Let's talk antitrust

State aid – the UK capacity market appeal

Video | January 2019 | 00:04.48

Video Details

Let's talk antitrust

Caroline Thomas: Hi Richard, thank you very much for coming to see us again. And we are going to talk about a slightly different area for us today, part of the competition law world that we don’t often get to speak about in too much detail, and that’s state aid. And the reason we are talking about it today is that there’s been a recent case which is particularly interesting. It’s called Tempus Energy and this is a case where state aid was approved by the Commission but then challenged in the courts, and we are now left in the rather awkward situation where approved aid has become unapproved again. Perhaps you could explain to us a little bit about this case and why we’ve found ourselves where we are.

Richard Whish QC: Yes, I think it’s a very interesting case. So, this is to do with management of capacity in the electricity sector in the United Kingdom. It’s a function in which the Government is involved to make sure that the lights don’t go out as it were, and it’s quite sort of alarming at times to read how near we get to the lights going out, and the need to manage demand and capacity in times of stress as it were. Anyway, there is an aid scheme that was notified to the Commission in 2014. The Commission approved it in July 2014 and it was about the way in which these capacity issues were to be managed. And essentially, you have generators, supplying electricity to the grid, but you also have people with technology that is capable of managing capacity from the demand side, from the customer side of the market and is there a way of using less electricity in times of stress to the systems. And essentially, Tempus, being on the demand side, response side of the market says that this aid scheme discriminates in favour of the generators and against it. So, Tempus says the Commission should not have approved the aid. They appealed to the General Court and the General Court actually reaches the conclusion that Tempus are correct and that the Commission had gone about this investigation incorrectly. So it is a very, very interesting case.

Caroline Thomas: Do you think that the Commission made a fairly fundamental error with this case?  The aid was approved after a one month, first-phase investigation and where the Commission has doubts it can refer the aid for a Phase II, a much more in-depth investigation.

Richard Whish QC: It must refer, must refer, I think that’s the point. I mean there are, obviously, analogies here with Phase I, Phase II under the Merger Regulation or Phase I, Phase II under the Enterprise Act in merger control here. And what the EU law says is that the notification is made to the Commission and if it has doubts as to the compatibility of the aid with the internal market then it must investigate it in-depth. Essentially, what Tempus says is that the Commission didn’t conduct a sufficiently careful investigation to be able to satisfy itself that there were no doubts. Then, there is an interesting legal point where the General Court says “doubts”, this is a term of art and it has an exclusive meaning and it’s an objective concept and the question is could the Commission have no doubts about the compatibility of the aid with the single market? It is not about whether the Commission had doubts that it had the resources to do the investigation or that it had doubts about whether it was politically something that merited investigation. The question is, is there any doubt as to the compatibility of the aid with the internal market? And the Court says we don’t believe the Commission did enough to be able to satisfy itself of that point.

Caroline Thomas: And that’s led to a very complex situation now where the aid is no longer approved…

Richard Whish QC: Four and a half years later, the aid is no longer approved. We’re talking here about billions of pounds a year as I understand it, and in terms of payments that might be made to generators or might be made to demand side response technology companies and those payments are not being made. I think there is some discussion, isn’t there of whether payments that have been made might have to be repaid? And if the Commission has to do another investigation, I suppose that’s another year presumably, so it doesn’t look good.

Caroline Thomas: Indeed. Thank you very much, Richard.