Agency empowerment and the case of the European resource adequacy assessment
University of Eastern Finland Law School Master’s thesis Otso Liikanen 284571 Supervisor: Kaisa Huhta
ABSTRACT
UNIVERSITY OF EASTERN FINLAND Faculty
Faculty of Social Sciences and Business Studies
Unit
Law School
Author
Otso Liikanen
Name of the Thesis
Agency empowerment and the case of the European resource adequacy assessment
Major
European law
Description
Master’s thesis
Date
Spring 2020
Pages
66
Abstract
The European Union has seen a rise in the number of agencies and their competences to give binding single-case decisions and regulations of general application. In the policy area of energy, the Agency for the Cooperation of Energy Regulators (ACER) contributes to the regulation of the energy market. Recently, ACER has been granted wider powers, including the duty to approve of the methodology of the European resource adequacy assessment, which is an evaluation of Member State electricity resources. The result of the assessment may be significant as a conducted
assessment prevents the introduction of capacity mechanisms in Member States in which no adequacy concerns are identified. The purpose of the thesis is to assess the establishment and empowerment of EU agencies in light of the provisions of the Founding Treaties and case-law of the Union governing transfer of powers. As the Treaties do not expressly provide for the
establishment of agencies, questions remain concerning their legal basis and extent of powers.
ACER’s competence to decide on the methodology of the adequacy assessment is discussed. The effects of the adequacy assessment as a factual first-instance State aid review are also explored. The findings of the study indicate that agencies may be granted ever-increasing powers with a wider margin of discretion in their decision-making being more prevalent. The restrictions derived from EU case-law have been reconsidered to fit to the modern mode of agency creation. The role of agencies in policy-making is justified by them being subject to judicial review and their employees’
expertise. Thus, the empowerment of ACER in recent legislation may be considered justified, while its appropriateness may be called into question given the gravity of the limitations it imposes on Member States.
Key words
European Union law, energy, European agency, delegation of power, capacity mechanism, ACER, balance of powers
TIIVISTELMÄ
ITÄ-SUOMEN YLIOPISTO Tiedekunta
Yhteiskuntatieteiden ja kauppatieteiden tiedekunta
Yksikkö
Oikeustieteiden laitos
Tekijä
Otso Liikanen
Työn nimi
Agency empowerment and the case of the European resource adequacy assessment
Pääaine
Eurooppaoikeus Työn laji Pro gradu Aika Kevät 2020 Sivuja 66
Tiivistelmä
Euroopan unionin virastojen määrä on ollut kasvussa ja niiden toimivalta antaa sitovia ratkaisuja yksittäisissä asioissa sekä antaa sitovia ohjeistuksia ovat lisääntyneet. Energia-alan sääntelyviranomaisten yhteistyövirastolle (ACER) on myönnetty laajempia toimivaltuuksia, mukaan lukien velvollisuus hyväksyä menetelmä eurooppalaisen resurssien
riittävyysarvioinnin tekemiseksi, jossa arvioidaan jäsenvaltioiden sähköresurssien riittävyyttä.
Arvioinnin tulokset voivat olla merkittäviä, sillä valmis arvio estää kapasiteettimekanismien käyttöönoton niissä jäsenvaltioissa, joissa ei havaita riittävyyttä koskevia huolenaiheita.
Tutkimuksen tarkoituksena on arvioida EU:n perussopimusten ja oikeusperiaatteiden valossa EU-virastojen perustamisen ja valtuuttamisen perusteita. Koska perussopimuksissa ei ole suoraa valtuutusta EU-virastojen perustamiselle, niiden oikeusperustaa ja toimivaltuuksien laajuutta koskien herää kysymyksiä. Tutkimuksessa arvioidaan ACER:in toimivaltaa tehdä päätös riittävyysarvioinnin menetelmästä sekä sen vaikutuksia EU:n valtiotukisääntelyn mukaisten prosessien osalta. Työssä havaittiin, että EU-virastoille voidaan myöntää entistä laajempia toimivaltuuksia, jotka sisältävät harkinnanvaraisten päätösten tekemistä. EU:n oikeuskäytännöstä johdettuja sääntöjä on arvioitu uudelleen ja ne on sovitettu moderniin virastojen perustamiskäytäntöön. Virastojen rooli sääntelyn luomisessa on oikeutettu niihin kohdistetulla tuomioistuinvalvonnalla ja työntekijöidensä ammattitaidolla. Siten, toimivallan myöntämistä ACER:lle voidaan pitää oikeutettuna, mutta sen sopivuus voidaan kyseenalaistaa jäsenvaltioille koituvien rajoitusten ankaruuden osalta.
Avainsanat
EU-oikeus, energia, EU-virasto, delegointi, kapasiteettimekanismi, ACER, toimielinten välinen tasapaino
Table of Contents
BIBLIOGRAPHY ... V FIGURES ... XIV ABBREVIATIONS ... XV
1 INTRODUCTION ... 1
1.1 Background to the study ... 1
1.2 Research question and methodology ... 4
2 Competences and agencification of the EU ... 7
2.1 Competence of the European Union in matters concerning energy ... 7
2.2 Executive competences in the EU and the balance of powers ... 10
2.3 Article 194 as a legal basis ... 13
2.4 European agencies and their principles of establishment ... 17
2.5 The relationship of Articles 290 and 291 TFEU to agency empowerment ... 24
2.6 Significance of the Treaty provisions on judicial review ... 26
3 Security of supply and capacity mechanisms ... 27
3.1 Security of supply and changes in the generation structure ... 27
3.2 Challenges in the electricity sector ... 28
3.3 The secondary nature of capacity mechanisms as a solution to concerns over security of supply ... 30
4 CEP provisions on resource adequacy... 32
4.1 Adequacy of the electricity system ... 32
4.2 Description of the European resource adequacy assessment ... 34
4.3 The procedure of approving a proposed European resource adequacy assessment methodology ... 38
4.4 National resource adequacy assessment ... 40
5 Competences and delegation: analysis ... 43
5.1 Article 194(2) TFEU as the legal basis for the establishment and empowerment of an agency ... 43
5.2 The proportionality of empowering ACER with the approval ... 48
5.3 Significance of Meroni and nature of the transfer: delegation or conferral? ... 51
5.4 The judicial review of agency decisions ... 53
5.5 Encroachment on the powers enjoyed by the Commission ... 55
5.6 Suitability of Article 194(2) as the legal basis for the European resource adequacy assessment ... 57
5.7 Subsidiarity and proportionality of the European resource adequacy assessment ... 60
6 Conclusion ... 63
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Figure 1. Capacity mechanism introduction process flowchart.
ABBREVIATIONS
A-G Advocate General
ACER Agency for the Cooperation of Energy Regulators
BOR Board of Regulators
CEER Council of European Energy Regulators
CEP Clean Energy Package
CJEU Court of Justice of the European Union
DG Directorate-General
ECG Electricity Coordination Group
ENISA European Agency for Network and Information Security ENTSO-E European Network of Transmission System Operators for
Electricity
EU European Union
EUIPO European Union Intellectual Property Office ESMA European Securities and Markets Authority
kWh Kilowatt hour
MWh Megawatt hour
NRA National Regulatory Authority
RED I Renewable Energy Directive
RED II Second Renewable Energy Directive
RES-E Electricity produced from renewable sources
TEU Treaty on European Union
TFEU Treaty on the Functioning of the European Union
TSO Transmission System Operator
1 INTRODUCTION
1.1 Background to the study
In the 21st century, European energy policy has focused on bringing about an internal market in electricity. This has been effectuated through removal of regulatory obstacles and increasing interconnection, making the market more competitive by imposing third- party access to electricity grids and unbundling of vertically integrated undertakings. In terms of the environment, an effort has been made to reduce greenhouse gas emissions through the promotion of new and renewable forms of energy and energy efficiency.1 The European Union has imposed on its constituent Member State obligations to reduce their greenhouse gas emissions and increase the production of electricity from renewable sources (RES-E).2 While in the light of research on the climate and the environment in general these actions are welcome, it has implications on the structure of electricity generation in the Union.
As the supply and demand for electricity must be constantly balanced to ensure blackouts do not occur, Member States have taken measures to ensure the security of supply at times of systemic stress by introducing capacity mechanisms which aim to keep a sufficient amount of electricity generation capacity on the market.3 Capacity mechanisms are defined as ‘a temporary measure to ensure the achievement of the necessary level of resource adequacy by remunerating resources for their availability, excluding measures relating to ancillary services or congestion management’.4 Capacity mechanisms are thus
1 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank, A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy, COM(2015) 80 final, Brussels, 25.2.2015 (Energy Union Communication).
2 Article 3(1) of Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable source s and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC, OJ L 140, 5.6.2009, p.16–62.
3 Capacity mechanisms may e.g. distort the price signals on the market, lead to overinvestment and an increase in the price of electricity for consumers, see e.g. Carlos Batlle – Rodilla, Pablo, critical assessment of the different approaches aimed to secure electricity generation supply. Energy Policy 38(11) 2010, pp.7169–7179, at p. 7177; Cepeda, Mauricio, Assessing cross-border integration of capacity mechanisms in coupled electricity markets. Energy Policy 119, 2018, pp. 28–40, at p. 30.
4 Definition in point 22 of Article 2 of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity, OJ L 158, 14.6.2019, p. 54–124.
administrative measures which seek to secure the supply of electricity through e.g.
payments to generators for keeping capacity available, which subjects them to European Union (EU) State aid regulation. While they contribute to the security of supply of electricity, they may have a distortive effect on the functioning of the internal market in electricity.5 As such, the EU has perceived a need to regulate the use of capacity
mechanisms.6
The recent Clean Energy for All Europeans Package (CEP) is a bundle of secondary EU law instruments consisting of directives and regulations concerning energy, which have been adopted in 2018 and 2019 with all the instruments fully applied from 1st January 2021 onwards.7 The legislative instruments included in the package regulate capacity
mechanisms and describe the roles of different Union and Member State bodies involved in the process of introducing a capacity mechanism.
While the Commission is responsible of reviewing and either approving or rejecting Member States’ proposals for any State aid schemes, Regulation 2019/9438 (hereafter the Electricity Market Regulation), one of the legal instruments forming the Clean Energy Package, introduced the European resource adequacy assessment. The assessment is conducted by the European Network of Transmission System Operators for Electricity (ENTSO-E) on the basis of a methodology it proposes which the European Agency for the Cooperation of Electricity Regulators (ACER) may amend and must ultimately approve. A uniform evaluation conducted by a supranational body has the advantage of providing a comparable set of data while nationally-conducted assessments may diverge from each other significantly.9 If no concerns over the adequacy of electricity resources in a Member
5 See e.g. Jens Perner and Christoph Riechmann ‘Energy Market Design with Capacity Mechanisms’, in Leigh Hancher, Adrien de Hauteclocque and Malgorzata Sadowska (eds.) ‘Capacity Mechanisms in the EU Energy Market: Law, Policy and Economics, Oxford University Press 2015, pp. 69–79, at pp. 69–72
6 Commission Staff Working Document: Single Market Performance Report 2019, Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee, the Committee of the Regions and the European Investment BankAnnual Sustainable Growth Strategy 2020 SWD(2019) 444 final, 17.12.2019, p.
31.
7 Directive (EU) 2018/844 of the European Parliament and of the Council of 30 May 2018 amending Directive 2010/31/EU on the energy performance of buildings and Directive 2012/27/EU on energy efficiency, in force on 9th July 2018. Parts of Directive (EU) 2019/944 apply from 1st January 2021 as per Article 73 of the directive.
8 Regulation (EU) N:o 2019/943 of…
9 Commission Staff Working Document: Impact Assessment accompanying the document: Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in
electricity (recast); Proposal for a Regulation of the European Parliament and of the Council on the electricity
State are found, that Member State may not introduce capacity mechanisms. Such a restriction on a Member States’ freedom to propose capacity mechanisms implies a factual first-instance evaluation of the appropriateness of a State aid scheme. Such a practice could be seen as contrary to the provisions of Article 108 of the Treaty on Functioning of the European Union (TFEU) which stipulates that the Commission examines and approves or rejects state aid schemes proposed by the Member States.10
Both ACER and the ENTSO-E are public law bodies established through European Union law. However, while ACER is an agency of the European Union, similar to an
administrative agency in found in the Member States, ENTSO-E is an association of transmission system operators. They both contribute to the coordination of the operations of national regulatory agencies and national transmission system operators and both are governed by representatives of these entities.11 With the provisions of the CEP, further responsibilities have been imposed on both entities. The responsibilities relating to capacity mechanisms are the subject of this thesis.
This thesis argues that the new electricity market regulation reflects the “agencification” of the European Union, an ongoing process in which administrative powers are increasingly granted to decentralised agencies such as ACER, the European Securities Market
Authority (ESMA) and the European Union Intellectual Property Office (EUIPO).12 As the legal framework of agency creation is not set out in the Founding Treaties, i.e. the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union,13 the principles guiding agency establishment and empowerment have been formulated through
market (recast); Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast); Proposal for a Regulation of the European Parliament and of the Council on risk preparedness in the electricity sector, {COM(2016) 861 final} {SWD(2016) 411 final} {SWD(2016) 412 final} {SWD(2016) 413 final}, Brussels, 30.11.2016, SWD(2016) 410 final, p. 265 (Impact assessment of the CEP proposals)
10 Consolidated version of the Treaty on the Functioning of the European Union, OJ C 326, 26.10.2012, p.
47–390, Article 108.
11 Article 21(1)(a) of Regulation Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators, OJ L 158, 14.6.2019, p. 22–53.
12 Agencification comprises the growth in numbers of agencies as well as the extension of their powers.
There are now a total of 38 agencies with e.g. ESMA and EIOPA enjoying powers to take legally binding decisions, see Marloes van Rijsbergen, ‘The Limits of Agencification in the European Union’, 15(7) German Law Journal 2014, pp. 1223–1256, at p. 1225.
13 Consolidated version on the Treaty on European Union, OJ C 326, 26.10.2012, p. 13–390. The actions of the European Union are based on the Founding Treaties which have been approved by all the Member States in a democratic process. The Treaties stipulate the areas in which the Union is competent to legislate and provide for processes for introducing EU legislation as well as high-level administrative processes.
case law of the Court of Justice of the European Union (CJEU). With a number of Treaty changes since the first cases concerning delegation to a non-Treaty-based body, the interpretation of the principles governing these processes has changed. Modern trends in EU law concerning agencies and their role in the Union administration will be explored in this study in the context of the rules governing the internal electricity market.
1.2 Research question and methodology
The purpose of this study is to evaluate the basis for the establishment of and transfer of powers to the ACER effectuated by the European Union’s Clean Energy Package. The research focuses on the legal basis of the Regulation establishing ACER and the basis and appropriateness of powers granted to ACER to approve and amend the proposed
methodology of the European resource adequacy assessment, the results of which have a bearing on the ability of Member States to introduce capacity mechanisms. The primary research question is: Is the establishment of ACER and the extent of the powers relating to the European resource adequacy assessment granted to it in compliance with the doctrines governing agency establishment and empowerment?
The study aims to explore the institutional set-up of the bodies of the EU through a critical assessment of the transfer of powers relating to the European adequacy assessment to ACER by the legislative acts of the Clean Energy Package.
The research topic for this thesis was chosen because the CEP has brought with it plenty of new regulation and new roles for a number of institutional actors. The empowerment of ACER has been chosen as the topic of this thesis because delegation of powers to the Commission is a notion that is provided for in the Treaties but in terms of a transfer of powers to ACER there are some issues to be assessed.14 The agency received novel powers in the CEP which empower it to draw up standards for the assessment of electricity
resources in Member States which act as a starting point of State aid review may be seen as an encroachment on the powers of the Commission to conduct a State aid assessment. Due to the novel nature of the powers, the overlap of competences and the questions regarding the suitability of the legal basis chosen for the relevant Regulations, Regulation (EU)
14 In Case C-270/12 United Kingdom v European Parliament and the Council (Short selling) [2014]
ECLI:EU:C:2014:18, para 79, the CJEU noted that “the treaties do not contain any provision to the effect that powers may be conferred on a Union body, office or agency”.
2019/942 (hereafter the ACER Regulation) and the Electricity Market Regulation, the study will focus on analysing this transfer of powers and the establishment of ACER under Article 194(2) TFEU.
The purpose of the thesis is to evaluate the features and problems of the institutional framework relating to agencies and capacity mechanisms. General issues of the
institutional and administrative set-up of the EU are left out in order to examine in more detail the issues of institutional competence relating to agency establishment and
empowerment. Within that category, ACER’s powers relating to capacity mechanisms are evaluated. Thus, relevant parts of the ACER Regulation and the Electricity Market
Regulation with which ACER has been set up and empowered to act in this field are in the scope of this research. Other matters covered by the Clean Energy Package are only touched upon briefly, if at all, depending on their relevance to the work at hand.
The thesis employs a doctrinal legal research methodology. In line with such an approach to research, the thesis aims to evaluate whether the interpretations of the Founding Treaties made by the institutions and the acts taken on the basis of those interpretations are
justified. In essence, the relevant Treaty provisions are analysed to find whether they may be interpreted in a manner which provides for the types of Acts that have been enacted by the legislating bodies. The thesis builds up on the tradition of European administrative law research, focusing on the institutional aspects of EU administration with a link to State aid law in the area of energy.15 The choice of research method is made on the basis that the thesis aims to construe the relevant legislation, general principles and case-law of the Union to make an assessment of the current state of regulation in the area of energy.
In the thesis, I intend to answer the research question by analysing the transfer of powers effectuated by the CEP in light of the general principles of Union law such as subsidiarity and proportionality, and the considerations put forward in CJEU decisions on the
15 The thesis looks at the institutional structure and institutions’ relations, types of measures they take, their powers and supervision. See e.g. H.C.F. Hoffmann, G.C. Rowe and A.H. Türk, ‘A Conceptual
Understanding of EU Sectoral Administrative Law’, pp. 3–9 in Specialized administrative law of the European Union, H.C.F. Hoffmann, G.C. Rowe and A.H. Türk (eds.), Oxford University Press 2018;
Cassese, Sabino, New paths for administrative law: A manifesto, 10(3) International Journal of Constitutional Law 2012, pp. 603–613
delegation of regulatory powers, such as Meroni16 and the more recent Short selling17 case.
The arguments laid out in judgments of the CJEU and academic texts relevant to the subject will be applied into the empowerment of ACER by the CEP Regulations, and the empowerment will be analysed in their light. In analysing the use of Article 194 TFEU as a legal basis, analogy will be drawn from the use of Article 114 TFEU due to its frequency as a basis for the establishment of agencies and proximity to the provisions of legislative acts being assessed.
The research concentrates on public institutional law of the EU. Civil law matters, such as contractual considerations in the participation of a capacity provider to a capacity
mechanism are not addressed. As the thesis evaluates the competences arising from the founding Treaties, the research has a constitutional law aspect.18 The thesis utilises exclusively European sources of law, including the founding Treaties, secondary legislation, decisions, opinions and reports by the institutions as well as case law of the CJEU along with academic texts written of the matter.
The thesis will first discuss the competences of Union institutions in the policy area of energy, general principles central to the study and the principles governing European agencies and their establishment (Chapter 2). Second, principles relating to competence and agency establishment and empowerment are explained. Third, the concept of capacity mechanism is explored (Chapter 3). The roles of the relevant authorities and Union bodies, their powers and duties, are presented (Chapter 4). The establishment and
empowerment of ACER and agencies in general is then critically analysed in light of the principles that govern the transfer of non-legislative (or quasi-legislative) powers in the European Union (Chapter 5).
16 Case 9-56 Meroni & Co., Industrie Metallurgiche, SpA v High Authority of the European Coal and Steel Community, ECLI:EU:C:1958:7
17 Case C-270/12 United Kingdom v Parliament and the Council.
18 While regarding EU Treaty law “constitutional law” is controversial, general principles of EU law have been described by the Court as having constitutional status. They are of profound importance and as the thesis concentrates on EU law, the Treaties and general principles either codified or not will be regarded as constitutional. See e.g. Case C-101/08 Audiolux SA e.a. v Groupe Bruxelles Lambert SA [2009]
ECLI:EU:C:2009:410, para. 63; Case C-174/08 NCC Construction Danmark A/S v Skatteministeriet [2009]
ECLI:EU:C:2009:669, para. 42
2 Competences and agencification of the EU
2.1 Competence of the European Union in matters concerning energy
In this second chapter, the competences of the Union to legislate in energy matters is examined along with the principles governing the establishment of agencies and executive decision-making. The purpose is to explain the basis of Union legislative competences and their extent, both in general and in relation to energy matters as well as the ability to legislate on organisational questions, such as to establish agencies. General principles of EU law salient to Union competences are also explored. The relevant Treaty provisions and general principles of law are then applied in Chapter 5 in an assessment of the secondary law provisions governing the European resource adequacy assessment.
The European Union is founded on the principle of conferral.19 According to Article 5(1) TEU, the limits of Union competences are governed by the principle of conferral.20 The use of those Union competences is governed by the principles of subsidiarity and
proportionality.21 By virtue of Article 5(2), the Union shall act only within the limits of the competences conferred upon it by the Member States in the treaties to attain the objectives set out therein. Competences not conferred upon the Union in the Treaties remain with the Member States.22
The principle of conferral requires that all Union legislative acts must have a legal basis stemming from the treaties.23 In selecting a legal basis, the legislator must ensure that the choice rests on objective factors amenable to judicial review, including the aim and content of the measure.24 The measure must pursue the objectives stated in the primary law
19 Tridimas, Takis, Competence after Lisbon: The elusive search for bright lines in Ashiagbor, Diamond, Countouris, Nicola, Lianos, Ioannis, Pech, Laurent (eds.), The European Union after the Treaty of Lisbon, Cambridge University Press 2012, pp. 49–77, at p. 50. See also Craig – de Búrca 2015, p. 74.
20 Craig, Paul, EU Administrative Law, Oxford University Press 2019, p. 401.
21 Article 5(3) and (4) TEU. See also Craig, Paul, Subsidiarity: A Political and Legal Analysis, 50 Journal of Common Market Studies 2012, pp. 72–87.
22 Claes – de Witte, 2016, p. 50.
23 Craig – de Búrca 2015, p. 125. The Court has stated “according to settled case law, the choice of the legal basis for a European Union measure must be based on objective factors amenable to judicial review, which include the aim and content of that measure (…). In addition, where the Treaty contains a more specific provision that is capable of constituting the legal basis for the measure in question, the measure must be founded on that provision.” See case Case C-490/10 Parliament v Council [2012] ECLI:EU:C:2012:525, para 44; and Opinion 1/08 of the Court (Grand Chamber) of 30 November 2009, ‘GATS Schedules’, ECLI:EU:C:2009:739, para 110.
24 Case C-363/14 Parliament v Council at para 41.
provision that is proclaimed to form the legal basis.25 The aim and the content of the legislative measure must reflect the content of the provision it relies on as a legal basis and the choice must be based on objective factors which are amenable to judicial review instead of just the legislative institution’s conviction on what constitutes the correct legal basis.26 The Court, in assessing the appropriateness of the legal basis chosen, applies a centre of gravity test with which it seeks to identify the objective criteria and pinpoint which primary law provisions the Act would fulfil.27 Where two objectives, relating to two different legal bases are identified in the test, priority is given to the main component of the measure on what constitutes the predominant legal basis.28 A dual legal basis is possible if there is no clear incompatibility between the two bases.29
The competence of the EU to legislate in energy matters is stated in Article 4(2)(i) of the Treaty on the Functioning of the European Union.30 Energy is an area of shared
competence. According to Article 2(2) TFEU, when the Treaties confer on the Union a competence shared with the Member States in a specific area, the Union and the Member States may legislate and adopt legally binding acts in that area. The Member States shall exercise their competence to the extent that the Union has not exercised its competence.
The Member States shall again exercise their competence to the extent that the Union has decided to cease exercising its competence.31
25 Case C-376/98 Germany v Parliament and the Council (Tobacco Advertising I) ECLI:EU:C:2000:544, para 85.
26 Case C-300/89 Commission v Council [1991] ECLI:EU:C:1991:244, paras 11–13,
27 In Case C-176/03 Commission v Council [2005] ECLI:EU:C:2005:542 and C-300/89 Commission v Council (Titanium Dioxide) Court held that the centre of gravity test is to be used to identify the legal foundation of an act which was in the terminology of that period considered cross-pillar, implying that a legal basis other than that selected was appropriate. See e.g. Poli, Sara European Court of Justice. The Legal Basis of Internal Market Measures with a Security Dimension. Comment on Case C-301/06 of 10/02/2009, Ireland v. Parliament/Council. European Constitutional Law Review, 6(1) 2010, pp. 137–157 at p. 149.
28 See e.g. Case C-338/01 Commission v Council [2004] ECLI:EU:C:2004:253; Lenaerts – Nuffel 2013, p.
118.
29 Lenaerts – Van Nuffel 2013 p. 119. A dual legal basis requires that there is no single pre-dominant aim, the two different main components are inseparably linked, there is no hierarchy between the rules adopted on different legal bases and the decision-making processes under the provisions adopted on separate legal bases do not directly contradict. See e.g. Case C-271/94 Parliament v Council [1996] ECLI:EU:C:1996:133.
30 Consolidated version of the Treaty on the Functioning of the European Union, OJ C 326 26.10.2012, p.
47–390
31 On the sharing of competences, see Schütze, Robert, Classifying EU Competences: German constitutional lessons in S Garben and I Govaere (eds.), The Division of Competences between the EU and the Member States (Portland, Hart Publishing 2017), p. 45.
Exercising a competence conferred to the Union is subject to the principles of subsidiarity and proportionality as set out in Article 5(3) and (4) TEU respectively.32 According to the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level. It applies to action which by reason of the scale or the effects of the proposed action be better achieved at Union level. The subsidiarity test is two-fold: first the national insufficiency test which assesses whether the proposed objective is not sufficiently achievable at national level, and second the comparative efficiency test on whether the objectives are better achievable at the EU level.33 The principle prevents the EU from legislating at will in all policy areas without assessing other options and seeks to ensure that decisions are made at a suitably low level in order to keep it at close proximity to the citizens.34 While the principle of subsidiarity assumes as a starting point the proximity of government, the principle may be used as an argument for a stronger Union involvement where the competence is contested.35 Subsidiarity is pertinent in energy matters as it has been argued that security of supply of electricity may be better achieved through Union level action than by Member States alone.36
Under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties.37 The principle prevents the taking of measures that are disproportionate to the end being sought and enables those affected by legislation to challenge said legislation on its basis.38 A legislative measure will be subjected to a threefold test which assesses its suitability, necessity and
32 Subsidiarity here is covered rather briefly, for further reading see e.g. Edward, David Subsidiarity as a Legal Concepts, pp. 93–103 in Cardonnell, Rosas – Wahl (eds.), Constitutionalising the EU Judicial System – Essays in Honour of Pernilla Lindh. Hart Publishing 2012; Craig, Paul, Subsidiarity: A political and legal analysis, Journal of Common Market Studies 50(1) 2012, pp. 72–87.
33 Schütze 2009, p. 250.
34 See Lenaerts 1993, p. 865; and Claes – de Witte 2016, p. 50.
35 Reins 2017, p. 36
36 Recital 37 of the preamble to Regulation (EU) 2019/941 of the European Parliament and of the Council of 5 June 2019 on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC, OJ L 158, 14.6.2019, p. 1–21.
37 Article 5(4) TEU. While the principle is now enshrined in the treaties, it has its foundation in case law of the European Coal and Steel Community and was developed fully during the existence of the European Community, see Case 11/70 Internationale Handeslgesellschaft mbH v Einfuhr- und Vorratstelle für Getreide und Futtermittel [1970] ECLI:EU:C:1970:114.
38 Craig 2018, p. 643
proportionality stricto sensu.39 When considering a measure of the administration which has been taken with a wide margin of discretion, the court will be wary of applying the principle strictly as it could mean essentially substituting the administration’s judgment with its own.40
The functioning of the European Union rests on the primacy of EU law, a concept established by the European Court of Justice in the case of Costa v Enel.41 According to the concept of primacy EU law takes precedence over national legislation of the
constituent Member States.42 Where national law and legislation adopted by the EU are in conflict, the former must be set aside and the provisions of EU law must be abided by the subjects of the Union. Without primacy, the executive force of EU law would be weaker and it would lack effet utile, a degree of effectiveness required from a norm to be
considered law.43 The principle of primacy is reflected in Article 4(3) TEU which provides for sincere cooperation between Member States in carrying out tasks flowing from the Treaties and the principle of effective cooperation, which requires the Member States to take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.
2.2 Executive competences in the EU and the balance of powers
The Union body most closely resembling a national government is the Commission. It is one of the Treaty based institutions of the EU directly involved in the legislative process, the others being the European Parliament, the European Council.44 The Commission has the right to propose legislation and execute the policies adopted in the legislative process
39 Suitability refers to whether the measure chosen is suitable in order to achieve the intended end with that means; necessity implies a test on whether it is necessary to take the chosen measure to achieve the end or could a less restrictive means have sufficed; and lastly, stricto sensu proportionality refers to whether a suitable and necessary measure lays too onerous a burden on the individual. See Tor-Inge Harbo The Function of the Proportionality Principle in EU Law, European Law journal 2010 16(2), pages 158–185, p.
165 40 de Búrca 1993, p. 112.
41 Case 6/64 Flaminio Costa v E.N.E.L. [1964] ECLI:EU:C:1964:66.
42 Case 6/64 Costa v E.N.E.L., p. 594.
43 The meaning of primacy has been contested and discussed and placed into three models: a hierarchical model in which the supremacy EU law is without question, all of it prevails over all national law; a conditionally hierarchical model, in which the scope of primacy is restricted by e.g. Article 4(2) TEU on respect of national identities and the pre-emption doctrine of shared competences; and a heterarchiacal model which recognises the Member States’ right to claim ultimate legal authority in their territory, refusing to apply a provision of EU law while it remains fully valid. See: Matej 2011, p. 751.
44 “Institutions” in this thesis refers to the Commission, the Council and the Parliament.
by the Council and the Parliament.45 Executive powers are conferred to it by the Treaties in a number of areas, such as competition and State aid.46 The Commission also administrates policies together with national agencies as well as on its own accord as the sole
administrator.47
The Commission also holds executive powers in the form of the ability to adopt delegated and implementing legislation where provided for by a legislative act taken under Articles 290 and 291 TFEU. The Lisbon Treaty opened up the possibility for the Commission to adopt implementing acts but these too are adopted only within the limits provided for by the relevant legislation granting the competence to do so and under the control of the Member States.48 The Commission may be seen as becoming the one holding the power to its full extent as granted by the legislative act. Acting under a delegation or a right to adopt implementing acts, the Commission is subordinate to the Council and the Parliament setting the modalities of the implementation through the restrictions in the legislative act granting those powers.49
In the EU the administration is varied and multi-level, authorities at both Member State and EU level being competent.50 Along with the sharing of executive competences between EU institutions and national authorities, the powers previously reserved to the Commission have increasingly been shared to decentralised bodies such as agencies.51 The Commission is seen by many as a loser in the wake of the Treaty of Lisbon in terms of its influence over the politics in the EU.52 The role of the European Council, formalised by Article 15(1) TEU as the agenda-setting institution also has had an effect on the position of the Commission as the body providing strategy and solutions to identified issues in the Union’s governance.53 In essence, the role of the Council and the Parliament have become more prominent along with the rising amount and increased powers of European regulatory agencies.54
45 Articles 14, 16 and 17 TEU.
46 Articles 101–102 and 107–108 TFEU.
47 Craig – de Búrca 2015 online, Chapter 2, section 2, subsection B(ii)
48 Article 291 TFEU.
49 Bergström – Ritleng 2016 p. 23.
50 Craig 2019, pp. 27–33.
51 See e.g. Case C-270/12 Short selling; Case C-217/04 ENISA; Chamon 2010, p. 381
52 Laffan 2016, p. 917.
53 Becker et al. 2016, p. 1014.
54 Kassim et al. 2013, pp. 131–135.
Under the principle of institutional balance the competences of the EU institutions must remain with the body they have been vested in. According to Article 13(2) TEU each institution shall act within the limits of the powers conferred on it in the Treaties. There has been discussion over whether institutional balance has the status of a principle of EU law but for the purposes of this study, it shall be treated as such.55 This principle
reminiscent of the separation of powers mandates the dispersion of administrative and legislative power among a number of actors.56 It is ‘a system for distributing powers among the different Community institutions, assigning to each institution its own role in the institutional structure of the Community and the accomplishment of the tasks entrusted to the Community’.57 The Court has clarified the role of the principle as applying only to the relationship between the EU institutions, not in matters concerning the protection of rights of individuals.58 This is reflected in Advocate General (A-G) Trstenjak’s opinion in Audiolux in which it was held that institutional balance serves to separate the functions of the Union, not to protect the individual by curbing the use of powers of the State.59
The Meroni v High Authority60 case was authoritative in the specific dimension of institutional balance related to non-Treaty-based bodies. According to the judgment in Meroni, institutional balance may not be altered by entrusting tasks which entail a measure of political discretion to a body which has not been afforded the right to exercise
discretionary powers in the Treaties.61 This idea seems to be in line with the more general notion of institutional balance and serves to prevent the creation of a hierarchical
enforcement structure where the entity with a Treaty mandate in a certain area supersedes the authority of an agency in that same area. However, the notion has been circumvented to a certain extent in the more recent grant of powers to agencies, which will be considered in section 2.4.
55 The Court has referred to the “principle of institutional balance” in e.g. Case C-133/06 Parliament v Council [2008] ECLI:EU:C:2008:257, para. 57. For more on the concept of institutional balance, see Merijn Chamon, ‘The institutional balance, an ill-fated principle of EU law?’, 21(2) European Public Law Review 2015, pp. 371–391.
56 Chamon 2015 p. 374
57 Case C-316/91 Parliament v Council [1994] ECLI:EU:C:1994:76, para 11.
58 See e.g. Case T-243/94 British Steel plc v Commission [1997] ECLI:EU:T:1997:159.
59 Opinion of Advocate General Trstenjak in Case C-101/08 Audiolux e.a., [2009] ECLI:EU:C:2009:410, para 104.
60 Case 9-56 Meroni & Co., Industrie Metallurgiche, SpA v High Authority of the European Coal and Steel Community, ECLI:EU:C:1958:7,
61 Case 9-56 Meroni v High Authority, p. 152.
2.3 Article 194 as a legal basis
Energy has been a principle area of shared competence since the Treaty of Lisbon, which added energy to the list of shared competences in Article 4 TFEU. The Treaty also
introduced an energy-specific provision, Article 194 TFEU in the new Chapter XXI, which provides an explicit legal basis for Union legislation in matters concerning energy.62 It provides detail as to what the Union’s competence to legislate in energy matters means and provides four aims for Union energy policy solidarity: (a) ensure the functioning of the energy market; (b) ensure security of energy supply in the Union; (c) promote energy efficiency and energy saving and the development of new and renewable forms of energy;
and (d) promote the interconnection of energy networks.
Article 194(1) TFEU sets out the aims of the energy policy of the Union while Article 194(2) TFEU contains the express legal basis for legislating in energy matters. Energy legislation relating to these aims should be based on it as the previously used Article 114 TFEU may not be used “where otherwise provided in the Treaties”.63 The Court has also held that Article 194 TFEU “constitutes the legal basis intended to apply to all acts adopted by the European Union in the energy sector which are such as to allow the implementation of those objectives”.64
The Article contains four aims of EU energy policy. Two of the objectives have as their aim the furthering of the internal market in electricity. According to 194(1)(a) TFEU, EU energy policy shall ensure the functioning of the energy market. This aim works towards the free movement of goods, services and capital as well as energy.65 Article 194(1)(d) concerns promotion of interconnection of energy networks. Enabling high-volume cross- border trade in electricity is a necessary prerequisite to the free movement of energy and a true internal energy market in which market participants can engage in trading in the whole
62 Johnston – Marel 2013, p. 181.
63 Article 114 TFEU is the general internal market harmonisation provision but its uses are limited by its first paragraph which expresses its subsidiarity to lex specialis: “Save where otherwise provided for in the Treaties, the following provisions shall apply…”
64 Case C-490/10 Parliament v Council, ECLI:EU:C:2012:209 para 67.
65 Talus – Aalto 2017, p. 15.
