State Control: The Case of EEG 2012

According to the latest edition of the State aid Scoreboard, in 2017 Member States granted a total of EUR 105 billion of State aid to manufacturing and services. Of that amount, 58% or EUR 61 billion supported environmental protection and energy efficiency. The amount of aid granted by Germany for the same purpose was a staggering EUR 36 billion or 59% of all the aid in the EU that is devoted to environmental protection and energy efficiency. To put this in perspective, of the total aid of EUR 105 billion, Germany accounts for about EUR 41 billion or 39%. In other words, 88% of Germany’s State aid finances schemes for protecting the environment, increasing the efficiency of energy consumption, generating energy from renewable sources and reducing energy taxes on energy-intensive users.

In 2013-14, there was a jump of about EUR 35 billion in reported aid primarily because of the judgment of the General Court in case T47/15, Germany v European Commission. The General Court sided with the Commission in finding that a German system for supporting green electricity [the so-called EEG 2012] constituted State aid, even though it was compatible with the internal market. That judgment was reviewed here on 31 May 2016.
[http://stateaidhub.eu/blogs/stateaiduncovered/post/6451]

Now, on 28 March 2019, the Court of Justice, in case C405/16 P, Germany v European Commission, annulled both the judgment of the General Court and the original Commission decision [2015/1585]. That Commission decision was reviewed here on 7 April 2015.
[http://stateaidhub.eu/blogs/stateaiduncovered/post/1965]

It would be interesting to see how much State aid Member States will report next year.

In its decision 2015/1585, the Commission found that the EEG 2012 involved two types of selective advantage: i) support for the production of electricity from renewable energy sources [RES] through guaranteed feed-in tariffs and market premiums which raised the price of electricity above market level, and ii) a reduction of a surcharge on electricity consumption for energy-intensive users.

As mentioned above, the State aid for the support of green electricity was found to be compatible with the internal market. However, the reduction in the surcharge for energy-intensive users was considered compatible with the internal market only for certain years. Any aid falling outside the specified period was incompatible and had to be recovered.

The decisive issue in both the judgment of the Court of Justice and that of the General Court was whether the EEG surcharge resulted in transfer of state resources.

The Court of Justice recalled in paragraph 48 of its judgment the well-established principle that aid within the meaning of Article 107(1) TFEU “must be granted directly or indirectly through State resources and be attributable to the State”.

It went on to explain that “49 in order to assess whether a measure is attributable to the State, it is necessary to examine whether the public authorities were involved in the adoption of that measure.”

“53 The distinction made in that provision between ‘aid granted by a Member State’ and aid granted ‘through State resources’ does not signify that all advantages granted by a State, whether financed through State resources or not, constitute aid but is intended merely to bring within that definition both advantages which are granted directly by the State and those granted by a public or private body designated or established by the State.”

“57 Article107(1) TFEU covers all the financial means by which public authorities may actually support undertakings, irrespective of whether or not those means are permanent assets of the public sector. Even if the sums corresponding to the aid measure concerned are not permanently held by the Treasury, the fact that they constantly remain under public control, and therefore available to the competent national authorities, is sufficient for them to be categorised as ‘State resources’.”

The last sentence of paragraph 57 is often repeated by EU courts. The reference to “public control” simply means that a public authority can in principle, i.e. if it wishes to do so, determine how the resources in question may be used or for what purpose.

Then the Court began to apply the above principles to the case at hand. “58 Funds financed through compulsory charges imposed by the legislation of the Member State, managed and apportioned in accordance with the provisions of that legislation, may be regarded as State resources within the meaning of Article 107(1) TFEU even if they are managed by entities separate from the public authorities.”

“59 The decisive factor, in that regard, consists of the fact that such entities are appointed by the State to manage a State resource and are not merely bound by an obligation to purchase by means of their own financial resources.” This is also the decisive difference between landmark cases such as Essent [C-206/06] and Vent de Colere [C-262/12], on the one hand, and PreussenElektra [C-379/98] and ENEA [C-329/15], on the other.

The Court went on to examine how the transfer of state resources could impact on the state budget. This is a curious turn in the analysis of the Court because resources which fall under the control of the state need not come from the budget of the state. This is precisely the reason that a distinction is made between aid from the state and aid through state resources.

Nevertheless, “60 for the purposes of establishing whether the advantage given to the beneficiary is a burden on the State budget, it is necessary to determine whether there exists a sufficiently direct link between, on the one hand, that advantage and, on the other hand, a reduction of that budget, or a sufficiently concrete economic risk of burdens on that budget.” Indeed, aid from a state budget results in either a decrease in the budget or an increase of the liabilities borne by the state budget. There is no other possibility.

At this point, the Court turned its attention to how the EEG 2012 scheme worked. “62 It must be noted, in that the regard, that the General Court’s finding, set out in paragraph 128 of the judgment under appeal, that the Commission was correct in considering, in the decision at issue, that the EEG 2012 involved State resources, within the meaning of Article 107(1) TFEU, is based on the findings made in paragraphs 92 to 126 of that judgment and summarised in paragraph 127. In that paragraph, the General Court noted that the mechanisms resulting from the EEG 2012 derived, principally, from the implementation of a public policy, laid down by the State through the EEG 2012, to support producers of EEG electricity. It then indicated, first, that the funds generated by the EEG surcharge and administered collectively by the TSOs [the operators of high-voltage lines] remained under the dominant influence of the public authorities, secondly, that the amounts in question, generated by the EEG surcharge, were funds which involve a State resource and can be assimilated to a levy and, thirdly, that it could be concluded from the powers and tasks given to the TSOs that they did not act freely and on their own behalf, but as administrators, assimilated to an entity executing a State concession, of aid granted through State funds.”

“63 However, the General Court’s statement that, in essence, the mechanisms resulting from the EEG 2012 derived from implementation of a public policy, laid down by the State, to support producers of EEG electricity merely repeats the conclusion, previously set out in paragraph 40 of the judgment under appeal, that those mechanisms must be regarded as imputable to the State. As is apparent from the case-law cited in paragraph 48 of the present judgment, that factor, although necessary for the purposes of classifying the advantages resulting from the mechanisms set up by the EEG 2012 as ‘aid’ within the meaning of Article 107(1) TFEU, is not sufficient in itself for such a classification to be accepted. It is necessary to demonstrate that the advantages in question are granted directly or indirectly through State resources.”

In other words, the forced purchase of green electricity by the network operators was attributable to the state. It conferred an advantage to producers of green electricity. But it does not follow that green electricity producers received State aid. The resources used by the network operators may have been their own, which implies that they did not come under the control of the state. Since the state did not forgo any resources it controls, no State aid was granted.

“65 As regards the claim that the amounts generated by the EEG surcharge are funds involving a State resource which can be assimilated to a levy, it must be recalled that, in point 105 of the decision at issue, the Commission classified that surcharge as a ‘special levy’.”

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“66 The General Court noted, in paragraph 95 of the judgment under appeal, that ‘electricity suppliers in practice pass[ed] on the financial burden resulting from the EEG surcharge to the final customers’, that that passing on should have been regarded ‘as a consequence foreseen and organised by the German legislature’ and that the price supplement or additional charge that the final electricity consumers were ‘de facto’ required to pay’ constituted ‘a charge that is unilaterally imposed by the State in the context of its policy to support producers of EEG electricity [which] can be assimilated, from the point of view of its effects, to a levy on electricity consumption in Germany’.”

“67 It was on the basis of those findings that the General Court stated, in paragraph 96 of the judgment under appeal, with reference ‘by analogy’ to the judgment of …, Essent Netwerk Noord and Others (C206/06, …, paragraph 66) that the amounts generated by the EEG surcharge were funds involving a State resource that can be assimilated to a levy; that statement was repeated in paragraph 127 of the judgment under appeal.”

“68 However, in paragraph 66 of the judgment of …, Essent Netwerk Noord and Others (C206/06), the Court of Justice, for the purposes of classifying a price supplement imposed on the electricity purchasers in question in that case, referred to paragraph 47 of that judgment. The finding set out in the latter paragraph, to the effect that the supplement in question ought to have been classified as a levy, was based, inter alia, on the fact, referred to by the Court of Justice in paragraph 45 of that judgment, that that price supplement constituted a charge unilaterally imposed by law, which the consumers were required to pay.”

“69 The findings of the General Court in paragraph 95 of the judgment under appeal did not permit an analogy to be drawn between that price supplement and the EEG surcharge.”

“70 As the General Court noted in paragraphs 7 to 9 of the judgment under appeal, the EEG surcharge represents any difference between the price obtained by the TSOs on the spot market of the EEG electricity exchange which they feed into their network and the financial burden imposed on them by the statutory obligation to pay for that electricity at the rates laid down by law, a difference that the TSOs are entitled to require the suppliers to the final customers to pay. By contrast, the EEG 2012 does not require those suppliers to pass on the amounts paid in respect of the EEG surcharge to the final customers.”

“71 The fact, noted by the General Court in paragraph 95 of the judgment under appeal, that ‘in practice’, the financial burden resulting from the EEG surcharge was passed on to the final customers and, consequently, could ‘be assimilated, from the point of view of its effects, to a levy on electricity consumption’ is not sufficient for it to be concluded that the EEG surcharge had the same characteristics as the electricity price supplement examined by the Court of Justice in the judgment of … Essent Netwerk Noord and Others (C-206/06).”

Before reviewing the rest of the judgment, it is worth pausing at this point to appreciate the essence of the reasoning of the Court of Justice. A levy is a tax whose rate is determined by law. As in the case of all taxes, the law that imposes a levy must also determine who is obliged to pay it [otherwise no one pays taxes voluntarily], who collects the revenue and what happens to the revenue once it is collected. Since the levy generates identifiable or measurable revenue, it is clear why that revenue counts as state resource, even if it never enters the budget of the state. The same cannot be said for the EEG surcharge. The surcharge entitled network operators to seek compensation from distributors in order to cover the losses they incurred by having to buy expensive green electricity. The obligation to buy green electricity was imposed by the state while the right to seek compensation was granted by the state. In effect, that right enabled network operators to cover their losses with other people’s money [that of distributors]. These features [the obligation to buy and the right of compensation] normally characterise state measures. The difference, however, is that here the surcharge did not define the amount of resources that were earmarked for compensation of network operators, nor did it oblige distributors to pass it on to final consumers. This latter aspect also meant that distributors did not have the legal right to pass it on. However, in practice, they were able to pass it on, but they bore competitive risk whenever they attempted to do so. Although the effect of the surcharge on the retail market for electricity may have been indistinguishable from that of a levy, there were also crucial differences; namely that no precise amounts were earmarked and that distributors bore the risk of having to pay network operators out of their own pocket. So, it is true that the surcharge was not equivalent to a fixed levy [because part of it could have been absorbed by distributors], but was that enough to remove it from the realm of state resources? It should be borne in mind that all taxes are partly paid by sellers and partly paid by buyers, depending on the relative elasticity of demand and supply. Moreover, in theory, a variable levy could imitate the effects of the surcharge, which fluctuated according to the difference between feed-in tariffs and wholesale prices. In practice the economic effects of a (variable) levy and the surcharge would probably be very similar.

The Court of Justice distinguished between a levy on consumers and the obligation of distributors to compensate network operators. It is not clear whether this was the decisive element or whether the decisive element was that the EEG 2012 surcharge did not involve an ex ante fixed amount that had to be passed on from distributors to network operators.

Legally, it should make no difference whether a levy is paid directly by consumers or a surcharge is paid by distributors who may then try to pass it on to consumers. The difference between a levy and the surcharge was that the surcharge did not involve a pre-determined amount. But should it make a difference if the state defines a predetermined amount or a variable amount which is made up by the difference between the buying and selling price of electricity? In PreussenElektra the state only obliged network operators to buy green electricity. Green electricity producers received no State aid because no state resources were involved. Now the state obliges network operators to buy green electricity and at the same time compels distributors to compensate network operators for their variable loss from buying more expensive green electricity. I believe that the moment the state identifies the resources that are to be used for the compensation, those resources come under the control of the state because they cannot be used for any other purpose. It is irrelevant that the compensation was paid initially by distributors instead of final consumers and it is also irrelevant that the surcharge was variable.

At any rate, the Court added that “72 it is necessary to determine whether the other two factors, … recalled also in paragraph 62 of the present judgment, allowed it nonetheless to conclude that the funds generated by the EEG surcharge constituted State resources, since they constantly remained under public control and were therefore available to the public authorities, …. In that situation, it is irrelevant whether or not the EEG surcharge may be classified as a ‘levy’.”

“73 It must, however, be noted that the General Court failed to establish that the State held a power of disposal over the funds generated by the EEG surcharge or even whether it exercised public control over the TSOs responsible for managing those funds.”

“74 First, the General Court held that the funds generated by the EEG surcharge were not at the disposal of the State but solely under the dominant influence of the public authorities, in so far as they were collectively administered by the TSOs, which could be collectively assimilated to an entity executing a State concession. It merely found, in that regard, that the funds from the EEG surcharge were, first, managed for purposes in the general interest by the TSOs, in accordance with detailed rules defined beforehand by the legislature, and, secondly, allocated exclusively to the financing of the support and compensation schemes, to the exclusion of any other purpose.”

“75 Without it being necessary to rule on the merits of the classification as a State concession thus applied by the General Court, it must be held that, although it is true that the factors thus accepted indicate the legal origin of the support for EEG electricity implemented by the EEG 2012, they are, however, not sufficient to conclude that the State nevertheless held a power of disposal over the funds managed and administered by the TSOs.”

“76 In particular, the fact that the funds resulting from the EEG surcharge are allocated exclusively to the financing of the support and compensation schemes, by virtue of the provisions of the EEG 2012, does not mean that the State may dispose of them, within the meaning of the case-law cited in paragraph 57 of the present judgment. That legal principle of exclusive allocation of the funds resulting from the EEG surcharge tends rather to show, in the absence of any other evidence to the contrary, that the State was specifically not entitled to dispose of those funds, that it is say to decide on an allocation which differs from that laid down in the EEG 2012.”

The last sentence of paragraph 76 appears to be self-contradictory. If the state determines how the funds resulting from the EEG surcharge are to be used, it follows that the state does not want them to be used for other purposes. But that is the case in every grant of State aid! In what sense would the state want to decide on a different allocation than that it had already defined itself in the EEG 2012? If it would change its mind, it would simply change the law. Perhaps what the Court of Justice wants to say is that a resource over which the state can exercise control is a resource that can in principle be assigned to different uses and therefore the state has a variety of different options from which to choose. This interpretation is reinforced by the reference of the Court to “exclusive allocation” and “power of disposal”. If this is what the Court wants to say, there are too problems with it.

First, the cases cited by the Court do not allow that inference. The two cases which are cited in paragraph 57 of the current judgment [France v Commission, C482/99, paragraph 37, and ENEA, C329/15, paragraph25] and the other judgments cited in those two cases [such as C677/11, Doux Elevage and C-262/12, Vent de Colere] all use the same phrase: the fact that resources “constantly remain under public control, and therefore available to the competent national authorities, is sufficient for them to be categorised as State resources”. They refer to availability, not exclusive allocation or power of disposal.

Second, Member States can bypass Article 107(1) by establishing measures such as the EEG 2012 with which to allocate identified resources to exclusive policy purposes or undertakings.

Then the Court turned its attention to the degree of influence of the state over network operators. According to the Court of Justice, “77 the General Court failed to establish that the TSOs remained constantly under public control, or that they were subject to public control.”

“78 In that regard, it must be noted that the General Court, indeed, endeavoured to show, …, that the TSOs, responsible for managing the system of aid for the production of EEG electricity, were monitored in several respects in that task.”

“79 First, the General Court found …, that the TSOs could not use the funds resulting from the EEG surcharge for purposes other than those laid down by the legislature. Next, it noted, …, that the TSOs were under an obligation to administer those funds in a specific joint account and added that compliance with that obligation was subject to control by State authorities, …, without, however, expressing a view on the nature and extent of that control. Finally, the General Court set out, …, that the State authorities, …, carried out strict monitoring at various levels of the activities of the TSOs, checking, inter alia, that the TSOs sold EEG electricity in accordance with Paragraph 37 of the EEG 2012 and established, set, published and charged electricity suppliers the EEG surcharge in compliance with the legislative and regulatory requirements.”

“80 While the factors thus accepted permit the conclusion that the public authorities monitor the proper implementation of the EEG 2012, they cannot, by contrast, permit the conclusion that there is public control over the funds generated by the EEG surcharge themselves.” It is not clear on which grounds the Court of Justice reached this conclusion.

“81 The General Court, however, concluded its analysis, …, by finding that that monitoring, which fell within the general approach of the overall structure provided for in the EEG 2012, corroborated the conclusion, drawn from analysis of the tasks and obligations of the TSOs, that they did not act freely and on their own behalf, but as administrators of aid granted through State funds. It added that, even if that monitoring has no direct effect on the day-to-day administration of the funds in question, it was an additional factor designed to ensure that the TSOs’ activities do indeed remain circumscribed within the framework laid down in the EEG 2012. Finally, it noted …, that the fact that the State does not have actual access to the resources generated by the EEG surcharge, in the sense that they indeed do not pass through the State budget, did not affect the State’s dominant influence over the use of those resources and its ability to decide in advance, through the adoption of the EEG 2012, which objectives were to be pursued and how those resources in their entirety were to be used.”

“82 It is true that, as the General Court held …, and as stated in paragraph 58 of the present judgment, the Court of Justice has had occasion to hold that funds financed through compulsory charges imposed by the legislation of the Member State, managed and apportioned in accordance with the provisions of that legislation may be regarded as State resources within the meaning of Article 107(1) TFEU even if they are managed by entities separate from the public.” [The Court referred to the Vent de Colere case.]

“83 However, the solution adopted by the Court of Justice in that case was based on two key factors, which are lacking in the present case.”

“84 The Court of Justice took care to point out, on the one hand, that the national legislation at issue in the case giving rise to that judgment had established a principle that the obligation to purchase would be covered in full by the French State, requiring the French State to discharge past debts and to cover in full the additional costs imposed on undertakings should the sum of the charges collected from final consumers of electricity be insufficient to cover those additional costs …. In doing so, the Court of Justice found that there was a link between the advantage in question and a reduction, at the very least potential, in the State budget.”

“85 The Court of Justice held, on the other hand, that the sums intended to offset the additional costs arising from the obligation to purchase imposed on the undertakings were entrusted to the Caisse des dépôts et consignations [a French public long-term investment group], that is to say a public law entity appointed by the French State to provide administrative, financial and accounting management services for the Commission de régulation de l’énergie (French energy regulation authority), the independent administrative authority responsible for ensuring the proper functioning of the market for electricity and gas in France, with the result that those sums must be regarded as remaining under public control.”

“86 It is therefore necessary to conclude that nor did the other factors referred to by the General Court in paragraph 127 of the judgment permit the conclusion that the funds generated by the EEG surcharge constituted State resources.”

Since, on the basis of the above reasoning, the Court of Justice proceeded to annul the judgment of the General Court, it also considered whether it could give final judgment on the appeal by Germany against Commission decision 2015/1585.

The Court of Justice concluded that “90 for the reasons set out in paragraphs 48 to 87 of the present judgment, the Commission has failed to establish that the advantages provided for by the EEG 2012, namely the scheme supporting the production of electricity from renewable energy sources and mine gas financed by the EEG surcharge and the special compensation scheme reducing that surcharge for energy-intensive users involved State resources and therefore constituted State aid within the meaning of Article 107(1) TFEU.” The Court annulled the Commission decision too.

In PreussenElektra, Germany obliged network operators to buy more expensive green electricity. That obligation involved no State aid because no resources were identified by the state for the purpose of financing the purchasing of green electricity. Therefore, the resources used by the network operators did not come under the control of the state.

In the present case, network operators had a similar obligation to buy green electricity. Although the financial cost was not measurable ex ante, they could pass it on to distributors through a surcharge. Distributors, in turn, could pass it on, if market conditions allowed them, to final consumers. With the benefit of hindsight, the General Court should not have tried to determine whether the surcharge could be “assimilated” to a levy on final consumers. It was neither relevant, nor decisive. The essence of the issue at hand was whether the resources that were earmarked for the compensation of network operators were at the “disposal” of the state.

The General Court, in the judgment that was annulled, considered that the difference between PreussenElektra and EEG 2012 was that in the case of the former the network operators bore the risk of absorbing all of the difference between feed-in tariffs and wholesale prices, while in the latter they were fully compensated.

The Court of Justice focused on different matters: whether the resources used were exclusively allocated for that purpose or whether they were at the disposal of the state and the degree of influence that the state could exercise over network operators. We are now left puzzled by the meaning of terms such as “exclusive allocation” and “power of disposal” by the state and whether there is any difference in practice between the exercise of overall control by the state over an undertaking and the exercise of control over part of the resources used by that undertaking.