An update on energy-related case law at the CJEU
Highlights from the event: An Overview of Recent Energy Case Law from the CJEU
On 11 June 2021, the FSR hosted the latest edition of its six-monthly update on energy-related case law at the Court of Justice of the European Union (CJEU).
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Main takeaways from the event
Leigh Hancher (FSR) welcomed participants and introduced the speakers, Matthew Levitt (Partner, Baker Botts LLP, Brussels) and Adrien de Hauteclocque (Head of Cabinet of the President of the General Court).
Mr Levitt gave the first presentation of this session, discussing case law relevant to understanding the interaction between competition law and regulation. He focused in particular on the way in which some recent judgments had narrowed the scope of application of the foundational case law on access to essential infrastructure, that is the seminal ruling of the Court of Justice in C-7/97 – Bronner.
In Bronner, the Court of Justice was confronted with the question of whether a newspaper publisher should be required to allow a rival newspaper access to its nation-wide home delivery service, the only such service in Austria. Did this service constitute an essential facility?
The CJEU laid down three tests:
- Is the refusal of the service likely to eliminate all competition in the daily newspaper market?
- Is such refusal incapable of being objectively justified?
- Is the service in itself indispensable to carrying on the competitor’s business, inasmuch as there is no actual or potential substitute in existence for that home-delivery service?
The third of these tests, that of indispensability, is the key test and subject to much subsequent case law.
Mr Levitt also recalled the Court’s ruling in Van den Bergh Foods v Commission C-552/03 P. This case illustrates an important distinction. In this case, Unilever (formerly operating in Ireland as Van den Bergh Foods) was found by the Commission and then the General Court to be dominant in the supply of handheld impulse ice cream. Unilever made freezer cabinets available to retailers without separate charge, requiring, however, that only Unilever ice cream be stocked in those freezers. Mars complained about this practice.
Unilever sought to rely on Bronner, saying that this was an essential facilities case and that the Commission had failed to satisfy the indispensability test. However, both the General Court and the Court of Justice rejected this line of argument. This was because, unlike in Bronner, the remedy did not require Unilever to open up access, to hand over any asset, or to enter into any contract. Only the exclusivity restriction was the target of the Commission’s decision.
This distinction played an important role in the recent case C-165/19P – Slovak Telekom v Commission. This judgment from March 2021 concerned local loop unbundling in the telecom sector. Three practices had been alleged to be abusive, relating to the provision of information, to the scope of obligations, and to the setting of various unfair terms and conditions. This was thus not a case relating to an outright refusal of access, but a restriction of the conditions on which access would be granted.
When it came to examine these abuses, the Court looked at what it deemed to be the key principle: forcing a company to enter into a contract in order to grant access is detrimental to freedom of contract and the right to property. Further, mandating access risks disincentivising investment by dominant undertakings, as well as by competitors.
In the Court’s mind, the Bronner criteria should thus only apply in extreme situations and imposing access to essential facilities is only justified where a dominant undertaking “has a genuinely tight grip on the market … [and] where such access is indispensable to the business of such a competitor, namely where there is no actual or potential substitute for that infrastructure” (para 49).
The Court acknowledged these principles in this case. However, it found that there was an important distinction to be drawn between an outright refusal of access on the one hand, and situations where access is granted but where the allegation of abuse relates to the terms on which such access is granted, on the other. According to the Court, these latter situations are different and not subject to the same test since the dominant undertaking has already decided to grant access.
Slovak Telekom was subject to regulatory obligations requiring it to give access to its local loop network, so that it could not have refused to give access outright. However, the regulatory obligation gave Slovak Telekom the scope to impose unfair conditions, which were the subject of the case. The Court thus concluded that the Bronner indispensability test did not apply since the abusive practice consisted not in the refusal of access but in the imposition of unfair conditions.
The final case discussed by Mr Levitt was the General Court Case T-814/17 – Lietuvos geležinkeliai v Commission, which concerned the removal of a railway track, which had been found by the Commission as having the effect of preventing a customer from using the services of a competitor. This case expands on and provides interesting points about incentives. It does not look as much at unfair conditions, but rather at the impact of regulatory frameworks on incentives.
The Court found that where a dominant undertaking is subject to a regulatory framework which imposes a duty to supply, it is not appropriate to analyse such conduct under the case law concerning refusal to access to an essential facility. It held that, in essence, the evaluation of the impact on incentives to invest resulting from an access obligation had been answered by the regulatory framework. This was also the case where an undertaking’s dominant position derived from a former state monopoly. Thus, again, the Bronner indispensability requirement did not apply, and the Court instead applied a more straightforward foreclosure assessment.
The important takeaway for the energy sector from this recent case law, according to Mr Levitt, was that there is no equivalence between an outright refusal of access and a constructive refusal. The consequence of this is that it seems harder to condemn an outright refusal of access as abusive, since in this situation a dominant undertaking could have recourse to the Bronner indispensability requirement. However, the Court did not explain how the distinction between outright and constructive refusals should be applied, leaving open questions such as what would happen if an undertaking imposed conditions that were so clearly unreasonable as to have the same effect as an outright refusal.
In the energy sphere, hydrogen may be one of the areas where the Bronner conditions are more readily applicable than in other sectors which are subject to regulatory third-party access requirements.
After Mr Levitt’s presentation, Dr de Hauteclocque provided insights on the November 2020 ruling of the General Court in T-735/18 – Aquind v ACER, which is currently being appealed before the Court of Justice.
This case concerned a more institutional issue. Aquind had sought to obtain exemption from certain regulatory obligations for a proposed electricity interconnector between France and the United Kingdom. The national regulatory authorities of both countries could not reach agreement on the exemption and referred the case to ACER, which denied the application. ACER based its decision mainly on the fact that there was not enough risk attached to the project to justify an exemption and that the project could have pursued other means of financial support, especially by qualifying as a Project of Common Interest (PCI). Aquind appealed this decision to ACER’s Board of Appeal (BoA).
The BoA upheld ACER’s decision not to grant an exemption. Importantly, the BoA held that its level of review should be of the same intensity as that of the CJEU, that is a review limited to points of law or manifest error. However, the General Court annulled the BoA’s decision. The Court found that the BoA has all the powers available to ACER itself, but also powers conferred to it as the Agency’s appellate body. The BoA must set out clearly the factual and legal grounds leading to refusal so that the EU judicature can exercise its power to review the legality of the decision. It held that “unlike the EU judicature, the Board of Appeal has jurisdiction, by way of a review of expediency, to annul or replace the decisions of the Agency solely on the basis of technical and economic considerations” (para 56).
The BoA is thus required to step into the shoes of ACER and can shape the Agency’s decision. This is because “a system of ‘limited review of a limited review’ fails to offer the guarantees of effective judicial protection” (para 58). Dr de Hauteclocque stated that the fact that EU agencies tend to gain more power requires an adequate system of checks and balances, i.e. in particular an appropriate system of administrative and judicial control. In this system, the interplay between judicial and quasi-judicial review needs to be complementary. A clear division of roles is needed to achieve this.
Professor Hancher‘s ensuing intervention focused on two recent judgments by the General Court. In T-9/19 – ClientEarth v EIB, the environmental charity ClientEarth had applied to the European Investment Bank (EIB) to conduct an internal review to approve the financing of a biomass power generation plant in Spain under article 10 of the Aarhus Regulation (Regulation (EC) No 1367/2006). This Regulation is the implementation at EU level of the rights to access to environmental information, participation and decision-making created by the Aarhus Convention.
The EIB refused the request for internal review, arguing that its decision did not constitute an administrative act, that it did not produce legally binding and external effects, and that it thus could not give rise to any rights for a third party. The EIB further argued that its decision had not been adopted under environmental law within the meaning of article 2(1)(f) of the EU Aarhus Regulation.
Under article 9(3) of the Aarhus Convention, both the EU and the Member States are required to establish procedures enabling the public to challenge violations of environmental law. Specifically, it states that “each Party shall ensure that … members of the public have access to administrative or judicial procedures to challenge acts and omissions by private persons and public authorities which contravene provisions of its national law relating to the environment.”
As per art 10(1) of the Aarhus Regulation, any NGO meeting the criteria of article 11 of that Regulation is entitled to make a request for internal review to the community institution or body that has adopted an administrative act under environmental law. ClientEarth argued that the EIB had misapplied the conditions necessary for an act to be classified as an administrative act under article 2(1)(g) of the Aarhus Regulation and that it had not discharged its obligation to state its reasons for its refusal of the request as mandated by article 10(2) of the Aarhus Regulation.
In January 2021, the General Court annulled the EIB’s decision that declared the request for internal review inadmissible. It ruled that the EIB’s financing decision fell within the scope of the Aarhus Regulation and should have been open to internal review. It held that the EIB’s decision constituted an administrative act as defined by article 2(1)(g) of the Aarhus. The wide scope of this definition is able to cover funding decisions of the EIB, which takes into consideration environmental criteria when assessing the conditions for funding. Thus, the decision constituted a measure of individual scope, adopted under environmental law that produced legally binding effects.
This ruling touches on the debate as to whether the Aarhus Convention and the Aarhus Regulation should also apply to State aid decisions. The Aarhus Convention Compliance Committee (ACCC) is in favour of this, but the Commission believes that State aid decisions should not fall within the scope of the Aarhus Convention and Regulation. Professor Hancher recalled that one of the commitments of the European Green Deal is to improve access of citizens and NGOs on matters of administrative and judicial review.
This ruling is important because if an NGO is entitled to make a request for internal review, it can appeal a decision not to review and could have better chances of overcoming the high barriers to standing. Professor Hancher noted that this case is currently under appeal.
The second case discussed by Professor Hancher was T-300/19 – Achema and Lifosa v Commission and concerned a Lithuanian feed-in premium scheme for RES producers of electricity. The support scheme was financed by a levy on end electivity consumers. This so-called PIS levy covered a number of objectives and did not exclusively finance support for producers of renewable energy. All electricity consumers were subject to the PIS levy except certain categories. The Commission had found that the “logic and nature of the system” justified most of the reasons for exemption. Achema challenged this Commission decision, arguing that the Commission should have opened a full formal investigation. It was argued that the scheme was discriminatory against producers of renewable electricity established in other Member States.
The General Court agreed and rejected the Commission’s “logic and nature of the system” test. It held that the Commission’s decision was based on an incomplete and insufficient analysis of the relevant national framework and, in particular, on an improper assessment of the objectives of the PIS levy.