In May 2023, the Department of Trade Industry and Competition (in consultation with the Competition Commission) published Regulations to exempt certain categories of agreements or practices by energy users (Energy User Block Exemption)and energy suppliers (Energy Suppliers Block Exemption) from the application of certain provisions of the Competition Act (Block Exemptions).
The purpose of the Block Exemptions is to respond to the electricity supply constraint by enabling collaboration:
- In the case of energy users to secure backup or alternative energy supply, reduce energy costs, promote the optimisation and efficient use of energy supply or secure shared or adjacent sites, infrastructure, equipment and facilities; and
- In the case of energy suppliers to increase and optimise the supply of energy, reduce costs of energy supply or secure shared or adjacent sites, infrastructure, equipment and facilities.
In the ordinary course, collaboration between competitors of the kind contemplated in the Block Exemptions would be viewed by the competition authorities as agreements between competitors to fix purchase prices, allocate markets and agreements that have the effect of substantially preventing or lessening competition. This conduct is prohibited in terms of the Competition Act with contraventions of these provisions carrying an administrative penalty of up to 10% of turnover (or 25% if the conduct is a repeat of conduct previously found by the competition authorities to constitute a contravention of the Competition Act) and even potentially jail time.
In an attempt to alleviate the pressures brought about by the current energy crisis the country is facing, the Block Exemptions provide energy users and energy suppliers with some much needed latitude to enter into agreements which might otherwise constitute prohibited practices without fear of prosecution.
The Block Exemptions have limited application and apply only with respect to named collaborations. The Block Exemptions specifically exclude agreements with respect to the selling prices of goods or services, collusive tendering and resale price maintenance from their scope. Care should be taken to ensure that the arrangements that companies seek to enter into fall within the scope of either the Energy User Block Exemption or the Energy Suppliers Block Exemption as the case may be.
Prior to entering into an arrangement contemplated in the Energy Suppliers Block Exemption, energy suppliers will first need to seek confirmation from the Competition Commission in writing that the agreement or practice falls within scope of the Regulations. Energy suppliers and energy users will also need to notify the Competition Commission and the Department of Trade, Industry and Competition of the agreement or practice within seven days of implementation of the arrangements. For both energy users and suppliers, there will also be ongoing monitoring requirements.
The Block Exemptions are a welcome tool to enable energy users and energy suppliers to collaborate so as to ensure continued energy supply in a market that is energy constrained. Firms playing in this area should consider the opportunities that these Exemptions provide and make the most out of the efficiencies that can now be realised without the fear of consequence under the Competition Act. Firms seeking to make use of the Block Exemptions should seek advice to ensure that their proposed arrangements fall within scope of the Block Exemptions and that the right process is followed to ensure that they do not inadvertently contravene the Competition Act.
Please reach out to your competition contact at Norton Rose Fulbright to discuss how the Block Exemptions may help your firm alleviate the pressure placed on it by the energy crises how this tool can be used to support your business on our path to recovery.