Energy auctions have adjusted their auction procedures

Following an investigation carried out by the Netherlands Authority for Consumers and Markets (ACM), energy auctions that use reference prices have adjusted their auction procedures due to anticompetitive risks. Instead of solely accepting energy-provider bids matching or above the reference price, bids below the reference price will now also be accepted. As a result, energy providers will have more options to participate in auctions. In addition, consumers who wish to switch energy providers through these auctions have more to choose from, and they are also able to choose competitive offers that are below the reference price. Anita Vegter, Member of the Board of ACM, adds: “It is good that energy auctions have adjusted their procedures. As a result, providers will have more opportunities, and consumers will have more options.”

Reference prices

At energy auctions that use references prices, the auctioneer sets a minimum price in advance after conducting some market research of his own. Prior to ACM’s investigation, bids of energy providers that were below the reference price used to be excluded from the auction.

In the summer of 2014, ACM launched an investigation into energy auctions following indications from market participants as well as media reports about possible price-fixing agreements and misleading conduct. In the investigation, ACM examined whether auctions that use reference prices took place fairly, and whether consumers might have missed out on certain benefits. In addition, the investigation also looked into whether consumers were clearly informed about the auction process.

Investigation results

From an antitrust point of view, the use of reference prices is prohibited if it appreciably impedes competition. However, ACM’s investigation has revealed that this is not the case here. Energy auctions only cater to a small segment of the energy market, and consumers are not dependent on energy auctions for competitive deals. ACM has thus not established any violations.

However, if energy providers solely use energy auctions when offering their products to consumers, and these energy auctions only use references prices, then ACM sees potential anticompetitive risks. Consumers would have fewer options, and it would become more difficult for them to find a cheaper offer outside these energy auctions. In order to eliminate these risks for the future, ACM sat down with market participants, and agreed to including bids that are below the reference price in the auctions, and to consumers having the option of accepting such bids.

The investigation also revealed that there is still room for improvement with regard to the provision of information to consumers such properly explaining the auction process and the price mechanism at auctions. Since the overall provision of information to consumers had been inadequate for a long time, ACM last year sat down with the energy industry, and agreed on how consumers could be informed better, and what information they should be given in order to be able to make a well-informed decision. ACM has observed that, since late-2014, energy auctions have improved their provision of information to consumers.

Energy auctions are good the market

Energy auctions are an easy way for consumers to switch energy providers. The number of switchers in the market will increase, thereby stimulating competition in the energy market. With energy auctions, an organization usually recruits as many consumers as possible that potentially wish to switch energy providers. Once it has recruited enough participants, it often leaves the actual auction to a specialist firm. The specialist firm holds an auction where energy providers offer low-priced energy contracts. Consumers are then able to switch energy suppliers when taking advantage of such an offer.