Short Reads

CJEU upholds its case-law on regulated energy prices

CJEU upholds its case-law on regulated energy prices

CJEU upholds its case-law on regulated energy prices

16.09.2015 BE law

Last week, on 10 September 2015, the Court of Justice of the European Union (“CJEU”) condemned Poland for not fulfilling its obligation under Directive 2009/73/CE concerning the common rules for the internal market in natural gas, more particularly Art 3, §1, §2 and §3 of this Directive (Case C-36/14). 

Art. 3, §1 stipulates that “Member States shall ensure (…) that natural gas undertakings are operated in accordance with the principles of this Directive with a view to achieving a competitive, secure and environmentally sustainable market in natural gas (…).”

Art. 3, §2 reads: “(…) Member States may impose on undertakings operating in the gas sector, in the general economic interest, public service obligations which may relate to security, including (…) quality and price of sup¬plies (…). Such obli-gations shall be clearly defined, transparent, non-discriminatory, verifiable and shall guarantee equality of access for natural gas undertakings of the Community to national consumers. (…).”

The allegation concerned Arts. 47 and 56 of the Polish energy law that obliges all energy undertakings to submit to the President of the Energy Regulation Agency (Urzad Regulacji Energetyki - “URE”), for prior approval, the supply tariffs of gas they intended to apply.

CJEU pointed out that this obligation under Polish national law violated Art. 3 of Directive 2009/73/CE because:

  1. The obligation was not limited in time, therefore giving it a permanent character;
  2. National law did not impose on the regulator to re-examine periodically the necessity and modalities of the practice depending on of the evolution of the gas sector. The possibility of re-examination is left at the discretion of the President of the URE;
  3. No distinction was made between the different types of clients (residential/ non-residential) and no distinction was made within one type of client according to their position in the market. Regarding the latter, the CJEU emphasized that no distinction was made between final (industrial) consumers and traders within the category of non-residential clients.

This ruling is in line with previous rulings of the CJEU on the subject, notably the Federutility case (Case C-265/08 of 20 April 2010) and, to a lesser extent, the ENEL case (Case C-242/10 of 11 December 2011). Notably, the CJEU in these cases ruled that regulated energy prices as a public service obligation must pursue an objective in the general economic interest and be consistent with the principle of proportionality. Such obligations must also be clearly defined, transparent, non-discriminatory and verifiable, and must guarantee those undertakings’ equality of access to national consumers.

Particularly with regard to the requirement of proportionality, the CJEU ruled that proportionality implies (i) a limitation in time, (ii) a periodic re-examination, at close intervals, and (iii) a limitation of the price regulation in principle to the price component directly influenced upwards by the specific circumstances that justify the price regulation.

In a Belgian context, the case-law of the CJEU on energy price regulation is of particular relevance with regard to the safety net mechanism set out in Art. 20bis of the Federal Electricity Act and Art. 15/10bis of the Federal Gas Act. This mechanism, which applies to residential consumers and small and medium-sized enterprises ("SMEs") with variable energy supply contracts, provides that the prices under the residential and SME contracts may only be indexed every three months pursuant to a fixed indexation formula. The safety net mechanism was introduced by the Act of 8 January 2012 and entered into force on 1 January 2013. It was prolonged by Royal Decree of 19 December 2014 until 31 December 2017.

As we indicated in an article published in the Dutch Journal for European and Economic Law (“Prijsregulering in de Belgische gas-, elektriciteits- en warmtesector”, SEW 2013, 261-277), the safety net mechanism—prima facie and based on an overall appreciation—seems to comply with the Federutility criteria. Nevertheless, to comply with the requirement of proportionality, a regular monitoring and evaluation of the mechanism is required. Currently, such monitoring and evaluation tasks are assigned to the CREG and the National Bank of Belgium. The government should not hesitate to end the safety net mechanism early if it were to turn out that there is distortion in the functioning of the energy market.

Furthermore, both the federal and the Flemish government have announced the introduction of an energy norm (“energienorm”/“norme énergétique”) in their respective coalition agreements in order to increase the competitiveness of Belgian companies and the purchasing power of Belgian households. It is unclear where the legislative preparations on this norm stand. In any case, the federal and the Flemish legislator would do well to take into account the case-law developed by the CJEU, together with any other applicable legislation (e.g. the rules on state aid), when introducing the energy norm.

Team

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