Irish Competition Authority Decisions

1. This decision concerns an unwritten agreement, which was concluded on or around 18 July 1991 between the Electricity Supply Board (ESB) and the Register of Electrical Contractors of Ireland Limited (RECI), regarding the connection of electrical installations to the electricity supply. It was notified to the Competition Authority on 30 September 1992. The notification requested a certificate, or, in the event of a refusal to issue a certificate, a licence. Notice of intention to grant a licence was published in the Irish Times on 9 December, 1994. A number of submissions were received in response.

2. The notified arrangements involve an informal unwritten agreement between the ESB and RECI, that ESB will only connect customer electrical installations to the ESB supply provided a valid completion certificate has been prepared and submitted by an electrical contractor registered with RECI, or where the contractor is not registered with RECI, by an inspector employed by RECI. The agreement was the subject of proceedings lodged in the High Court on 7 October 1992. A number of electrical contractors took an action against the ESB alleging that the agreement was in breach of Sections 4 and 5 of the Competition Act 1991. The contractors applied for, and were granted an interlocutory injunction on 2 November 1992, restraining the ESB, pending the trial of the action, from requiring, as a condition of its contract for the supply of electricity, the supplementary obligation that the plaintiffs, their customers or employees subscribe to or obtain the approval of RECI. The High Court subsequently ruled that, for a period from September 1992 until the new rules were adopted by RECI and published in March, 1993, the ESB was in breach of Section 5 of the Competition Act because the RECI agreement was anti-competitive within the meaning of Section 4.

3. The ESB is a statutory corporation established in 1927 and operating under the aegis of the Electricity (Supply) Acts 1927-1988. It is responsible for the generation, transmission, distribution and supply of electrical power to all outlets, both domestic and commercial, in Ireland. The ESB is the parent company of a number of subsidiaries which are engaged inter alia in the engineering, consultancy, computing and fisheries industries. The ESB's total turnover in 1994 amounted to £976.51m.

4. RECI is a private company, limited by guarantee and not having a share capital. It is a voluntary organisation providing for the self regulation of the electrical contracting industry. It was incorporated on 18 June 1991 and became fully operational on 1 September 1992. The annual turnover of RECI is around £1 million. RECI was established on the recommendation of a working group set up by the Department of Energy, comprising members of the Electrical Contractors Association (ECA), the Association of Electrical Contractors of Ireland (AECI), the Electro-Technical Council of Ireland (ETCI) and the ESB (the founding members). Its stated aim was to promote and protect the interests of the public as users of electrical services so that they would obtain an acceptable standard of workmanship and technical competence within the electrical contracting industry, and to provide a high level of assistance to the industry to achieve this standard. The number of members of the company is unlimited and all registered electrical contractors are entitled to attend and vote at general meetings. The membership of RECI at the end of June, 1995 comprised a total of 1,711 members. This includes 1,000 sole traders. The number of directors must not be less than five nor more than eleven, with each of the founding members entitled to nominate a maximum of two directors to the board of the company. RECI took over the role (previously the responsibility of ETCI), of issuing completion certificates to electrical contractors following electrical installation work. An informal agreement was concluded between RECI and the ESB to the effect that the ESB would not connect electrical installations to the electricity supply network without first being furnished with a RECI completion certificate indicating that the required standard of workmanship had been attained. It is this agreement which is the subject of the notification.

5. The AECI is a trade association comprising electrical contractors who are engaged mainly in the supply of electrical services in the market for low voltage contracts. It has a membership of about 370. The ECA is also a trade association with a membership of 80 all of which are large contractors, mainly engaged in electrical contract work in the middle voltage segment of the market.

6. The arrangements concern the service of inspecting and certifying electrical installations and fittings in buildings. The relevant market affected by the notified arrangements is that for electrical installations and fittings in buildings, throughout the State, since the notified arrangements provide that the ESB will not connect any premises to the electricity mains unless a RECI certificate is provided for the premises. There are approximately 3,000 firms or individuals in the State who are engaged in the business of electrical contracting, i.e. the installation of electrical wiring and fittings. The system of issuing completion certificates was initiated in Ireland in 1976 with the ETCI certificate. This role was taken over by RECI following its establishment in 1991. RECI is the only organisation currently supplying completion certificates.

7. The notified arrangements consisted of an informal unwritten agreement which was stated to have been concluded on or around 18 July 1991. The Authority also took into account the new operational arrangements for electricity supply to new installations adopted in accordance with the notified agreement, the rules of RECI and the company's Memorandum and Articles of Association.

8. The arrangements were described in the original notification as follows:

'RECI operates as a registration body for the electrical contracting sector. ESB and RECI have agreed that ESB will only connect customer electrical installations to the ESB supply provided a valid completion certificate has been prepared and submitted by an electrical contractor registered with RECI, or where the contractor is not registered with RECI, by an inspector employed by RECI.'

It was also described later as an unwritten agreement concluded between ESB and RECI on or around 18 July 1991, whereby ESB agreed to accept as proof of compliance with the standards for electrical installations which it required for connection to the National Grid, completion certificates issued by RECI.

9. RECI effectively provided for a system of self regulation for the electrical contracting industry and set about compiling a register of electrical contractors. In addition a number of inspectors were appointed to carry out inspections of installation work by electrical contractors. RECI inspectors were responsible for two types of inspection, namely (a) spot check inspections on the work of registered contractors and (b) inspection of installations carried out by non-registered contractors and certification that such installations complied with the National Rules for Electrical Installations. The system of inspection and certification by RECI replaced the system which had been in existence prior to September 1992, whereby the certification of completed installations was the responsibility of the contractor using the ETCI forms and the ESB visually inspected each installation prior to connection. Customers were required to provide ESB with a Completion Certificate recognised by ETCI prior to connection. For non-domestic installations compliance with additional standards was required.

10. The completion certificate is used as confirmation that the installation complies with the standards set out in the ETCI's National Rules. Registered contractors can purchase completion certificates from RECI at a cost of £5 for a domestic installation, £50 for an industrial/commercial installation and £100 for a very large installation involving medium voltage. These completion certificates are issued by registered contractors in respect of their own work when an installation has been effected. An electrical contractor can become a member of RECI for an annual subscription fee of £125. However, non-registered contractors may not purchase RECI completion certificates and are obliged to have an inspection carried out by a RECI inspector who completes and signs the completion certificate, verifying that the installation meets the required standards. A standard fee of £88, including VAT of 10%, is charged by RECI for certifying the electrical installations in a domestic premises. Higher fees are charged for inspections of larger industrial and commercial premises.

11. The ETCI was established in 1972 by a number of organisations concerned with electrical standards and safety including, the ESB, the AECI, and the ECA. Its objects include the promotion of safety in electrical equipment and installations and the co-ordination of standardisation in all branches of electro- technology in harmony with international agreements. It is a voluntary body with a current membership of 20 organisations drawn from the government, semi-State sector, private sector, local authorities, the universities and the industry itself. In 1976 it adopted and promulgated the first National Rules for Electrical Installations and published a revised edition in 1991. These rules contain a form of certificate which electrical contractors should complete when an installation has been effected, stating that the particular installation complies with the National Rules for Electrical Installations.

12. Following the completion of an electrical installation, electrical contractors are obliged to arrange for connection to the national electricity supply network (the national grid) which is maintained by the ESB. The ESB will only make a connection to the national grid and power supply pursuant to its 'General Conditions Relating to Supply'. Prior to 31 August 1992 the 'General Conditions' provided that electrical contractors should complete and furnish to the ESB, an ETCI completion certificate, thereby certifying that an electrical installation effected by them complied with the ETCI's National Rules for Electrical Installations. Supply would then be effected, subject to an inspection by the ESB. It was made clear, however, in the ESB's General Conditions that it took no responsibility for testing the customer's electrical installation. The purpose of the inspection was merely to ensure that the ESB's network would not be adversely affected by the installation.

13. Although the ETCI was set up to formulate technical standards, rules and regulations governing electrical installations in the State, it was not in a position to systematically monitor the standards of electrical installations on a nationwide basis. The absence of an adequate system of verification and certification of safety in electrical installations had been a source of great concern both to the ETCI, the ESB and the Department of Energy. In 1989 a working party was set up on the initiative of the Department of Energy to look at the question of self regulation in the electrical contracting industry. The working group comprised members of ETCI, the ESB, ECA and AECI. The group produced a report in which it recognised the need for a system of regulation similar to that in operation in other member states of the EU and in EFTA countries. The report proposed the establishment of a private company, limited by guarantee and having as its members, ETCI, AECI, ECA and the ESB. In addition it proposed that the Board of Directors of the company would comprise a maximum of two nominees from each of the founding members. These proposals were adopted and implemented and led to the establishment of RECI on or about 18 June 1991. A further two members would be elected by postal ballot by the independent members of the company as adopted at the RECI meeting in March, 1993.

14. Clause 2.1 (d) of the Memorandum and Articles of Association of RECI, provided that one of its objectives was 'to establish and maintain a register of approved electrical contractors and to accept and adjudicate upon applications for enrolment on the register.' The RECI rules set out the basic enrolment requirements, qualifications and fees involved.

15. Rule 4.1 sets out the requirements to be fulfilled by an applicant for membership. An individual may apply if:

(a) (I) he/she is a person possessing technical qualifications not less than those of an electrician (a person who has served a recognised apprenticeship) with on-site experience on electrical installation work for not less than 3 years and has been responsible for the work undertaken; or who has passed such examinations as the Approvals Committee shall decide;

and

(ii) he/she is actively engaged on his/her own account at the date of application in the business of electrical installation contracting on such a scale satisfactory to the Approvals Committee;

and

(iii) he/she is in possession of suitable business premises and adequate insurances, employers liability and public liability where appropriate, equipment including test equipment, tools, plant and stocks to enable him/her render an efficient electrical installation contracting service;

or

(iv) he/she has carried out business on his/her own account as an electrical contractor for not less than 3 consecutive years full time immediately prior to application for registration and that he/she complies with (iii) above within 12 months.

or

(b) alternatively he/she has carried on the business of electrical contracting on his/her own account for such a period (normally not less than 1 year) and in such a manner the Committee shall consider to be adequate to provide efficient and continuing service to the public; and in addition, has acted in a management or supervisor's role on electrical installation work where such a period as shall, with his period of active training as an electrical installation contractor in his own right, constitute a total period of 3 years.

or

(c) alternatively, complies with paragraph (a)(ii) and (iii) above and employs a Qualifying Manager (representing one company only) as defined in Rule 6 below. Under this provision, the name of the Qualifying Manager shall be included on the enrolment of the applicant.

16. Rule 4.2 allows RECI, at its discretion and in exceptional circumstances, to accept an application from someone not meeting the requirements of rule 4.1. It also allows RECI to accept an applicant from a company whose main business is not that of electrical contracting but which satisfies rule 4.1 (a)(ii) where it is satisfied that the applicant is suitable for admission. Rule 7 provided that RECI could, at its discretion reject an application for registration without disclosing the reasons for doing so. No appeals against these arbitrary decisions were permitted. Rule 13 provides that every registered contractor must comply with the requirements of the National Joint Industrial Council currently in force and give a written undertaking to that effect.

17. Rule 16 provides that RECI may cancel a contractor's registration for a breach of any of its rules or where RECI is satisfied that it was misled by details in the application. Registration may also be cancelled under rule 16.1 if:

(iii) it be shown to the satisfaction of RECI that he has culpably or negligently created or caused to be created a risk of shock, damage or fire or the use, in work, of faulty or unsuitable materials:

(iv) it be shown to the satisfaction of RECI that the standard of electrical installation work done by him is materially below the standard of the then current National Rules for Electrical Installations, published by the Electro-Technical Council of Ireland (ETCI).

18. In addition to its ordinary membership, RECI also has a provisional category of registration for those electricians who do not meet the criteria for full membership on the Register. This category is divided into two, a Provisional A category and a Provisional B category. The Provisional A category enables those applicants who do not have the required three year’s experience in electrical installation work to be registered on the Register. Three inspections are carried out in the first year of registration under this category. The Provisional B category applies to those applicants who do not have the required three year’s experience in electrical installation work and who have only very recently completed their apprenticeship. It was introduced in response to suggestions that non registered status could make it most difficult for a young electrician to start up in business. This category requires three inspections in each of the first two years.

19. In promotional literature RECI stated that registered contractors would benefit through being listed on the Register as approved contractors and from the associated advertising. It was also stated that members would be authorised to purchase and sign Completion Certificates and that such certificates would be accepted by the ESB without further inspection.

RECI also issued what it described as an important Notice to Electricity Users which stated that:

" The REGISTER OF ELECTRICAL CONTRACTORS OF IRELAND has been established to ensure that customers can have access to the services of trained qualified Electrical Contractors in whom they can have confidence.

REGISTRATION is restricted to the technically qualified persons with practical experience in the electrical contracting business, who have the skill and equipment to provide a competent service to customers.

When you require the services of an electrician in your home or business make sure that you engage an RECI Registered Contractor. That way, you know that the job will be done to the highest standards of both workmanship and safety. The installation will be connected without further inspection to the ESB supply.

Electrical work done by non-registered electrical contractors will have to be passed by an approved inspector, for which a fee will be charged, before it can be connected to the ESB supply."

20. RECI's Memorandum and Articles of Association were amended in March 1993 and in the following month the Rules of Registration were amended as follows:

- Clause (2) (1) (d) of the original objects clause was deleted so that it was no longer an objective of the company 'to ensure that there are sufficient number of licensed and registered electrical contracts.......properly qualified to meet the standards set out by the company and who will maintain proper levels of technical and business competency and technical behaviour'.

- There was a corresponding amendment to the Rules in that it was no longer an objective of the Register 'to maintain appropriate business competency and ethical behaviour'. Thus the original vague and imprecise criteria for registration were deleted from the Rules.

- The requirement that an applicant for registration should be in possession of suitable premises was deleted from the qualifications for enrolment. (Rule 4.1 (a) (iii)).

- The original Rule 7 was amended to provide that when applications for membership were rejected, reasons for the rejection must be given and a right of appeal conferred. Thus the arbitrary aspect of the adjudication process was removed.

- The Articles of Association were amended to the effect that all contractors enrolled on the Register also became members of the company and 'independent members' were entitled to vote for two directors of the company. In addition provision was made for the nomination of an independent Chairman by the appropriate Minister. These amendments helped to ensure that the possibility of arbitrary decisions relating to applications for membership and maintenance of members on the Register would be avoided.

21. The report of the Approvals Committee of RECI dated 11 September 1992 gives details of the numbers of contractors approved for membership in the period up to 8 September 1992. It shows that during that period all 302 AECI members and all 47 ECA members assessed had been approved, although in 34 cases this was only after certain queries raised by the committee had been cleared. In the case of non members of these associations 409 out of 469 were approved for membership over this period although in 62 cases approval was only given after queries raised by the committee had been cleared. Thus, over the period, applications from members of AECI and ECA had a 100% success rate with applications delayed in just under 12% of cases by the need to respond to queries. The success rate for non-members was 87% although this includes 13% of applications which were delayed by having to respond to queries. The 1994 figures indicate that 107 applications for membership were accepted, 18 deferred and 9 rejected. Under the rules members pay an initial subscription of £85 and an annual subscription of £125 thereafter. Once on the register they can issue their own completion certificates. However, non-registered contractors are charged a fee of £88 or more by RECI in respect of every installation, to obtain a completion certificate signed by a RECI inspector.

22. The agreement was the subject of proceedings lodged in the High Court on 7 October 1992. A number of electrical contractors took an action against the ESB alleging that the agreement was in breach of Sections 4 and 5 of the Competition Act 1991. The contractors applied for, and were granted an interlocutory injunction by Mr. Justice Lardner on 2 November 1992, restraining the ESB, pending the trial of the action, from requiring as a condition of its contract for the supply of electricity, the supplementary obligation that the plaintiffs, their customers or employees subscribe to or obtain the approval of RECI. Mr Justice Costello delivered judgment in the case on 5 May 1994.

23. Mr Justice Costello ruled that the ESB was an undertaking and the trade associations were associations of undertakings. The ESB was held to have a dominant position in the market for the supply of electrical contractors' services. The agreement between the ESB and RECI was notified to the Authority and therefore protected from action insofar as section 4 applied to agreements, decisions and concerted practices. However, the Court held that for an undertaking in a dominant position, as the ESB was, to enter into agreements, decisions or concerted practices which prevented, restricted or distorted competition and which were offensive under Section 4 would amount to the imposition of unfair trading conditions within the meaning of Section 5 (2) (a). The court therefore considered whether the agreements involved in setting up RECI had the object or effect of preventing, restricting or distorting competition. It decided that neither the ESB nor RECI acted with anti-competitive intention. It decided that several aspects of the agreement and operation of RECI had the effect of restricting the ability of non-registered contractors to compete with registered contractors. A promotion campaign by RECI was found to have had such an effect. The decision by RECI to charge an inspection fee of £88 to non-registered contractors did have such an effect because it caused them extra cost. The anti-competitive effects of the above would not matter if there were no restrictions on enrolment on the RECI register. The restrictions on enrolment were:

- (i) the criteria for membership were extremely imprecise leaving a great deal of discretion to those deciding on applications for enrolment. The rules permitted arbitrary decisions to be taken which were not appealable and in respect of which no reasons had to be given.

- (ii) At least one criterion for membership was not reasonably required for the purpose for which RECI was established, namely the maintenance of safety standards, and that was the rule requiring that premises be considered suitable by RECI.

24. Mr. Justice Costello found that the combination of factors listed above imposed unjustifiable restrictions for enrolment on the Register. This resulted in a restriction on competition in the market because non-registered contractors were placed at a competitive disadvantage as a result of the advertising by RECI, and the decision by RECI to make the £88 charge.

25. The court also found that there was no intention, and no effect, of restricting competition in that the four founding members of RECI, i.e. the ESB, ETCI and the trade associations, controlled the company and the register; nor in that there were lower entry charges and annual subscription for registration for persons already members of AECI.

26. Looking at the amended version of the RECI Memorandum, Articles and Rules, the Court found that the amendments made collectively overcame the defects in the admission to membership. Clause (2) (1) (d) of the Objects was amended to delete the object that there be a sufficient number of licensed and registered contractors who would maintain proper levels of technical and business competency and ethical behaviour and there was a corresponding change to the Rules. The requirement to possess suitable premises was deleted. A right of appeal and an obligation to give reasons for refusal of registration was included. Enrolled contractors were added as members of RECI with voting rights to choose two directors. An independent Chairman was provided for, to be appointed by the Minister. The result of the amendments was that the Rules no longer constituted a barrier to entry. From the date of amendment, the ESB was no longer abusing its dominant position by imposing unfair trading conditions or for any other reason.

27. The Court also found that a number of matters complained of by the Plaintiffs were not breaches of the Competition Act. It found that the registration Rules did not impose unnecessary costs on firms so as to create a barrier to entry on the Register. The equipment which members were required to possess was reasonably required in the interest of safety. The insurance cover required was not unreasonable. The subscriptions were reasonable. The lower subscription rates to members of A.E.C.I. and E.C.A. were justified by the saving of administrative expense. The requirement of a level of technical competence was reasonable.

28. The ESB submitted that the agreement did not have the object or the effect of preventing, restricting or distorting competition in the State or any part of the State. Its purpose was to improve safety standards by providing for the recognition by the ESB of RECI completion certificates. In addition, it was argued that the arrangement did not prevent the setting up of another regulatory body or the recognition of completion certificates issued by such a body.

29. The ESB explained that the agreement would promote technical progress insofar as the system of providing completion certificates to the ESB would almost certainly ensure that completed installations complied with the National Rules. It was submitted that the arrangement would promote economic progress as the high standards required would lead to an increase in demand for the services of electrical contractors abroad. Consumers would benefit from the increased standards of safety and a reduction in the number of serious accidents or damage to property caused by faulty or bad workmanship. The ESB submitted that the agreement related to one point only and did not impose on the undertakings concerned terms which were not indispensable to the attainment of those objectives. In addition the agreement afforded no possibility of eliminating competition in respect of a substantial part of the market since it did not preclude the creation of another regulatory body and hence the possibility of future competition.

30. Following publication of notice of intention to grant a licence, several submissions were received from third parties. The relevant points made in these are set out below.

31. ASWEC, a trade association in Co. Kerry, was founded in mid 1992 because of the threat to the businesses and livelihood of its members resulting from the establishment of RECI. The members of ASWEC were all either individual traders, family firms or small companies. They submitted that the agreement, and the arrangements which existed behind the agreement, were anti-competitive both in object and effect and were prohibited by Section 4(1) and failed to fulfil the criteria for a licence under Section 4(2).

32. ASWEC had no objection to the establishment of a body for the protection of the public by ensuring proper and adequate safety standards for the carrying on of the electrical contracting trade and the policing of the national wiring rules. They submitted that their essential objection was that the agreement under which RECI had been established had both as its object and effect the restriction and prevention of competition from and on the part of electrical contractors who were viewed as being commercially unacceptable not to the ESB or RECI but to the major electrical contracting undertakings who comprised the dominant membership of the board of RECI namely the Association of Electrical Contractors in Ireland(AECI) and the Electrical Contractors Association. RECI was dominated by four founding associations, three of whom were competing undertakings and two of whom represented the majority of the larger contractors.

33. The ESB had a statutory monopoly on electricity supply and total control over who could connect any premises to the National Grid. They had then delegated control over this function to a body created by the ESB and two competing associations of electrical contractors, who were also competitors of the ESB itself in that market. ASWEC contended that the amendment to Rule 7 of RECI's rules, following the High Court case brought by ASWEC, was merely cosmetic since an applicant must pay £100 for an appeal and the appeal tribunal could be composed of competing electrical contractors.

34. They submitted that the objectives of RECI went beyond the harmonisation of uniform safety standards in electrical contracting, but sought to regulate the manner in which undertakings competed by including requirements concerning premises, stock, insurance, equipment, compliance with taxes, wages, pensions, etc. Many of these requirements were inappropriate for sole traders or family run businesses who were considered to be "unfair competition" for AECI and ECA. The registration criteria were blatantly discriminatory since the members of ECA and AECI - the founding associations - were admitted en bloc without any genuine scrutiny by RECI as the registration body and with a preferential 25% discount on their subscriptions.

35. The Association also maintained that the register was a register of trading undertakings not a genuine register of qualifications or competence in electrical wiring work. Access to the register and the self-certification function was determined by criteria based upon trading experience and the possession of premises, etc. of a standard set by other undertakings and not by reference to qualifications, training or competence. Thus consulting electrical engineers or persons not engaged full time in the trade were excluded from it. The Association also submitted that AECI and ECA regarded the arrangements as a source of trading revenue from the inspection fees and added benefit to their ability to trade against other contractors through their entitlement to self-certify their own work.

36. ASWEC submitted that the cost of completion certificates and of inspection was unrelated to its economic value as a service ( a fee of £40 was paid to an inspector for carrying out the inspection and a fee of £80 was charged by RECI for making the inspector available). They submitted that this was made possible because of the arrangements between the ESB and RECI - not to deal with any electrical contractor other than one approved by RECI - and this placed RECI in a dominant position in respect of the supply of completion certificates and enabled it to abuse that position by charging fees in excess of their economic value.

37. They submitted that the agreement between the ESB and RECI should not be examined by the Authority in isolation from the network of other arrangements between the founding associations which constituted the basis upon which the RECI regime had been established. The agreement between RECI and ETCI to purchase and re-sell completion certificates at a profit had no justification, was not indispensable and was incompatible with the criteria of Section 4(2). They pointed out that the completion certificates used by RECI and required by the ESB were in fact produced by ETCI and sold in bulk to RECI for onward sale at a higher price to contractors and inspectors. They claimed that the admitted object of this arrangement was solely to provide both RECI and ETCI with a source of income. The price of the books of completion certificates had increased from £7 to £60.50. There was no reason why RECI could not produce its own certificates since it was approved by the ESB as the regulatory body. The imposition of this requirement that contractors use the ECTI certificates was not indispensable to the attainment of the objectives of RECI.

38. ASWEC submitted that if RECI was genuinely established for the purpose of maintaining safety standards in electrical work, it had no proper function in seeking to regulate the numbers of undertakings competing in that market. This "objective" was used as a means to confine the market to undertakings which complied with the requirements acceptable to AECI and ECA. The objective concerning "ethical business behaviour" was used by AECI and ECA to impose obligations concerning wage rates and pensions on all competing undertakings. The Association referred to an article entitled "Unity in Competition" by the President of ECA in a publication entitled "Wiring Matters" which concerned the setting up of a similar body to RECI and associated issues such as 'over capacity, low prices, worsening payment practices and a growing number of self-employed people'. The qualifications for registration remained orientated towards trading experience and substance rather than with setting objective tests of qualification, skill and competence.

39. The Association further submitted that much of the publicity and media campaigns by RECI were not concerned with promoting safety standards but at deterring the public from trading with contractors who were not on the register. They pointed out the commercial disadvantages of employing contractors who were not on the register, emphasising such factors as the non-availability of ETCI certificates to such contractors, their need to obtain RECI inspections by RECI inspectors and pay additional fees and the implication that such contractors were not "approved" by the ESB (even to being described as "cowboys"). ASWEC stated that the object of RECI, under the influence of AECI and ECA, behind the status of a certifying body, was to influence the public to refrain from trading with non-registered contractors and, in effect, to exercise control over the market for electrical contracting services.

40. ASWEC submitted that the notified agreement and the associated arrangements were not entitled to either a certificate or a licence and the anti-competitive aspects were not indispensable to the attainment of the objectives of a regulatory body. The establishment of RECI was contrived to secure the anti-competitive objectives of AECI and ECA and denied consumers any fair share in the benefit that ought to result from the establishment of an impartial regulatory body. They also maintained that the objective of the founding associations in establishing RECI was for the ESB to divest itself of an expensive inspection function and for AECI and ECA in exercising control over entry to and the operation of the contracting sector. They submitted that no licence should be issued in respect of the agreement until the following conditions were met:

- that RECI should be constituted as a genuine national register of persons suitably qualified, skilled and experienced in electrical work and with the competence to comply with the ETCI National Wiring Rules;

- that the anti-competitive and commercial orientation of the existing regime should be terminated by the elimination of the purely commercial and "business ethic" requirements from its objectives and registration criteria;

- that the structure of RECI should be altered to remove the dominant control or influence or the two trade associations and a transparently impartial, objective and democratically representative board installed.

41. The Western Electrical Association submitted their objections concerning the present RECI regime and their recommendations for its restructuring as follows:

- equal representation for non-associated members on the RECI Board, i.e. non-members of E.C.A. and RECI;

- abolition of ESB refusal to give Interface to non RECI members;

- equalization of testing procedure for RECI members and non-RECI members. (At present RECI members have only one annual inspection, whereas non-RECI members have to have every job tested.);

- reduced rates for annual membership of RECI for one-man operators or small contractors;

- amendment to rule 15 of RECI Rule Book. As many small operators work from their own homes, due notification of inspection of premises was desirable;

- review of Rule 19 of RECI Rule Book since the powers at its discretion were too far reaching and could result in irreparable damage to an operative's livelihood;

- review of the costs of Certification Books and reduction of costs;

- the appeal fee or at least a portion thereof should be refundable in the case of a successful appeal;

- RECI or a similar body should operate as a separate body from the ESB;

- non-members of N.I.C.E.C.I. in the UK were not refused connection from the various electrical authorities operating there.

42. Two consumers submitted that they objected to the granting of a licence to ESB/RECI and to the continuation of the RECI regime. They maintained that RECI did not contribute to improving the standard of electrical services to consumers in its present form. Neither did RECI's operation demonstrate that it was concerned with high standards in electrical work as claimed by RECI. They further submitted that RECI was neither prepared nor equipped to enforce acceptable standards. RECI had a system of spot inspections, but the attitude of some contractors implied that they would only do the minimum, since they would only be required to re-do the work if found out.

43. They submitted that it was unreasonable that a contractor who was a member of RECI should have the opportunity to certify his own work, whereas a more competent contractor, not a member of RECI, would have to pay for an inspection by RECI, a cost which would probably be passed on to the consumer. The operation of a system whereby RECI registered contractors could certify their own work was working against consumer interests and was unfair and anti-competitive to other non-registered contractors, because a RECI member was not more competent than a non-member. RECI's unique position with the ESB had given them a status as an authority which was quite false. Every department or organisation contacted by them referred them to RECI as the body to deal with and they maintained that this impression had been created by RECI's claim to be concerned with the protection of the consumer. There should be public accountability on the part of RECI since their present system was secretive and protective of their registered members and this could only work against consumer interests.

44. Following a re-wiring job undertaken by an electrical contractor who was a member of RECI, which was claimed to be sub-standard and dangerous, the individuals concerned contacted the ESB, who referred them to RECI, to arrange a competent report on the state of the work carried out. RECI later refused to provide a copy of the report to them stating that "it is not our policy to release copies of confidential reports undertaken at our expense". RECI indicated that it was their policy to get the original contractor to re-do his work with only two inspections by them. Following further correspondence between the parties, the secretary of RECI stated: "RECI does not, and cannot involve itself in the commercial affairs of that individual member", i.e. the electrical contractor who was the subject of the correspondence. It was also claimed that another electrical contractor, also a member of RECI, who was employed to complete the work was instructed by RECI to delay commencement of the work on the property.

45. They also referred to an article in the Evening Herald of 11 Nov. 1993 concerning a letter from the secretary of RECI to its members questioning the competence of some registered contractors to certify their own installations. They felt that without extensive changes to the way RECI operated and publicised itself, to continue the present system would be working against the general interests of the consumer and that of electrical contractors. They submitted that it might be questionable whether the interests of both could be furthered by one organisation, unless that organisation was seen to have proper and open standards and procedures, including disciplinary procedures for its members.

46. The Authority had a meeting with the ESB on 5 July, 1995 to discuss the submissions received in response to the Notice of Intention. Further submissions were made by RECI in response to these. The parties responded to the Authority's concern that Rule 4.1 (a) (ii) could be used to prevent small operators from becoming members, by stating that more than 50% of the membership of RECI was made up of sole traders. The intention of the rule was to enable RECI to refuse membership to a part-time contractor, but RECI had registered one contractor who was not full-time. The Board of RECI proposed changing the wording to read: "..full-time or on a lesser scale..." for "...on such a scale...". They further proposed a change to Rule 13 by inserting the word "statutory" to clarify that it was a statutory requirement of NJIC, not of RECI itself and they pointed out that it did not apply to sole traders with no employees.

47. The parties submitted that if another Regulatory Body was set up, RECI would have no involvement in its activities in any way. The ETCI would issue the completion certificates to the new body once its rules and procedures were satisfactory to the ESB. They contended that RECI had brought about significant improved safety standards and enclosed details of the number of inspections carried out since 1992.

Table 1 : Inspections by RECI

Source : RECI

The total number of complaints received and processed by RECI to date was 223, and of these 28 were still on-going. Complaints usually related to delays in the completion of work or in certifying an installation. The number of suspensions of members was 16 and the reasons why they were suspended included breaches in the wiring rules (7), non compliance with RECI's routine inspection requirements (4) and not being in possession of Test Instruments and copies of the National Wiring Rules (5). The effect of suspension was to remove the right of self certification. While no member has had their membership cancelled, RECI has the right to cancel membership if it considered it appropriate to do so.

48. RECI also submitted that there was a very tight control of the issue of completion certificate forms. The contractor who was returning the form after completion of the installation was checked with the person to whom the form was issued. All completion certificate details were entered on computer and a data-bank of information about contractors and jobs was built up. About 50,000 certificates were completed each year. RECI's advertising had brought about the reporting of complaints by customers. All complaints had been investigated. The RECI inspectors were of the opinion that safety standards had improved significantly since RECI was formed. The ESB were also of the opinion that, due to improved quality of work, safety standards had improved.

49. The proposed amendment to Rule 13, that is the insertion of the word "statutory" into the wording of the rule, was agreed at the AGM of RECI held on 7 September 1995. At an Extraordinary General Meeting held on 10 February 1996, the members of RECI passed a resolution to amend Rule 4.1 (a) (ii) as follows:

“He/she is actively engaged on his/her own account at the date of application in the business of electrical installation contracting full time or on a lesser scale satisfactory to the Board of RECI and “.

50. Section 4(1) of the Competition Act states that 'all agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition in goods or services in the State or in any part of the State are prohibited and void'.

51. Section 3(1) of the Competition Act defines an undertaking as 'a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service.' The ESB is a corporate body engaged for gain in the generation, transmission and distribution of electrical power in Ireland. RECI is a trade association comprising independent electrical contractors engaged for gain in the installation, wiring and inspection of electrical plant and equipment. Consequently it is an association of undertakings within the meaning of Section 4(1). It is also a corporate body which provides a service, namely the checking of electrical installations and the issuing of certificates, for gain, and is therefore itself an undertaking. The notified arrangements constitute an agreement between undertakings.

52. Under the notified arrangements the ESB agreed that it will only connect electrical supply to installations provided that a valid completion certificate has been prepared and submitted by an electrical contractor registered with RECI, or where the contractor is not registered with RECI, by an inspector employed by RECI. The arrangements also provide for the issue of completion certificates for electrical plant and installations verifying that they comply with the required standards for connection by the ESB to the national electricity power supply. The Authority does not consider that the issuing of such certificates per se has the object or effect of preventing, restricting or distorting competition in the relevant market and therefore does not offend against Section 4(1).

53. As a result of the notified agreement, in September 1992, the ESB amended its General Conditions of Supply to provide that it would accept only a RECI completion certificate as evidence of compliance with the ETCI standards for the connection of electrical installations to the National grid. Prior to September 1992, the ESB accepted completion certificates which were completed and signed by the electrical contractor carrying out the installation. Under the rules of RECI members pay an initial subscription of £85 and an annual subscription of £125 thereafter. Once on the RECI register they can issue their own completion certificates. However, non-registered contractors are charged a fee of £88 or more by RECI in respect of every installation, to obtain a completion certificate signed by a RECI inspector. This results in non registered contractors being placed at a competitive disadvantage relative to registered contractors. In particular the £88 fee for each inspection represents a significant cost factor to smaller traders and places them at a competitive disadvantage relative to members.

54. Non-registered contractors are also placed at a competitive disadvantage by not being able to secure a connection for their clients to the National Grid without having their work certified by RECI inspectors. Contractors who are members of RECI are thereby given a marketing advantage by being able to promise a client a comprehensive service. An electrical contractor not registered with RECI who wishes to have an installation tested for the purposes of connection to the National Grid, has to contact RECI to arrange for an inspector to call and test the installation and furnish the appropriate completion certificate. This could cause unnecessary and undue delay. It could also lead to a situation where individuals and companies would not engage the services of non-member contractors and would effectively mean that such contractors would be compelled to join RECI in order to protect their commercial viability. This possibility was reinforced by the issue by RECI of an ´Important Notice to Electricity Users' which inter alia , urged customers to engage a RECI registered contractor as this would allow the installation to be connected to the ESB supply without further inspection, while work done by non-registered contractors would have to be passed by an approved inspector and a fee charged before connection. Therefore, in the Authority's opinion the arrangements offend against Section 4(1).

55. In order to examine the full impact of the arrangements notified, the Authority had to take into account the Rules of RECI including the criteria for membership. The rules set out the basic enrolment requirements, qualifications and fees involved and most of these were not anti-competitive. RECI, could however, at its discretion, accept applications for enrolment from applicants who did not comply with all of the specified qualifications but whom it considered suitable for enrolment.

56. Rule 4.1 sets out qualifications for enrolment. These provide that applicants must possess certain qualifications and on-site experience of electrical installation work. Most of these provisions do not offend against section 4(1) since they are necessary to ensure that the applicant is sufficiently qualified to adequately carry out electrical installation work. Rule 4.1(a)(ii) provided that an applicant had to be actively engaged on their own account in the business of electrical installation contracting on such a scale satisfactory to the Approvals Committee. Such a provision implied that membership might be restricted to applicants whose business was above a certain size. Such a provision placed smaller contractors at a commercial disadvantage since it could have resulted in their being excluded from membership. Consequently in the Authority's opinion it offended against Section 4(1).

57. Rule 4.1(a)(iii) provided that in order to qualify for enrolment an electrical contractor must be in possession of suitable business premises and adequate insurances, including employers' liability and public liability (where appropriate). In addition he/she had to possess test equipment, tools, plant and stocks to enable him/her to carry out an efficient electrical installation contracting service. In the Authority's opinion the requirement that a contractor should have a suitable premises is not required for the purposes for which RECI was established, namely, to promote and encourage safety standards in the industry and to protect the interests of the public. In addition, no specifications are laid down as to what constitutes a suitable premises. Therefore, it was again left at the discretion of those deciding on the application to decide whether the premises were acceptable. In the Authority's view, therefore, Rule 4.1(a)(iii) was unduly restrictive and unnecessary and offended against Section 4(1). This rule was deleted in March 1993.

58. Rule 7 provided that RECI could, at its discretion reject an application for registration without disclosing the reasons for doing so. No appeals against these arbitrary decisions were permitted. Therefore, a great deal of discretion was left within the power of those deciding on applications for enrolment. In the Authority's opinion such a provision was unnecessary. Membership of RECI is essential in order for an electrical contractor to be in a position to issue a completion certificate and, as already stated non-membership places a contractor at a severe competitive disadvantage. Rule 7 could impose a significant barrier to entry to the register. In the period up to 11 September 1992, 13% of applications from non-members of the AECI and ECA to join RECI were turned down, while all applicants who were members of those associations were accepted. This fact of itself does not establish that the rules were applied in a discriminatory manner. As a number of EU decisions have indicated, however, where membership of an association is necessary in order to compete in the market, membership rules must be based on reasonable and objective standards. [1] The discretionary powers contained in rule 7 did not meet such requirements. Consequently, in the Authority's opinion, Rule 7 offended against Section 4(1). This rule was amended in March 1993 in a way that dealt with the arbitrary aspects of the adjudication process.

59. With regard to Rule 4.1 (a) (ii), RECI carried through its proposal to amend this clause, at its EGM of 10 February 1996, to read '...full-time or on a lesser scale...' instead of '...on such a scale...'. This amendment dealt with the Authority's concerns as to the selection criteria used by RECI, i.e. that the rule could be utilised as a mechanism to prevent small contractors from being admitted on the basis of size, and therefore no longer offends against Section 4 (1) of the Act.

60. Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement which offends against Section 4(1) but which, ´having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not -

(i) impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;

(ii) afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.'

61. While the agreement between the ESB and RECI not to permit connection of electrical installations to the mains supply unless the installation has been certified by RECI is anti-competitive, the Authority believes that, such arrangements as amended satisfy the requirements for a licence under section 4(2). The provisions of the RECI agreement for the certification of electrical installations contributes to promoting technical progress by ensuring that certain minimum safety requirements are met and that the installation concerned would not damage the ESB's supply network or its equipment.

62. The Authority considers that consumers would benefit from such improvements in safety standards. The submission of the consumers (see paras. 42-45) raised concerns that the system may have been inadequate to ensure that the objectives of promoting high safety standards were achieved. Since its establishment, RECI has endeavoured to raise standards by means of training courses, by a strict control of the issue of completion certificates (all certificates are assessed for technical content and stored on computer), by a much increased volume of inspections carried out on registered as well as non registered electrical contractors and by investigating all complaints against electrical contractors. The Authority accepts that while the level of safety standards employed by RECI at its incorporation may have been less than ideal and that it took time to develop, improve and raise those standards, RECI has shown that it was striving to raise standards by closer and more frequent monitoring of contractors, by initiating training courses and by investigating all complaints.

63. The arrangement contains no terms which are not indispensable to the achievement of the objectives set out above. The arrangements do not afford the undertakings the possibility of eliminating competition in respect of a substantial part of the products concerned since it is open to non-members to establish an alternative certifying body and to seek the ESB approval for it. There is competition in the relevant market insofar as the members of RECI compete with each other. It does not therefore afford the undertakings the possibility of eliminating competition.

64. In the Authority's opinion Rule 4.1(a) (ii) and (iii) and Rule 7, as originally notified, would not have been licensable and in order to clarify the position it briefly outlines its reasons for this view. Rule 4.1 (a)(ii) provided that only applicants whose business was of a scale satisfactory to the RECI approvals committee would qualify for enrolment. In the Authority's opinion such a provision produced no benefits which could be shared by customers and was not therefore indispensable to the achievement of such objectives. The Authority did not consider that Rule 4.1(a)(iii) relating to the possession of suitable premises contributed to promoting technical or economic progress. This provision was not indispensable to the promotion and encouragement of safety standards. Rule 7 did not contribute to promoting technical or economic progress and could not be regarded as being indispensable to the attainment of the objectives of RECI. As all four criteria for a licence must be satisfied before a licence is granted, a licence could not have been granted to the arrangements as notified.

65. The ESB and RECI are undertakings within the meaning of the Competition Act and the notified agreement is an agreement between undertakings. In the Authority's opinion, the arrangements whereby the ESB and RECI have agreed that no electrical installations can be connected to the national electricity grid without being certified by RECI offend against section 4(1) of the Competition Act. In addition Rule 4.1(a)(ii) and (iii) and Rule 7 of the Rules of RECI had the effect of preventing, restricting or distorting competition in the electrical installation market. These provisions did not meet the requirements for a licence in Section 4(2). As these provisions have now been amended they no longer offend against Section 4(1). The arrangements now satisfy the requirements for a licence. This licence will be valid for a period of 10 years, commencing on 22 March 1996 and expiring on 21 March 2006. The Authority does not believe that it is necessary to attach any conditions to the licence.

66. The Competition Authority has granted the following licence:

The Competition Authority hereby grants a licence under Section 4(2) of the Competition Act, 1991, in relation to the agreement between the Electricity Supply Board and the Register of Electrical Contractors of Ireland Limited, whereby only electrical installations certified by the Register of Electrical Contractors of Ireland Limited may be connected to the national electricity grid,notified under Section 7 on 30 September 1992, (notification no. CA/836/92E), following the amendment of the Memorandum and Articles of Association of the Register of Electrical Contractors of Ireland Limited in March 1993, and its Rules in April 1993, September 1995 and February 1996.

The licence shall apply from 22 March 1996 to 21 March 2006.

For the Competition Authority

PATRICK MASSEY

Member

22 March 1996.