In September 2024, Advocate General Rantos delivered his Opinion in Case C-48/23, Alajärven Sähkö and Others. The case concerns actions taken by Finland to reduce electricity distribution costs, and whether or not they undermine the independence of the national regulatory authority, which is required by EU law.
The referral and the national measures
The case was referred to the Court of Justice of the European Union (CJEU or the Court) by the Market Court of Finland (Markkinaoikeus) in a dispute between system operatons (Alajärven Sähkö Oy and Others and Elenia Verkko Oyj (‘Elenia’)), and the Energy Authority of Filand (Energiavirasto) – the national regulatory authority for electricity in Finland) – which monitors methods concerning the determination of the return for system operators.
The dispute is about the conduct of this national regulatory body in the aftermath of government activity – the adoption of a law – which was intent on reducing the price of electricity distribution. The government activity, the national law of 2021 did a number of things: the deadline for meeting certain security requirements for the operation of distribution systems was extended, it required system operators to provide transmission and distribution services in a cost-effective manner, and the development plan for distribution systems was updated to include measures for encouraging and monitoring cost-effectiveness. This included the use of demand response, energy efficiency measures, energy storage, and other resources as alternatives to expanding transmission capacity.
It was intended by the Finnish government that these changes were intended to lower the operational costs for distribution system operators, which in turn would help reduce the electricity distribution prices for consumers.
The national regulatory body for electricity
The Energy Authority of Finland, following the legal changes of 2021, then adjusted its monitoring methods to align with these legislative changes, ensuring that the new cost-effectiveness measures were reflected in the calculation of distribution tariffs.
Directive 2019/944 on common rules for the internal market for electricity states, inter alia, that Member States must guarantee the independence of national regulatory authorities within the framework of the internal electricity market. Whilst the referring national courts asked what factors must be taken into account and considered in assessing what constitutes interference with the core regulatory duties and powers of the national regulatory authority in a way that undermines the independence of the national regulatory authority in the electricity market.
The question was reframed by the Advocate General. He reframed the question as being ‘to what extent does that directive allow the government of a Member State to reduce the costs of electricity distribution system operators, in order to reduce tariffs for consumers, without undermining the independence of the national regulatory authority?’ (para. 2).
The Opinion
The Advocate General commenced his analysis by noting that the Directive in question,
‘aims to strike a balance between, on the one hand, the requirement that national regulatory authorities be independent and, on the other hand, the right of a Member State to establish its national energy policy in areas that do not fall within the exclusive powers of those regulatory authorities, particularly as regards the security of electricity supply‘ (para. 44).
In the course of his analysis that focused on the legal and functional independence of the Electricity Authority, its ability to make autonomous decisions, the exercises of its power, the Advocate General expressed reasoning broadly in line with how the Court has handled the independence of national regulatory agencies across various area of EU law, that is often demanded by EU secondary law (but also, in some cases, EU primary law).
That said, however, the Advocate General went on to state that Member States can, notwithstanding the demands of the Directive issue general policy guidelines which do not interfere with the regulatory authority’s core duties. In the case at hand, the Finnish government’s amendments aimed to reduce costs without directly setting tariffs, which is permissible if it does not undermine the national regulatory authority’s independence.
According to Advocate General Rantos, the 2021 amendments to national law in Finland did not directly interfere with tariff methodologies, but led to changes in monitoring methods. The Advocate General was thus of the view that such changes were acceptable if they reflect general policy guidelines, and did not encroach on the national regulatory authority’s exclusive powers.
He therefore concluded that the 2021 amendments by the national law of Finland were lawful. Or, in formal language, that the applicable provisions of the Directive in question,
‘must be interpreted as not precluding legislation of a Member State whose objective, as indicated in the travaux préparatoires relating to it, is to influence a reduction in electricity distribution prices without, as such, directly interfering with electricity transmission and distribution tariffs and/or their methodology, but the effect of which has been that the national regulatory authority has changed its methodology, in so far as that legislation reflects the general policy guidelines issued by the government of the Member State concerning its national energy policy, in particular with regard to determining the level of security of supply and the conditions for exploiting energy resources, which is not a matter concerning the duties and powers of the regulatory authority within the meaning of Article 59 of that directive.’
Opinion
The judgment of the Court of Justice (Fifth Chamber) will be delivered in late 2024, or early 2025.
In the meantime, the Opinion of Advocate General Rantos, delivered on 5 September 2024 in Case C-48/23, Alajärven Sähkö and Others, is available here.