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:
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:
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.