Introduction
On 12 March 2025, the General Court delivered its judgment in case T-596/22, PGI Spain, & Others v Commission.[1] PGI and the other applicants sought the annulment of Commission decision on SA.102454 and SA.102569 concerning a joint Spanish and Portuguese measure on the reduction of the electricity wholesale price in the Iberian peninsula.
In May 2022, Spain and Portugal notified a measure aiming to reduce the wholesale electricity price by supporting the costs of fossil fuel power plants. The ultimate purpose of the aid was to lead to reduction of prices on the retail market. The Commission authorised the aid on the grounds that the measure was taken in the context of the crisis in national and international energy markets, which led to higher fossil fuel prices, in particular natural gas prices. This had a significant negative impact on households and SMEs. The Commission considered that the measure was necessary, appropriate and proportionate and that it did not infringe any of the relevant provisions of EU law, in particular Regulation 2019/943 on the internal market for electricity and Directive 2019/944 on common rules for the internal market for electricity. The legal basis for the compatibility of aid was Article 107(3)(b) TFEU.
The measure was financed partly by the income of the Spanish transmission system operator and partly by contributions imposed by Spain and Portugal on certain buyers on the wholesale market.
However, several categories of electricity buyers in Spain and Portugal were exempted from the obligation to pay the contribution, namely: pumped hydro storage generators when in pumping mode; systems of energy storage, including batteries; power plants to the extent they provide ancillary services; wholesale electricity market buyers, for that part of their electricity purchases for which they had entered into contracts for the supply of electricity at a fixed price prior to 26 April 2022. The latter did not have to pay the contribution because they did not benefit from any reduction in prices, as they were contractually obliged to pay a fixed price. The buyers in the first three categories were exempted from paying the contribution because if they paid it, they would incur higher costs which would be passed on to retail electricity users, defeating the purpose of the measure.
With respect to the exemptions, the Commission examined whether they conferred a selective advantage to exempted buyers that would constitute State aid. In other words, although the measure provided aid to certain electricity generators, it could also confer an advantage to those buyers of electricity that were exempted from the contribution. In assessing possible presence of indirect aid, the Commission applied the three-step test for tax measures.
Regarding the identification of the reference system, the Commission considered in its decision on SA.102454 that “(101) the reference framework should be defined as obliging all purchasers of electricity which are benefitting from the measure via reduced wholesale prices and are purchasing electricity with a view to its final use to pay a contribution.”
“(102) Under such a reference framework, the exceptions for (i) pumped hydro storage in pumping mode and (ii) systems of energy storage such as battery storage are in line with the reference framework. Indeed, such storage systems consume electricity at one point in time, only to produce electricity from storage at a later point in time. […] excluding such consumption from paying the contribution is not manifestly inconsistent with the reference framework, as the storage consumption is fundamentally different in purpose from the final consumption of electricity, representing an intermediate step in the electricity supply chain. Furthermore, if such electricity was subject to payment of the contribution, it would be subject to double payment, as the electricity released from storage will later be consumed and the purchase for this consumption will be subject to the contribution.”
“(103) Similarly, electricity consumed by power plants providing ancillary services is electricity consumed “within the electrical system” itself. This electricity is consumed in order to ensure stability of the electric network, maintaining system frequency and voltage within secure limits. Thus, it is fundamentally different from electricity consumed by final customers outside the electricity system, and a different treatment is within the large margin of discretion accorded to Member States.”
“(104) As regards wholesale electricity market buyers, for that part of their electricity purchases for which they have prior to 26 April 2022 entered into contracts for the supply of electricity at a fixed price, the reasoning is different. This electricity is bought for consumption, and it is technically not different from other final consumption. However, the economic situation is starkly different. Whereas wholesale market buyers which buy on the spot market benefit from the reduced spot prices brought about by the measure, purchases based on long-term contracts which were concluded before the measure was known to the public did not account for those reduced spot prices. […] a market participant on a pre-existing long-term contract would only pay the contribution without benefitting from reduced wholesale prices. Excluding those market participants from the payment obligation for the contribution is thus consistent with the pursued objective of reducing prices of electricity. Even if, notwithstanding the large margin of appreciation of Member States, this was considered as derogating from the reference framework, the derogation would be justified by the nature or the general scheme of the reference system.”
“(105) Accordingly, the four exceptions provided for in the measure are in line with the reference framework and do not depart from that reference system (or any such deviations are justified by the nature of the reference system). Thus their operators do not benefit from a selective advantage.”
As we will see later on, the General Court examined this reasoning of the Commission. But first, it recalled the case law on the protection of the procedural rights of interested parties.
Protection of procedural rights
The applicants, which were large buyers of electricity not falling in any of the four categories of exemption, as interested parties and in order to safeguard their procedural rights under Article 108(2) TFEU and Article 1(h) of Regulation 2015/1589, criticised the Commission for not having found that the notified measure raised serious difficulties such as to warrant the initiation of the formal investigation procedure.
In this respect, the General Court noted that “(11) the lawfulness of a decision not to raise objections, […], based on Article 4(3) of Regulation 2015/1589, depends on the question whether the assessment of the information and evidence which the Commission had at its disposal during the preliminary examination phase of the measure notified should objectively have raised doubts both as to the classification of that measure as aid and to its compatibility with the internal market, given that such doubts must lead to the initiation of a formal investigation procedure in which the interested parties referred to in Article 1(h) of that regulation may participate”.
The General Court went on to explain that “(12) when an applicant seeks the annulment of a decision not to raise objections, that applicant essentially contests the fact that the Commission adopted the decision in relation to the aid at issue without initiating the formal investigation procedure, thereby infringing the applicant’s procedural rights. In order to have its action for annulment upheld, the applicant may invoke any plea capable of showing that the assessment of the information and evidence which the Commission had at its disposal during the preliminary examination phase of the measure notified should have raised doubts as to the classification of that measure as ‘aid’ or to the compatibility of that measure with the internal market. […] the existence of doubts concerning that classification or compatibility is precisely the evidence which must be adduced in order to show that the Commission was required to initiate the formal investigation procedure under Article 108(2) TFEU”.
“(14) If the examination carried out by the Commission during the preliminary examination procedure is insufficient or incomplete, this constitutes an indication of the existence of serious difficulties in the assessment of the measure at issue, which should have triggered the Commission’s obligation to initiate the formal investigation procedure”.
“(15) In addition, the lawfulness of a decision not to raise objections taken at the end of a preliminary examination procedure falls to be assessed by the EU judicature, in the light not only of the information available to the Commission at the time when the decision was adopted, but also of the information which could have been available to the Commission”.
“(16) However, the information which ‘could have been available’ to the Commission includes that which seemed relevant to the assessment to be carried out […] and which could have been obtained, upon request by the Commission, during the administrative procedure”.
Although “(18) it might be necessary for the Commission, where appropriate, to go beyond a mere examination of the facts and points of law brought to its notice, […] it is [not] for the Commission, on its own initiative and in the absence of any evidence to that effect, to seek all information which might be connected with the case before it, even where such information is in the public domain”.
On the basis of the above principles, the General Court proceeded to examine the various pleas. This article reviews only the most important pleas, i.e. those claiming discriminatory treatment and failure to comply with the principle of proportionality.
Was the measure discriminatory?
The applicants argued that the measure discriminated between users of electricity.
First, the General Court recalled the aim of the aid. “(32) The objective of the notified measure is to bring about a reduction in electricity prices in the context of strong upward pressure on fuel prices, […], and, […], the measure seeks to attain that objective by supporting certain sources of electricity in order to achieve a reduction in wholesale market prices, which should, as a consequence, lead to a reduction in retail market prices.”
“(33) The aim of the notified measure is to reduce the production costs of fossil fuel power plants”.
“(34) As regards, […], buyers on the wholesale electricity market, […], as beneficiaries of the reduction in prices on the wholesale market, they are subject to a contribution covering, in part, the cost of the measure, […] according to the amount of their purchases on the wholesale market. Furthermore, […] they are exempt from payment of that contribution in respect of that part of their electricity purchases for which they entered into contracts for the supply of electricity at a fixed price prior to 26 April 2022”.
“(35) As regards, […], buyers on the retail market, […] a distinction is made according to whether or not they have entered into regulated contracts”.
“(36) It is only with regard to regulated contracts that passing on both the reduction in the price of electricity and the amount of the contribution is mandatory. In the case of unregulated contracts, […], those which directly reflected changes to wholesale prices in consumption prices, that both the reduction in electricity prices on the wholesale market and the amount of the contribution would be passed on to final consumers directly. For other types of unregulated contracts, […] the passing on of the reduction in the wholesale market price and of the contribution would result from competition on the market, since there were a high number of retail suppliers on the Spanish and Portuguese markets.”
“(49) As regards, […], the ground for complaint alleging breach of the principle of non-discrimination, in so far as the applicants criticise the fact that the scope of the exemption from the contribution is limited solely to buyers on the wholesale market, that ground for complaint likewise cannot succeed.”
“(50) In that regard, first, it should be noted that such a criticism is tantamount to criticising the Commission for failing to find that the scope of the exemption from the contribution resulted in a selective advantage being conferred only on buyers on the wholesale market and therefore constituted State aid within the meaning of Article 107(1) TFEU.”
“(51) The assessment of the condition relating to the selectivity of the advantage is precisely aimed at identifying the existence of differential treatment which may, in essence, be classified as discriminatory. It involves determining whether, under a particular legal regime, the national measure in question is such as to favour ‘certain undertakings or the production of certain goods’ over other undertakings which, in the light of the objective pursued by that regime, are in a comparable factual and legal situation”.
“(52) Second, it should be noted that, […], the Commission examined whether that exemption constituted State aid within the meaning of Article 107(1) TFEU and concluded that that was not the case, since the condition of selectivity inherent in that concept was not satisfied. Furthermore, […] the Commission explicitly decided only the question whether the difference in treatment between buyers on the wholesale market, depending on whether or not they were eligible for an exemption, gave rise to a selective advantage, but did not address whether a selective advantage existed on account of buyers on the retail market being excluded from eligibility for the exemption.”
“(53) However, third, having regard to the logic of the notified measure, […], it was clear that buyers on the wholesale and retail markets were not in a comparable situation in terms of the way in which the reduction in wholesale market prices and the payment of the contribution was intended to be reflected in the price of electricity, with the result that the Commission did not have to explicitly decide whether the fact that the scope of the exemption from the contribution is limited solely to buyers on the wholesale market constituted a selective advantage.”
“(54) As regards, on the one hand, buyers on the wholesale market, those buyers purchase their electricity directly at the price deriving from that market. The advantage they enjoy depends precisely on the difference, […], between the market price as resulting from the support payment for certain sources of energy and what the market price would have been without such support payment. Similarly, [the Spanish regulator] is responsible for precisely determining the amount of the contribution and of the exemption for buyers which have not been able to benefit from the reduction in those prices.”
“(55) On the other hand, the price on the retail electricity market is formed on the basis of supply and demand on that second market. […], that factor was taken into account by the […] notified measure, since [it] envisaged, save as regards regulated contracts, not only the reduction in the price of electricity but also the amount of the contribution being passed on to consumers indirectly, as a result of competition on that market, referring to the large number of retail suppliers in Spain and Portugal.”
Proportionality
The applicants argued that the Commission should have found that the notified measure was not appropriate or proportionate and should therefore have initiated the formal investigation procedure.
The General Court held that “(71) the only relevant question is therefore whether restricting the exemption from the contribution solely to buyers on the wholesale market constituted a serious difficulty from the point of view of proportionality.”
Then it recalled that “(72) the principle of proportionality, in Article 5(4) TEU, requires that measures adopted by EU institutions do not exceed the limits of what is appropriate and necessary in order to attain the legitimate objectives pursued by the legislation in question […]; where there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued”.
“(73) A measure’s compliance with the principle of proportionality thus includes three components. The first component concerns its appropriateness, namely whether it is able to achieve the legitimate objective pursued. The second component concerns its necessity and implies that the legitimate objective in question cannot be attained by less restrictive but equally appropriate measures […] Lastly, the third component, sometimes described as ‘proportionality in the strict sense’, concerns its proportionality, namely the absence of disadvantages that are disproportionate to the aims pursued”.
“(74) As regards, more specifically, the component relating to the necessity of the notified measure, it is settled case-law that the Commission is not required to make a decision in the abstract on every alternative measure conceivable, since, although the Member State concerned must set out in detail the reasons for adopting the aid scheme in question, in particular in relation to the eligibility criteria used, it is not required to prove, positively, that no other conceivable measure, which by definition would be hypothetical, could better achieve the objective pursued. If that Member State is not under any such obligation, an applicant is not entitled to ask the Court to require the Commission to take the place of the national authorities in that task of normative prospecting in order to examine every alternative measure possible”.
“(76) It should be borne in mind that the notified measure is intended to bring about a reduction in electricity prices in the context of strong upward pressure on fuel prices linked to the crisis faced by national and international markets. […] such an objective is consistent with that envisaged in Article 107(3)(b) TFEU, which is to ‘remedy a serious disturbance in the economy of a Member State’.”
“(77) The notified measure seeks to attain that objective by supporting certain sources of electricity in order to achieve a reduction in prices on the wholesale market, which should in turn lead to a reduction on the retail market. Furthermore, […], the passing on of the reduction in prices on the retail market, with the exception of regulated contracts, is a product of competition on that market.”
“(80) It is clear that the notified measure, in so far as it limits the direct involvement of the national authorities in price formation on the wholesale market and does not extend it to the retail market, except in relation to regulated contracts, preserves as far as possible the principle of the free formation of electricity prices on the basis of demand and supply contained in Regulation 2019/943 and Directive 2019/944.”
Therefore, the General Court concluded that the measure was proportional. Since none of the pleas was upheld, the General Court dismissed the appeal in its entirety.
[1] The full text of the judgment can be accessed at:
