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Breaking up Is Hard to Do: Dutch Unbundling Legislation and the Free Movement of Capital

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Abstract

This paper seeks to analyse the ruling (hereinafter: the Essent ruling)1 handed down by the Grand Chamber of the Court of Justice of the European Union (hereinafter: CJEU) on 22 October 2013 on the compatibility with EU law of Dutch legislation concerning ownership unbundling in the electricity and natural gas sectors. The ruling concerns the interpretation of Article 63 TFEU (free movement of capital) and Article 345 TFEU.2

The paper starts by briefly outlining the developments in the EU energy market since the 1990s and the contents of the Dutch legislation at issue. This is followed by a short description of the factual background to the cases and the preliminary questions. The analysis then shifts to three important legal issues. The first is the interaction between Article 345 TFEU and the free movement rules. The second is the dividing line between purely economic interests and overriding reasons in the general interest. A final issue to be touched upon is that of so-called ‘gold plating’, i.e., the situation in which the requirements laid down in the implementing legislation of a Member State go further than those set out in relevant EU directives.

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References

  1. Joined Cases C-105/12 to C-107/12 Staat der Nederlanden v. Essent NV, Essent Nederland BV, Eneco Holding NV and Delta NV, judgment of 22 October 2013, nyr. The phrase ‘Essent ruling’ is used to refer to all three cases collectively.

  2. The text of Article 345 TFEU reads: ‘The Treaties shall in no way prejudice the rules in Member States governing the system of property ownership.’

  3. Communication from the Commission ‘Inquiry Pursuant to Article 17 of Regulation (EC) No 1/2003 into the European Gas and Electricity Sectors (Final Report)’, COM(2006) 851 final, para. 9.

  4. See Article 1(3) of Directives 2009/72/EC and 2009/73/EC.

  5. Ibid., Article 1(5).

  6. The first energy package consisted of Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity (OJ 1997 L 27/1) and Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas (OJ 1998 L 204/1). This was followed by the second energy package consisting of Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC (OJ 2003 L 176/37), Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC (OJ 2003 L 176/57), Regulation (EC) No 1228/2003 of the European Parliament and of the Council of 26 June 2003 on conditions for access to the network for cross-border exchanges in electricity (OJ 2003 L 176/1) and Regulation (EC) No 1775/05 of the European Parliament and of the Council of 28 September 2005 on conditions for access to the natural gas transmission network (OJ 2005 L 289/1). This was then followed by the third energy package consisting of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ 2009 L 211/55), Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ 2009 L 211/94), Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (OJ 2009 L 211/1), Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (OJ 2009 L 211/15) and Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (OJ 2009 L 211/36).

  7. R. Künneke and T. Fens, ‘Ownership Unbundling in Electricity Distribution: The Case of the Netherlands’, 35 Energy Policy (2007), at p. 1922. Only three types of unbundling (administrative, legal and ownership unbundling) are distinguished by B. Baarsma, et al., ‘Divide and Rule. The Economic and Legal Implications of the Proposed Ownership Unbundling of Distribution and Supply Companies in the Dutch Electricity Sector’, 35 Energy Policy (2007), at p. 1786.

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  8. This entails separate accounts for network exploitation, on the one hand, and for commercial activities, on the other, but shared operational activities under one company.

  9. This means that the commercial activities and network activities are assigned to different business divisions/units which are controlled by a central holding company.

  10. Here, the commercial activities and network operations are organised in separate legal entities which have their own staff and management but which can be controlled by a central holding company.

  11. In this case, network operations are brought under different ownership from commercial activities. Cross-ownership is prohibited, which means that network operators cannot hold or acquire shares in commercial companies and vice versa.

  12. Under this model, the transmission assets themselves can remain with a vertically integrated company. The entire operation, maintenance of and investment in the transmission network is carried out by an independent company. Supply/generation companies can no longer hold a significant stake in the independent system operator.

  13. Under this model, the supply company can own and operate the network. The management of the network must be carried out by a subsidiary of the parent company which can make all financial, technical and other decisions independent of the parent company. A supervisory body is in charge of preserving the financial interests of the parent company without being involved in the day-to-day business.

  14. See Article 26 of Directives 2009/72/EC and 2009/73/EC.

  15. Wet houdende regels met betrekking tot de productie, het transport en de levering van elektriciteit van 2 juli 1998, Staatsblad, 1998, No. 427.

  16. Wet houdende regels omtrent het transport en de levering van gas, Staatsblad, 2000, No. 305.

  17. Wet wijziging Elektriciteitswet 1998 en Gaswet in verband met implementatie en aanscherping toezicht netbeheer, Staatsblad, 2004, No. 328.

  18. Wet van 23 november 2006 tot wijziging van de Elektriciteitswet 1998 en van de Gaswet in verband met nadere regels omtrent een onafhankelijk netbeheer (Won), Staatsblad, 2006, No. 614.

  19. Existing Dutch vertically integrated companies had until 1 January 2011 to comply with the ownership unbundling requirements.

  20. Besluit aandelen netbeheerders, Staatsblad, 2008, No. 62.

  21. The transmission network for electricity is owned and operated by the wholly state-owned company TenneT BV. Its counterpart in the gas sector is Gas Transport Services BV, another wholly state-owned company.

  22. Following its acquisition by the German energy group RWE, Essent NV is wholly owned by RWE Benelux Holding BV, a subsidiary of the RWE AG group.

  23. A possible infringement of Article 1 of the First Protocol of the European Convention on Human Rights will not be discussed in this paper, which is only concerned with the EU law aspects of the Essent ruling.

  24. Essent ruling, para. 26.

  25. See B. Akkermans and E. Ramaekers, ‘Article 345 TFEU (ex Article 295 EC), Its Meaning and Interpretations’, 16 European Law Journal (2010) pp. 292–314.

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  26. ‘The establishment of the Community does not in any way prejudice the system of property ownership of the undertakings subject to the provisions of the present Treaty’ (translation by author).

  27. Opinion of Advocate-General Jääskinen, para. 41.

  28. Article 222 EEC, later Article 295 EC Treaty.

  29. Akkermans and Ramaekers, supra n. 25, at p. 313, who mention that the preparatory documents (travaux préparatoires) are ambiguous with regard to the scope of application of this provision.

  30. Essent ruling, para. 29.

  31. Ibid., para. 30. See also Case 6/64 Costa v. ENEL [1964] ECR 585, at p. 598, and Case C-244/11 Commission v. Greece, judgment of 8 November 2012, nyr, para. 17.

  32. Essent ruling, para. 35.

  33. Case 182/83 Fearon and the Irish Land Commission [1984] ECR 3677, para. 7; Case C-302/97 Konle and Republic of Austria [1999] ECR I-3099, para. 38; Case C-452/01 Ospelt and Schlössle Weissenberg [2003] ECR I-9743, para. 24; Case C-171/08 Commission v. Portugal, judgment of 8 July 2010, para. 64; Case C-271/09 Commission v. Poland [2011], judgment of 21 December 2011, nyr, para. 44; and Case C-244/11 Commission v. Greece, nyr, para. 16.

  34. See, for example, Case C-302/97 Konle, para. 22, and Case C-171/08 Commission v. Portugal, para. 49.

  35. Council Directive of 24 June 1988 for the implementation of Article 67 of the Treaty (88/361/EEC), OJ 1988 L 178/5.

  36. Case C-367/98 Commission v. Portugal [2002] ECR I-4731, paras. 45–46; Case C-483/99 Commission v. France [2002] ECR I-4781, para. 40; Case C-463/00 Commission v. Spain [2003] ECR I-4581, paras. 61–62; Case C-98/01 Commission v. United Kingdom [2003] ECR I-4641, paras. 47–49; Case C-174/04 Commission v. Italy [2005] ECR I-4933, paras. 30–31; and Joined Cases C-282 and C-283/04 Commission v. Netherlands [2006] ECR I-9141, para. 20.

  37. Essent ruling, para. 41.

  38. E-2/06 ESA v. Norway (‘Waterfalls in Norway’) [2007] EFTA Ct. Rep. 164.

  39. Opinion of Advocate-General Jääskinen, paras. 43–44.

  40. Ibid., para. 48.

  41. Akkermans and Ramaekers, supra n. 25, at pp. 310–311.

  42. See P. Oliver, ed., Oliver on Free Movement of Goods in the European Union, 5th edn. (Oxford and Portland, Oregon, Hart Publishing 2010), at p. 315.

  43. A. Looijestijn-Clearie, ‘All That Glitters Is Not Gold: European Court of Justice Strikes Down Golden Shares in Two Dutch Companies’, 8 European Business Organization Law Review (2007) pp. 429–453.

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  44. The description of the interests allegedly pursued by the relevant Dutch legislation is formulated differently in the judgments of the Appeal Court of the Hague (LJN:BM84944, BM8495 and BM 8496, para. 5.1.) than in the third preliminary question put by the Dutch Supreme Court.

  45. Essent ruling, para. 51 and the case law mentioned therein. This applies not only to the so-called ‘mandatory requirements’ justification ground but also to the explicit derogations in the TFEU.

  46. See J. Snell, ‘Economic Aims as Justifications for Restrictions on Free Movement’, in A. Schrauwen, ed., Rule of Reason. Rethinking Another Classic of European Legal Doctrine (Groningen, Europa Law Publishing 2005).

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  47. As examples, Snell, ibid., mentions Case 238/32 Duphar v. Netherlands [1984] ECR 523 and Case 181/82 Roussel Laboratoria BV v. The Netherlands [1983] ECR 3849.

  48. The Essent ruling is a prime example of this strategy. See also Case 72/83 Campus Oil v. Minister for Industry and Energy [1984] ECR 2727.

  49. As examples, Snell, supra n. 46, refers to Case C-120/95 Decker and Caisse de Maladie des Employés Privés [1998] ECR I-1831 and Case C-158/96 Kohll v. Union des Caisses de Maladie [1998] ECR I-1931.

  50. Essent ruling, paras. 56–66.

  51. Essent ruling, para. 58 and the case law mentioned therein.

  52. Case C-8/08 T-Mobile and Others [2009] ECR I-4529, paras. 36–38, and Joined Cases C-501/06P, C-513/06P, C-515/06P en C-519/06P GlaxoSmithKline v. Commission [2009] ECR I-9291, para. 63.

  53. Case 72/83 Campus Oil, paras. 34–35; Case C-503/99 Commission v. Belgium [2002] ECR I-4809, para. 46; and Case C-174/04 Commission v. Italy, para. 40.

  54. Essent ruling, para. 66.

  55. Ibid., para. 67.

  56. Opinion of Advocate-General Jääskinen, paras. 79–102.

  57. Ibid., para. 86.

  58. Ibid., paras. 87–88.

  59. Ibid., paras. 89–97.

  60. Ibid., paras. 98–102.

  61. Ibid., para. 103.

  62. In the same vein, Snell, supra n. 46.

  63. Case C/157-99 Geraets-Smits & Peerbooms [2001] ECR I-5473.

  64. H.H.B. Vedder, ‘Een streep door de splitsingswet? Het Hof Den Haag over de Won’, Tijdschrift voor Energierecht, Nr. 3/4 (2010), at p. 185.

  65. See <http://ec.europa.eu/enterprise/glossary/index_en.htm> (last consulted 9 May 2014).

  66. Standard Note: SN/IA/5943, EU Legislation: Government Action on ‘Gold-plating’, 19 April 2011. A. Marshall, ‘European Regulation: Two of the Words Most Likely to Put a Chill up a British Businessperson’s Spine’, British Chambers of Commerce blog, 23 April 2013.

  67. Smart Regulation—Questions and Answers, Memo/12/974 of 12 December 2012, and Speech by President Barroso at the European Parliament plenary debate on the European Council, 24–25 October 2013, Speech/13/847 of 23 October 2013.

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  1. Radboud University, Nijmegen, The Netherlands

    Anne Looijestijn-Clearie (Senior Lecturer in European Law)

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Looijestijn-Clearie, A. Breaking up Is Hard to Do: Dutch Unbundling Legislation and the Free Movement of Capital. Eur Bus Org Law Rev 15, 337–355 (2014). https://doi.org/10.1017/S1566752914001165

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