REMIT Quarterly, Issue No. 27 /Q4 2021
Latvian NRA issues decision on a breach of obligation to publish inside information
On 23 September 2021, the Latvian Public Utilities Commission (hereinafter the NRA) concluded that Latvenergo AS (Latvenergo) had breached Article 4 of REMIT by not disclosing inside information it possessed about its production facility in an effective and timely manner.
The behaviour
Latvenergo is the formerly vertically integrated incumbent of Latvia and the largest power supplier in the Baltics today. In November 2019, it informed the market via an Urgent Market Message (UMM) about repairs on its Riga First Thermal Power Plant (TEC-1) due to the failure of one of its turbines. The original UMM reported that the repairs would last until later the same day. Subsequently, Latvenergo updated the UMM twice, changing the end date of the outage. Yet finally, TEC-1 returned to the operating mode and was synchronised with the network earlier than the last UMM indicated without informing the market.
The REMIT breach
In its decision, the NRA argued that the events under scrutiny amount to `information` under Article 2(1) of REMIT, and showed that this information fulfilled the four cumulative conditions that define `inside information’, as described in Article 2(1) of REMIT. The NRA also assessed if the disclosure had been timely and effective according to Article 4(1) of REMIT. In its assessment, the NRA applied the approach outlined in the ACER Guidance on the application of REMIT (hereinafter the ACER Guidance). The ACER Guidance provides a framework of analysis and interpretation of definitions for a consistent assessment of potential REMIT breaches by NRAs.
See more details under Exhibit 1 and 2.
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Exhibit 1: Excerpts from the ACER Guidance on the concept of inside information
Chapter 3 of the ACER Guidance proposes a two-step approach to qualifying a specific fact as ‘inside information’ under REMIT.
• Firstly, it must be determined whether there is an item of information according to at least one of (a) to (d) criteria defined in Article 2(1), second subparagraph, of REMIT.
• Secondly, it must be ascertained whether the item of information fulfils the four cumulative conditions established in Article 2(1), first subparagraph, of REMIT, i.e. it is precise, not public, related to one or more wholesale energy products, and likely to significantly affect prices.
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Information
The NRA first established that the return to the operating mode of the production facility amounted to ‘information’ within a category – as defined by REMIT Article (2)(1)(a) – which is required to be made public in accordance with Regulation (EC) No 714/2009, including guidelines and network codes adopted pursuant to this Regulation.
Inside information
Next, the NRA analysed if the information fulfilled the four cumulative conditions of `inside information`.
1. Precise: The NRA concluded that the information was precise, as Latvenergo could have reasonably expected that its TEC-1 gas turbine would return to the operating mode at a certain time.
Latvenergo argued that when concluding repair works, at the resynchronisation stage, there is an inherent technological risk that may unexpectedly postpone the return to operation.
The NRA pointed out that – also according to the ACER Guidance – some information available during the intermediate steps in a lengthy process can be precise information.
2. Not public: The information on when the TEC-1 gas turbine actually returned to operation was not made public and was not publicly available.
Although Latvenergo published UMMs related to the event, the last update of the UMM contained a date of return to the operating mode that did not correspond to the actual date.
The information on the actual date was not available to the public.
3. Related to one or more wholesale energy products:
The NRA concluded that the information on when TEC-1 actually returned to operation and was synchronised to the network refers to the availability or use of a production facility related, in particular, to balancing, intraday and day-ahead wholesale electricity supply contracts.
4. Likely to significantly affect prices:
Upon return to operation, 138 MW capacity of the TEC-1 gas turbine was potentially available for trading.
The NRA pointed out that even Latvenergo itself must have considered that information on the outage was inside information with a likely price effect, since it had disclosed multiple UMMs on the event.
The NRA established that the information about when the TEC-1 gas turbine actually returned to operation had a likely significant price effect.
The NRA concluded that the information on when the TEC-1 gas turbine actually returned to the operating mode and was synchronised with the electricity network qualified as inside information under Article 2(1) of REMIT that falls under the disclosure obligation under Article 4(1) of REMIT.
Effective disclosure
The NRA pointed out that although Latvenergo had realised that TEC-1 repairs would be completed earlier than previously communicated to the market, the corresponding UMM was not updated.
Accordingly, the inside information on the date of return to operation was not effectively disclosed.
Timely disclosure
The information on the actual time of return to operation was not disclosed once it was available to Latvenergo.
The NRA concluded that the inside information was not disclosed in a timely manner by Latvenergo.
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Exhibit 2: Excerpts from the ACER Guidance on timely and effective disclosure
Chapter 4 of the ACER Guidance provides minimum quality requirements and guidance for effective and timely disclosure of inside information.
1. If the publication requires a prognosis, e.g. regarding the duration of an outage, ACER understands that such prognosis contains an element of uncertainty.
Therefore, ACER believes that market participants fulfil their publication requirements if the prognosis is based on all available data and has been prepared with reasonable effort.
If a prognosis changes over time, the publication should be updated accordingly as soon as the new information is available.
2. ACER considers that market participants should develop a clear compliance plan towards real time or close to real time disclosure of inside information, beyond compliance with existing Third Package transparency obligations.
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Conclusion
The NRA concluded that Latvenergo had breached Article 4(1) of REMIT, as it had not disclosed, in an effective and timely manner, the inside information it possessed about when the TEC-1 gas turbine actually returned to the operating mode and was synchronised with the electricity network.
Latvenergo created an information asymmetry between market participants, which affected the transparency of the electricity market.
The NRA did not, however, establish that Latvenergo would have gained revenue or any competitive advantage because of the violation.
The NRA noted that Latvenergo took appropriate actions, already during the REMIT proceedings, by introducing relevant trainings and implementing appropriate information technology solutions to prevent the occurrence of similar situations.
Considering the circumstances, the NRA decided to issue a warning to Latvenergo.