2006/422/EC: Commission Decision of  19 June 2006  establishing that Article 30(1) of Directive 2004/17/EC of the European Parliament and of the Council coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors applies to the production and sale of electricity in Finland, excluding the Åland Islands  (notified under document number C(2006) 2337)   (Text with EEA relevance)
Date: 2006-06-19
Institutions: European Commission
Subjects: Finland, award of contract, electrical energy, energy production, sale

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Official Journal of the European Union

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(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 19 June 2006

establishing that Article 30(1) of Directive 2004/17/EC of the European Parliament and of the
Council coordinating the procurement procedures of entities operating in the water, energy,
transport and postal services sectors applies to the production and sale of electricity in Finland,
excluding the Åland Islands

(notified under document number C(2006) 2337)

(Only the Finnish and the Swedish texts are authentic)

(Text with EEA relevance)

(2006/422/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

the conditions for the applicability of Article 30(1) of

that
Directive 2004/17/EC would be met,

Having regard to the Treaty
Community,

establishing the European

Whereas:

the European
Having regard to Directive 2004/17/EC of
Parliament and of the Council of 31 March 2004 coordinating
the procurement procedures of entities operating in the water,
energy, transport and postal services sectors (1), and in particular
Article 30(4) and (6) thereof,

Having regard to the request submitted by the Republic of
Finland by e-mail of 20 February 2006, and to the additional
information requested by Commission staff by e-mail of
10 March 2006 and submitted by the Republic of Finland by
e-mail of 23 March 2006,

Having regard to the conclusions of the independent national
authority, Kilpailuvirasto (the Finnish Competition Authority),

(1) OJ L 134, 30.4.2004, p. 1. Directive as

(EC) No 2083/2005 (OJ

last amended by
L 333,

Commission Regulation
20.12.2005, p. 28).

(1)

that
Article 30 of Directive 2004/17/EC provides
intended to enable the performance of one
contracts,
of
the activities to which the Directive applies, shall
not be subject to the Directive if, in the Member State
in which it is carried out, the activity is directly exposed
to competition on markets to which access is not
restricted. Direct exposure to competition is assessed
on the basis of objective criteria, taking account of the
specific characteristics of the sector concerned. Access is
deemed to be unrestricted if the Member State has imple-
mented and applied the relevant Community legislation
opening a given sector or a part of it. This legislation is
listed in Annex XI to Directive 2004/17/EC, which, for
the electricity sector, refers to Directive 96/92/EC of the
European Parliament and of the Council of 19 December
1996 concerning common rules for the internal market
in electricity (2). Directive 96/92/EC has been superseded
by Directive 2003/54/EC of the European Parliament and
of the Council of 26 June 2003 concerning common
rules for the internal market in electricity and repealing
Directive 96/92/EC (3), which requires an even higher
degree of market opening.

(2) OJ L 27, 30.1.1997, p. 20.
(3) OJ L 176, 15.7.2003, p. 37. Directive as amended by Council

Directive 2004/85/EC (OJ L 236, 7.7.2004, p. 10).

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(2)

(3)

(4)

(5)

Pursuant to Article 62(2) of Directive 2004/17/EC, Title
III of that Directive setting out the rules on service design
contests does not apply to contests organised for the
in the Member State concerned, of an activity
pursuit,
the
to which the applicability of Article 30(1) of
a Commission
Directive has been established by
decision or has been deemed applicable under
the
second or third subparagraph of Article 30(4) or the
fourth subparagraph of Article 30(5).

It

a bilateral

consists of

The request
submitted by the Republic of Finland
concerns production, including co-generation, as well as
the sale (wholesale and retail) of electricity. The wholesale
market in Finland is to a large degree integrated into the
Nordic power market (Denmark, Norway, Sweden and
trading market
Finland).
between generators on one hand and suppliers and
industrial
and a
companies on the other hand,
voluntary Nordic power exchange Nordpool which has
a spot market and a forward market. There is, therefore,
a clear development towards a regional wholesale market,
although transmission bottlenecks sometimes divide this
market up into geographically distinct price areas, of
which Finland is one. Thus, according to the Finnish
authorities
a
and Nordpool
the time in
separate pricing area during 9,3 % of
2005 (4). For production there is also clear development
although transmission
towards
a
capacity (5) of
the
bottlenecks
connections between the Finnish networks and those of
other areas of the Community and to Russia, can have
the effect of
to the
territory of Finland, excluding the Åland islands. The
retail market area corresponds
territory of
Finland, excluding the Åland islands, given that, as
confirmed by the Finnish authorities, electricity dealers
from other Nordic countries that are not established in
Finland are not yet a real alternative as far as consumers
or small or medium-sized customers are concerned.

regional market,
and limits

temporarily limiting the market

Finland was

Finland,

to the

to the

This assessment, and any other
contained in this
is made solely for the purposes of Directive
Decision,
2004/17/EC and is without prejudice to the application
of the rules on competition.

Finland has implemented and applied not only Directive
96/92/EC but also Directive 2003/54/EC, opting for full
ownership unbundling for transmission networks and
legal
distribution
and
networks except
the smallest companies. Conse-
quently, and in accordance with the first subparagraph

unbundling

functional

for

for

(4) This is consistent with the findings of the Preliminary Report of the
Sector Inquiry into Competition in Gas and Electricity Markets (in
the following referred to as Preliminary Report), Annex B, p. 197,
which found that the congestion frequency of the Sweden-Finland
link was of the order of 8 % in the first eight months of 2005.

(5) Of the order of approximately 28 % of peak demand.

of Article 30(3), access to the market should be deemed
not to be restricted.

(6)

Direct exposure to competition should be evaluated on
the basis of various indicators, none of which are, per se,
decisive.

(7)

In the Communication from the Commission to the
and the European Parliament: Report on
Council
in creating the internal gas and electricity
progress
market (6), hereafter referred to as the ‘2005 Report’,
‘many national markets
the Commission stated that,
display a high degree of concentration of the industry,
impeding the development of effective competition.’ (7).
Consequently, it considered that, in respect of electricity
‘one indicator for the degree of competition
generation,
on national markets is the total market share of the
biggest three producers’ (8). According to the ‘Technical
Annex’ (9), the aggregate market share of the three largest
generators of the total production on the Nordic market
is 40 % (10), which is a satisfactorily low level. When
compared to the Finnish territory, the aggregate market
shares of
the three largest generators are, of course,
higher (11). However, the periods in which the Finnish
is isolated are limited (12). There is,
therefore,
market
during significant parts of
the year, a competitive
pressure deriving from the potential to obtain electricity
from outside Finnish territory, the more so as no trans-
mission fee is charged between the Nordic countries. The
temporary nature of congestion prevents
investment
inside the Finnish territory without having regard to
other producers in the Nordic market. These factors
should therefore be taken as an indication of direct
the production market
exposure to competition for
whether taken as the national Finnish market or the
emerging regional one.

(8)

competition on the

The degrees of concentration and of liquidity are also
electricity
good indicators of
wholesale market. The market share of Nord Pool Spot
AS, the voluntary Nordic power exchange described in
recital 3, in 2004 was 42 % of the physical delivery in
the Nordic countries (13).
In comparison to a regional

(6) COM(2005) 568 final of 15.11.2005.
(7) 2005 Report, p. 2.
(8) 2005 Report, p. 7.
(9) Commission Staff Working Document, Technical Annex to the

2005 Report, SEC(2005) 1448.
(10) Technical Annex, p. 44, table 4.1.
(11) According to the Preliminary Report, Annex C, p. 201,

the

aggregate share was 73,6 % in 2004.

(12) To 9,3 % of the time in 2005, see recital 3.
(13) Technical Annex, p. 124.

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i.e.

via NordPool,

represented 1,5 times

market, this is at a satisfactory level. Furthermore, the
conditions of competition in the electricity wholesale
trade are also greatly influenced by financial trade in
in terms of
electricity in the market area, which,
the
volume
amount consumed in the Nordic countries (14) (and,
if
other
the
identified transactions such as OTC, over
counter or direct sale, are included, more than four
times the amount (15). As concluded in the Technical
Annex (16), this degree of liquidity should be considered
as being satisfactory,
it is such as to constitute an
indicator of a well-functioning and competitive regional
market. As previously indicated, the competitive situation
should also be examined as it relates solely to Finnish
territory. First of all it should once again be stressed that
are not
the
bottleneck
constant, only
the
competitive
constant
from the
to obtain electricity from outside Finnish
potential
territory, the more so as no transmission fee is charged
between the Nordic countries. Furthermore, prices for
wholesale electricity in Finland are set by Nordpool.
These factors should therefore be taken as an indication
of direct exposure to competition for the wholesale
market, whether taken as the national Finnish market
or the emerging regional one.

temporary. There

is
deriving

aforementioned

problems

therefore

pressure

Taking the size of the country into account, the number
of economic operators on the retail market is fairly large
(more than 60, a considerable number of which offer
their services on a nationwide basis) as is the number
of companies with a market share above 5 %. According
to the latest information available, the aggregate market
share of the three largest companies in terms of supply
to small- and medium-sized businesses, as well as to very
small commercial customers and households, is at a satis-
factorily low level at 35-40 % (17). These factors should
therefore be taken as an indication of direct exposure to
competition.

TSO; or alternatively a market based mechanism will be
used in which the price is determined by bids from other
producers
to regulate their production upwards or
downwards (…) a key difficulty for small market parti-
cipants arises where there is the risk of a large spread
between the buying price from the TSO and the selling
price. This occurs in a number of Member States and is
likely to be detrimental to the development of compe-
tition. A high spread may be indicative of an insufficient
level of competition in the balancing market which may
be dominated by only one or two main generators. Such
difficulties are made worse where network users are
unable to adjust their positions close to real time.’ (18).
There is an integrated balancing market in the Nordic
area for supplying balancing energy and its main char-
acteristics (market-based pricing, hourly gate closures and
a low spread) are such that it should be taken as an
indicator of direct exposure to competition.

the

the

greater

state of

competitive

formation assume

‘a natural
If

(11) Given the characteristics of the product concerned here
(electricity) and the scarcity or unavailability of suitable
substitutable products or services, price competition and
importance when
price
assessing
electricity
markets. The number of customers switching supplier
is an indicator of genuine price competition and, thus,
the effectiveness of
indirectly,
indicator of
there is
competition.
likely to be a problem with the functioning of
the
market, even if the benefits from the possibility of re-
negotiating with the historical supplier should not be
ignored.’ (19). Furthermore,
regulated
key determinant of
clearly
is
end-user prices
(…) Although the retaining of
customer behaviour
controls may be justified in a period of
transition,
these will increasingly cause distortions as the need for
investment approaches.’ (20).

few customers are switching,

‘the existence of

a

The workings of the balancing markets should also be
in respect of
considered as
indicators, not only
also for
production but
and retail
the wholesale
‘any market participant who cannot
markets.
In fact,
easily match its generation portfolio to the characteristics
of its customers may find itself exposed to the difference
between the price at which the TSO (transmission system
operator) will sell
imbalance energy, and the price at
which it will buy back excess production. These prices
may either be directly imposed by the regulator on the

(12)

In Finland, the degree of switching for the three cate-
gories of users — large and very large industrial users,
small and medium-sized industrial and business, and very
small business and household users — is above 75 % for
the first two groups and 30 % for the last category (21)
and there is no end-user price control (22): that is, prices
are set by the economic operators themselves and do not
have to be approved by any authority prior to their
application. The situation in Finland is therefore satis-
factory as far as switching and end-user price control
are concerned and should be taken as an indicator of
direct exposure to competition.

(9)

(10)

(14) Preliminary Report, p. 112.
(15) See the information given by the Finnish authorities and the

Technical Annex, p. 44, table 4.1.

(16) Technical Annex, p. 44.
(17) The Finnish application and Technical Annex, p. 45.

(18) Technical Annex, p. 67.
(19) 2005 Report, p. 9.
(20) Technical Annex, p. 17.
(21) 2005 Report, p. 10.
(22) Technical Annex, p. 124.

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(13)

(14)

(15)

and

effective

regulation

that emerges

In view of the abovementioned indicators and given the
overall picture of this sector in Finland, in particular the
extent to which networks have been unbundled from
generation/supply
of
the
from the information
network access,
submitted by the Republic of Finland, the 2005 Report
and the Technical Annex thereto, the condition of direct
exposure to competition laid down in Article 30(1) of
Directive 2004/17/EC should be considered to be met in
respect of production and sale of electricity in Finland,
excluding the Åland islands. As noted in recital 5, the
further condition of free access to the activity must be
deemed to be met. Consequently, Directive 2004/17/EC
should not
award
contracts intended to enable electricity generation or
the sale of electricity to be carried out in these geo-
graphical areas nor when they organise design contests
for the pursuit of such an activity there.

apply when contracting entities

This Decision is based on the legal and factual situation
as of February 2006 as it appears from the information
submitted by the Republic of Finland, the 2005 Report
It may be revised,
and the Technical Annex thereto.
factual
should significant
situation mean that the conditions for the applicability
of Article 30(1) of Directive 2004/17/EC are no longer
met.

legal or

changes

in the

The measures provided for
accordance with
Committee for Public Contracts,

the

opinion

in this Decision are in
the Advisory

of

HAS ADOPTED THIS DECISION:

Article 1

Directive 2004/17/EC shall not apply to contracts awarded by
contracting entities and intended to enable them to carry out
electricity generation or
the sale of electricity in Finland,
excluding the Åland islands.

Article 2

This Decision is based on the legal and factual situation as of
February 2006 as it appears from the information submitted by
the Republic of Finland, the 2005 Report and the Technical
Annex thereto. It may be revised, should significant changes
in the facts or the legal situation mean that the conditions
for the applicability of Article 30(1) of Directive 2004/17/EC
are no longer met.

Article 3

This Decision is addressed to the Republic of Finland.

Done at Brussels, 19 June 2006.

For the Commission

Charlie McCREEVY
Member of the Commission