Exploring ACER's decision-making powers

24 August 2017

Peter Willis

The recent decision by EU energy regulators to refer to ACER the task of setting minimum and maximum prices for the EU day-ahead and intraday electricity markets highlights ACER's role in deciding key issues under the EU energy regulatory framework. In this note, we outline ACER's decision-making powers, and the process for challenging the resulting decisions. ACER's powers to issue opinions and recommendations are not covered here.

Harmonisation through network codes

The EU Third Electricity Package, notably Regulation 714/2009, was intended to create a harmonised EU-wide electricity market, with common technical rules in key areas. Regulation 713/2009 created ACER, the Agency for the Cooperation of Energy Regulators, and gave it advisory and decision-making roles under the electricity rules, as well as under the parallel gas market liberalisation rules. The details of the common technical rules are set out in a series of "network codes" adopted under the Regulation. Following initial proposals by ENTSO-E, and opinions from ACER, the European Commission has adopted the codes in the form of Regulations setting out "guidelines" in three broad areas: connections, system operation and markets.

Detailed methodologies

The network codes require the adoption of common terms and conditions or methodologies for a large number of issues. In the first instance the methodologies are to be proposed by the relevant TSOs or NEMOs and agreed between the national regulatory authorities (NRAs) concerned. The Capacity Allocation and Congestion Management (CACM), Electricity Balancing (EB), Forward Capacity Allocation (FCA) and System Operation (SO) codes provide for nearly 100 of these methodologies to be agreed by relevant NRAs – in some cases by individual NRAs, but also by regional and in many cases by all EU NRAs. Examples include methodologies for issues as diverse as gate closure times (in CACM), standard products for balancing capacity (in EB), the regional design of long-term transmission rights (in FCA), and the definition of minimum inertia (in SO).

The setting of maximum and minimum prices for the EU day-ahead and intraday electricity markets is a further example. Articles 41 and 54 of CACM required all NEMOs, in cooperation with the relevant TSOs, to submit to all EU NRAs their proposals for harmonised minimum and maximum clearing prices for the day-ahead and intraday electricity markets respectively. In both cases, the proposals were required to take into account an estimation of the value of lost load. The NEMOs were required to submit their proposals within 18 months of the entry into force of CACM. The NRAs could request the NEMOs to submit amended proposals, in which case they were required do so within 2 months of the request. If the NRAs were unable to reach agreement on the original or amended proposals, then by virtue of Article 9(11) and (12) respectively, ACER was required to adopt a decision concerning the proposals within 6 months. The NRAs could also jointly request ACER to make the decision. In any case, ACER was also required to adopt a decision concerning the original or amended terms and conditions or methodologies within a further 6 months, in accordance with Article 8(1) of Regulation 713/2009.

Network codes FCA, EB and SO are drafted in very similar terms.

Article 8(1) of Regulation 713/2009 provides that:

"8(1) For cross-border infrastructure, the Agency shall decide upon those regulatory issues that fall within the competence of national regulatory authorities, which may include the terms and conditions for access and operational security, only:

a)  where the competent national regulatory authorities have not been able to reach an agreement within a period of six months from when the case was referred to the last of those regulatory authorities; or
b)  upon a joint request from the competent national regulatory authorities.

(3) Where a case has been referred to the Agency under paragraph 1, the Agency:

a)  shall provide its decision within a period of 6 months from the day of referral; and
b)  may, if necessary, provide an interim decision to ensure that security of supply or operational security of the infrastructure in question is protected."

Extent of ACER's powers following a referral by NRAs

ACER's power to issue a decision in place of the NRAs is limited to regulatory issues "for cross-border infrastructure". While issues relating to the market coupling process under CACM can be said to relate to cross-border infrastructure, in that they address the allocation of capacity on the interconnectors, it is not evident that all of the 100 methodologies referred to above necessarily relate to cross-border infrastructure. Future ACER decisions may therefore face scrutiny as to whether they properly fall within the scope of Article 8(1) of Regulation 713/2009.

Following a referral by the NRAs, ACER will conduct its own assessment. In its March 2017 decision on the appeal by the Austrian NRA Energie-Control against ACER's decision on proposed capacity calculation regions (CCRs), the ACER Board of Appeal (whose role is described in more detail below) addressed the question of the standard of assessment that ACER is required to conduct in such cases. E-Control argued that ACER was restricted to considering the TSOs' proposal – like the NRAs, it did not have unlimited discretionary power to amend the TSOs' proposal. Nor could it substitute its own decision for the TSOs' proposal, by determining new CCR borders. The Board of Appeal rejected this argument. It noted that neither Article 9(11) and (12) of CACM nor Article 8(1) of Regulation 713/2009 provide for ACER to request amendment of the original TSO or NEMO proposals. Nor do they expressly permit ACER to amend them itself, or prohibit it from doing so. However, taking into account the overall purpose and structure of CACM, it concluded that ACER does have power to modify the TSOs' proposals. In a situation where the NRAs have failed to reach agreement, if ACER had no discretion to amend the TSOs' proposal, but could only request the TSOs to submit a further amended proposal, the decision-making process could become inefficient. The Board of Appeal noted that ACER's power is not unlimited: it must apply the conditions set out in Article 15(3) of CACM (that the transmission systems of the CCRs are directly linked, that they participate in the same day-ahead or intraday coupling area and that merging them is more efficient than keeping them separate). Conditions similarly apply to the adoption of many of the other methodologies provided for in the network codes. Article 8(1) of Regulation 713/2009 also requires ACER to consult the NRAs and TSOs concerned, before adopting a decision under these powers.

The Board of Appeal similarly rejected arguments by E-Control and others that ACER wrongly rejected E-Control's request for an amendment of the TSOs' proposal, and that ACER should have used the review process in Article 32 of CACM, rather than the process in Article 15, to change existing bidding zones. It would be inefficient for ACER to be limited to determining CCRs based on the existing bidding zones, rather than being able to change the existing bidding zones as part of the initial definition process.

It is therefore clear that – at least as far as ACER's Board of Appeal is concerned - ACER has the power, when deciding on methodologies referred to it under Article 8(1) of Regulation 713/2009:

  • to amend the NEMOs' or TSOs' proposals, without needing to request the submission of new proposals; and/or
  • to substitute its own decision for that of the TSOs,

subject only to complying with whatever conditions are imposed in respect of the adoption of the methodology in the relevant network code.

Applying these principles to the referral of maximum and minimum prices, by way of illustration, Articles 41 and 54 impose one condition that would also apply to ACER, namely that the proposal takes into account an estimation of the value of lost load. Subject to complying with that condition, ACER could in principle adopt a decision setting the maximum prices at the €3,000 figure that the NEMOs seem to have originally proposed, or the €5,000 figure preferred by the ACM. Alternatively, reflecting its power, according to the Board of Appeal, to modify the original proposals, ACER could set the prices at any other figure that in its view takes into account an estimation of VOLL. In fact ACER issued a consultation today, proposing a modification of the NEMOs' proposals so that the maximum day-ahead price increases automatically by €1,000 if the market price exceeds 60% of the maximum price in a single market time unit, rather than 3 times in 30 days as proposed by the NEMOs. ACER also proposes that the intraday maximum, initially set at €9,999, may not be less than the day-ahead maximum. It recognises that this mechanism does not expressly reflect VOLL, but notes that it does so implicitly.

It should be noted that the decision of the ACER Board of Appeal is the subject of a number of pending appeals to the General Court, which will not necessarily uphold the decision of the Board of Appeal on all of the procedural and substantive points outlined here. These conclusions should therefore be regarded as tentative, pending determination of the appeals.

Procedure

Under Article 17(3) of Regulation 713/2009, decisions under Article 8 are taken by ACER's Director (currently Alberto Pototschnig), following a favourable opinion of the Board of Regulators (a representative of each NRA, plus a non-voting representative of the Commission), which in turn is required to act by a 2/3 majority. Before adopting a decision under Article 8, ACER must consult the national regulatory authorities and the transmission system operators concerned. Article 8(1) also expressly provides for ACER to be informed of the proposals and observations of the transmission system operators concerned. Although not expressly stated in the Regulation, it seems likely that this consultation requirement should also be extended to NEMOs, where they are the originators of the proposals (as in the case of the price proposals mentioned above). In its decision on the appeal by E-Control, the ACER Board of Appeal commented that the right to be heard is intended to protect the rights of addressees and other persons concerned by a decision, as provided in the regulations applicable to that type of decision and by relevant case-law. The Board of Appeal noted that Articles 9 and 15 of CACM specifically deal with the right to be heard, by providing opportunities for interested parties to participate and for a public consultation. This statement seems to acknowledge a general principle that interested parties should have a right to make submissions before ACER adopts a decision.

ACER is required to issue its decision within 6 months of the referral (Article 8(3)(a) of Regulation 713/2009).

ACER has the power to issue an interim decision to ensure that security of supply or operational security of the infrastructure in question is protected (Article 8(3)(b)).

Appeal to the Board of Appeal

Certain decisions of ACER can be appealed to the Board of Appeal. Article 19(1) of Regulation 713/2009 provides that:

"Any natural or legal person, including national regulatory authorities, may appeal against a decision referred to in Articles 7, 8 or 9 which is addressed to that person, or against a decision which, although in the form of a decision addressed to another person, is of direct and individual concern to that person."

This wording reflects closely the wording of Article 263 TFEU, discussed in more detail below, which sets out the right to challenge decisions of EU institutions before the General Court. The terms "decision" and "direct and individual concern" are well understood in EU law and have been the subject of numerous judgments. Applying the large body of case-law in this area, in its judgment in Case T-63/16 Energie-Control v. ACER, the General Court addressed the question of what constitutes a decision. It rejected an appeal by Energie-Control, this time against a decision of the ACER Board of Appeal rejecting an appeal by E-Control against an opinion of ACER. ACER had given a negative opinion on the compliance with Regulation 714/2009 of NRA decisions on cross-border capacity allocation in the Central-East Europe region. The ACER Board of Appeal had rejected E-Control's appeal as inadmissible, on the grounds that the opinion was not a decision for the purposes of Article 19 of Regulation 713/2009. The General Court rejected E-Control's appeal. It noted that ACER had adopted the opinion under Article 7 of Regulation 713/2009 (and not Article 8 as in the case of the decisions referred to above), in response to a request by the relevant NRAs for an opinion. Most importantly, the opinion imposed no legal obligations on the addressees, but instead contained recommendations "inviting" (rather than requiring) the TSOs and NRAs concerned to take various steps to remedy the non-compliance that it identified.

It is clear from the decision of the Board of Appeal that in deciding whether a measure adopted by ACER is an appealable decision, it will consider the substance of the measure rather than the label attached to it, and in particular, adopting the formula of the relevant case-law, whether the measure is one "the legal effects of which are binding on, and capable of affecting the interests of, the applicant by bringing about a distinct change in his legal position" (paragraph 23 of the decision of the Board of Appeal) – in which case it may be the subject of an action for annulment.

Addressed to the appellant, or of direct and individual concern

The ACER decision on CCRs mentioned above was addressed, in Article 3 of its operative part, to some 35 electricity TSOs. On that basis, the Board of Appeal was able to conclude that the two Austrian TSOs, APG and VUEN, which were among the addressees of the decision, had standing to appeal against the decision.

A full analysis of the term "direct and individual concern" is beyond the scope of this note. Briefly, however, a measure is of direct concern to an individual where it directly affects the legal situation of that individual, and leaves no discretion as to how it should be implemented. It is of individual concern to individuals where it "affects them by reason of certain attributes which are peculiar to them or by reason of circumstances in which they are differentiated from all other persons and by virtue of these factors distinguishes them individually just as in the case of the person addressed". For example, the mere fact of being an electricity market participant is unlikely to differentiate a potential appellant from all other market participants, such as to give it standing to appeal.

In the case of the appeal against the CCR decision referred to above, the Board of Appeal held that APG's parent, Verbund, was not an addressee of the decision. Nor was the decision of direct and individual concern to it. In some cases it is true that parent companies may be directly and individually concerned by decisions addressed to their subsidiaries. In this case, however, APG, as a TSO unbundled under Directive 2009/72, is required to be independent from its parent in terms of decision-making, organisational structure, commercial and financial relations and the Board of Appeal concluded that Verbund could have no direct and individual interest in the decision.

In contrast, in the same case, the Board of Appeal concluded that E-Control, which was not an addressee of the decision, was nevertheless individually concerned by it, because it was one of the NRAs to which the TSOs originally submitted their proposal, and had specific rights under the Article 8 procedure, and was directly concerned because it was required to implement the decision, with no discretion.

Interestingly, while Article 263 TFEU gives so-called "privileged applicants" (Member States, the Commission, the Council and the European Parliament) standing to challenge decisions and other measures whether or not addressed to them, or of direct and individual concern, Article 19 of Regulation 713/2009 makes no such distinction, and indeed does not mention them at all. They can of course appeal against any resulting decision of the Board of Appeal, under Article 263 TFEU, but have no right of appeal before the Board of Appeal itself. This probably makes sense, given ACER's composition.

Timetable

An appeal must be lodged with the Board of Appeal within 2 months of notification of the decision to the applicant, or within 2 months of publication if not notified. The Board of Appeal must decide the appeal within 2 months of it being lodged.

Standard of review

Unlike Article 263 TFEU, Regulation 713/2009 does not expressly set out the grounds on which an appeal may be brought against a decision of ACER. The grounds in the appeal against ACER's CCR decision included violation of procedural rules and fundamental procedural guarantees, infringement of the Treaties and of relevant law (CACM and Regulation 714/2009), lack of competence - which in fact are essentially the same grounds as those set out in Article 263. In addition, the appellants argued that ACER had wrongly concluded that the German-Austrian border was structurally congested, ie. that ACER had made an error of assessment. The Board of Appeal concluded that:

"108. …in the limited timeframe given to decide on the Contested Decision, and with regard to the complex economic and technical issues involved, it should not carry out its own analysis of the correct methodology to define congestion but control only whether the Defendant made a manifest error of assessment. The Board of Appeal therefore considers that the Agency should be granted a certain margin of appreciation of methodological nature to precise the concrete requirements to be met to assess that there is a situation of structural congestion."

The Board of Appeal found that:

"109. …Appellants I., III. and IV. had neither established that (i) the Contested Decision had not relied on factually accurate, reliable and consistent evidence, (ii) nor the Decision relied on evidence, in particular its Technical Justification Document that did not contain all the information which had to be taken into account in order to assess a complex situation; and (iii) nor the Decision insufficiently substantiated the conclusions drawn from the evidence."

Assuming that the General Court upholds these conclusions (which are consistent with the principles applied by the General Court itself in cases involving complex technical and economic assessments), this aspect of the decision is an important indication of the way in which the Board of Appeal is likely to approach similar cases in future. Decisions in this area will inevitably involve complex technical assessments. While the Board of Appeal will review the evidence and the underlying facts, and will ensure that ACER's decision properly explains how it reached its conclusions based on the evidence, it will not seek to carry out a complete reassessment of the issue.

Procedure

Detailed procedural rules for appeals to the Board of Appeal are set out in its Rules of Procedure, which are accompanied by Practice Directions, Templates for Pleadings and instructions to the Registrar.

Appeal to the European Courts

Article 20(1) of Regulation 713/2009 confirms that an appeal against a decision of the Board of Appeal lies to the General Court or the Court of Justice in accordance with Article 263 TFEU. This is the basis on which E-Control appealed against the decision of the Board of Regulators in Case T-63/16 mentioned above. It is also the basis of the pending appeals against the decision of the Board of Appeal on the determination of the CCRs. The grounds of appeal under Article 263 are lack of competence, infringement of an essential procedural requirement, infringement of the Treaties or of any rule of law relating to their application, or misuse of powers.

Conclusion

With NRAs required to decide nearly 100 issues under the network codes, it is unlikely that they will be able to agree on all of them and that more will be referred to ACER for a decision, following the model of the CCRs and the maximum and minimum day-ahead and intraday market prices discussed above. ACER has extensive decision-making powers, and considerable discretion in the complex technical and economic assessments required. Nevertheless it is subject to control both by its own Board of Appeal and by the European Courts. The importance of the issues for the various stakeholders, and the scale and cost of the changes required in order to implement some of the decisions, make further appeals inevitable.

Authors