Brussels Court of Appeal Rejects Damages Claim of NMBS/SNCB Against Electrabel for Abuse of Dominance

On 14 January 2015, the Brussels Court of Appeal (the "Court of Appeal") handed down its final judgment in an appeal brought by Belgium's national railway company NMBS/SNCB against Electrabel, the incumbent Belgian electricity provider, regarding the fees for CO2 emission rights. The judgment confirms the initial judgment of the Court of First Instance of 20 September 2010 (See, VBB on Belgian Business Law, Volume 2010, no. 9, p. 3, available at www.vbb.com).

In the framework of the European emission trading system, companies are required to cover all their emissions of greenhouse gasses by emission allowances. These allowances are granted to companies which can also trade the permits with other companies. Between 2005 and 2012, electricity producers such as Electrabel were allocated emission rights free of charge. However, according to studies of Belgium's electricity regulator CREG, Electrabel had made "windfall profits" by charging to its industrial customers the emission allowances which it had obtained for free.

Before the Brussel Court of First Instance, NMBS/SNCB had argued that Electrabel had abused its dominant position by charging excessive prices for its emission allowances. However, the Court of First Instance rejected all claims on the ground that the studies of the CREG did not constitute sufficient evidence.

NMBS/SNCB appealed the judgment before the Court of Appeal. On 11 October 2011, the Court of Appeal gave an interlocutory judgment designating a panel of experts to investigate the alleged windfall profits (See, VBB on Belgian Business Law, Volume 2012, No. 1, p. 2, available at www.vbb.com). In its interlocutory judgment, the Court of Appeal confirmed that Electrabel held a dominant position.

The panel of experts found that Electrabel had charged its industrial customers for emission allowances, but only indirectly. Electrabel did not add any surcharge itself, but based its prices on the wholesale electricity price which includes a charge for the required CO2 emission rights. The experts then concluded that CO2 emission rights represent a so-called opportunity cost, which efficient enterprises pass on to their customers. Moreover, such passing on is an intended effect of the emission trading system. The experts therefore stated that there is an objective justification for the passing on of emission allowances. Finally, the experts found that more competitive electricity companies are even more likely to charge their customers for the opportunity costs of the CO2 emission rights than those with a stronger market power.

In its final judgment of 14 January 2015, the Court of Appeal examined whether Electrabel had abused its dominant position by setting excessive or unfair prices. The Court first ruled that Electrabel was not obliged to charge its industrial customers for the emission allowances. It could therefore not rely on an objective justification. The Court of Appeal went on to examine whether NMBS/SNCB had sufficiently demonstrated the existence of an abuse of dominance. The Court stated that excessive or unfair pricing only constitutes an abuse of dominance if the pricing entails high accounting or financial profit margins and if the prices are unfair in comparison with competitors. Relying on the conclusions of the expert panel, the Court of Appeal found that NMBS/SNCB had failed to demonstrate that Electrabel had applied excessive or unfair prices amounting to an abuse of dominance. Finally, the Court of Appeal rejected the argument of NMBS/SNCB that exceptional circumstances could alter this conclusion.

In the appeal proceedings, NMBS/SNCB also contended that Electrabel had infringed the Belgian pricing regulation and a pricing provision of the Belgian electricity legislation, but the Court of Appeal rejected these additional arguments as unfounded.

Since no misconduct on the part of Electrabel was established, the Court of Appeal rejected the damages claim by NMBS/SNCB which has to bear the costs of the proceedings and of the experts' work.