Introduction
On 12 January 2023, the Court of Justice delivered its judgment in joined cases C-702/20, DOBELES HES and C-17/21, Sabiedrisko pakalpojumu regulēšanas komisija.[1]
A Latvian court requested the Court of Justice to provide a preliminary ruling on the interpretation of Article 107(1) TFEU, Article 108(3) TFEU, Regulation 1407/2013 on de minimis aid and of the procedural Regulation 2015/1589.
The requesting Latvian court was adjudicating a dispute concerning alleged loss of revenue resulting from the fixing of a too low price of electricity purchased by a distribution company from the producers of that electricity. DOBELES HES, Sabiedrisko pakalpojumu regulēšanas komisija [the applicants] and other producers of electricity from renewable energy sources [RES electricity] claimed that the Latvian energy regulator failed to fix the price correctly. Consequently, they demanded compensation for damage. The damage corresponded to the difference between the price paid to the applicants by the distributor and the price at which the latter was supposed to have purchased electricity from them. The sums involved were very small and did not exceed EUR 3500.
According to Latvian law, electricity distribution companies were obliged to purchase from small hydroelectric plants their surplus electricity for a period of eight years from the start of their operation at a price that was higher than the market price in a certain period.
The Latvian court of first instance decided to award those sums, but because it considered that they could constitute state aid, it made their payment conditional on approval by the European Commission. The regulator appealed to the referring court which stayed the proceedings to await the reply of the Court of Justice on a number of disputed issues.
Was the obligation of the distributor to buy electricity funded with state resources?
The referring court asked whether there was transfer of state resources when the electricity distributor was obliged by law to purchase RES electricity at a price higher than the market price and the additional costs of the distributor were offset by revenue from a compulsory surcharge on consumers of electricity.
The Court of Justice, first, noted that “(32) 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, secondly, the measure is imputable to a Member State”.
“(33) As regards, in the first place, the condition relating to the imputability to a Member State, clearly the compensation mechanism at issue in the main proceedings was established by legislation and it is therefore imputable to the Member State concerned”.
“(34) As regards, in the second place, the condition that the advantage be granted ‘through State resources’, …, the Court has held that 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”.
“(35) Funds must thus be regarded as ‘State resources’ within the meaning of Article 107(1) TFEU if they derive from compulsory contributions imposed by the legislation of the Member State concerned and are managed and apportioned in accordance with that legislation … It is therefore irrelevant that the financing mechanism at issue does not, strictly speaking, fall within the category of fiscal levies under national law”.
Then the Court of Justice made an important clarification.
“(36) The fact that the financial burden of the surcharge is borne in practice by a defined category of persons is not sufficient to establish that the funds resulting from that surcharge are in the nature of ‘State resources’ within the meaning of Article 107(1) TFEU. It is also necessary for that surcharge to be compulsory under national law.”
“(37) Thus, the Court has held that it is not sufficient that the system operators pass on in the electricity sale price to their final customers the additional costs caused by their obligation to purchase electricity generated from renewable energy sources at the statutory rates, where that offsetting is the result only of a practice and not of a legal obligation”.
“(38) It is apparent from the foregoing that funds financed by a levy 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.”
“(39) However, …, the criterion mentioned in the preceding paragraph of the present judgment is not the only criterion for identifying ‘State resources’ within the meaning of that provision. 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’”.
The Court cited here the landmark Stardust Marine case where the state was involved in the decisions of the then state-owned Crédit Lyonnais bank. Therefore, the resources which are classified state resources are those which i) come from the budget of a public authority, ii) are private but are identified by the state and their use is determined by the state or iii) are managed by an entity that is owned or supervised by the state.
Then the Court turned its attention to the present case. “(40) The additional cost represented by the purchase by the approved distribution undertaking of electricity generated from renewable energy sources at a price corresponding to twice the average electricity sale price is financed, under the Latvian legislation concerned, by a compulsory surcharge borne by all end-users in proportion to their consumption.”
“(41) Furthermore, …, the funds resulting from that surcharge are collected, managed and apportioned by a company wholly owned by the Member State concerned and cannot be spent for purposes other than those provided for by law, namely offsetting the additional cost mentioned in the preceding paragraph. Those funds thus constantly remain under public control.”
“(42) It follows that, …, the funds by means of which a tariff advantage is granted, pursuant to the Latvian legislation concerned, to producers of electricity from renewable energy sources are ‘State resources’, within the meaning of Article 107(1) TFEU, in the light of the two alternative criteria of that concept set out in paragraphs 38 and 39 above.”
Is an advantage granted only in liberalised market?
The referring court asked whether the classification of an advantage as state aid was subject to the condition that the market concerned had first been fully liberalised.
The Court of Justice replied that “(51) State aid is liable to affect trade between Member States and to distort or threaten to distort competition, even though the market concerned is only partially open to competition. In order for an intervention by the State or through State resources to be liable to affect trade between Member States and to distort or threaten to distort competition, it is sufficient that, at the time of the entry into force of an aid measure, there is a situation of effective competition on the relevant market”.
“(52) It follows that an advantage granted to certain undertakings is liable to affect trade between Member States and distort competition even before the full liberalisation of that market”.
“(53) Accordingly, the date of complete liberalisation of the electricity market in Latvia is irrelevant for the purpose of determining whether the aid provided by the public operator in that Member State … must be classified as State aid.”
Can payment of past sums owed to the applicants be state aid?
The referring court asked whether payment of past sums claimed by the applicants could constitute state aid.
The Court of Justice, first, recalled that “(59) State aid, which constitutes measures of the public authority favouring certain undertakings or certain products, is fundamentally different in its legal nature from the damages which the national authorities may be ordered to pay to individuals in compensation for the harm they have caused to those individuals. Thus, damages do not constitute State aid within the meaning of EU law”.
“(60) On the other hand, …, it is irrelevant, for the purpose of determining whether sums correspond to ‘State aid’, whether actions seeking payment of those sums are classified as ‘claims for compensation’ or as ‘claims for damages’ under national law.”
“(61) In the present case, …, the Latvijas Republikas Satversmes tiesa (Constitutional Court) found that, as a result of an error of interpretation [of the relevant Latvian law], the regulatory authority had wrongly failed to update the purchase price for electricity generated from renewable energy sources”.
“(62) On the other hand, it is not apparent from the explanations provided by the referring court that the sums at issue in the main proceedings are in the nature of ‘damages’ …. The applicants in the main proceedings do not seek compensation for harm distinct from that consisting of the complete non-payment of the advantage to which they consider they were entitled under the Latvian legislation concerned between 2006 and 2008. The position, by contrast, would have been different if the actions in the main proceedings had sought compensation for harm resulting from that non-payment.”
“(63) It follows that the sums at issue in the main proceedings are of the same kind as those already obtained … by the applicants”.
“(64) In those circumstances, the classification of sums such as those claimed by the applicants … as ‘State aid’ depends on whether the advantage granted to producers of electricity generated from renewable energy sources under that legislation itself constitutes State aid.”
“(65) Where national legislation has established ‘State aid’ within the meaning of that provision, the payment of a sum claimed before the courts in accordance with that legislation also constitutes such aid.”
Does payment ordered by court of the claimed sums constitute new state aid?
Then next question was whether, in case the payment of higher electricity prices was state aid in the first place, the payment ordered by court of claimed sums was new state aid.
The Court of Justice considered that if the “(68) tariff advantage constitutes ‘State aid’ within the meaning of Article 107(1) TFEU, the claims of the applicants in the main proceedings correspond to a request for payment of a portion of that State aid.”
“(69) However, according to the Commission, the sums granted by the national court to the applicants in the main proceedings constitute State aid distinct from the tariff advantage established by the Latvian legislation concerned.”
“(70) In support of its argument, the Commission submits, first of all, that the legal basis for the ‘State aid’ granted to the applicants in the main proceedings in the judgments of the Administratīvā apgabaltiesa (Regional Administrative Court) is not the Law on Energy but the judgments of that court themselves.”
“(71) However, it should be noted that, in those judgments, that court granted the sums claimed by the applicants in the main proceedings by expressly applying the Law on the electricity market as interpreted by the Latvijas Republikas Satversmes tiesa (Constitutional Court).”
“(72) Next, relying on paragraph 17 of the judgment of 8 December 2011, France Télécom v Commission (C‑81/10 P, EU:C:2011:811), the Commission considers, generally, that, from the point of view of EU law, it is irrelevant whether State aid is granted by a court or by another authority, in particular administrative authorities. It argues that State aid measures are objectively defined by their effects and not by their causes or objectives. If State aid could not be granted by a national court, the concept of ‘State aid’ would not be defined ‘objectively’, depending on the effects of the measure concerned, but ‘subjectively’, according to the public authority which adopted it.”
“(73) However, … [the fact that] ‘State aid’, under Article 107(1) TFEU, is characterised by its effects and not by its objectives, does not mean that State aid is exhaustively defined by its effects, to the exclusion of all other criteria. State aid is also defined by its nature, if only because it is granted ‘through State resources’, as Article 107(1) TFEU expressly provides. Consequently, the case-law cited by the Commission does not have the scope which the Commission ascribes to it. In particular, no conclusion can be drawn from that case-law concerning the possibility of a national court granting State aid.”
The statement of the Court in paragraph 73 is surprising because numerous judgments hold that the concept of state aid is objective in the sense that it is determined by its effects. In previous judgments the Court did not mention criteria other than the effects of the aid. It is also not possible to understand the meaning that the Court attributes to the “nature” of state aid, given that all state aid is a reflection of public policy. Also, if the concept of state aid is objective, it is not clear how its nature affects its objective status.
“(74) Lastly, the Commission relies on the judgment of 4 March 2020, Buonotourist v Commission (C‑586/18 P, EU:C:2020:152), in which the Court held that the Italian Republic had, by a judgment of the Consiglio di Stato (Council of State, Italy), granted a bus transport service provider State aid consisting of compensation for its public service obligations.”
“(75) However, it should be noted that, in that judgment, the Court merely stated, as is apparent from paragraph 97 thereof, that the aid measure at issue ‘had been the subject of a decision of the Consiglio di Stato (Council of State)’. Although the national court may, where appropriate, deliver a judgment from which it follows that one of the parties must, in accordance with national law, receive a sum corresponding to State aid, that does not mean that, in that case, it itself grants that aid. Such a judgment has the sole effect, by virtue of the principle of res judicata, of requiring the other party, generally the competent administrative authority, to pay that aid. Thus, in the case which gave rise to the judgment of 4 March 2020, Buonotourist v Commission (C‑586/18 P, EU:C:2020:152), the compensation for public service obligations had been provided for by a decision of the Italian authorities, as is apparent from paragraph 17 of that judgment.”
“(76) In any event, the establishment as such of State aid cannot result from a judicial decision. The establishment of State aid entails a decision as to the appropriate course of action which falls outside the scope of a court’s powers and obligations.”
This statement appears, at first sight, to contradict the judgment in case C-590/14 P, DEI & Commission v Alouminion [paragraphs 105-108]. But a closer reading of the judgment reveals that the Court of Justice merely held that a national court may not consent to a measure that would result in the granting of new state aid if such a measure would infringe Article 108(3). This does not mean that it is the national court that grants the aid.
The Court of Justice added that “(78) if the national legislation concerned is deemed to establish an advantage constituting State aid in favour of producers of electricity from renewable energy sources, the sums allocated to the applicants in the main proceedings in the cases which gave rise to the judgments of the Administratīvā apgabaltiesa (Regional Administrative Court) cannot in any event be regarded as constituting State aid distinct from that advantage.”
“(79) Where national legislation establishing a statutory right to a higher payment for electricity generated from renewable energy sources constitutes ‘State aid’, within the meaning of that provision, legal proceedings seeking full entitlement to that right must be regarded as requests for payment of the portion of that State aid not received, and not as requests for the grant by the court seised of a separate State aid.”
Is the claimed compensation de minimis aid?
The referring court asked whether Regulation 1407/2013 on de minimis aid could apply to the amounts requested by the applicants.
The Court of Justice, first, observed that although “(91) national courts do not have jurisdiction to rule on the compatibility of State aid with the internal market, proceedings may, on the other hand, be commenced before them requiring them to interpret and apply the concept of ‘aid’ within the meaning of Article 107(1) TFEU, in particular in order to determine whether a State measure introduced without observance of the preliminary examination procedure provided for in Article 108(3) TFEU ought to have been subject to that procedure … Thus, a national court may be required to assess whether a State aid falls within the derogation scheme for de minimis aid, which is not subject to the notification requirement laid down in Article 108(3) TFEU.”
The Court also noted that the requested amounts were “modest”. But it went on to caution that under Article 5(2) of the de minimis regulation “(92) the de minimis ceiling must be assessed in the light of aid already granted ‘in relation to the same eligible costs’ or under ‘the same risk finance measure’. … Consequently, it is in the light of the total amount of the sums already received and the sums still claimed by the applicants in the main proceedings on that basis during the reference period that, assuming those amounts constitute State aid, the de minimis nature of the aid at issue in the main proceedings must be assessed.”
Therefore, even if an amount is “modest” whether it is de minimis or not depends on how much de minimis aid the beneficiary undertaking has already received in the same three fiscal-year period.
Is the aid new or existing?
The referring court asked whether the sums claimed by the applicants would be classified as new aid or as existing aid.
The Court of Justice replied that “(96) the question whether the sums at issue in the main proceedings must be classified as ‘new aid’ or ‘existing aid’ depends on which of those two classifications must be given to that tariff advantage, to which those sums are attributable, were that advantage to be classified as ‘State aid’.”
“(98) Article 1(c) of Regulation 2015/1589 provides that ‘new aid’ means ‘all aid, that is to say, aid schemes and individual aid, which is not existing aid, including alterations to existing aid’. Thus, in order for State aid to be regarded as ‘new aid’, it must be established that it is not ‘existing aid’ within the meaning of Article 1(b) of Regulation 2015/1589, which distinguishes several categories of existing aid.”
“(99) In the first place, Article 1(b)(i) of Regulation 2015/1589 designates as ‘existing aid’ ‘aid schemes and individual aid which were put into effect before, and are still applicable after, the entry into force of the [FEU Treaty] in the respective Member States’.”
“(100) In that regard, it should be recalled that the tariff advantage for hydroelectricity producers established in Article 40(1) of the Law on Energy prior to the accession of the Republic of Latvia to the European Union was extended by Article 30(1) of the Law on the electricity market.”
“(101) However, as is apparent from the wording of Article 1(b)(i) of Regulation 2015/1589, that provision is applicable ‘without prejudice to … the Appendix of Annex IV to the Act of Accession’. It is apparent from the second subparagraph of point 3(1) of Annex IV that all measures still applicable after the date of accession which constitute State aid are to be considered as new aid unless they were put into effect before 10 December 1994, they are listed in the appendix to Annex IV or they were notified to the Commission without the Commission having raised objections on the ground of serious doubts as to the compatibility of the measures with the internal market.”
“(102) In the present case, the relevant national legislation is not referred to in the appendix to Annex IV to the Act of Accession and it is not apparent from the request for a preliminary ruling that it was implemented before 10 December 1994 or that it was notified to the Commission as an aid scheme.”
“(103) In those circumstances, the tariff advantage established by the Law on Energy and extended by the Law on the electricity market cannot, if it constitutes State aid, be classified as ‘existing aid’ within the meaning of Article 1(b)(i) of Regulation 2015/1589, which it is, however, for the referring court to verify.”
“(104) In the second place, Article 1(b)(ii) and (iii) of Regulation 2015/1589 designates as ‘existing aid’ ‘authorised aid, that is to say, aid schemes and individual aid which have been authorised by the Commission or by the Council’ or ‘deemed to have been authorised’ by the Commission. It is apparent from the request for a preliminary ruling that the tariff advantage at issue in the main proceedings was authorised neither by the Council nor by the Commission and nor can it be deemed to have been authorised by the latter, since it was not notified to it. Therefore, were that advantage to be classified as State aid, it cannot be regarded as ‘existing aid’ within the meaning of Article 1(b)(ii) and (iii) of Regulation 2015/1589, which it is, however, for the referring court to verify.”
“(105) In the third place, under Article 1(b)(iv) of Regulation 2015/1589, ‘existing aid’ is also ‘aid which is deemed to be existing aid pursuant to Article 17 of [Regulation 2015/1589]’.”
“(106) Article 17(1) of Regulation 2015/1589 provides that the powers of the Commission to recover unlawful aid are subject to a limitation period of 10 years. By virtue of paragraph 2 of that article, the limitation period begins on the day on which the unlawful aid is awarded to the beneficiary, either as individual aid or as aid under an aid scheme, and any action taken by the Commission or by a Member State, acting at the request of the Commission, with regard to the unlawful aid interrupts the limitation period. Furthermore, under paragraph 3 of that article, any aid with regard to which that limitation period has expired is to be deemed to be existing aid”.
“(107) In order to determine whether the sums claimed by the applicants in the main proceedings may be classified as ‘existing aid’, within the meaning of Article 1(b)(iv) of Regulation 2015/1589, the referring court asks the Court, in its tenth question, whether the point at which the limitation period laid down in Article 17(1) of Regulation 2015/1589 starts to run should be fixed at the date on which the tariff advantage claimed by the applicants in the main proceedings was established or on the date of actual payment made under it in their favour.”
“(108) In this connection, it is apparent from Article 17(2) of that regulation that, in order to determine the date on which the 10-year limitation period starts to run, that provision refers to the date on which the aid was granted to the beneficiary and not to the date on which an aid scheme was adopted”.
“(109) Furthermore, for the purposes of calculating that limitation period, the aid concerned must be regarded as not having been awarded to the beneficiary until the date on which it was in fact received by the beneficiary”.
“(110) The purpose of Article 17 of Regulation 2015/1589 is to determine the period within which the Commission may recover unlawfully paid aid. Consequently, the point from when that period starts to run cannot be fixed as a date prior to the date on which the unlawful aid was paid.”
“(111) In the present case, …, the sums claimed by the applicants in the main proceedings correspond to the portion of the tariff advantage which they consider to be due to them under the Latvian legislation in force between 2006 and 2008 and which was not paid to them at the same time as the remainder of that advantage. As long as those sums have not actually been paid, it follows from the preceding paragraph that the limitation period laid down in Article 17 of Regulation 2015/1589 has not started to run with regard to them. It is true that the Administratīvā apgabaltiesa (Regional Administrative Court) granted the applications of the applicants in the main proceedings in the amount of EUR 3406.63 and EUR 662.26 respectively. However, …, the judgments of that court provided for their execution to be suspended pending notification of the aid concerned and the subsequent decision of the Commission concerning that aid. Accordingly, the actual grant of the aid, that is to say, the payment of the sums granted, has not yet taken place and the limitation period provided for in Article 17(1) of Regulation 2015/1589 has therefore neither started to run nor, a fortiori, expired.”
“(112) Consequently, the conditions laid down in Article 1(b)(iv) of Regulation 2015/1589 have not been met, so that the sums at issue in the main proceedings, if they were to be classified as aid measures, could not be regarded as ‘existing aid’ within the meaning of that provision.”
Should a sum be classified as state aid when it is paid by a body different from the public entity from which it is claimed?
The referring court asked if payment of the claimed amounts by a body different from the public entity which owed the money would not constitute state aid.
The response of the Court was short and clear. “(125) The existence of State aid depends, not on the body responsible for its payment under national law, but on the State origin of the funds from which the aid concerned is drawn. It is, in particular, irrelevant in that regard whether the person entrusted with granting the advantage in question has public or private status or enjoys statutory autonomy under national law”.
“(126) Thus, the fact that a portion of an advantage, which was not paid by the body in principle responsible for doing so in accordance with national law, is claimed from a separate public authority in legal proceedings, cannot affect the classification of that advantage as State aid.”
[1] The full text of the judgment can be accessed at:
https://curia.europa.eu/juris/document/document.jsf?text=&docid=269142&pageIndex=0&doclang=en&mode=req&dir=&occ=first&part=1&cid=413052
