The Italian Competition Authority (the “ICA”) closed its investigation into the alleged abuse of dominant position by Cleary Gottlieb-client Enel S.p.A. (“Enel”), the largest electricity operator in Italy, through its subsidiary, Enel Produzione S.p.A. The decision found no infringement and ended an investigation that had begun in April 2005. The ICA found that its concerns were addressed by commitments offered by Enel and Enel Produzione S.p.A., and concluded that there was no longer grounds for action.
This decision, issued December 20, 2006, marks the first time that the ICA has exercised its powers pursuant to newly-enacted Article14-ter of the Italian Competition Act.
During the investigation, the ICA accused Enel of trying to raise rival electricity operators’ costs and discipline its competitors by adopting a sophisticated pricing strategy on the Italian power exchange. Enel argued that it could not be held liable for its subsidiary’s conduct and, in any case, the ICA had not proven that Enel abused its dominant position because: (i) alternative explanations existed for the price patterns observed over the relevant periods; (ii) the characterization of the contested conduct as abusive was erroneous and unlawful; and (iii) Enel Produzione’s pricing behavior represented a proportionate response to its competitors’ aggressive competitive strategies.
Under the agreement presented to the ICA, Enel and Enel Produzione will sell virtual capacity by auction (1,000 MW in 2007, and –– subject to the ICA’s assessment of Enel’s continuing ability to exercise unilateral power in determining market prices –– 700 MW in 2008, equivalent to approximately 3% of national demand for electricity). The ICA took the view that the undertaking may constitute an appropriate measure to constrain, with regard to the contract volumes, Enel’s interest unilaterally to exercise its market power in order to determine on the power exchange higher prices than the contract price.