Electricity: ACER provides further guidance on market manipulation practices, disclosure mechanisms and the insider dealing exemption related to unplanned outage

REMIT– ACER – ACER Guidance – Market Manipulation – Practices – Withholding capacity – IIP – insider dealing exemption – unplanned outage

On 15 October 2019, the Agency for the Cooperation of Energy Regulators (ACER) published an update of the 4th edition (dated 16 July 2019) of its Guidance on the Application of Regulation (EU) N° 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT).

According to REMIT, the Agency is responsible for monitoring wholesale energy markets to detect market abuse. Article 16(1) of REMIT entitles ACER to adopt guidelines on the application of the definitions set out in Article 2 of REMIT and on other issues of application of REMIT in order to ensure that National Regulatory Authorities (NRAs) carry out their tasks under REMIT (ensuring that the prohibitions are applied) in a coordinated and consistent way.

From a comparison between the version of 16 July 2019 and the update (unfortunately no version with the adaptations highlighted has been made available online), it follows that the update of the 4th edition of the ACER Guidance concerns:

1/ section 6, dealing with the definition of “market manipulation”;

2/ section 7, dealing with the application of the obligation to disclose inside information; and

3/ section 8, dealing with the application of the market abuse prohibitions and possible signals of potential insider dealing or market manipulation.

1/ Types of practices that may constitute market manipulation

Section 6.4 of the ACER Guidance with examples of the types of practices that may constitute market manipulation has been updated. Besides deleting the mention that the listed practices were particularly relevant in the context of continuous trading on wholesale markets and combining false/misleading orders/transactions and price positioning under one section, new categories of practices have been added (layering, spoofing, transmission capacity hoarding) and the descriptions of some of the already listed practices have been updated (“other order-based behaviours”, “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)”).

It is to be noted that in respect of manipulative electricity generation capacity withholding, it is clarified that this can occur not only via unjustifiable physical withholding (not offering, without justification, the available generation capacity at any price), but also via unjustifiable economic withholding. Economic withholding occurs, according to ACER, when actions are undertaken to offer available generation capacity at prices which are above the market price and do not reflect the marginal cost (including opportunity cost) of the market participant’s asset, which results in the related energy product not being traded or related asset not being dispatched. ACER specifies that this should be assessed on a case-by-case basis taking into account the circumstances and specificities of the market and that REMIT does not prohibit high prices provided that they reflect a fair and competitive interplay between supply and demand.

2/ “IPPs” as default disclosure mechanism

In respect of the obligation to disclose information, section 7.2 of the ACER Guidance now clarifies that ACER considers disclosure via the so-called Inside Information Platforms (IIPs) as the default disclosure mechanism. Information to be disclosed shall, according to ACER, be disclosed in compliance with Article 4 of REMIT if disclosed via IIPs. The list of requirements in the guidance with which IIP should comply with is also updated. A list of compliant IIPs available in Europe for the disclosure of inside information on wholesale energy markets is published on the Agency’s REMIT Portal.

ACER already indicated before that since market participants do not have influence on the operations of platforms, they are not responsible if the information is transmitted in time to a platform that complies with the minimum requirements and there are temporary technical problems with the platform. ACER now specifies that in such circumstances market participants “could” also consider a back up solution provided it complies with the minimum quality requirements applicable to IIPs.

A simultaneous publication on the market participant’s website or through social media may be used as an additional source for publication. However, according to ACER, it cannot replace the disclosure on IIPs. In case additional means for publication are used, e.g. a market participant’s website, the market participant must ensure that the published information is identical to the one published on the IIP.

Publication of inside information in accordance with Regulation (EC) N° 714/2009 or (EC) N° 715/2009, including guidelines and network codes adopted pursuant to those Regulations, and Commission Regulation (EU) N° 543/2013, which amends the guidelines annexed to Regulation N° 714/2009, remain also a simultaneous, complete and effective public disclosure (see art. 4, 4) REMIT) provided that the published information complies with the information to be disclosed under art. 4, 1) REMIT.

3/ Clarification regarding the exemption on insider dealing related to unplanned outage

The update of section 8 of the ACER Guidance relates to section 8.2.3 on the exemptions from the prohibition of insider trading. With these changes, ACER intends to provide a more precise interpretation of Article 3(4)(b) of REMIT, according to which the prohibition on insider trading does not apply to transactions entered into by electricity and natural gas producers, operators of natural gas storage facilities or operators of LNG import facilities the sole purpose of which is to cover the immediate physical loss resulting from unplanned outages, where i) not to do so would result in the market participant not being able to meet existing contractual obligations or ii) where such action is undertaken in agreement with the transmission system operator(s) concerned in order to ensure safe and secure operation of the system.

ACER previously clarified that it considers a market participant “not being able” to meet existing contractual obligations only if the market participant has no other own assets available to cover the physical loss.

ACER now clarifies that it considers this also the case if the physical loss cannot be covered through any existing framework such as intraday / within day or balancing markets.

ACER also clarifies that the reporting of the relevant information relating to the transactions to ACER and the national regulatory authority, which applies in case this exemption is applicable, should take place as soon as possible, according to the market participant’s best capacity.

ACER furthermore clarifies that concerning the timeframe allowed to be covered under the exemption in Article 3,4),b) REMIT, it considers it valid for as long as a causal link between the outage and the amount to be covered under the strict exemptions is in place. Therefore, the Article 3, 4), b) REMIT exemption may only be applied for the duration of the market participant not being able to meet existing contractual obligations or where such action is undertaken in agreement with the transmission system operator(s) concerned in order to ensure safe and secure operation of the system.

For any questions on REMIT, please contact Régine Feltkamp

Focus Points

With a view to have an open eye on the future, we follow up on specific (legal) topics at the heart of modern businesses in transition.