Non-infringement REMIT Decision Announced by the French Energy Regulator

The Dispute Settlement and Sanctions Committee (CoRDiS) for CRE, the French energy regulator, issued a “non-infringement” decision this week (click here for the original French version) in relation to alleged market manipulation under Article 5 of REMIT. The case against Danske Commodities A/S (DC) relates to trading activities in the French power market on the French-Swiss border. The alleged indiscretions occurred in the intraday and balancing market (BM) between February 2015 and January 2018.

In their decision paper, the CRE highlight the following suspicious behaviour on the part of DC:

• For the same time slot, DC made nominations at the border in both directions, Switzerland to France and France to Switzerland, which results in a zero-sum physical balance. Consequently, the physical balance of these electricity import and export actions is zero in terms of energy "actually delivered" to the French system;
• By proposing upward adjustment offers at high prices, set without any connection to any physical or technical constraint, and by obtaining supplies on the French intraday market, DC sought to buy at the best price within the limit of the price of its activated adjustment offer;
• The prices offered by DC on the BM were high on certain dates, without being justified by the market forces of supply and demand or the actual availability of generation, storage or transmission capacity;
• On 52 occasions between 8 February 2015 and 1 January 2018, DC’s sale of the volumes of electricity called by RTE under the BM did not result in the injection into that system of the volumes of electricity that RTE needed to balance it, and this therefore constituted a form of deception that was likely to give misleading indications concerning the supply of wholesale energy products falling within the scope of the balancing services;
• On the same 52 occasions and during the same period, DC’s purchases of electricity on the French intraday market were justified only by the response that DC claimed to provide to the physical needs expressed by RTE which led to its call on the BM and, consequently, gave or were likely to give false or misleading indications as regards the demand for wholesale energy products on the French intraday electricity market;
• From the point of view of RTE, DC did not meet the fundamental objective of the BM, which is the physical contribution of power, upwards (or downwards), linked to a means of production, for the balancing needs of the French system or, in any case, which rules out supply on the French intraday market for these purposes;
• The investigating officer at CRE concluded that DC had “disregarded the provisions of Article 5 of the REMIT Regulation” which prohibits market manipulation. The use of “fictitious devices” is also explicitly referenced.

In their initial response, DC argued that no breach of REMIT had occurred and asked that the case be terminated and not made public. Their argument is summarized as follows:

• Their action falls within the framework of the "fundamental economic theory" according to which electricity flows from low-price zones to high-price zones as a function of capacity allocation and congestion management;
• From this point of view, its action on the French intraday market to hedge a short position will result in the production of electricity in France or the flow of electricity to France from a connected network, at lower prices;
• Like any market player, it makes an offer on the French intraday market to attract electricity sellers, without sending out any misleading signal in doing so that a purchase on this market will lead to a physical supply of electricity, notwithstanding the fact that purchases and sales are netted out;
• As a result, the effect of RTE activating an upward balancing offer is the same whether the electricity comes directly from physical production in Switzerland or from trading on the French intraday market and that the influence on prices alleged by CRE are not substantiated;
• Only RTE is aware of all the bids submitted to the BM, as these bids are only published when trading on the exchange for the product concerned has been finalised, at which point trading for the hours concerned on the intraday market is closed, thus preventing manipulation on this market;
• The assertion that prices should implicitly be expected to reflect the marginal cost of a source of generation is unfounded and it is for RTE to choose the offer it considers to be the best according to its selection criteria and that if DA’s offer was chosen by RTE, it was because RTE considered that this offer was the best at the time;
• The pricing of its bids depends on its costs and a risk premium, which is calculated on the basis of the market situation and while the objective of the BM is to ensure the balancing of the network, neither the rules on scheduling, the BM, the Balancing Responsible Entity rules ("MA-RE” rules) and REMIT do not set limits on the potential benefits for market players;
• In many cases, DC made purchases to cover itself after activation of its bids to the BM took place on markets other than the French market, which suggests the absence of a trading strategy aimed at creating a “zero effect” on the French intraday market in relation to its participation in the BM asserting that this was not speculation against RTE, but is simply buying the electricity it needs at the best prices available;
• At the time of the alleged offences, the MA-RE rules in force did not specify that a balancing entity was not authorised to make sales or purchases on the French intraday market after having been activated by the BM.

In May 2023, DC switched their external legal counsel from a French law firm to a UK law firm to evidently contest the CoRDiS penalty process. A significant component of the decision paper contains arguments put forward by this law firm on behalf of DC – we do not synthesize the contents of these four pages any further in this summary however for those interested in understanding the technical arguments in further detail, please consult the decision paper (Section 5, pages 6 to 10).

CoRDiS concluded that they did not find a REMIT breach through the use of a “fictitious device” and decided against issuing any penalties, largely based on the principle of “non-retroactivity” as the MA-RE rules which DC were accused of contravening did not enter into force until 2018 i.e. after the activity in question. For a succinct summary of the ruling, we refer you to this LinkedIn post by the Partner named in the CoRDiS decision from Bird & Bird, the law firm that successfully defended this case.   

 RegTrail Insights

CRE are again proving themselves to be one of the most aggressive NRAs in the EU when it comes to REMIT enforcement. The successful defence of this case is likely to be welcomed by the market. It should be noted that CRE are in the habit of making public the detailed responses to inquiries from market participants in such investigations. Firms subject to such inquiries should take note of this fact particularly when requesting, for example, the sealing of such cases from public view.