Ofgem accepts binding commitments from SSE plc

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Summary: Ofgem has closed its two-year investigation into SSE after formally accepting legally binding commitments from SSE to address an alleged abuse of dominance in the electricity connections market. The energy supplier has until 3 May 2017 to implement the remedies.

On 7 November 2016, Ofgem published its decision to accept legally binding commitments from SSE plc to improve the services needed for competitors to connect customers to its distribution network.

The electricity connections market under scrutiny

The move signals the end of Ofgem’s two-year investigation into concerns that SSE had abused its dominant position in the electricity connections market in breach of Chapter II of the Competition Act 1998 and/or Article 102 of the Treaty of the European Union.

Launched in January 2015, the investigation followed a six month review by Ofgem into the electricity connections market, in which it found, inter alia, that SSE may have put its competitors at a disadvantage in the electricity connections market. In particular, it found evidence that SSE may have engaged in anti-competitive behaviour when providing non-contestable electricity connection services (i.e. services which can only be provided by a distribution network operator (DNO) and which are necessary for the provision of a connection to a distribution network) in relation to the distribution network of subsidiary Scottish and Southern Energy Power Distribution Limited (SEPD) in the south of England.

Competition concerns

As part of its initial findings, Ofgem believed that SSE likely held a dominant position in the market for the provision of non-contestable connection services to its own distribution  networks, and highlighted “inconsistencies in providing essential services needed to allow competitors to compete effectively, including inconsistency in quotes”. Indeed, Ofgem found that offering such services to independent network operators or independent connections providers on different terms than it would offer to its own subsidiaries could place the rival companies at a competitive disadvantage. Such practices therefore had the potential to restrict entry and expansion by competitors into the electricity connections market in the area covered by SEPD.

Commitments

In September 2015, SSE offered commitments, which were formally accepted by Ofgem on 3 November 2016 after all five responses to the public consultation confirmed that the commitments would address Ofgem’s competition concerns. These commitments involve SSE implementing new processes and procedures to ensure these “essential services” are provided to all parties on a consistent basis. In particular, they include:

  • splitting operations within SSE’s connections business to separate the team providing essential services to the connections market from the team competing in the connections market;
  • putting in place an improved IT system to prevent inconsistent quotes from being issued for the same site without justification;
  • mandatory and regular competition law compliance training; and
  • frequent, independent, third party auditing of, and reporting on, SSE’s compliance with the commitments.

The combination of these commitments and the Code of Practice (and its associated licence condition) introduced by Ofgem to encourage all DNOs to open up competition in the electricity connections market would place additional requirements on SSE to comply with its obligations under the Code of Practice. Indeed, according to Ofgem, the electricity connections market is worth more than £500 million a year in Great Britain with independent companies competing against regional DNOs, such as SSE, to connect new customers to these networks.

Next Steps

Whilst the acceptance of the commitments means that the investigation has been closed, it also means that Ofgem will not adopt a decision as to whether or not SSE infringed competition. Indeed, as commitments do not amount to an admission of wrongdoing, the question of infringement remains open. Further, acceptance of commitments does not preclude Ofgem from reopening the investigation at a later date or adopting an infringement decision if, for example, Ofgem suspects that SSE has failed to adhere to one or more of the terms of the commitments or there has been a material change of circumstance.

The deadline for SSE to implement the remedies is 3 May 2017, six months after they were formally accepted by Ofgem.

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