{"id":119386,"date":"2022-08-03T16:12:48","date_gmt":"2022-08-03T12:12:48","guid":{"rendered":"https:\/\/forbes.ge\/?p=119386"},"modified":"2022-08-03T16:12:48","modified_gmt":"2022-08-03T12:12:48","slug":"peculiarities-of-the-antimonopoly-legislative-approaches-in-georgian-electro-energetic-markets-and-several-recommendations","status":"publish","type":"post","link":"https:\/\/dev.forbes.ge\/en\/peculiarities-of-the-antimonopoly-legislative-approaches-in-georgian-electro-energetic-markets-and-several-recommendations\/","title":{"rendered":"Peculiarities of the Antimonopoly Legislative Approaches in Georgian Electro Energetic Markets and Several Recommendations"},"content":{"rendered":"
INTRODUCTION<\/span><\/strong><\/h5>\n

The legal framework of Georgian electro energy markets\u2019 antimonopoly environment consists of the Law of Georgia on \u201cEnergy and Water Supply\u201d, Law of Georgia on \u201cCompetition\u201d, and Resolution N7 on \u201cApproving Rules for Energy Market Monitoring and Reporting\u201d adopted by the National Energy and Water Supply Regulatory Commission of Georgia (GNERC) on 30 March of 2021. Only a few articles of the Law of Georgia on \u201cCompetition\u201d spread in the energy markets are indicated in the mentioned resolution.\u00a0<\/span><\/p>\n

The presented article reviews obligations to provide public services in Georgian energy markets, promotion of electricity production, measures for safety to supply the electricity and their interrelation with the antimonopoly standards; the special rule to independently formate system operator; basic principles of the electro energy competition regulation in EU; specification of restrictive agreements, decisions and concerted practices in Georgian legislation and several criteria to define a dominant position in electro energy markets.<\/span><\/p>\n

Along with each topic are suggested relevant recommendations on behalf of Georgian electro energy markets to ensure their better antitrust regulation.<\/span><\/p>\n

OBLIGATION TO PROVIDE PUBLIC SERVICES IN THE ENERGY MARKET AND ITS INTERRELATION WITH THE ANTIMONOPOLY STANDARDS<\/span><\/strong><\/h5>\n

GENERAL OVERVIEW OF PUBLIC UTILITIES IN THE EU AND USA\u00a0 \u00a0\u00a0<\/strong><\/em><\/p>\n

Each participant in the electric energy market is of high quality and depends on the other. Generally, it includes the generation, transmission and distribution of electricity.<\/span><\/p>\n

Antimonopoly literature and legal regulations these public utilities confer the vertically integrated structure when the supply final product \u201celectricity\u201d is owned and controlled by the same company.\u00a0<\/span><\/p>\n

The term public utility is not widely used in Europe. It is primarily used in the United States and the United Kingdom to describe private undertakings that: (1) provide essential services to the public and (2) are subject to a scheme of pervasive government regulations. In European law, these entities are referred to as undertakings providing services of general economic interest.<\/span><\/p>\n

Some public utilities operate as public-owned businesses in the form of revenue-producing monopolies. Most public utilities operate, however, as private-owned businesses to which the government affords certain exclusive rights. The most dominant public utilities are undertakings that build and operate exclusive or semi-exclusive distribution networks to provide their services.<\/span>\u00a0[1]<\/span><\/a><\/p>\n

Early American public utilities had several characteristics. First, they operated as private businesses that gave service to the public in the most general way. Second, given such industries\u2019 high entry capital investment, they held legal or de facto monopoly or quasi-monopoly power. They possessed the legal or market power to prevent competition for their services. Third, they tended to provide services within fixed territories usually assigned by the government. Fourth, they had the duty of universal service: the duty to serve all members of the public for the service provided in a non-discriminatory way. Fifth, they could charge the public tariffs or rates that had to be reasonable and commensurate with the services rendered. Finally, courts interpreted the reach of the legal monopoly of such public utilities narrowly when that monopoly was faced with the creative destruction brought in by new market entrants that introduced innovative ways to provide the service.<\/span>\u00a0[2]<\/span><\/a><\/p>\n

PUBLIC UTILITIES IN GEORGIAN LEGISLATION<\/strong><\/em><\/p>\n

According to the Law of Georgia \u201con Energy and Water Supply,\u201d: \u201cAn obligation to provide a public service may except for a service as provided by the clause 11 of this article,<\/span>[3]<\/span><\/a>\u00a0it could be imposed on any energy undertaking if required for the achievement of the goals established by this law. The imposition and fulfilment of a public service obligation shall be transparent, non-discriminatory and easily verifiable. It shall be proportional, shall not restrict competition in the energy markets more than necessary for achieving the goals of the mentioned public service, and shall provide the energy undertakings of the parties to the Energy Community with equal access to end users in Georgia\u201d. (Article 9, clause 4).<\/span><\/p>\n

Clause 7 of the same article regulates: \u201cAll the measures in the form of a public service obligation offered under this law shall be assessed taking into account the requirements of this article and, where appropriate, shall be substantiated in compliance with the requirements of the legislation of Georgia regulating competition and\/or state aid\u201d.<\/span><\/p>\n

In the case of the 4th clause, there are no indicated criteria of: 1. The \u201cproportional\u201d measures of restricting the competition environment, 2. The benchmark of the mentioned \u201cnecessity\u201d of restriction. On the one hand, the high social meaning of the public service supply in energy markets is important. On the other hand, it would be better to regulate the prerequisites of the competition environment\u2019s possible restrictions.<\/span><\/p>\n

In the case of the 7th clause, similarly, there is no expressed assessment of the appropriation to substantiate the necessary measures in compliance with Georgian competition legislation. Fortunately, the special resolution in detail regulates the forms of the dominant position in energy markets. The substantiation should be accomplished to compare the circumstances and appropriate assertation with the resolution’s demands. Contrary to this, we have no regulated special measures to indicate when it is appropriate to substantiate that the requirements of Georgian competition legislation are not breached concerning the public utilities. It would be better for these clauses to describe the mentioned measures and criteria to find the optimal balance between the social interests and the requirements of the anti-monopoly environment.\u00a0 \u00a0\u00a0<\/span><\/p>\n

PROMOTION OF ELECTRICITY PRODUCTION AND ITS INTERRELATION WITH THE ANTIMONOPOLY STANDARDS\u00a0<\/span><\/strong><\/h5>\n

Law of Georgia \u201con Energy and Water Supply\u201d describes: \u201cThe promotion of electricity production, including the assessment of all encouragement and\/or support measures, shall be carried out taking into account the requirements of this law and where necessary, be substantiated under the legislation of Georgia regulating competition and\/or state aid\u201d. (Article 37, clause 4).<\/span><\/p>\n

Like the 7, the clause of article 9 doesn\u2019t characterize the necessity to substantiate described measures with the antimonopoly legislation. Similarly, this clause improperly regulates this issue, and it would be better to choose the opposite approach. Besides: 1. We can consider the law of Georgia \u201con Public-Private Partnerships\u201d, which only in the energy sector allows the selection of a private partner by direct negotiation with the public entity; 2. According to the resolution N 515, adopted by the Government of Georgia on 31 October 2018, \u201con approval of the rules and conditions, review and submission to the Ministry of Economy and Sustainable Development of Georgia technical-economic study of the construction, ownership and operation of the power plants, which doesn\u2019t represent a project of a public-private cooperation\u201d, Ministry of Economy and Sustainable Development of Georgia along with an investor prepares an offer to the Government of Georgia to construct HPP in Georgian territory and the final decision makes Government of Georgia.\u00a0 \u00a0<\/span><\/p>\n

These two regulatory mechanisms include the cooperation between an investor and the Government of Georgia, and they nowhere mention antimonopoly measures. It is a consequence of the aim of the Georgian energy policy to develop renewable energy.<\/span><\/p>\n

In order to commercially realize electricity produced by new power generations, the EU Council directive N96\/92 mandated national rules regarding the procurement of new power generation. Member States had the choice of establishing an authorization process (similar to what in the United States is known as integrated resource planning) or a tendering process to promote the bid by third-party power producers for the new generation. The Directive also asked the member states to provide non-discriminatory third-party access to their systems by implementing a negotiated or single buyer model. It also recognized the auto producer and the independent electricity producer. It mandated the removal of obstacles to the installation of direct electric lines, that is, electric lines that were not interconnected to the network.\u00a0<\/span><\/p>\n

MEASURES FOR SAFETY TO SUPPLY THE ELECTRICITY<\/span><\/strong>\u00a0<\/span>AND ITS INTERRELATION WITH THE ANTIMONOPOLY STANDARDS<\/span><\/strong><\/h5>\n

According to the law of Georgia \u201con Energy and Water Supply,\u201d: \u201cAll the measures taken or imposed with respect to the objectives provided by clause 1 of this article<\/span>[4]<\/span><\/a>\u00a0shall be non-discriminatory and shall not restrict competition and price-related signals in the electricity market more than necessary. Furthermore, these measures shall not impose an unjustified burden on electricity market participants, including new participants and undertakings with a small market share. Taking such measures shall be justified with regard to their economic and social impact upon the end user and their potential effect on the price of electricity\u201d. (Article 134, clause 2).<\/span><\/p>\n

There is no explanation of the criteria of the \u201cnon-discriminatory\u201d measures and the measure of the mentioned \u201cnecessity\u201d when such measures are allowed to be accomplished by the Ministry. Herein it would be better if the law described all of this in detail.<\/span><\/p>\n

EXCEPTIONAL<\/span><\/strong>\u00a0<\/span>RULE TO<\/span><\/strong>\u00a0<\/span>INDEPENDENTLY<\/span><\/strong>\u00a0<\/span>FORMATE<\/span><\/strong>\u00a0<\/span>SYSTEM<\/span><\/strong>\u00a0<\/span>OPERATOR\u00a0<\/span><\/strong><\/h5>\n

Law of Georgia \u201con Energy and Water Supply\u201d describes: \u201cIf the person provided by clause 2<\/span>[5]<\/span><\/a>\u00a0of this article is a Georgian state authority, municipality body or other public agency, two separate public agencies, one of which controls a transmission system operator or transmission network and the other controls an energy undertaking carrying out any activity of production or supply, shall not be considered the same person \u201c. (Article 45, clause 5).<\/span><\/p>\n

Mentioned quotation to ensure competitive circumstances for transmission system operator\u2019s or transmission network\u2019s commercial activity is dangerous due to the following reason: If the law restricts an antimonopoly activity of the transmission system operator or transmission network and defines strict criteria for their independent functioning, the prohibition of independence in relation with such enterprises owned by the Georgian state body, local government or other public institution will set an unequal position for the commercial electro energy enterprises.\u00a0<\/span><\/p>\n

According to the law of Georgia on \u201cCompetition\u201d: \u201cThe purpose of this law is to support the liberalization of the Georgian market, free trade and competition, in particular, to prevent state authorities, authorities of the Autonomous Republics and\/or municipal authorities from granting to undertakings such exclusive powers that unlawfully restrict competition\u201d. (Article 2, sub-clause \u201cf\u201d). Irrespective of that, this article doesn\u2019t directly spread on the anti-monopoly circumstances of the electro energy markets. It is worth admitting that this clause should be realized as a legal analogue because electro energy markets are competitive, and the state authorization could not be able to set extra barriers against it.<\/span><\/p>\n

Article 10 of this law determines: \u201cState authorities, authorities of Autonomous Republic, municipal authorities and other administrative authorities may not:<\/span><\/p>\n

a) establish a union, association, or another type of entrepreneurial structure, if it leads to the weakening or restriction of competition, except in cases provided by the legislation of Georgia;<\/span><\/p>\n

b) grant such benefits to undertakings that place them at an advantage over their competitors, or potential competitors, and lead to the distortion of competition, except as provided by the legislation of Georgia;<\/span><\/p>\n

c) ban, suspend and\/or otherwise hinder the entrepreneurial activities and independence of undertakings, except as provided by Georgian legislation;<\/span><\/p>\n

d) create state agencies for the monopolization of production or distribution of goods or grant such powers to already existing agencies that distort competition, except as provided by the legislation of Georgia;<\/span><\/p>\n

e) make decisions that result in the monopolistic position of undertakings, thereby substantially restricting free pricing and competition, except as provided by the legislation of Georgia\u201d.<\/span><\/p>\n

The law of Georgia on \u201cCompetition\u201d does not specify which legislation is considered when the cited article several times makes the following reservation \u201cexcept in cases provided the legislation of Georgia\u201d.\u00a0\u00a0<\/span><\/p>\n

We can assume that this problem is one of the exceptional cases mentioned by the \u201cCompetition\u201d law. Despite considering such an assumption, neither the Law of Georgia on \u201cEnergy and Water Supply\u201d nor any other legislative act explains why an exception can be made on behalf of the Georgian state body, local self-government or other public institution. Formulating this issue in such a manner will lose the meaning of the attempt to establish the free and sophisticated commercial market of the transmission system operator and transmission network.<\/span><\/p>\n

BASIC PRINCIPLES OF ELECTRO ENERGY COMPETITION REGULATION IN EU\u00a0<\/span><\/strong><\/h5>\n

EU electro energy competition policy is formulated by ensuring comprehensive energy liberalization. The three prerequisites for adequate competition in electro energy network industries are broad access to the grid, consumers\u2019 free choice to use one or another suppliers\u2019 service and supplier\u2019s possibility to operate by their own decision considering the antimonopoly restrictions. Four essential tools are instituted to realize these prerequisites: 1. Control the different types of concentration between\/among other energy corporations; 2. Restricting market dominant position and supervision of cartels and concerted actions; 3. Manage and regulate different types of aid programs offered by the state, administration of the autonomous republic and\/or local municipality and 4. A permanent control of the corporations, which gained certain rights and\/or, in some cases, privileged possibilities to operate on one or another electro energy market.<\/span><\/p>\n

SPECIFICATION OF RESTRICTIVE AGREEMENTS, DECISIONS AND CONCERTED PRACTICES IN GEORGIAN LEGISLATION<\/span><\/strong><\/h5>\n

The law on \u201cCompetition\u201d defines the criteria under which the actions of energy market participants can be qualified as a threat against the competitive environment and\/or encouraging such a threat.\u00a0<\/span><\/p>\n

According to the sub-clauses \u201cc\u201d and \u201cd\u201d of the 7th article of this law: \u201cAny agreement, decision or concerted action of undertakings that have as their object or effect on the prevention, restriction and\/or distortion of competition within the relevant market, shall be prohibited, in particular, those which: c) shares markets or sources of supply by consumers, location or other characteristics; d) establishes different conditions for equivalent transactions with the particular trade parties, thereby placing them at a competitive disadvantage\u201d.\u00a0<\/span><\/p>\n

Among these sub-clauses, the situation described in subsection \u201cc\u201d may be evaluated as a subjective criterion as an agreement, decision and concerted action restricting competition. Under free entrepreneurial conditions, market participants should be allowed to define the segment of goods\/services for sale, taking into account territorial, regional or other factors, which may be depended on the specific needs of the local population and\/or special requirements of undertakings operating in a particular geographical area.\u00a0\u00a0<\/span><\/p>\n

In particular, it is possible that such enterprises – direct consumers of electricity, which need excessive consumption of capacity are closely represented in one or another geographical location. Besides the needs of share markets or sources of supply by consumers as a last alternative provider, universal service suppliers and electricity providers in the form of public service are already represented by the geographical monopolistic\/oligopolistic undertaking(s).<\/span><\/p>\n

Commercial freedom of entrepreneurship and, in this case, freedom of electricity generation facilities should not be imperatively prohibited by the law. In addition, electricity trading in the free energy exchange market already excludes monopoly threats because the transparency of trading and the possibility of making insider deals are strictly eliminated by the applicable regulations. Moreover, according to one of the principles of private law, the subject of private law has the right to perform an action not directly provided by the law if this action does not contradict the law’s imperative prohibitions and fundamental principles. The cited prohibition, in its turn, limits the freedom of one of the consisting parts of the commercial activity.<\/span><\/p>\n

Sub-clause \u201cd\u201d also cannot be considered as a potential threat, which could limit the competition environment in one or more electro energy markets. In particular, the autonomy of the contractual will, along with the many elements, determines the free and unrestricted will of the contracting party assumes certain obligations as a result of signing the appropriate deal. \u201cTo establish different conditions\u201d, as mentioned in the clause, may be considered by subjective criteria. It can become the subject of the interpretation of an agreement during negotiation and dispute resolution in the Georgian National Energy and Water Supply Regulatory Commission (GNERC) and\/or in court.<\/span><\/p>\n

Suppose the party participating in the contractual relationship finds itself under a \u201ccompetitively unprofitable situation\u201d and if there were no conditions for invalidity of the transaction regulated by the civil code of Georgia as a prerequisite to deal with this agreement. As a result, the contracting party should bear the entire contractual risk. Such a public-legal prohibition limits the contractual principle of freedom of will. Also, it leaves the possibility of qualifying the issue subjectively. The specifics of the electricity markets are added to this consideration. In particular, the activities of electricity producers, transmission and distribution licensees are distinguished. Enterprises operating in these markets are already strictly regulated, which reveals the pricing of their services. Considering the above, it would be better not to outspread these sub-clauses on the electro energy market participants.<\/span><\/p>\n

Contrary to the above reasoning, the first clause of the 9 article of the describing law regulates the following: \u201cThe provisions of Article 7(1) of this law shall not apply to the agreements, decisions and concerted practices which contribute to the improvement of the production and\/or supply of goods, technical or economic progress, while allowing consumers a fair share of the resulting benefits, and which do not:<\/span><\/p>\n

a) impose any restrictions upon the undertakings participating in the agreement that are not indispensable to the attainment of these objectives;<\/span><\/p>\n

b) afford undertakings participating in the agreement the possibility of eliminating competition with respect to a substantial part of the relevant market\u201d.<\/span><\/p>\n

Improvement of the production and\/or supply of goods, technical or economic progress and increasing customer welfare, are phenomena beyond the scope of the legislative regulation.<\/span><\/p>\n

Current legislation doesn\u2019t include the criteria, which define the conditions of \u201cimprovement of the production and\/or supply of goods\u201d and \u201ctechnical-economic progress\u201d and what is the scale of the customers\u2019 welfare growth. Such circumstances can be recorded and counted using different statistical, sociological and marketing methodologies. Deregulating similar issues leaves the danger for subjective decision-making in such situations, which may cause a cut-throat competition environment and harm individual entrepreneurs’ fair interests. To avoid negative consequences, it would be better if the law as much as possible specifies the problematic circumstances discussed above, taking into account the specificity of the electro energy markets.<\/span><\/p>\n

SEVERAL CRITERIA TO DEFINE THE DOMINANT POSITION IN ELECTRO ENERGY MARKETS\u00a0<\/span><\/strong><\/h5>\n

Conversely, the 6th article of the Law of Georgia on \u201cCompetition\u201d prohibits using the dominant position in one or another market. It defines the different situations which may be classified as a \u201cdominant position\u201d 7th article of this law spreads on the ordinary market players and not the natural monopolists and\/or oligopolists. Resolution adopted by the GNERC approximately, in the same way, defines the definition of the \u201cdominant position\u201d as the law of Georgia regulates it on \u201cCompetition\u201d. There are several differences between these two acts, which mainly reveal defining the criteria for assessment of the dominant position.<\/span><\/p>\n

In particular, according to the law: \u201cEach out of two or more undertakings shall be considered to be in a dominant position if it does not encounter any significant competition within the group under consideration and from other undertakings, taking into account the limited access to their raw materials and the sales markets, market entry barriers and other factors, and at the same time:<\/span><\/p>\n