NEWS & INSIGHTS

Up-to-date.

March 2022 – Further to the transposition into Romanian law of the Internal Market in Electricity Directive (EU) 2019/944 in December 2021 (that we previously wrote about here), the Romanian Energy Regulatory Authority (“ANRE”) has recently adopted Order no. 12/2022 for the approval of the procedure on the method of setting administrative sanctions as a percentage of turnover following control activities (“Order no. 12/2022”) and Order no. 13/2022 for the approval of the procedure on the method of setting administrative sanctions as a percentage of turnover following investigation activities (“Order no. 13/2022”) (together the “Orders”).

The Orders should provide more predictability to energy market participants as to how ANRE will set fines determined as a percentage of turnover. Among the most important provisions of the Orders are the relevant criteria that ANRE will consider when determining the level of fines, including the applicable mitigating and aggravating circumstances.

Context of the enactments

While sanctions set as a percentage of the annual turnover of infringing companies has been part of Romanian Energy Law no. 123/2012 (the “Energy Law”) since its entry into force in 2012, the type of offences potentially sanctioned with a percentage of turnover has grown considerably in the past decade. This should not come as a surprise, as we can see a similar approach in other sectors, for instance with respect to breaches of competition or data protection rules. In fact, the Romanian Competition Council (the “RCC”) has quite some history of applying fines to annual turnover, and the recent Orders issued by ANRE also appear to draw on the RCC’s experience and secondary legislation on this matter.

Against this background, the Orders may be seen as a significant step complementing and providing much-needed transparency and proportionality to the process of applying the sanctions already existing in the Energy Law. With respect to both the electricity and natural gas sectors, the Energy Law provides for fines of up to 10% of annual turnover for the relevant market participants (including producers, suppliers, traders, DSOs, TSOs) for non-compliance with a series of obligations meant to protect the interests of end-consumers or to ensure the proper functioning of the energy markets and the market participants’ cooperation with the authorities.

Although the Orders specifically provide for their applicability to sanctions under the Energy Law, they may also provide guidance for setting fines applied as percentage of turnover included in separate acts regulating the energy sector. An illustrative example is Government Emergency Ordinance no. 27/2022 on support measures applicable to electricity and gas end-customers in the 1 April 2022–31 March 2023 period (“GEO no. 27/2022”). In this regard, GEO no. 27/2022 further includes fines of up to 5% of annual turnover for various violations, such as cases where electricity suppliers do not follow the retail price caps provided by the law, or where gas producers do not abide by the price caps for sales to household gas suppliers or to heat producers and their suppliers.   

The adoption of the Orders was announced with the entry into force on 31 December 2021 of Government Emergency Ordinance no. 143/2021 (“GEO no. 143/2021”), which was meant to harmonise Romania’s energy regulatory framework with the Internal Market in Electricity Directive (EU) 2019/944. GEO no. 143/2022 amended the Energy Law to provide that ANRE’s Regulatory Committee would be the body tasked with setting the fines applied as a percentage of turnover, under a procedure to be further approved by ANRE. 

The recent enactment of the Orders is all the more important in the current energy-crisis environment, where market dis-function is accompanied by extremely high electricity and gas prices and pressure on regulators to investigate market participants and apply sanctions, where appropriate. In this context, ANRE announced in the past few months that it was investigating multiple energy companies for alleged market manipulation, which, if found in breach, could be fined as a percentage of turnover. The rationale is straightforward—applying the same, fixed fine to a number of differently-sized companies for the same type of breach could lead to discriminatory and impractical results: the fine would barely scratch the economic surface of a larger entity, but it could put a smaller company in financial collapse. By establishing the relevant criteria for setting fines, the Orders are aimed at building on such fairness, offering further predictability and transparency to market participants by ensuring that the fines imposed are effective, proportionate and dissuasive, as per EU law principles.

Main provisions of Order no. 12/2022

Order no. 12/2022, which deals with ANRE’s control activities, prescribes the procedural steps taken up to the point of applying the fine, as well as the substantive criteria to be considered in setting the respective fine, as follows:

• following an ANRE control activity, assuming a breach sanctioned by reference to the annual turnover is identified, a report explaining why the fine should be applied and suggesting how it should be set is made by ANRE’s General control directorate. Such report is then forwarded to ANRE’s Regulatory Committee. The Regulatory Committee is one of the most important bodies within ANRE, and it is comprised of its president, two vice-presidents and four other members;
• the Regulatory Committee will meet within 30 calendar days after the report has been submitted to its secretariat, to decide by simple majority on whether imposing a fine is in order. If a fine is imposed, the sanctioning decision must be communicated to the infringer within 10 working days. The sanctioned company can challenge the sanctioning decision before the Bucharest Court of Appeal within 30 calendar days from its communication;
• the criteria considered for setting the fine includes the gravity and duration of the breach, its impact on the market and end-customers, while following the principles of effectiveness, proportionality and deterrence;
• gravity is evaluated on a case-by-case basis, considering all relevant factors, including without limitation, the nature of the breach, the circumstances in which the breach was committed, the method and means of carrying it out, its purpose, consequences, and whether it was a repeated offence;
• other aspects considered for determining gravity include the size and importance of the market where the infringer is carrying out its activities, its market share, and its potential of damaging other companies or end customers;
• and finally, Order no. 12/2022 provides for mitigating circumstances (including where the infringer provides evidence that it ceased the breach as soon as it found out about the control activity or during its occurrence; or if it proves to have implemented a compliance program to end the breach and/or cover the damages caused to end-customers) and aggravating circumstances (such having committed a similar or identical breach, at least twice, within 12 consecutive months; or the company’s refusal to cooperate with ANRE or obstructing the control activity) to be further considered when setting the level of the fines.

Further elements introduced by Order no. 13/2022

Order no. 13/2022 deals with setting the fines following ANRE investigations and it includes further instructions on setting the fines compared to Order no. 12/2022 that deals with control activities only. We particularly note the following:

• gravity is also to be evaluated on a case-by-case basis, considering all relevant factors, including without limitation, the nature of the deed; the size of the electricity or natural gas market where the investigated company carries out licensed activities; the circumstances in which the breach was committed; the market share of the investigated party; the aggregate market shares of all the parties involved; the actual impact of the breach on the electricity and natural gas markets; and the information included in the final version of the investigation report;
• more examples of mitigating circumstances are provided—these include proving that the infringer’s contribution to the breach was extremely reduced; having collaborated with ANRE in full and effectively; acknowledging the breach; and proving that the investigated party covered the damages caused to participants in the wholesale electricity and gas markets (as a result of trades on centralised markets);
• as aggravating circumstances, Order no. 13/2022 further includes scenarios where the same infringer committed a breach identical or similar to a breach under a previous ANRE decision; refusing to cooperate with ANRE or obstructing the investigation; continuing the breach after the start of the investigation; or having a leading role and/or being the initiator of manipulation on the wholesale electricity and gas market.

End remarks

The enactment of the Orders appears to be a step forward in providing further predictability and transparency to energy market participants as to how ANRE will set fines applied as a percentage of turnover. The new rules could also be seen as local policy measures aimed at formally transposing EU law, ensuring that fines applied in the energy sector are effective, proportionate and dissuasive, as generally required by EU legislation, including the Internal Market in Electricity Directive (EU) 2019/944. 

On the other hand, especially if we compare these new fine-setting guidelines with the rules for setting fines applied at turnover for competition law violations, the authorities appear to have gone only halfway with the Orders, as, for instance, there are no clear thresholds or mechanisms as to how the base level of the fines would be adjusted depending on the gravity and duration of the infringement, or how the fines would be further increased or decreased as a result of applying aggravating or mitigating circumstances. As such, it appears that ANRE will still have, in practice, a large margin of discretion in setting fines applied as a percentage of turnover.

For more information contact Iustinian Captariu, Partner, at , Cătălin Graure, Managing Associate, at  or Cosmin Mitrică, Junior Associate, at.