ECJ confirms prohibition of regulated energy prices, and expands on Federutility exceptions
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In its ANODE judgment of 7 September 2016, the European Court of Justice applied the principle set out in its 2010 judgment in Case C-265/08 Federutility to regulated gas prices in France. It confirmed that the prohibition on regulated energy prices established in Federutility in the case of the 2003 gas liberalisation Directive applies also in the case of the 2009 Directive. The Court held that exceptions from that prohibition on the grounds of security of supply and territorial cohesion are permissible, but noted that they are subject to conditions. It also expressed doubts as to whether the French measures satisfy those conditions.
Background
French law provides for regulated prices for the sale of gas. Regulated prices for certain categories of supply are set by ministers, on the advice of the energy regulator. The prices must reflect the costs of supply, and in particular the gas prices, generally indexed to oil prices, under the long-term supply contracts with foreign suppliers that account for the great majority of French gas consumption. ANODE, the French association of energy retailers, challenged this requirement before the Conseil d'État as being in breach of the objectives of the gas liberalisation Directive 2009/73, as applied in the Federutility judgment.
Conclusions of the Court
The Court noted that not all prices are regulated, and that competing offers at lower prices are permitted. However, this did not affect the fact that the regulated prices create an obstacle to the achievement of a competitive gas market in accordance with Directive 2009/73. It then recalled its judgment in Federutility, in which it held that State intervention in energy prices may be permitted subject to three conditions:
- The intervention must pursue an objective of general economic interest;
- It must comply with the principle of proportionality; and
- It must lay down public service obligations that are clearly defined, transparent, non-discriminatory and verifiable, and guarantee equal access of energy undertakings to consumers.
In this case, the Court confirmed that security of supply and territorial cohesion are capable of constituting objectives of general economic interest. The former is expressly envisaged in Article 194(1)(b) TFEU and in Directive 2009/73 itself. Territorial cohesion is mentioned in Article 14 TFEU and Article 36 of the Charter of Fundamental Rights of the EU. However, although the Court acknowledged that it was for the French courts to decide whether the requirement of proportionality was satisfied, it appeared to have doubts that fixing gas prices at prices reflecting long-term supply prices was a better guarantee of security of supply than prices that followed wholesale market prices. The Court also considered that the French courts should assess whether less intrusive measures, such as the imposition of energy prices only in remoter areas, would achieve the objective of territorial cohesion more proportionately. Furthermore, the ECJ noted that the fixed tariffs are unlimited in duration – in contradiction to the requirement, set out in Federutility, that state intervention in energy prices should be limited in time. The formula by which prices are set also relates to all of the costs of the supplier, and not merely those components in which intervention is necessary in order to achieve the objective of general economic interest (security of supply or territorial cohesion). The Court also considered that the French courts should assess whether it is proportionate for the rules to apply equally to domestic consumers and small- and medium-sized business customers.
Finally, the ECJ appeared to doubt whether the French rules satisfied the requirements of non-discrimination and equal access, given their application only to certain suppliers rather than to all suppliers.
Comment
Retail price regulation continues to exist in a number of Member States. However, the ANODE judgment confirms that it is permitted only in limited circumstances, and subject to conditions. The Commission remains firmly opposed to retail price regulation – EU Energy Commissioner Cañete stated bluntly in May this year that "price regulation must end where it still exists". The new energy market design proposals from the Commission, due to be announced later this year, are likely to set out further measures to prohibit retail price regulation.
