Danish Western High Court rules in favour of Ørsted in electricity price case

Western High Court judgment of 24 May 2018 in V.L. B-1828-16 – Ørsted A/S v. the Danish Competition Council 

By Jacob Ølgaard, attorney, director

The case in brief

In Denmark, wholesale trade in electricity primarily takes place on the Nord Pool electricity exchange. On Nord Pool, electricity is traded hour by hour based on bids and offers received from producers and consumers. The case Elsam v. the Danish Competition Council concerned the question whether, by means of its orders to Nord Pool, Elsam had been abusing its dominant position to charge excessive prices.

The Competition Council held in its decision of 20 June 2006 that Elsam had been abusing its dominant position in the electricity wholesale market in Western Denmark in the period from 1 January 2005 to 31 December 2006. The Council's decision was based on various tests, including the so-called Test A which, by analysing and comparing Elsam's prices with test prices, identified hours with excessive prices.

Elsam brought the Competition Council's decision before the Danish Competition Appeals Tribunal, which repealed and remitted the case for the second half of 2006, but upheld the decision for the period from 1 January 2005 to 30 June 2006, stating though that Test A had certain "weaknesses".

Elsam then brought the case before the Danish Maritime and Commercial High Court, which on 30 August 2016 upheld the Competition Appeals Tribunal's order. The Court found, like the Appeals Tribunal, that it had been proved that Elsam had been charging excessive prices in the relevant period. The Court even went one step further than the Appeals Tribunal by setting aside Test A, because, in the Court's opinion, the test was faulty and incompatible with economic theory and therefore could not be applied in the abuse assessment.

Western High Court decision

Elsam subsequently brought the case before the Western High Court, which announced its judgment on 24 May 2018.

Again, the dispute focused on Test A and particularly the price variation mark-up included in the test prices. The purpose of the mark-up was to compensate Elsam for the loss suffered when Elsam had to produce electricity during hours in which the price was lower than costs.

In determining the loss, the Competition Authority had included Elsam's costs at a value lower than that included in the test prices in Test A. In addition, the Authority had omitted CO2 costs although such costs were also included in the test prices. The amount of the price variation mark-up – and, consequently, the aggregate test prices in Test A – was therefore lower than if the price variation mark-up had been determined on the basis of the same costs as those included in the test prices.

In the opinion of the High Court, it had not been stated clearly in the Council's decision that the price variation mark-up had solely been determined on the basis of lower test prices than what was included in Test A; on the contrary, the Council's decision left the impression that the price variation mark-up had actually taken into account all of Elsam's costs. 

The High Court therefore considered it probable that the Council and the Appeals Tribunal were not aware that only part of the costs had been recognised in the price variation mark-up. Consequently, the Court held that the basis for the Council's decision was wrong or incomplete.

Furthermore, the High Court considered it to be an error in the Council's decision that CO2 alternative costs had not been included in the calculation of the price variation mark-up.

Finally, the High Court found that Test A ought to have been recalculated due to the fact that the Competition Appeals Tribunal repealed and remitted the Council's decision for the second half of 2006, which meant that data for that period ought not to be included in the calculation of the test prices in Test A.

Since the parties agreed that, following a recalculation excluding the second half of 2006 and including an adjustment of the price variation mark-up in accordance with the High Court's reasoning, Test A did not identify any critical hours, the High Court concluded that the evidence produced was not sufficient to prove that Elsam had been abusing its dominant position to charge excessive prices. Consequently, the Competition Council's decision was repealed.

The Danish Competition and Consumer Authority subsequently petitioned the Appeals Permission Board for an appeal of the Western High Court's decision. It is yet to be decided if it will be authorised to refer the case to the Supreme Court.