The Supreme Court has declared as null and void the third paragraph of article 25 of Royal Decree 1048/2013 on the understanding that a competitive advantage was given to electricity suppliers to the detriment of installation companies

Written on 30 Jun 2017

On 12 June 2017 the Supreme Court rendered a judgement declaring that the legal prevision by virtue of which electricity suppliers were bound to submit the first economic tender for network extensions to customers constituted an infringement of Competition Law, which prevents installation companies from competing in equal conditions on the market.

The former National Competition Commission (“CNC“) –currently the National Markets and Competition Commission (“CNMC“)-, lodged an administrative appeal before the Supreme Court (“SC“) against (i) the fourth final provision of Royal Decree 1623/2011 of 14 November, which regulates the effects of the launching of the connection between the Mainland and Balearic electricity systems, and modifies other provisions of the electricity sector (“RD 1623/2011“) and (ii) the third paragraph of article 25 of Royal Decree 1048/2013 of 27 December, which establishes the methodology to calculate the earnings from the supply of electricity (“RD 1048/2016“). The aforementioned legal provisions determined the obligation for supply companies to submit to potential customers of new network extensions –resulting from a new electricity supply or an extension of the existing one-, the first financial estimate for the execution of the works for this network extension.

The CNMC requested the annulment of these legal provisions based on the following arguments:

  • Exclusion of essential proceedings from the process to elaborate regulatory standards, such as, disregarding the mandatory reports of the former CNC.
  • Inadequate actions on the part of the competent authority in connection with the motivation of the adopted measures.
  • Wrongful exercise of the regulatory activity on having introduced an apparent obstacle to effective competition within the affected market as it grants a reserved activity to the distributor, consisting of the remittance of the first estimate for the execution of the facilities, differentiating between reserved and non-reserved activities.
  • In addition, they distort competitive prices by empowering suppliers to operate as the price of reference in the liberalised market by means of the consignment of the first economic tender.

On the other hand, the Supreme Court’s ruling in Judgement nº 1030/2017 of 12 June, partially upheld the appeal of the CNMC, (i) declaring the appeal against RD 1623/2011 as having terminated due to supervening loss of the object of the appeal as a result of its derogation and (ii) nullifying the section included in article 25.3 of RD 1048/2013 which provides that the supplier must submit a “a financial estimate” to the requesting party for the project included in the standard technical conditions.

The decision of the High Court related to declaring the partial nullity of article 25.3 of the RD 1048/2013, is based on the following considerations:

  • It contains a reservation of tasks which constitute an obstacle to the maintenance of effective competition in the affected market, that of electrical installations, violating the provisions established at article 12.3 of Competition Law and article 38 of the Spanish Constitution, which guarantees business freedom.
  • It promotes the existence of reference prices in the liberalized market, putting at risk the free play of competition since it discourages other operators.
  • It limits the power of choice of the customers, who are induced not to seek alternative offers.
  • It establishes a substantial competitive advantage for the supply company in each area, regulated regional monopolies, which simultaneously constitutes a competitive disadvantage for independent installers (who do not belong to vertically integrated pre-eminent groups) operating in the market as they do not have equal opportunities to send their economic tender to potential customers.
  • It constitutes an exercise deviating from regulatory power, since the regulation is not justified on grounds of public interest, and it is not necessary or proportionate for the attainment of the goals it intends to pursue.
  • The legal provision is not innocuous with regard to Competition Law, because it distorts the conditions of the relevant affected market of the provision of services for network extension installations, as it hinders the opportunities for authorized installers to access this market, contributing to the sharing and segmentation of this market in Spain.
  • It contravenes the Supreme Court judgement of 10 February 2011, which declared the anticompetitive nature of an identical matter, consisting of the abuse of a dominant position in the market related to network installations.

This significant ruling will contribute to the restoration of effective competition in the connected market for the provision of network extension services.