including market participants (producers, traders, IBEX, ESO and more), relevant state authorities and trade associations, which allowed CPC to identify possible competition issues in the sector.

The studied period is characterized by numerous regulatory changes and dynamic development of the liberalized electricity market. A number of positive steps towards developing a competitive electricity market have been taken into account, amongst which the development of the electricity exchange trading, the removal of import/export barriers, the gradual integration of the electricity exchange market into the regional markets. At the same time, a number of issues have been identified in the competitive environment, such as the unpredictability of the regulatory framework and the lack of a long-term development strategy, incomplete liberalization of the electricity market, mandatory sale of the national electricity production on the organized electricity market, lack of effective control over the activity of the electricity exchange operator and the wholesale trade of electricity, insufficient market transparency, etc. A number of signals were received in the course of the proceedings claiming market manipulations of the wholesale electricity trade on the Day Ahead Market and the Centralized Market for Bilateral Contracts.

Given the problems identified, the Commission for Protection of Competition proposes a number of measures for improvement of the competitive environment in several areas:

1. Measures to ensure a predictable and stable regulatory framework

For complying with the principle of legal certainty and for enabling participants to plan market strategies, the Commission recommends:

-The Minister of Energy to develop and submit for public consultation a draft Strategy for Sustainable Energy Development of the Republic of Bulgaria for the period after 2020 as soon as possible;

-The amendments of the regulatory framework should be subject to public consultation, which would allow for a constructive exchange of ideas and proposals of all interested parties;

-The competent authorities adopting or issuing regulatory and administrative acts should refer to the CPC for an assessment of compliance with the competition rules of drafts of such acts before their adoption or issuing.

2. Achieving complete liberalization of the electricity market

According to the CPC, the simultaneous existence of a regulated and liberalized segment impedes the development of natural competitive processes, therefore the Commission recommends:

-Developing of a plan (road map) for gradual complete liberalization of the electricity market that would provide the necessary steps for achieving this goal and the deadlines for their implementation;

-Developing the necessary measures for social protection of vulnerable consumers.

3. Active and effective ex-ante control over the activity of the electricity exchange operator

Insofar as BNEB EAD provides the only electricity exchange trading platform in the country to which all producers are obliged to sell the electricity produced for the liberalized market, effective regulatory control over the trading rules and the tariffs adopted by the electricity exchange operator must be exercised.

In this regard, the CPC recommends:

-The Electricity Trading Rules to set out a procedure for control by EWRC on the acts of the exchange operator, which give rise to rights and obligations for the participants of the exchange;

-The Electricity Trading Rules to explicitly state the possibility for the EWRC to exercise ex officio control and upon referral by participants of the Exchange, as well as an obligation of the Exchange Operator to propose any changes in the rules and tariffs for approval by the EWRC;

-A public consultation procedure to be implemented in order to enable interested parties to comment on the draft rules and tariffs that are subject to control by the EWRC;

-Normative rules to be set for determining electricity exchange fees, with regard to the types of fees, the principles for determining their rates and the general principles that oblige the exchange operator to determine them in a transparent and objective manner;

-The EWRC to carry out a comprehensive review of the existing electricity exchange rules and to take measures for their modification and refinement so as to prevent the possibilities for manipulation of the electricity exchange and to ensure its objectivity, publicity and transparency;

-Considering the forthcoming achievement of a full market coupling of the Bulgarian electricity market with the markets of the neighboring countries and complete liberalization of the market, the obligation for producers to offer all electricity produced to BNEB as a mandatory channel for electricity trading in wholesale must be abolished.

4. Active control over the wholesale trade by the EWRC

In the course of the proceedings, a number of signals have been received about manipulations in the wholesale electricity market. The market manipulations are violations of art. 5 of Regulation (EU) No 1227/2011 оf the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT). The investigation, establishment and sanctioning of these infringements are entrusted to the EWRC. In order to establish a coordinated approach to deal with market abuse and distortions of competition in wholesale energy markets, the CPC recommends:

-The EWRC should take active and timely measures for effective exercise of its powers to investigate and sanction infringements under Art. 3 and Art. 5 of REMIT in order to ensure the efficient and transparent functioning of the market;

-Amendment to Art.74a, para 8 of the Energy Act to ensure publicity and transparency of the control, exercised by the EWRC under REMIT, including by maintaining a public register of the adopted acts in such a way, as not to impede the effective exercise of the investigation powers;

-Enhanced cooperation and interaction between the EWRC and the CPC in order to achieve the objectives of Article 74п of the Energy Act, REMIT and the LPC on the basis of jointly agreed rules, as well as the establishment by the EWRC of the necessary organization for their implementation.

5. Other measures to stimulate competition in the liberalized market

The Commission recommends that the competent authorities should take further measures to increase the transparency in the wholesale electricity market, such as the provision of public information on the current generation of electricity from any producer in the country, actual information on the extent of interconnection transfer capacity utilization, etc.

In order to stimulate the competition in the market and to limit the possibilities for market manipulations, the CPC recommends that the competent authorities should continue their efforts to achieve market coupling in all segments, as soon as possible.

The CPC informs the National Assembly, the Council of Ministers, the Minister of Energy and the Energy and Water Regulatory Commission of the necessity, in accordance with their competence and the applicable European and national legislation, to take appropriate measures to improve the competitive environment in the sector.

The full text of the decision is available in Bulgarian on the public electronic register of the CPC at http://reg.cpc.bg/.