Introduction
On 26 September 2024, the Court of Justice [CJEU] delivered four judgments in four related cases:
C-790/21 P, Covestro Deutschland v Commission
C-792/21 P, AZ v Commission
C-794/21 P, Germany v Commission
C-795/21 P, WEPA Hygieneprodukte v Commission
All cases concerned appeals against the corresponding judgments of the General Court by which it dismissed the actions for annulment of Commission decision 2019/56 concerning a German measure supporting baseload consumers. Because the reasoning of the CJEU is nearly identical in all four cases, this article reviews only case C-792/21 P which is an appeal against the judgment in case T-196/19, AZ v Commission. This judgment was reviewed here on 9 November 2021. It can be accessed at:
https://www.lexxion.eu/stateaidpost/compensatory-payments-and-state-resources/
Background
Baseload consumers of electricity were exempted from network charges. The cost of the exemption was born by the transmission system operators. At the same time, Germany established a complementary financing mechanism under which the distribution system operators collected from end users a surcharge. An appropriate amount of the collected surcharge was then transferred to the transmission system operators in order to offset their loss of revenue resulting from the exemption.
In May 2013 the Commission initiated the formal investigation procedure to determine whether this combination of exemption and compensation constituted State aid. In May 2018, the Commission concluded that, during the period from 1 January 2012 to 31 December 2013, Germany had indeed unlawfully granted State aid. The amount of the State aid corresponded to the compensated network costs caused by the exempted baseload consumers. In addition, the Commission found that the aid in question was incompatible with the internal market and had to be recovered.
The main issue at hand was whether the exemption from network charges, whose cost was borne by transmission system operators, was compensated by state resources even though the revenue was raised from consumers.
Two alternative tests for identifying state resources
AZ claimed that the General Court applied an incorrect legal test in order to determine whether the amounts resulting from the surcharge could be classified as state resources within the meaning of Article 107(1) TFEU.
The Court of Justice of the EU [CJEU], first, recalled that “(130) a measure may be classified as an intervention by the State or as aid granted ‘through State resources’ if, first, the measure is granted directly or indirectly through those resources and, second, the measure is imputable to a Member State”.
“(131) As regards, more specifically, the condition that the advantage be granted ‘through State resources’, the Court has, in its case-law, identified two criteria for establishing that the funds by means of which a tariff advantage is granted under national legislation constitute ‘State resources’ within the meaning of Article 107(1) TFEU”
“(132) Thus, in the first place, funds financed by a charge or other compulsory surcharges under national legislation and managed and apportioned in accordance with that legislation constitute ‘State resources’ within the meaning of Article 107(1) TFEU”.
“(133) In the second place, the fact that sums constantly remain under public control, and therefore available to the competent national authorities, is sufficient for them to be categorised as ‘State resources’ within the meaning of that provision”.
Then the CJEU clarified that the above two criteria “(134) constitute alternative criteria for establishing that a measure is granted ‘through State resources’ within the meaning of Article 107(1) TFEU”.
The CJEU considered that, “(135) first, that the General Court did not err in law when, […], it held that the nature of the resources as State resources, for the purposes of Article 107(1) TFEU, may be established by means of two alternative conditions, one relating to the existence of a compulsory charge on end consumers or customers and the other to State control over the administration of the scheme and, in particular, over funds or the administrators of those funds.”
“(136) Second, […], the General Court cannot be criticised for having considered it appropriate to examine, […], whether there was State control over the funds collected by way of the surcharge at issue or over the network operators, after having found, […], that there was a parafiscal charge or a compulsory charge involving the use of State resources.”
The CJEU acknowledged that “(137) it is true that the General Court could have dispensed with that examination of whether State control existed, given the alternative nature of the two criteria which it examined. However, nothing precludes the General Court, inter alia on grounds relating to the sound administration of justice, from pursuing its reasoning with considerations that are included purely for the sake of completeness, such as, in the present case, considerations relating to the existence of State control”.
Compulsory charges
Then the CJEU clarified the nature of compulsory charges that fall within the scope of the concept of state resources.
“(139) It is not the funds financed by any charge but only those that are financed by a compulsory charge, provided for under national legislation, and managed and apportioned in accordance with that legislation, which are capable of constituting ‘State resources’ within the meaning of that provision. Moreover, […], the General Court specifically sought to determine whether the surcharge at issue was imposed by the State and was passed on entirely, under a legal obligation, to the persons ultimately liable for payment of that surcharge.”
The CJEU further clarified that the charge must be made compulsory by law. “(152) Funds financed by a charge or other compulsory surcharges under national legislation and managed and apportioned in accordance with that legislation constitute ‘State resources’ within the meaning of Article 107(1) TFEU.”
“(153) In the present case, after assessing, […], the surcharge at issue, the General Court concluded, […], that that surcharge involved the use of State resources. In support of that conclusion, it observed that [the German energy regulator] imposed on distribution system operators an obligation to collect the surcharge at issue from the network users and to transfer the corresponding proceeds to the transmission system operators. It also considered that the mechanism of that surcharge fully compensated network operators for their losses in revenue stemming from the exemption at issue, since the amount of that surcharge was adjusted to meet the financial needs triggered by that exemption. It also pointed out that that amount was determined according to a methodology set by the [German energy regulator], while noting that, […], that decision set the initial amount of the abovementioned surcharge.”
“(166) According to the Court’s case-law clarifying the criterion referred to in paragraphs 132 and 152 of the present judgment, amounts resulting from the price surcharge imposed by the State on purchasers of electricity are similar to a charge which is levied on electricity and have their origin in ‘State resources’ within the meaning of Article 107(1) TFEU. In order to be regarded as such, the funds must derive from compulsory contributions imposed by the legislation of the Member State concerned and must be managed and apportioned in accordance with that legislation, irrespective of whether the financing mechanism falls, strictly speaking, within the category of fiscal surcharges under national law. By contrast, it is not sufficient that the network operators pass on in the electricity sale price to their end customers the additional costs caused by their obligation to purchase electricity generated from certain energy sources at the statutory rates, where that offsetting is the result not of a legal obligation, but only of a practice. In such a case, the surcharge could not be regarded as compulsory”.
“(167) In the present case, it is apparent from the findings of fact made by the General Court, which it is not for the Court of Justice to review, that the [German energy regulator] required the distribution system operators to collect the surcharge at issue from the network users. It is also common ground, […], that that decision laid down the methodology by which the amount of the surcharge at issue was to be calculated each year by the transmission system operators.”
“(168) In the light of the case-law referred to in paragraph 166 of the present judgment, the Court finds that amounts resulting from a compulsory surcharge which, like the surcharge at issue, is imposed by a regulatory measure identifying the entities – even those which are private – responsible for collecting that surcharge from persons liable for payment that are also identified by that measure and defining the methodology for calculating the amount of that surcharge and its annual adjustment, have their origin in ‘State resources’ within the meaning of Article 107(1) TFEU. In particular, since that surcharge has its origin in a regulatory measure which requires network operators to collect it, it cannot be asserted that it is the result of a mere practice.”
“(169) In that regard, it is irrelevant that the regulatory measure provides only for an obligation on the part of the network operators to collect the surcharge at issue without expressly identifying an obligation on the part of the network users to pay that surcharge. The effectiveness of the legal obligation to collect that surcharge necessarily implies a symmetrical obligation to pay that charge on the part of the persons liable for such payment.”
“(170) As regards the compensation of the costs generated by the exemption at issue, first, the General Court, […], endorsed, […], the Commission’s finding in the decision at issue that the mechanism of the surcharge at issue fully compensated network operators for their losses in revenue stemming from the exemption at issue, since the amount of that surcharge was adjusted to meet the financial needs triggered by that exemption.”
“(173) It is apparent from the case-law of the Court that funds financed through compulsory charges imposed by State legislation, and managed and apportioned in accordance with 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”.
“(174) Therefore, and in so far as such entities, like the network operators, are subject to an obligation to collect the surcharges in question, the fact that the relationships between those operators and the persons ultimately liable for payment of the surcharge at issue are relationships governed by private law does not preclude the funds financed through that surcharge from being regarded as State resources. The same applies to the fact that, in the event of insolvency, losses in revenue – including unpaid amounts of the surcharge at issue – are borne by those operators.”
State control
AZ claimed that the General Court erred in law in holding that there was state control over the funds arising from the surcharge at issue.
The CJEU responded that “(182) as is apparent from the case-law cited in paragraphs 131 to 134 of the present judgment, the existence of a charge or other compulsory surcharges under national legislation and managed and apportioned in accordance with that legislation and the existence of State control over the sums in question constitute two alternative criteria for identifying ‘State resources’ within the meaning of Article 107(1) TFEU.”
“(183) In the present case, the General Court found, […], that the surcharge at issue constituted a parafiscal charge or a compulsory charge involving the use of ‘State resources’ within the meaning of that case-law.”sta
“(184) That finding is, in itself, sufficient for it to be held that the measure at issue was granted through ‘State resources’ within the meaning of Article 107(1) TFEU, without there being any need to examine whether the sums in question were under State control.”
State resources, baseload consumers, exemption, surcharge
First, it seems to me that the CJEU could or should have added that when a surcharge is imposed by law and the revenue it generates is managed and apportioned by law, the state necessarily controls that revenue. It determines what its manager must do with it. That is nothing else but control.
Second, it follows from above that establishing the compulsory nature of a charge and the corresponding compulsory use of the revenue from that charge is not an alternative test of identifying state resources but just another expression of state control.
