9 Independent Power Plants

1148th Commissioners' Meeting (2013)

Case:

9 independent power plants(IPPs) violated the Fair Trade Law by engaging in concerted action

Key Word(s):

Independent power plant (IPP), basic amount, capacity rate, energy rate

Reference:

Fair Trade Commission Decision of November 6, 2013 (the 1148th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 102092

Industry:

Electricity Supply (3510

Relevant Law(s):

Article 14 of the Fair Trade Law

Summary:

9 independent power plants (IPPs) achieved a mutual understanding and refused to adjust the rates of power they sold to Taiwan Power Company from August 2008 to October 2012. The FTC imposed on them an aggregate fine of 6.32 billion NT$ (same currency applies hereinafter) via Kung Ch'u Tzu Disposition No. 102035 dated March 15, 2013. The 9 IPPs found the sanctions unacceptable and appealed to the Executive Yuan. The Executive Yuan decided that "the original fines imposed on the appellants are revoked; the original sanctioning authority shall come up with a more appropriate decision within 2 months."

The FTC had made the original sanction by applying Article 41(1) together with the "Regulations for Calculation of Administrative Fines for Serious Violations of Articles 10 and 14 of the Fair Trade Law" (hereinafter referred to the Regulations for Calculation of Administrative Fines for Serious Violations) for the first time in its regulatory history to raise the upper limit of administrative fines. However, the Executive Yuan revoked the decision on the said fines on the following grounds:

(1) According to Articles 5 and 7 of the Regulations for Calculation of Administrative Fines for Serious Violations, the basic amount and upper limit of fines are established according to the calculation of administrative fines based on 30% of the sales achieved during the violation period and 10% of the sales in the preceding fiscal year. Does it serve the purpose of depriving the offenders of their unlawful gains or merely raise the upper limit of fines?

(2) As the violation began before the revision of Article 41(2) of the Fair Trade Law, could IPPs foreseen the legal consequence of receiving an increased administrative fine when engaging in the said conduct? Shouldn't the fines to be imposed be calculated separately for the violation before and after the revision of the applicable law?

(3) It was claimed that unadjusted capacity rates had caused Taiwan Power Company a loss up to 5.9 billion in 2011 and exceeding 7 billion in 2012. Is there any concrete evidence? Taiwan Power Company claimed that IPPs had agreed to revise the contract and the company would save 24.9 billion in power purchases as a consequence. Shouldn't the duration and range of each IPP's reasonable profits or unlawful gains as a result of its contract performance be clarified and distinguished instead of calculating only the statutory maximum of the administrative fine and basic amount for each IPP and imposing huge fines according to a fixed percentage?

(4) The FTC claimed that the nature of the offense of the appellants, their participation in the activities of an association and their deferment and refusal to revise contracts was not different from that of similar offenses by other businesses. However, different penalties were imposed for same culpable conduct. What were the reasons behind the decision?

The considerations taken into account in re-deliberation of the case and the administrative fines decided are as follows:?

(1) The consequences of concerted actions often have a considerable impact on the economy and consumers. For this reason, the punitive measures in most countries are not designed only to deprive offenders of their unlawful gains but also to deter similar intentions. Since the amount of sales can reflect the scale, profits and competitiveness of a business, the legislative tendency around the world is usually to calculate fines in accordance with the basic amount obtained by an enterprise during the violation period or a percentage of the enterprise's annual revenue in the preceding year. Meanwhile, the FTC's Regulations for Calculation of Administrative Fines for Serious Violations provide concrete supplementary stipulations for the regulation on imposition of administrative fines set forth in Article 41(2) of the Fair Trade Law. The regulation on the increase of administrative fines for serious violations is unquestionable and the legislative purpose of the said paragraph indicates that the regulation includes but is not limited to deprivation of unlawful gains.

(2) The related provisions added to the Fair Trade Law and promulgated on November 23, 2011 apply to law enforcement agencies as well as businesses. There should be no difference whether the FTC or the IPPs had foreseen the legal consequence or not. In both Supreme Administrative Court Judgement Pan Tzu Verdict No. 505 dated 2010 and Ministry of Justice Fa Lyu Tzu Interpretation No. 10203501570 dated February 8, 2013, concerted actions were considered continuous conduct. Despite that part of such continuous conduct took place before new regulations became effective, new regulations should apply throughout the entire period of the conduct. However, considering this case was the first time the regulation for the increase of the upper limit of administrative fines set forth in Article 41(2) of the Fair Trade Law was applied, the FTC therefore considered similar regulations in international competition law, took into account the IPPs disadvantage of having been unable to foresee the change of upper limit of fines in the regulations, and calculated the fines before and after the amendment separately.

(3) According to Article 95 of the Administrative Appeal Act, when an administrative appeal decision is conclusive and irrevocable, for the subject matter, it shall bind all relevant agencies. The FTC therefore acted in line with the Executive Yuan's decision on the appeal and provided the details of the amount of loss of Taiwan Power Company as a result of the nine IPPs' failure to adjust capacity rates, the estimated reduction in Taiwan Power Company's power purchase spending during the remaining contract periods, and the profit Taiwan Power Company already obtained as of the end of 2012 in consequence of the adjustment of energy rates. Then, the basic amount of each IPP acquired from the unlawful practice after the amendment was actuarially calculated to provide references for the FTC in the determination of the administrative fines. Since the applicable "basic amount" for each IPP way exceeded 10% of its annual sales in the preceding year, the FTC therefore referred to Paragraphs 2 and 3 of Article 41 of the Fair Trade Law, Article 36 of the Enforcement Rules of Fair Trade Law and Article 6(3) of the Regulations for Calculation of Administrative Fines for Serious Violations, took into consideration that each IPP had immediately negotiated with Taiwan Power Company as soon as the investigation had begun, shown repentance, told the truth and cooperated throughout the investigation and taken measures to remedy the damage, and adopted the same penalty standard on each IPP. Using 6% of the annual sales of each IPP in the preceding fiscal year as the basis of the fines calculation, the FTC then determined the final administrative fine after subtracting two thirds or one third according to the level of repentance, the amount of evidence provided and the degree of cooperation.

(4) After reviewing the facts of violation, choosing lighter penalties for the period before the amendment, calculating separately the illegal conduct before and after the revision of the law, removing the maximum fine of 25 million for the period before the revision and also reducing 5 million on each IPP for their efforts to establish remedial measures, a decrease of 30 million for each IPP, the FTC imposed on the nine IPPs administrative fines that totaled to 6.05 billion.

Appendix:

Offender	Uniform Invoice Number	Fine (NT$)
Mai-Liao Power Corporation	96975970	1.82 billion
Ho-Ping Power Company	16096852	1.32 billion
Ever Power IPP Co. Ltd	96933037	610 million
Hsin- Tao Power Corporation	16596337	550 million
Sun Ba Power Corporation	70783499	500 million
Star Energy Power Corporation	70783765	400 million
Kuo Kuang Power Co., Ltd	70833553	380 million
Chiahui Power Corporation	96976990	370 million
Hsing Yuan Power Co., Ltd.	27945086	100 million
Sum		6.05 billion

Summarized by Liu, Chin-Chih; Supervised by Sun, Ya-Chuan

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(1)	According to Articles 5 and 7 of the Regulations for Calculation of Administrative Fines for Serious Violations, the basic amount and upper limit of fines are established according to the calculation of administrative fines based on 30% of the sales achieved during the violation period and 10% of the sales in the preceding fiscal year. Does it serve the purpose of depriving the offenders of their unlawful gains or merely raise the upper limit of fines?
(2)	As the violation began before the revision of Article 41(2) of the Fair Trade Law, could IPPs foreseen the legal consequence of receiving an increased administrative fine when engaging in the said conduct? Shouldn't the fines to be imposed be calculated separately for the violation before and after the revision of the applicable law?
(3)	It was claimed that unadjusted capacity rates had caused Taiwan Power Company a loss up to 5.9 billion in 2011 and exceeding 7 billion in 2012. Is there any concrete evidence? Taiwan Power Company claimed that IPPs had agreed to revise the contract and the company would save 24.9 billion in power purchases as a consequence. Shouldn't the duration and range of each IPP's reasonable profits or unlawful gains as a result of its contract performance be clarified and distinguished instead of calculating only the statutory maximum of the administrative fine and basic amount for each IPP and imposing huge fines according to a fixed percentage?
(4)	The FTC claimed that the nature of the offense of the appellants, their participation in the activities of an association and their deferment and refusal to revise contracts was not different from that of similar offenses by other businesses. However, different penalties were imposed for same culpable conduct. What were the reasons behind the decision?

(1)	The consequences of concerted actions often have a considerable impact on the economy and consumers. For this reason, the punitive measures in most countries are not designed only to deprive offenders of their unlawful gains but also to deter similar intentions. Since the amount of sales can reflect the scale, profits and competitiveness of a business, the legislative tendency around the world is usually to calculate fines in accordance with the basic amount obtained by an enterprise during the violation period or a percentage of the enterprise's annual revenue in the preceding year. Meanwhile, the FTC's Regulations for Calculation of Administrative Fines for Serious Violations provide concrete supplementary stipulations for the regulation on imposition of administrative fines set forth in Article 41(2) of the Fair Trade Law. The regulation on the increase of administrative fines for serious violations is unquestionable and the legislative purpose of the said paragraph indicates that the regulation includes but is not limited to deprivation of unlawful gains.
(2)	The related provisions added to the Fair Trade Law and promulgated on November 23, 2011 apply to law enforcement agencies as well as businesses. There should be no difference whether the FTC or the IPPs had foreseen the legal consequence or not. In both Supreme Administrative Court Judgement Pan Tzu Verdict No. 505 dated 2010 and Ministry of Justice Fa Lyu Tzu Interpretation No. 10203501570 dated February 8, 2013, concerted actions were considered continuous conduct. Despite that part of such continuous conduct took place before new regulations became effective, new regulations should apply throughout the entire period of the conduct. However, considering this case was the first time the regulation for the increase of the upper limit of administrative fines set forth in Article 41(2) of the Fair Trade Law was applied, the FTC therefore considered similar regulations in international competition law, took into account the IPPs disadvantage of having been unable to foresee the change of upper limit of fines in the regulations, and calculated the fines before and after the amendment separately.
(3)	According to Article 95 of the Administrative Appeal Act, when an administrative appeal decision is conclusive and irrevocable, for the subject matter, it shall bind all relevant agencies. The FTC therefore acted in line with the Executive Yuan's decision on the appeal and provided the details of the amount of loss of Taiwan Power Company as a result of the nine IPPs' failure to adjust capacity rates, the estimated reduction in Taiwan Power Company's power purchase spending during the remaining contract periods, and the profit Taiwan Power Company already obtained as of the end of 2012 in consequence of the adjustment of energy rates. Then, the basic amount of each IPP acquired from the unlawful practice after the amendment was actuarially calculated to provide references for the FTC in the determination of the administrative fines. Since the applicable "basic amount" for each IPP way exceeded 10% of its annual sales in the preceding year, the FTC therefore referred to Paragraphs 2 and 3 of Article 41 of the Fair Trade Law, Article 36 of the Enforcement Rules of Fair Trade Law and Article 6(3) of the Regulations for Calculation of Administrative Fines for Serious Violations, took into consideration that each IPP had immediately negotiated with Taiwan Power Company as soon as the investigation had begun, shown repentance, told the truth and cooperated throughout the investigation and taken measures to remedy the damage, and adopted the same penalty standard on each IPP. Using 6% of the annual sales of each IPP in the preceding fiscal year as the basis of the fines calculation, the FTC then determined the final administrative fine after subtracting two thirds or one third according to the level of repentance, the amount of evidence provided and the degree of cooperation.
(4)	After reviewing the facts of violation, choosing lighter penalties for the period before the amendment, calculating separately the illegal conduct before and after the revision of the law, removing the maximum fine of 25 million for the period before the revision and also reducing 5 million on each IPP for their efforts to establish remedial measures, a decrease of 30 million for each IPP, the FTC imposed on the nine IPPs administrative fines that totaled to 6.05 billion.