Following the Covid-19 outbreak, the Competition and Markets Authority (CMA), has indicated it will relax enforcement of the competition rules under certain circumstances.
Broadly speaking, the UK competition rules prohibit any agreements or collusion between competitors which restrict or distort competition to a material extent. They also prohibit the abuse of market power by companies with a dominant position.
These rules apply to most sectors of the economy – including the energy industry – and come with tough penalties for those who ignore them. This has been highlighted recently in the energy sector when Economy Energy, E (Gas and Electricity) and Dyball Associates were fined a total of £870,000 for market sharing by allocating customers to each other for the supply of gas and electricity.
Last month the government issued guidance on the extent to which it is prepared to relax enforcement of the regulations. However, the key message is that the rules will only be relaxed in very limited circumstances – and that the CMA intends to take a tough approach with those who try to take advantage of the current crisis for their own financial gain and to the detriment of the consumer.
This comes at a time when Ofgem, which has concurrent powers with the CMA to investigate anti-competitive behaviour, has promised to prioritise the promotion of competition in the energy sector. This was highlighted in its ‘State of The Energy Market Report’ as one of its priorities for 2020.
The CMA has indicated that it will not take enforcement action in circumstances where companies take temporary measures to coordinate action to:
- avoid a shortage of essential products;
- ensure security of supply of key products or service
- deal with critical issues that arise from Covid-19 (e.g. continue essential services or new services to vulnerable consumers).
However, the caveat is that those measures must last no longer than necessary to deal with the critical issues.
Agreements which fall within the prohibition of anti-competitive agreements, are, provided that they certify certain conditions, capable of being exempt. The UK rules state that provided the benefits of the agreement outweigh any potential adverse restrictions and the parties can demonstrate that the consumer will benefit, then the agreement will be exempt.
The government has also relaxed the competition rules in the food retail sector by allowing retailers to share data with each other on stock levels, co-operate to keep shops open, or share distribution depots and delivery vans.
The role of the CMA in its clearance of mergers under the Enterprise Act is also likely to be affected. The CMA has to operate under strict statutory timescales. Even if the formal timescales are not affected, there will inevitably be delays at the pre-notification stage of a merger clearance as the CMA requires to consult and seek the views of competitors, customers and suppliers before it makes its decision and that is going to prove difficult to achieve with the current lockdown.
There is a danger that companies may well seek to take advantage of the current crisis to the detriment of both their competitors and the consumer.
As indicated the CMA has made it clear that despite recent relaxation measures, the body will take a tough stance on those who seek to flout the rules and has launched its own Covid-19 Taskforce to tackle such behaviour head-on.
Practices that businesses can expect the CMA to clamp down on include collusion that artificially keeps prices high to the detriment of consumers in response to a fall in demand, or the exchange of commercially-sensitive information on future pricing or business strategies between competitors, where this is not necessary to meet the needs of the current situation.
Businesses dominant in their market will also continue to be considered in breach of competition rules if they “raise prices significantly above normal competitive levels”. A “key factor” for the CMA will be whether the coordination causes harm to consumers or to the wider economy. It is of “utmost importance” that businesses do not artificially inflate the prices of products or services considered essential to protect the health of consumers, such as face masks and sanitising gel, the CMA added. The Taskforce will also advise the government on the need for emergency legislation if required.
Ofgem has also indicated that it will take a “pragmatic approach” to enforcement and may therefore be willing to be more sympathetic to companies in circumstances where their objective was to support the consumer or to promote the security of supply of products. As with the CMA, Ofgem is likely to take a tough approach to those who try to take advantage of the Covid crisis.
No indication has been given that fines or penalties are going to be relaxed in view of the current financial crisis UK industry is facing. The CMA has relaxed the rules to address specific challenges for the general public, health and safety and for the wellbeing of the consumer. It seems that if a company is found to have flouted the rules in order to take advantage of the crisis and to the detriment of the consumer, then the CMA may be more likely to impose a heavier penalty than might otherwise have been the case.
Compliance officers should therefore take note of the recent guidance of the CMA, following the launch of its taskforce. They should ensure that their staff are both appraised of the limited circumstances in which the relaxation of the competition rules will apply – and also be warned of the risks of seeking to flout the rules in order to take advantage of the current crisis.
Colin Miller is a partner in the Tech and Commercial Group at Burness Paull and specialises in competition law.