Europe’s energy regulators work together to tackle market abuse and insider trading



Compliance activities are visible everywhere. This article is, however, not about core compliance trends and activities such as the DoJ’s recent publication on the evaluation of compliance programs or about the recently approved EU directive for strengthening the protection of whistleblowers or continuing activities against whitecollar crime. Instead, this article discusses Europe’s energy regulators joint efforts on compliance with specific market regulations. 

In the last few months Europe’s energy regulators increasingly used their powers to police behavior in the European wholesale energy market. In the last quarter of 2018 and the first quarter of 2019, we have seen fines imposed and sanctions for allegedly abusive behavior on the European wholesale energy market, and a dawn raid in a potential case of insider trading.

REMIT, the EU Regulation on wholesale Energy Market Integrity and Transparency, as has been increasingly demonstrated by national regulators in the course of the last few months, inter alia prohibits insider trading and market manipulation on the wholesale energy market in accordance with Articles 2 and 5 respectively.

REMIT defines market manipulation, among other things, as entering into any transaction or issuing any order which sends false or misleading signals and which secures or intends to secure prices at an artificial level, unless such actions are taken for legitimate reasons and are accepted as market practice.

REMIT Regulation’s definition of and prohibition of market manipulation (excerpts):

Article 2


For the purposes of this Regulation the following definitions shall apply:


2) ‘market manipulation’ means:

a) entering into any transaction or issuing any order to trade in wholesale energy products which:
gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of wholesale energy products;

secures or attempts to secure, by a person, or persons acting in collaboration, the price of one or several wholesale energy products at an artificial level, unless the person who entered into the transaction or issued the order to trade establishes that his reasons for doing so are legitimate and that that transaction or order to trade conforms to accepted market practices on the wholesale energy market concerned;


Article 5

Prohibition of market manipulation

Any engagement in, or attempt to engage in, market manipulation on wholesale energy markets shall be prohibited.

REMIT has been in place since the end of 2011. While there were few, if any proceedings during the first seven years, that has now changed, with the means to detect market manipulation becoming more sophisticated and an increase in alerts raised by market participants. 

Crucial here has been the increase in data gathered by national regulators and ACER, Europe’s Agency for the Cooperation of Energy Regulators, since reporting obligations came into effect in 2015/2016. As reported by ACER, the number of cases currently under investigation rose significantly from just three in 2012 to 186 at the end of Q1 2019. Out of the seven cases on market manipulation that have been decided by national regulators, six have been decided since October 2018.

In 2015, in the first decision in this field taken by a national regulatory authority, CNMC, the most active national regulator in REMIT enforcement activities, concluded that a Spanish Energy Company withheld water at its hydropower plants without legitimate reason and justification and by thus manipulated the electricity day-ahead prices resulting in an increase of market price

ACER's guidance on the application of the Regulation (EU) No 1227/2011, REMIT, provides further guidance on the withholding of capacity, now 6.4.1 i) 4th edition:

"Actions undertaken by persons that artificially cause prices to be at a level not justified by market forces of supply and demand, including actual availability of production, storage or transportation capacity, and demand ('physical withholding'): This is for example the practice where a market participant decides not to offer on the market all the available production, storage or transportation capacity, without justification and with the intention to shift the market price to higher levels, e.g. not offering on the market, without justification, a power plant whose marginal cost is lower than the spot prices, misusing infrastructure, transmission capacities, etc., that would result in abnormal high prices.”

This very early decision on market manipulation by CNMC in 2015 were only followed by a series of decisions starting in October 2018 by various national regulators, namely the Spanish, the French, the Danish and the German national regulators fining companies for alleged cases of market manipulations. Some of these decisions are under appeal. 

These cases deal with allegations of capacity withholding, commercially non-rational use of otherwise legitimate trading methods, price settings at artificial levels and exclusion of market participants from trading. Other cases, decided by a national regulator while not being based on REMIT but national regulation of the electricity market dealt with prices above marginal costs and higher of those of comparable combined cycle plants.

In addition to various infringement proceedings on market manipulation that have taken place since last October, there has also been an increase in action on insider trading. Most recently, the Netherlands Authority for Consumers and Markets (ACM) stated that it had conducted a dawn raid at a company that is active in the electricity sector. Echoing the Danish and the German national regulators, the Director of ACM’s energy department, Remko Bos, made it clear that the national energy regulators are making joint efforts in their enforcement activities. Remko Bos was quoted as follows:

“By enforcing compliance with REMIT, we help boost consumer confidence and that of other market participants in the energy market. We do so in cooperation with our fellow European regulators.”

The cooperation between European regulators demonstrated by the increase in policing activities is augmented by the increased amount of guidance and publications from ACER and national regulators on the topic of REMIT. 

Recently, ACER published the fourth edition of the Guidance on REMIT and the Guidance on layering and spoofing.

The BNetzA and the German federal cartel authority “BKartA” just published its joint draft guideline for antitrust and wholesale energy law abuse supervision in the realm of electricity generation/wholesaling. The objection of the document, when finalized, will be to provide market participants with guidance on the permissibility of price peaks on the wholesale market for electricity.

The series of fines imposed on energy companies for market manipulation, the high number of investigations still pending, the likeliness that fines may become more substantive once sufficient case law has been established, and the chance that cases may even result in serious criminal proceedings demonstrates the importance of REMIT and other market regulations. 

To the extent that recent supervisory activities by national regulators and publications from ACER and other regulators show the way forward, it is very much in energy companies' own interest to reexamine the robustness of their current programs, policies and processes. As in other compliance areas, it is critical to implement and maintain effective and sufficiently resourced programs that support employees taking relevant commercial decisions and ensure decision makers have a thorough understanding of violations in terms of scope, prohibitions and consequences. This will help companies avoid investigations, administrative fines, confiscation of earnings and possibly criminal punishment, both on a corporate and an individual level, not to mention, as regularly seen in cartel cases, potential damage claims by other market participants. In short, companies and their decision makers are well advised to examine whether their current compliance management systems and processes are still fit for REMIT purposes and other market regulations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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