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06 July 2020
In the natural gas sector, Energie Wasser Luzern Holding AG (ewl) is active as a local network operator and supplier to end consumers located in the city of Lucerne. Erdgas Zentralschweiz AG (EGZ) – a subsidiary of ewl – is responsible for the transport and storage of natural gas and the supply of downstream local gas supply companies via its pipeline grids. Previously, ewl and EGZ would process a change of supplier only for large process gas customers which were connected to their pipeline grids and met the requirements set out in the agreement on grid access for natural gas (the Branch Agreement). Therefore, following a request from a third party to supply end customers via ewl and EGZ pipeline grids, the Swiss Competition Commission (ComCo) reviewed whether:
ComCo concluded that ewl and EGZ qualify as dominant undertakings on the natural gas distribution market. As their pipeline grids constitute an 'essential facility', third-party suppliers depend on ewl and EGZ grids to transport natural gas to captive end customers in ewl's grid territory.
ComCo also reviewed whether the conditions for an unlawful refusal to deal were met.
According to the Branch Agreement – concluded in 2012 by major gas associations and communities in Switzerland – a change of supplier is permissible only for large industrial customers that meet certain technical thresholds. Small end customers do not have this option.
Unless it can be objectively justified why thresholds for grid access exist based on the Branch Agreement, which discriminates against a category of end customers, this raises concerns under competition law.
ComCo followed Supreme Court case law, according to which a refusal to provide access to an essential facility may be justified only in exceptional circumstances, and concluded that in the present case, the refusal to provide access could not be objectively justified. This was mainly due to the fact that when end customers applied for network access, ewl and EGZ were technically capable of processing third-party supply for such end customers, since not all of the large customers which were entitled to network access under the Branch Agreement made use of this option. Taking into account this potential demand, ewl and EGZ should have professionalised their infrastructure at an earlier stage if they were genuinely incapable of processing a large number of end customers. Given the financial circumstances of the ewl Group, this would have been reasonable.
The two undertakings concluded a consensual settlement with ComCo, which entailed a reduced penalty of Sfr2.6 million. This amount took into account the fact that ewl and EGZ agreed, on their own initiative, to introduce the possibility for end customers to change suppliers.
In Switzerland, the regulation of natural gas supply is limited. Therefore, in 2019 the Federal Council released a new Gas Supply Act for consultation until February 2020. The consultation draft does not fully open up the market; rather, it provides that only end customers with an annual consumption of at least 100MWh (ie, approximately 10% of end customers in Switzerland) can choose their suppliers freely. Various consulted stakeholders, including ComCo, requested a full regulatory opening up of the market. It appears that the partial opening up of the market would facilitate the foreseeable transition from natural to renewable gas.
Even if the new Gas Supply Act provides for a different approach – with restrictions for small end customers to freely choose gas suppliers – the past behaviour of ewl and EGZ will remain unlawful under the Cartel Act.
If the current draft of the Gas Supply Act is approved, the Swiss gas supply market is expected to undergo a similar opening up as the electricity supply market. Since its introduction in 2007, the Electricity Supply Act has allowed only end customers with a sizable consumption to choose their electricity suppliers freely. In April 2020 the Federal Council requested a draft modification of the Electricity Supply Act to open up the electricity supply market to all end customers regardless of their yearly consumption. Following the introduction of the Electricity Supply Act, competition in the Swiss electricity supply market has significantly improved. Thus, ComCo's consensual settlement decision and the future Gas Supply Act will likely have a similar effect on competition in the gas supply market.
For more information please contact Marcel Meinhardt or Cassy Schwarz at Lenz & Staehelin by telephone (+41 58 450 80 00) or email (firstname.lastname@example.org or email@example.com). The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.
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