Preliminary Rulings of the European Court of Justice

1
Preliminary Rulings of the European Court of
Justice

• PreussenElektra- Case
• C-379/98
• Decision from 13.03.2001

2
Overview/Content

• General situation
• Options in order to promote renewable energy
  sources
• Electricity distribution in Germany
• Legal situation in Germany
• Conflict of the main parties involved
• Questions referred
• Legal Basis
• Main Opinions of the parties
• Main Opinions of Advocate General
• Decision of the European Court of Justice
• General consequences

3
General Situation

• Climate Change demands appropriate measures
• One important field (among others)
• Promotion of renewable energy sources
• (In common with other governments) the German
  authorities have for many years promoted
• the generation and consumption of electricity
  from renewable sources such as wind, water and
  sun
• in order to increase its share in the national
  electricity production.

4
Options in Order to Promote Renewable Energy
Sources
5
Electricity Distribution in Germany I

• 3 levels can be distinguished within the German
  electricity sector
• (1) few large undertakings
• producing the major part of electricity consumed
  in Germany and
• operate high voltage networks,
• transmission of electricity over long distances,
• exchange of electricity with neighbouring
  networks
• supply of electricity to regional distributors.

6
Electricity Distribution in Germany II

• 3 levels can be distinguished within the German
  electricity sector
• (2) About 60 regional electricity distribution
  undertakings
• operate medium-voltage networks,
• take electricity from the first level,
• (some of them) produce electricity,
• supply (either)
• local distributors,
• mainly industrial consumers or
• (through low-voltage networks) consumers.

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Electricity Distribution in Germany III

• 3 levels can be distinguished within the German
  electricity sector
• (3) regional distributors (themselves) or
  local distributors
• Operate low-voltage local networks and
• supply final consumers.
• (The local distributors are often owned by
  municipalities.)

8
Legal Situation in Germany I

• The Stromeinspeisegesetz 1990
• This law obliged public electricity supply
  undertakings (? at that time)
• to purchase all electricity produced within their
  area of supply from renewable sources (such as
  wind, water and sun),
• to pay for that electricity a fixed calculated on
  the base of the average nationwide sales price
  for electricity (as regards wind-generated
  energy 90)
• Germany has notified this law in August 1990
• European Commission informed Germany by letter
  from December 1990 not to raise objections
  against this law, taking into account, that the
  share of energy from renewable sources had been
  small.

9
Legal Situation in Germany II

• The Stromeinspeisegesetz 1998
• This law laid down as the central rule again the
  purchase obligation at a fixed minimum price
• (taking into account, that the electricity
  undertakings are (now) often private
  undertakings),
• This modified law contains a new compensation
  mechanism
• As far as energy from renewable sources, which
  has to be purchased, exceeds 5 of the output of
  that distributor
• it is itself entitled to ask for compensation
  from a network operator situated further upstream
  (on a higher level), who also can ask for
  compensation at his network operator upstream
  (second 5 rule) as far is his obligation to
  pay/compensate exceeds 5 of the output of that
  distributor.
• Taking into account, that the mechanism to
  calculate the purchase price for windgenerated
  electricity had not changed, there had been
• no notification by Germany,
• nor the Commission made a formal decision.
• As regards the minimum purchase price for
  electricity produced from wind, the Commission
  (only) examined appropriate measures related to
  this unchanged rule.

10
Conflict of the Main Parties Involved

• The plaintiff in the main proceedings is
  PreussenElektra, one of the undertakings at the
  first level of the German electricity sector.
• Defendant is the Schleswag AG, a regional
  electricity distributor at the second level.
• PreussenElektra owns 65,3 of the Schleswag
  shares . (The rest is owned by municipal
  authorities.)
• Based on the Stromeinspeisegesetz 1998 and the
  additional costs of Schleswag on account of the
  purchase obligation related to renewable energy
  resources, exceeding the 5 level, Schleswag
  invoiced PreussenElektra for those additional
  costs, claiming monthly instalments of 10 Mio.
  DM.
• In the main proceeding in front of the civil
  court of Kiel (Landgericht) PreussenElektra
  claims back a portion of 500 000 DM (for the
  month of May).

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Questions referred I

• By order the civil court of Kiel (Landgericht)
  referred to the Court for a preliminary ruling
  under Article 234 of the EC-Treaty three
  questions on the interpretation of
• Article 28 EC-Treaty,
• Article 87 EC-Treaty,
• Article 88, para 3 EC-Treaty.

12
Questions referred II

• (Short Version)
• Question 1
• Do the rules on payment and compensation for
  supplies of electricity based on
  Stromeinspeisegesetz 1998 constitute State aid?
• Is Article 87 of the EC-Treaty to be interpreted
  that aid also covers national rules for the
  benefit which do not result nor directly neither
  indirectly from public budget but are borne by
  individual undertakings, which have a statutory
  obligation to purchase at a fixed minimum price
  or to compensate those burdens, exceeding a
  special level?

13
Questions referred III

• Question 2
• In the event, that the first question is answered
  negative in the respect of Paragraph 4 of the
  amended Stromeinspeisegesetz (compensation
  rule)
• Is Article 88 para 3 of the EC-Treaty to be
  interpreted as meaning, that its restrictive
  effect apply not only to the benefit itself, but
  also to implementing rules such as Paragraph 4
  of the amended Stromeinspeisegesetz
  (compensation rule)?

14
Questions referred IV

• Question 3
• In the event that the first and second questions
  are answered in the negative
• Is Article 28 of the EC-Treaty to be interpreted
  as meaning that a quantitative restriction on
  import - and/or a measure having equivalent
  effect -, where a provision of national law
  places undertakings under an obligation to
  purchase electricity produced from renewable
  energy sources at minimum prices and requires
  network operators to meet costs?

15
Legal Basis I

• Art. 88 para 3 EC-Treaty
• The Commission shall be informed, in sufficient
  time to enable it to submit its comments, of any
  plans to grant or alter aid.
• If it considers that any such plan is not
  compatible with the common market having regard
  to Article 87, it shall without delay initiate
  the procedure provided for in paragraph 2.
• The Member State concerned shall not put its
  proposed measures into effect until this
  procedure has resulted in a final decision.

• Art. 87 para 1 EC-Treaty
• Save as otherwise provided in this Treaty,
• any aid
• granted by a Member State or through State
  resources
• in any form whatsoever
• which distorts or threatens to distort
  competition
• by favoring certain undertakings or the
  production of certain goods shall,
• in so far as it affects trade between Member
  States,
• be incompatible with the common market.

16
Legal Basis II(similar rules) related to
Croatian Law

• Art. 4 State Aid Act
• Save as otherwise provided by this act
• State aid in any form whatsoever,
• which distorts or threatens to distort
  competition ()
• Art. 3 para 1
• () any actual or potential expenditures or
• decreased revenue of the State
• granted ()

• Art. 10 para 1 and 4 State Aid Act
  (Preliminary binding opinion of the
  Agency)
• Art. 11 para 1 and 4 State Aid Act and
• Art. 12 para 1 and 2 State Aid Act
  (Prior Authorisation of the
  Agency)
• Art 13 para 6 State Aid Act (Authorisation
  Procedure)

17
Legal Basis III

• Art. 28 EC-Treaty
• Quantitative restrictions on imports and all
  measures having equivalent effect shall be
  prohibited between Member States.

18
Main Opinions of the Parties I

• The plaintiff PreussenElektra as well as the
  defendant Schleswag, supported by the European
  Commission, consider, that the scheme established
  by Stromeinspeisegesetz 1998 constitute State
  aid!
• Reasons
• (1) The wording of Art. 87 para 1 EC-Treaty and
  certain statements by the Court that financing
  through state resources is not an essential
  element of the concept of aid.
• (2) The Court should exclude the possibility of
  Member States circumventing the State aid regime.

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Main Opinions of the Parties II

• According to the German Government and the
  interveners (producer of renewable energy as well
  as the German State Schleswig Holstein)
• The Stromeinspeisegesetz 1998 does not
  constitute State aid!
• Reasons
• (1) The wording, the system of the Treaty and the
  Courts case law show, that advantages which are
  not granted directly or indirectly through state
  resources cannot be classified as State aids.
• (2) A wider definition of State aid would bring
  practically all national legislation regulating
  the relationship between enterprises within the
  scope of State aid rules. It would upset the
  division of competences between Member States and
  Community as laid down in the treaty.

20
Opinions related to Admissibility Contrived
dispute

• German Government and interveners claim
• Plaintiff and defendant are in agreement over
  the desired result of the reference, namely a
  declaration by the Court that the
  Stromeinspeisegesetz 1998 is contrary to
  Community law.
• Schleswag is a subsidiary of PreussenElektra.
• Consequently PreussenElektra could have covered
  the sums in issue by internal measures without
  litigation before the courts.
• ? Contrived dispute

21
Main Opinion of Advocate Generalrelated to
Admissibility

• Advocat General Jacobs argues
• I accept that the danger of contrived litigation
  is more acute where one party to the proceedings
  owns a majority of the shares of the other one.
• On the other hand the conflict of interests
  between PreussenElektra and Schleswag in the main
  proceedings is not the result of the parties
  will and of elaborate contractual arrangements,
  but the automatic and objective consequence of
  the statutory obligation laid down in the
  Stromeinspeisegesetz 1998.
• ? The main proceedings between PreussenElektra
  and Schleswag are not of an artificial or
  contrived nature within the meaning of the
  Courts case law.

22
Main Opinion of Advocate Generalrelated to
State Aid Quality (of the Law) I

• (1) On one hand, it may be argued,
• that the second alternative in Art. 87 para 1 of
  the EC-Treaty aid granted through State
  resources covers measures financed through
  public fonds,
• whilst the first alternative aid granted by
  Member State covers all remaining measures which
  are not financed through State resources.
• ? Under this extensive interpretation any measure
  which confers economic advantages on specific
  undertakings, and which is the result of conduct
  attributable to the State constitutes State aid,
  independently of whether it involves any
  financial burden for the State.

23
Main Opinion of Advocate Generalrelated to
State Aid Quality (of the Law) II

• (2) On the other hand, Art. 87 para 1 EC-Treaty
  may be read as stating that aid must necessarily
  be financed through State resources and that the
  2 alternatives
• aid granted by a State and
• aid granted through State resources
• serves to bring within the definition of aid
• not only aid granted directly by the State, but
• also aid granted by public or private bodies
  (designated or established by the State).
• ? Under this narrower interpretation the measure
  necessarily cost the State money, and financing
  through public resources is a constitutive
  element of definition of State aid.

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Main Opinion of Advocate Generalrelated to
State Aid Quality (of the Law) III

• (3) Result
• It is now well established case law
• that the second reading prevails and
• that only advantages which are granted directly
  or indirectly through State resources are to be
  regarded as State aids.

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Decision of the European Court of Justice
related to Admissibility

• It is true, that both parties have an interest
  that the respective rules in the
  Stromeinspeisegesetz 1998 are regarded as
  unlawful aid in order to escape payment.
• However the dispute in the main proceedings does
  not concern the aid which is given to the
  producers of electricity from renewable energy
  sources, but the compensation by one in favor of
  the other one.
• Since those obligation flow directly from the
  Stromeinspeisegesetz 1998 the main proceedings
  cannot be regarded as a procedural device in
  order to induce the Court to take a position on
  certain problems of Community law.
• ? In those circumstances the fact, that
  PreussenElektra is Schleswags main shareholder
  is not capable of depriving the dispute between
  them of its genuine character. ? Admissibility ()

26
Decision of the European Court of Justice
related to State Aid Quality (of the Law) I

• Art. 87 of the EC-Treaty is in its sufficient to
  prohibit the conduct by the States referred to
  therein.
• And Art. 5 of the EC-Treaty, the second
  paragraph of which provides that Member States
  are to abstain from any measure which could
  jeopardise the attainment of the objectives of
  the Treaty, cannot be used to extend the scope of
  Art. 87 of the EC-Treaty.

27
Decision of the European Court of Justice
related to State Aid Quality (of the Law) II

• Only advantages granted directly or indirectly
  through State resources are to be considered aids
  in the meaning of Art. 87 of the EC-Treaty.
• The distinction made in that provision between
  aid granted by Member States and through
  State resources does not signify that all
  advantages granted by the State, whether financed
  through State resources or not, constitute aid.
• But it is intended merely to bring within this
  definition both advantages which are granted
  directly by the State and - in addition to
  that(!) those granted by a public or private
  body designated or established by the State.

28
Decision of the European Court of Justice
related to State Aid Quality (of the Law) III

• The obligation imposed on private electricity
  supply undertakings to purchase electricity
  produced from renewable energy sources at fixed
  minimum prices does not involve any direct or
  indirect transfer of State resources.
• Therefore, the allocation of the financial burden
  arising from that obligation cannot constitute a
  direct or indirect transfer of State resources
  either.
• ? No State aid in the meaning of Art. 87 of the
  EC-Treaty, taking into account that
• the purchase is imposed by statute and
• confers an undeniable advantage on certain
  undertakings.

29
Decision of the European Court of Justicerelated
to the Rules on the Free Movement on Goods

• (1) Art. 28 of the EC-Treaty is applicable
• The Stromeinspeisegesetz 1998 is capable, at
  least potentially, of hindering
  Intra-Community-Trade.
• The purchase obligation imposed on electricity
  supply undertakings applies only to electricity
  produced from renewable energy sources within the
  scope of
• that statute (Germany) and
• the respective supply area.
• (2) Moreover, environmental protection
  requirements, laid down in the Treaty, must be
  integrated into the definition and implementation
  of other Community policies.
• ? Having regard to all the above considerations,
  the Stromeinspeisegesetz 1998 is not
  incompatible with Art. 28 of the EC-Treaty.

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General Consequences

• (1) European Law should be applied in a way that
  all its content is taken into account.
  (Legal Principle of
  Practical Concordance)
• (2) As far as advantages for certain enterprises
  are not channeled via the public budget, these
  advantages do not constitute State aid.
• Obligations between certain enterprises, which
  are fixed by statute
• are no State aids
• but save other European Law - give a strong
  instrument to the State to implement political
  decisions into the business sector.
• Interesting example Financing of public
  broadcasting by imposed fees of the people.

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End of Presentation

• Thank you very much
• for your attention!!