Abuse of Dominance and Antitrust Enforcement in the German Electricity Market Veit Böckers (DICE Düsseldorf) Tomaso Duso (DIW Berlin) Florian Szücs (WU Vienna) CRESSE 2017 30. June 2017 Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 1 / 12
Introduction to the case and the market Introduction: E.ON s (Alleged) Abuse of Dominance We assess the impact of the abuse of dominance case brought by the European Commission (EC) against E.ON, the largest German utility company In 2008, the EU Commission investigated E.ON for the abuse of a joint dominant position by 1. strategically withholding generation capacity 2. favouring its production affiliates for providing balancing services Despite contesting the allegations, E.ON agreed to divest 5,000 MW generation capacity as well as its extra-high voltage network Our approach captures the effects of both remedies, but we believe the network divestiture to be a second-order effect Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 2 / 12
Introduction to the case and the market Introduction: Market Structure Big four firms (E.ON, RWE, EnBW & Vattenfall) are dominant at all layers, vertical integration with legal unbundling Stadtwerke (municipal utilities): local players, possibly different objective functions Independent entrants: small capital stocks, competitive pricing Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 3 / 12
Introduction to the case and the market Introduction: The Divestitures Plants were sold to different buyers in the period between January 2009 and May 2010 5 TW are about 1/8 of E.ON s total generation capacity Both power plants and drawing rights were divested Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 4 / 12
Identification, Data & Specification Identification Energy suppliers have more market power during peak periods when demand is higher Shifts to a lower or higher capacity schedule should have larger effects during peak time than off-peak Policy intervention that shifts the supply schedule to the "high capacity" scenario should reduce market power and prices during peak hours while having a smaller effect during off-peak hours. Therefore, a decrease in market power should lead to convergence between peak and off-peak prices Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 5 / 12
Identification, Data & Specification Treatment group Peak price periods (8:00-20:00) Treatment periods 1. Long run effects: post-period starts at begin of divestitures when all divestitures are finalized 2. Short run effects: 7-day treatment windows after pooled divestitures individual divestitures incremental effects Difference-in-Difference During / after alleged abuse of dominance Treatment heterogeneity Capacity divested Fuel type Buyer identity Dataset Hourly data on prices from 2006-2011, aggregated to daily on/off-peak Detailed data on supply and demand drivers Cross-border flows to neighbouring countries Peak vs. off-peak prices within-country DiD Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 6 / 12
Identification, Data & Specification Estimation equation Price equation based on Böckers and Heimeshoff (2014): p it = α + βtreat i + γpost t + δtreat i post t + α 1 wind it + α 2 wind 2 it + α 3sun it + α 4 sun 2 it +α 5 solar_cap t + α 6 temp it + α 7 temp 2 it + α 8cb it + α 9 coupling t + α 10 ind_prod t +α 11 holiday t + ω 1 uranium t + ω 2 coal t + ω 3 gas t + ω 4 oil t + ω 4 emissions t +ζ 1 dow t + ζ 2 month t + ζ 3 year t + ε it Power prices from EEX Oil price index from ICE Brent Europe; Gas price reference is that of ENDEX/TTF; Coal prices from Platts and Argus McCloskey; Emission certificates prices from EEX; Uranium prices from www.uxc.com Electricity consumption is retrieved from the ENTSO-E country reports Cross-border flows from network operators (50 Hertz, Amprion, TenneT and TransnetBW) Weather data from Deutscher Wetterdienst, Solarwirtschaft.de Industrial production index from Sachverständigenrat... Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 7 / 12
Identification, Data & Specification Monthly average of German peak and off-peak prices Difference between peak and off-peak prices appears to be lower during/after the remedies Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 8 / 12
Results and Discussion The Effect of the Divestitures on German Wholesale Prices Post Post Short-run Short-run Cumulative 2009 2010 pooled individual Peak 30.81*** 32.47*** 23.83*** 24.10*** 31.53*** Peak*Post -11.54*** -11.84*** -5.129** Peak*Div1-7.878** -13.90*** Peak*Div2-5.334*** 2.367 Peak*Div3-0.668 7.336** Peak*Div4 1.517-0.523 Peak*Div5-4.409** -2.204 Peak*Div6-16.30*** -10.43*** Peak*Div7-2.821 6.218** Peak*Div8-5.745** -0.757 R 2 0.639 0.624 0.625 0.626 0.645 N 4382 3410 4382 4382 4382 Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 9 / 12
Results and Discussion Heterogeneous effects on Wholesale Prices Fuel Fuel Cap Buyer Buyer Cap Peak 23.89*** 23.97*** 23.95*** 24.03*** Peak*Div(Coal&Gas) -6.155* -0.0136*** Peak*Div(Renewable) -1.393-0.000490 Peak*Div(Nuclear) -3.254-0.00236 Peak*Div(Grid) -0.265-0.00143 Peak*Div(Electrabel) -5.119** -0.00375* Peak*Div(EnBW) -10.76** -0.0186*** Peak*Div(MorgStan) 1.194 0.00396 Peak*Div(Statkraft) -7.310** -0.0101** Peak*Div(TenneT) -0.434-0.00151 Peak*Div(Verbund) -2.999-0.00992 R 2 0.625 0.625 0.625 0.626 N 4382 4382 4382 4382 Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 10 / 12
Results and Discussion Robustness Placebo run: effect on Spanish market Autocorrelation of Errors & Data Frequency Treatment Time Windows Effects by hour-of-day definition of peak times: Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 11 / 12
Results and Discussion Conclusions We have studied the effect of the EU Commission s case against E.ON for its alleged abuse of a dominant position in the German wholesale electricity market We adopt a within-country difference-in-difference methodology to estimate the effect of the intervention Identification is based on the observation that energy suppliers have more market power during peak periods when demand is higher We estimate a wholesale price equation using daily data on peak and off-peak prices We find strong and statistically significant convergence effects in the short-run as well as in the long-run. Placebo regressions based on Spanish data support our identification strategy Price reductions appear to be mostly due to the divestiture of gas and coal plants, which is consistent with merit-order considerations Findings suggest that the Commission s decision reduced wholesale prices Florian Szücs (WU Vienna) Abuse of Dominance and Antitrust Enforcement in the German Electricity Market June 30, 2017 12 / 12