ESB to Amend Agreements

The Competition Authority today (Monday, 14th September 1998) announced that the ESB had agreed to amend certain aspects of its new 'Optisave' Contracts after the Authority had indicated that it would institute proceedings alleging that the agreements were in breach of the Competition Acts. The proposed agreements require customers to purchase electricity from the ESB for a period of five years. The Authority objected to a clause which provided that, following liberalisation of the market, a customer who was offered electricity on cheaper terms by a competing supplier would have been required to give details of such an offer to the ESB (while not naming the other supplier) and to allow it an opportunity to lower its prices. The customer would only have been allowed to switch to another supplier in the event that the ESB failed to match or offer a lower price, in which case the customer would have been required to give the ESB six months notice of termination.

The 'Optisave' agreements are aimed at large electricity users. From February 2000 such customers will be free to purchase electricity from other suppliers under the terms of an EU Directive introducing competition in the electricity industry. The agreements offered some price reductions to customers where a better load balance between night and day consumption of electricity is achieved. The agreement also provided that, where the ESB reduced its prices in response to a competing offer, the customer could not submit a second offer for six months from the date the price was reduced. Customers were also prevented from submitting alternative offers to the ESB in advance of the market being opened up to competition.

The ESB has written to the Authority indicating that it has decided to delete the clause which the Authority had objected to. In addition the agreements will be amended to provide that either party may terminate on giving three months notice.

The Authority first became aware of the scheme at the beginning of August and immediately contacted the ESB expressing its concerns. It subsequently informed the ESB that it would commence proceedings alleging that the agreements were contrary to Sections 4 and 5 of the Competition Act, 1991, if the ESB failed to rescind certain elements of the proposed agreements within 14 days.

The Authority welcomed the ESB decision to amend its proposed agreements and noted that such amendments would not prevent customers benefitting from the lower prices offered under the Optisave Scheme. The Authority reiterated its commitment to enforce competition law. During the past 12 months the Authority has instituted proceedings against several trade associations for alleged price fixing.

Amendments to ESB's Optisave Contracts.

The ESB has agreed to delete the following clauses 6.1, 6.2 and 6.3 from its 'Optisave Contracts'.

• '6.1 Once the electricity market in the Republic of Ireland opens to allow competition in supply, if the Customer receives a suitably verified genuine offer from an alternative supplier to supply electricity on the same or similar terms as recorded within this Contract at a price which is less than the price payable at that date under this Contract the Company must be given an opportunity to modify its price. In the event that the Company's modified electricity price is still higher than the alternative quote received, the Customer may elect to change supplier and terminate this contract. If the Company's modified electricity price is equal to or lower than the alternative quote then the terms of this Contract shall be amended to reflect the revised terms and the Customer, therefore, shall not be entitled to terminate the Contract. The Customer will not be entitled to submit an alternative electricity price offer for a period of six months from the date the Company's modified price becomes effective.
• 6.2 the Customer shall not be required to identify the alternative supplier who has made an offer under Clause 6.1 but, upon request, shall provide a certificate from its Company Secretary confirming that the offer is bona fide and shall submit written evidence of the alternative offer in confidence to the Company's Electricity Pricing Manager. The Company shall furnish its response, subject to receipt of full information on which the alternative electricity price offer was made, within one month of receipt of such information.
• 6.3 The Customer shall not submit an alternative quote prior to the date on which the electricity market in the Republic of Ireland opens to competition. Alternative offers should be current and relevant as at the date of submission to the Company.'

In addition the ESB has agreed to amend clause 6.4 of the contract to provide as follows: 'Without prejudice to the rights of the Company and the Customer, this Contract may be terminated by either party following receipt by the other party hereto of three months advance written notice of intention to terminate the Contract'

The previous version stated that: '6.4 Without prejudice to the rights of the Company and the Customer this Contract may be terminated by the Customer in accordance with Sections 6.1, by giving not less than six months written notice to the Company.'

EU Directive 96/992/EC on common rules for the internal market in electricity.

The Directive provides for the liberalisation of electricity markets within the EU. Ireland has received a derogation up to 15 February 2000. From that date up to 28% of the market will be open to competition. Thus the ESB's largest customers will be entitled to purchase electricity from competing suppliers with effect from that date.

Section 4(1) 'Subject to the provisions of this section all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void, including in particular, without prejudice to the generality of this subsection, those which- ........ (b) limit or control production, markets, technical development or investment; ....... (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which by their nature or according to commercial usage have no connection with the subject of such contracts.'

Section 5 (1) 'Any abuse by one or more undertakings of a dominant position in trade for any goods or services in the State or in a substantial part of the State is prohibited. (2) 'Without prejudice to the generality of subsection (1), such abuse may, in particular, consist in- (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, or markets or technical development to the prejudice of consumers; ....... (d) making the conclusion of contracts subject to the acceptance by other parties of supplementary obligations which by their nature or according to commercial usage have no connection with the subject of such contracts.'