Rozeta Karova presents at the Vienna Forum on European Energy Law, 2013

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How far can Member States go to derogate
from Third Package obligations and maintain
price controls?
Energy Community Secretariat
Rozeta Karova, Ph.D.
Vienna Forum on European Energy Law
8 March 2013, ECS, Vienna

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Outline of the presentation
 What is the problem with price regulation?
 End-users’ price regulation under EU law
 PSO: meaning v understanding and usage
 ECJ on Member States’ intervention in price regulation
 Post-Federutility: Member States’ understanding of the
judgment
 Actions of the EU Commission and of the ECS
 Concluding remarks

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What is the problem with regulated end-users prices?
If end-users’ prices are regulated at a low (non-cost reflective)
level:
 Prevent market entry for new suppliers
 Limited number of suppliers => limited wholesale and retail market
competition => negative impact on customers’ choice & no incentive for
customer’s switching
 No incentive for investments => endanger viability of companies &
energy system as a whole => risk for SoS
 Low prices give wrong signals both to investors & population => no
incentive for energy efficiency
 Applied in a non-targeted way => should be decoupled from social
protection

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End-users’ price regulation under EU law
 Not addressed explicitly, but could fall under Article 3
Directives 2009/72/EC and 2009/73/EC
 Article 3(7) ED and 3(3) GD – vulnerable customers’ protection
non-tariff v tariff protection
 Article 3(3) – provision of universal service (electricity)
the right to be supplied with electricity of a specified quality at easily and
clearly comparable, transparent and reasonable prices
 Article 3(2) – PSO related to price of supply
 State aid
 Court of Justice case law: Federutility case (Case C-265/08,
20.04.2010)

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PSO - tool to address liberalisation impact:
meaning v understanding and usage
 PSO in the EU acquis
 Provision of SGEI – from
derogation of the Treaty rules to
positive obligation of the MS & the
Community (Art.14TFEU)
 SGEI = economic public service
 PSO = sector-specific tool for
providing SGEI
 Types of PSO
• USO for HH and SMEs
• PSO related to price of supplies for
all customers
 Understanding & (ab)use of
PSO at national level
 SGEI / public service – key
concept
 Whole sector = public service
 Public services = Universal
service
 Incumbents in charge with
providing PSO
 No understanding of PS
Obligation & lack of notification
 PSO shall be an exception NOT a rule
Temporary, clearly defined, verifiable, transparent, objective and non-
discriminatory measures with clear criteria for calculating the
compensation (Article 3(2) ED and GD)

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Court of Justice on end-users’ price regulation
Federutility case
 The State intervention in determination of price of supply is
permitted (para.24) if:
Justified in the general economic interest
 Compliance with principle of proportionality:
 transitory intervention with limited duration and the administration to
make a periodic reexamination at close intervals (para.35)
 not to go beyond what is necessary to achieve the objective (para.36) &
limited to the price component influenced by the specific circumstances,
but not to the final end-users’ price (para. 38)
 scope of beneficiaries – all customers - including undertakings
(irrespective of size) - may benefit (para.41), but not in an identical
manner as HH and SMEs (para.43)
 Compliance with criteria from Article 3(2):
 PSO must be transparent, non-discriminatory, verifiable...

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Post-Federutility: EU Member States
 AEEG Decision n. 79/07 and subsequent decisions challenged
before T.A.R. => preliminary ruling
 T.A.R. decision after ECJ challenged again => Decision of Consiglio
di Stato (n. 7645, 28.10.2010):
 Price intervention attains an objective GEI - protects final customers from
excessive price rises (volatiliity of oil prices at int. market)
 National law allows price intervention as long as justified by market
conditions
 The measure suitable for the goal of protecting final customers against
price rises (concentrated wholesale market and undeveloped retail market)
 AEEG decision allows reference prices only for undertakings with low
consumption
 Satisfies conditions of Art. 3(2)

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EU Commission & EnC Secretariat’s actions
 EU Commission
 several waves of infringement proceedings against EU MS (2006,
2009, 2012)
 no case in front of the Court of Justice
 Energy Community Secretariat
 Analytical paper (presented at PHLG, consulted with Electricity and
Social Fora and submitted for public consultation)
 joint action needed as more CPs are concerned
 limited to what is really needed to attain objectives of EnCT
 not only price regulation but also issued closely linked
 coupling with measures on social protection
 Recommendation
 presented at PHLG (June and October 2012)
 published on the ECS website
 Future steps – dispute settlement

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Concluding remarks
 Price regulation NOT prohibited by the acquis BUT can be
allowed only:
 for protection of vulnerable customers
 as a USO – only for HH and SMEs for supply at reasonable prices
 as a price of supply PSO for all customers
 Under strict conditions:
 Shall satisfy the conditions from Article 3(2)
 Shall be compliant with requirements from Federutility case (price
component only; lack of effective (?!) competition)
 Shall be notified to the Commission / ECS NEW
 NRA shall monitor level & effectiveness of market opening &
competition, including HH prices NEW
 NRA shall assess compliance of supply prices with Art.3 on annual
basis & NCAs to be informed if needed NEW
PSO – a tool for balancing diverging interests; price regulation – obstacle for
achieving competitive energy market => shall be an exception NOT a rule
=> It will hardly be justified for protection of large undertakings

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Thank you for your attention!
Rozeta KAROVA
Energy Lawyer
Energy Community Secretariat
Am Hof 4, Level 5
A-1010 Vienna
Email: rozeta.karova@energy-community.org
website: http://www.energy-community.org/