Netherlands: Statutory Bans Cleared in Public Energy Network Companies
Advocate-General to the European Court of Justice clears Dutch statutory bans on privatisation of and commercial company cross-participations in public energy network companies.
Introduction
In its judgments of 24 February 2012 (LJN: BQ9210, NJ 2012/141, LJN:BQ 9212 and LJN: BQ9214) the Dutch Supreme Court referred to the European Court of Justice (ECJ) preliminary questions in a dispute between three Dutch energy companies (Essent, Eneco and Delta) and the Dutch State over the compatibility with the Treaty on the Functioning of the European Union (“TFEU”) of provisions in the Electricity Act 1998 and the Gas Act which have introduced:
- a prohibition on privatisation of electricity and gas distribution networks (“Privatisation Prohibition”),
- a prohibition for energy network companies to be part of a group which includes entities engaged in the trade,
- production or supply of gas and electricity (“Group Prohibition”); and
- a prohibition for energy network companies to engage in activities (including the provision of financial security to group entities) other than related to their statutory tasks and duties (“Side Activities Prohibition”).
Advocate-General’s Opinion
In the ensuing EJC proceedings the Advocate-General, Niilo Jääskinen, has presented his legal opinion today.
Privatisation Prohibition
The Advocate-General firstly concludes that the Privatisation Prohibition falls within the scope of article 345 TFEU. This article provides that the EU Treaties shall in no way prejudice the rules in Member States governing the system of property ownership. In the opinion of theAdvocate-General, the Privatisation Prohibition qualifies as a rule which governs the system of property ownership. As the prohibition for private investors to participate in network management companies is an intrinsic component (i.e. a direct and inevitable consequence) of the Privatisation Prohibition this prohibition cannot therefore be considered to infringe on the freedom of establishment or of movement of capital.
The Advocate-General notes that in this respect the Privatisation Prohibition differs from “Golden Share arrangements”, as ruled upon in ECJ judgments C-367/98 (Portugal), C-483/99 (France) and C-503/99 (Belgium), which pivoted on preferential treatment of public participations within a private law regulation of property ownership.
Group Prohibition and Side Activities Prohibition
The Advocate-General argues that, contrary to the prohibition for private investors to participate in energy network companies, the Group Prohibition and the SideActivities Prohibition are not directly and inevitably related to the Privatisation Prohibition. They do not aim to retain public ownership of energy distribution networks, but to prevent network management interests and commercial interests from becoming entwined. The Advocate-General finds that the Group Prohibition and the Side Activities Prohibition clearly restrict the freedom of capital within the meaning of article 63(1) TFEU, for which sufficient justificatory grounds must exist.
In this regard theAdvocate-General finds that the main objectives of the Group and the SideActivities Prohibitions are a prima facie of an economic nature (directed at the advancement of investments and competition, price decreases and the increase of transparency as a way to curb anti-competitive behavior). As such, having regard to settled case-law of the ECJ on article 65 TFEU (former article 58 TEC), they cannot justify an infringement on the freedom of movement of capital.
The Advocate-General proposes to the ECJ a new approach, whereby a distinction is made between economic motives which in one way or another result in the protection of a Member State’s economic interests (i.e. have a protectionist nature), on the one hand, and economic motives which result in a sector being organised in accordance with the TFEU’s economic objectives, on the other. The latter category would provide justificatory reasons to restrict TFEU freedoms. The Group and SideActivities Prohibitions, according to theAdvocate-General, would fall within this category.
In another reasoning, held out by theAdvocate-General to the ECJ, a restriction of the TFEU freedoms can be justified on the ground that the internal market must include a system ensuring undistorted competition (TFEU Protocol no.27). The Group and the SideActivities Prohibitions can be said to safeguard non-discriminatory access to the energy market and to ensure that competition with respect to the trade, supply and production of energy is not distorted. These objectives can be seen as an important justification from a general interest point of view for non-discriminatory national restrictions which have been established as being necessary to liberalize a market which is characterized by a natural monopoly. Whether or not such justification can be qualified as not purely economic or non-protectionist is of secondary
interest.
Proportionality
The choice of the Dutch legislator to structurally unbundle the management of energy distribution networks on the one hand and the trade, supply and production of energy on the other, does, in the Advocate-General’s opinion, not reach beyond what is required to achieve the goals of energy market transparency and the prevention of distortions of competition.
ECJ judgment
It is now on the ECJ to rule on the questions referred to it by the Dutch Supreme Court, taking the Advocate-General’s legal opinion into account. No indication can be given at this point in time on when the ECJ’s ruling can be expected.
Joint cases C-105/12, C-106/12, C-107/12, Staat der Nederlanden v Essent and others, [16April 2013], Opinion of AG Jääskinen (the English text is not (yet) available).
This article is courtesy of Duth law firm Loyens & Loeff. For more information, please contact: Elisabetta Aarts ( T +31 20 578 54 50 E elisabetta.aarts@loyensloeff.com ), Max Oosterhuis (T +31 10 224 67 30 E max.oosterhuis@loyensloeff.com ) and Roland de Vlam (T +31 20 578 55 17 E roland.de.vlam@loyensloeff.com)