In June of last year, ČEZ without delay initiated a process to divest some of these power plants and received offers for the power plants of Počerady, Chvaletice, and Dětmarovice. At the same time, the European Commission conducted a “market test” in which it sought public comments on the terms and conditions of the proposed agreement. The market test results confirmed that the agreement was acceptable for the relevant market players. Nevertheless, talks continued over the past months between ČEZ and the European Commission, resulting in an agreement to limit the divestment commitment only to the fossil-fuel power plants of Počerady, Chvaletice or Tisová with Mělník 3 (i.e., the Dětmarovice power plant was excluded from the group of power plants, the sale of which constitutes a precondition for the EC to conclude the investigation). The main reason for excluding the Dětmarovice power plant was to ensure that the commitment options are comparable in terms of fuel – brown coal.
In view of the quality of the offers received to buy the power plants and considering the fact that ČEZ is in an advanced phase of negotiations with Czech Coal on long-term coal supply to the Počerady power plant, ČEZ considers it most likely that it will fulfill the requirements of the Settlement Agreement with the European Commission by divesting the Chvaletice power plant.
As for the Dětmarovice power plant, ČEZ has been considering selling this asset based on the offers received even though such a transaction has no longer anything to do with the conclusion of the European Commission’s investigation.
Putting an end to an investigation by means of a settlement agreement is a common practice under the European competition law. In such a case, the Commission accepts the commitments offered by the investigated entity and stops the entire procedure without further examining and determining whether the company has actually engaged in a specific illegal conduct. From the Commission’s viewpoint, the settlement sufficiently increases competition in the market and renders any further investigation unnecessary.
All procedures under the competition law initiated by the Commission over the past 10 years, which pertained to energy businesses (such as RWE, E.ON, Gaz de France or ENI), were sooner or later concluded by means of settlement. A settlement does not mean that the company concerned has breached the competition law. Business usually opt for this solution if their commitments, accepted by the Commission as sufficient, do not go against the company’s long-term strategy and are not harmful to their economic interests; this allows them to prevent a continued costly procedure that might protract for years.
Investigation Results
In November 2009, the Commission conducted an unexpected inspection of the premises of ČEZ, a.s. and its subsidiary, Severočeské doly, a.s. In its statement from that time, the Commission stated that the alleged anti-competition conduct might aim at barring the existing or potential competitors from the electricity wholesale market and lead to higher wholesale prices of electricity in the Czech Republic.
After presenting abundant evidence, ČEZ successfully rebutted all major accusations from the Commission.
Next, the Commission resolved to continue its investigation, under a procedure initiated in July 2011, only in respect of a suspected blocking of transmission capacity at the Výškov node by planning to build a combined cycle power plant in Počerady. Due to this plan, Mostecká uhelná’s plan to build a coal-burning power plant was allegedly not granted the required transmission capacity. From ČEZ’ viewpoint, this allegation is ungrounded since, when reserving the transmission capacity, ČEZ always proceeding in line with the legislation in force and the above project had duly been approved as economically beneficial and strategically significant. Today, this project is in its final phase of implementation.
Settlement Conditions and Further Steps by ČEZ
The settlement terms and conditions are satisfactory for both parties. The divestment of some power plants is consistent with ČEZ’ strategy to operate just upgraded coal power plants in the future; at the same time, the European Commission views it as a desirable step toward increasing competition in the market.
In its strategy for developing its power plant portfolio adopted earlier, ČEZ namely decided to invest in the Czech Republic significantly only in upgrading coal-basin power plants to which ČEZ can supply coal from its own mines, without facing a risk of commercial disputes over coal supply. This applies to the power plants in Ledvice, Tušimice, and Prunéřov, in which ČEZ has invested substantially to ensure they meet all relevant environmental standards (to significantly improve their efficiency and reduce CO2 emissions compared to the present levels), and to make them operable for the decades to come.
ČEZ operates the remaining coal power plants in accordance with the applicable legislation but does not plan to invest comparable capital amounts in them that would significantly change their technology parameters or service life. ČEZ plans to gradually phase out these facilities depending on coal supply availability, investments required to meet future emission limits, current market situation, and alternative options for supplying heat in locations where the power plants of ČEZ are connected to central heating systems. For these reasons, power plants in this category have limited strategic value in ČEZ’ portfolio. Nevertheless, they may be far more valuable for other market players as they represent properly maintained facilities that can usually be operated for another 10-15 years and that are situated in attractive locations with all the infrastructure required to operate a coal power plant, potentially convertible to a different kind of fuel (gas, biomass). With these assets, other market players may immediately (i.e., without a time-consuming process of planning, having approved, and building a new source of power) gain a foothold in the power generation market; at the same time, there are various options how to develop the given facilities in the future.