In a formal recommendation, the Competition Commission (ComCo) has opined that Swiss public tender law applies to an electricity supply where:
- a public contracting entity purchases electricity for its own internal consumption (eg, the supply of administrative buildings or public transport); and
- a distribution grid operator purchases electricity for further delivery to end customers.
Electricity purchases for public entities' consumption
ComCo concluded that electricity purchases are public supply contracts which are subject to international and national procurement law, as well as the Internal Market Act. Since the entry into force of the Government Procurement Agreement 2012 (revised GPA) and the Public Procurement Act 2019, public contracting entities have been subject to tender law and obliged to publicly tender electricity purchases in accordance with the respective rules (in particular, if the relevant thresholds are reached and no exceptions apply). However, such entities must purchase electricity for their own internal consumption on the free market (ie, they must have a right to network access in accordance with the Electricity Supply Act 2007, as amended).
Public contracting authorities include:
- cantonal and municipal authorities; and
- centralised administrative units (eg, state departments) and decentralised administrative units (eg, public energy suppliers, public universities, the Swiss Post or the Swiss Federal Railways).
Moreover, private entities performing public tasks (eg, certain railway transport companies and Zurich airport) also fall into this category.
Conversely, if a public contracting entity, when purchasing electricity for its own consumption, does not have the right to network access in accordance with the Electricity Supply Act 2007, and thus cannot purchase electricity on the free market, procurement law is not applicable. In this case, the respective public contracting entity (as the end consumer) is supplied solely by the responsible distribution grid operator at the universal supply tariffs.
Electricity purchases by distribution grid operators
Public and private distribution grid operators must publicly tender electricity purchases in accordance with international and national procurement law, as well as the Internal Market Act, when purchasing electricity for resale to their fixed end customers which receive electricity under the universal supply regime at state administered tariffs. This is subject to relevant thresholds being reached and no exceptions applying. However, electricity purchases that are resold to end customers outside the universal supply regime (ie, which purchase electricity in the free market) need not be publicly tendered.
These new obligations for distribution grid operators were introduced by the revised GPA, which exempts sectoral contracts only where the respective activity is exposed to full competition (until the end of 2020, electricity supply was generally exempt from the act's scope). Consequently, when distribution grid operators act as monopolies for electricity supply to end customers not entitled to enter the free market (ie, those without network access), the distribution grid operators must generally publicly tender such electricity purchases. In relation to EU member states, a bilateral treaty further extends the scope of the revised GPA to private distribution grid operators.
In its recommendation, ComCo also took a closer look at the calculation of the contract value for electricity purchases and various other exemptions to public tender obligations. In particular, a public tender is not required and a contract may be awarded directly if the public contracting entity subject to procurement law procures electricity through a functioning and transparent commodity exchange. Further exemptions are as follows:
- in-house procurement – a public contracting entity procures the products or services within the same legal entity or local authority (ie, the contracting entity and the service provider are the same legal entity);
- quasi-in-house procurement – three requirements must be met:
- only the public contracting entity controls the service provider (ie, it controls capital or personnel through its shareholding);
- the service provider is mainly operating for the controlling public contracting entity; and
- no private parties other than the state are participating in the service provider; and
- in-state procurement – procurement law does not apply to legally independent contractors which are themselves subject to procurement law, provided that such contractors do not provide these services in competition with private providers. Competition may not be distorted and the in-state business must be handled in a non-competitive manner.
Notwithstanding this new legal situation, current data suggests that few public tenders for electricity purchases are published, even though the values of such orders likely exceed the thresholds above which a public tender is legally required. An electricity supplier may consider filing an appeal before the competent court against an award directly granted to a (local) electricity supplier if the respective public entity, being obliged to publicly tender electricity purchases, unlawfully refrains therefrom. For instance, if Zurich University failed to publicly tender a four-year contract for 60 gigawatt hours per year (the full price of which would likely amount to several million) and instead directly granted the award to a local electricity supplier, such conduct may be challenged, among other things, by a competing electricity supplier before the Zurich Administrative Court. This remains subject to possible exemptions under the cantonal procurement law, which may cover this direct award.
It is fair to say that competitive pressure among electricity suppliers will intensify in Switzerland since the obligation imposed on procuring entities to publicly tender electricity purchases generally allows more (non-local) electricity suppliers to enter the respective market by participating in the public tender proceeding and, as part thereof, submit a competitive bid. Considering that the procuring entity must grant the award to the most economically advantageous bid in an open proceeding, additional bids submitted by more (non-local) electricity suppliers will likely lead to downward pricing pressure on the incumbent electricity suppliers.
