Opinion of the Advocate-General

Opinion of the Advocate-General

I – Introduction

1. 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 (Directive 2003/54) (2) regulates, inter alia, third party access to the electricity grids. In the course of reviewing the provision concerning connection to the grid in the national implementing statute the Lietuvos Respublikos Konstitucinis Teismas (Constitutional Court of the Republic of Lithuania) requests an interpretation of the directive.

2. The national provision at issue provides that customers must primarily be connected to the distribution system. A customer may be directly connected to the higher level transmission system only where the distribution system operator refuses, on account of technical reasons, to connect the customer to its distribution system. However, for certain customers it would be more attractive to be able to choose freely to be connected directly to the transmission system, because then they would not have to pay third party access costs for the distribution system. It is unclear whether Article 20(1) of Directive 2003/54, which regulates third party access to the system, guarantees such a right to choose.

II – Legal Context

A – Community law

3. Article 2 of Directive 2003/54 contains, inter alia, the following definitions:

‘(3) “transmission” means the transport of electricity on the extra high-voltage and high-voltage interconnected system with a view to its delivery to final customers or to distributors, but not including supply;

…

(5) “distribution” means the transport of electricity on high-voltage, medium voltage and low voltage distribution systems with a view to its delivery to customers, but not including supply;

…

(12) “eligible customers” means customers who are free to purchase electricity from the supplier of their choice within the meaning of Article 21 of this Directive;

…

(18) “system users” means any natural or legal persons supplying to, or being supplied by, a transmission or distribution system;

(19) “supply” means the sale, including resale, of electricity to customers;

…’

4. Article 3 of the Directive governs public service obligations which Member States may impose on undertakings operating in the electricity sector and customer protection. Extracts from paragraphs 2, 3, 5 and 8 of the provision read as follows:

‘(2) Having full regard to the relevant provisions of the Treaty, in particular Article 86 thereof, Member States may impose on undertakings operating in the electricity sector, in the general economic interest, public service obligations which may relate to security, including security of supply, regularity, quality and price of supplies and environmental protection, including energy efficiency and climate protection. Such obligations shall be clearly defined, transparent, non-discriminatory, verifiable and shall guarantee equality of access for EU electricity companies to national consumers.

(3) Member States shall ensure that all household customers, and, where Member States deem it appropriate, small enterprises, (namely enterprises with fewer than 50 occupied persons and an annual turnover or balance sheet not exceeding EUR 10 million), enjoy universal service, that is the right to be supplied with electricity of a specified quality within their territory at reasonable, easily and clearly comparable and transparent prices. ... Member States shall impose on distribution companies an obligation to connect customers to their grid under terms, conditions and tariffs set in accordance with the procedure laid down in Article 23(2).

...

(5) Member States shall take appropriate measures to protect final customers, and shall in particular ensure that there are adequate safeguards to protect vulnerable customers, including measures to help them avoid disconnection. ... They shall ensure high levels of consumer protection, particularly with respect to transparency regarding contractual terms and conditions, general information and dispute settlement mechanisms. Member States shall ensure that the eligible customer is in fact able to switch to a new supplier. As regards at least household customers, these measures shall include those set out in Annex A.

...

(8) Member States may decide not to apply the provisions of Articles 6, 7, 20 and 22 in so far as their application would obstruct the performance, in law or in fact, of the obligations imposed on electricity undertakings in the general economic interest and in so far as the development of trade would not be affected to such an extent as would be contrary to the interests of the Community. The interests of the Community include, amongst others, competition with regard to eligible customers in accordance with this Directive and Article 86 of the Treaty.’

5. Article 5 of the Directive contains the following technical rules:

‘Member States shall ensure that technical safety criteria are defined and that technical rules establishing the minimum technical design and operational requirements for the connection to the system of generating installations, distribution systems, directly connected consumers' equipment, interconnector circuits and direct lines are developed and made public. These technical rules shall ensure the interoperability of systems and shall be objective and non-discriminatory. ...’

6. Article 20 of the Directive governs third party access to the transmission and distribution systems as follows:

‘(1) Member States shall ensure the implementation of a system of third party access to the transmission and distribution systems based on published tariffs, applicable to all eligible customers and applied objectively and without discrimination between system users. Member States shall ensure that these tariffs, or the methodologies underlying their calculation, are approved prior to their entry into force in accordance with Article 23 and that these tariffs, and the methodologies – where only methodologies are approved – are published prior to their entry into force.

(2) The operator of a transmission or distribution system may refuse access where it lacks the necessary capacity. Duly substantiated reasons must be given for such refusal, in particular having regard to Article 3. Member States shall ensure, where appropriate and when refusal of access takes place, that the transmission or distribution system operator provides relevant information on measures that would be necessary to reinforce the network. The party requesting such information may be charged a reasonable fee reflecting the cost of providing such information.’

7. Article 21(1) of the Directive provides for a gradual opening of the market. Pursuant to that provision Member States were obliged, from 1 July 2004, to expand the circle of eligible customers to all non-household customers and eventually, from 1 July 2007, to all customers.

B – National law

8. For the purposes of implementing Directive 2003/54 the Law on electricity was amended and the amended version came into force on 10 July 2004. Article 15(2) of that law provides:

‘a transmission system operator shall ensure that the conditions for connection to the transmission network of the equipment of electricity generating installations, of distribution network operators and of customers are in conformity with the requirements laid down in legislation and are non-discriminatory. A customer’s equipment may be connected to a transmission network only in cases where the distribution network operator refuses, on account of established technical or operating requirements, to connect to the distribution network the equipment of the customer which is on the territory indicated in the distribution network operator’s licence.’

III – Main proceedings, question referred and proceedings before the Court

9. In Lithuania the equipment of most electricity customers is connected to the distribution network of one of two distribution network operators. Five industrial undertakings also have distribution licences and operate local networks for the purposes of supplying persons resident in quite a small area or their own requirements. In addition to the distribution network operators, (3) six industrial undertakings with high requirements for electricity are also connected to the transmission network. They were connected when the USSR was still in existence and no distinction was made between transmission networks and distribution networks. Following the amendment of the Law on electricity in 2004 these undertakings continued to be connected to the transmission network. Since that time new connections to that network have only been possible pursuant to Article 15(2) of that law.

10. On 28 October 2004 a group of Members of the Seimas (Lithuanian parliament) (‘the applicant group’) requested the Konstitucinis Teismas to examine whether Article 15(2) of the Law on electricity is compatible with the constitution and with Directive 2003/54.

11. The applicant group considers that as a result of the directive the customer has the freedom to choose the specific network for providing electricity to which he would like to be connected. By contrast, the Seismas, as an interested party, argues that the issue is not covered by the directive but may be decided upon freely by the Member States. In connection with this, reference is made to the letter dated 21 December 2005 (D/1225) from the Member of the European Commission with responsibility for energy, Mr A. Piebalgs. In reply to a question from an undertaking, the commissioner stated in that letter that: ‘Directive 2003/54 does not require that the customer be granted a right to choose at his discretion between connection to a transmission system or connection to a distribution system. The customer has the right to be connected to an electricity system; thus, its detailed implementation is left to be decided on the basis of subsidiarity.’

12. The referring court considers that the wording of Article 20(1) of Directive 2003/54 confirms the view of the applicant group. On the other hand, the court refers to the social objectives pursued by the Community legislature, particularly in Article 3 of the directive. It considers that these social objectives are taken into account by the national provision in that it protects small customers from price increases for using the network. The network charges fall equally on all customers purchasing electricity from the relevant network. If industrial customers were able to be connected directly to the electricity transmission network instead of the distribution network without any restriction, that would lead to a reduction in the amount of electricity provided by the distribution network and consequently to an increase in network costs for the remaining customers.

13. In view of this doubt as to interpretation, the Konstitucinis Teismas has referred the following question to the Court for a preliminary ruling:

‘Is Article 20 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 to be interpreted as obliging Member States to establish legal rules whereby any third party has the right, at his discretion, provided that the electricity system has ‘the necessary capacity’, to choose the system – electricity transmission system or electricity distribution system – to which he wishes to be connected, and the operator of that system has an obligation to grant access to the network?’

14. In the proceedings before the Court, the applicant group in the main proceedings, the governments of Lithuania, Italy and Finland and the Commission submitted written observations and – with the exception of the government of Italy – also took part in the oral procedure.

IV – Legal appraisal

A – Admissibility

15. According to established case-law it follows from Article 234 EC that a national court may refer a question to the Court only if there is a case pending before it and if it is called upon to give judgment in proceedings intended to lead to a decision of a judicial nature. (4)

16. There is no doubt that the Konstitucinis Teismas is a court. Constitutional courts also fall within the definition of court for the purposes of Article 234 EC. (5)

17. In addition, in the main proceedings the Konstitucinis Teismas is also called upon to make a decision of a judicial nature. For that purpose it does not depend on whether the procedure for reviewing the constitutionality of laws on the application of a group of Members of Seimas involves an inter partes hearing. (6) On the contrary, the decisive points are that the proceedings are not administrative proceedings in which the court acts as an authority in relation to the individual (7) and, that the court may not act as a merely advisory body. (8)

18. In that regard it must be observed that the main proceedings relate to the review of a statute which has already come into force. Therefore the main proceedings do not concern a constitutional court hearing during the legislative process. On the contrary, in the procedure for reviewing the constitutionality of laws the constitutional court is empowered to declare the national law to be inapplicable with effect erga omnes , as the court explained in the reference for a preliminary ruling.

19. Accordingly, the reference for a preliminary ruling is admissible.

B – The question referred

20. Before the liberalisation of the electricity market electricity supply undertakings had territorial monopolies in many Member States. One undertaking provided all the services necessary for supplying customers in its territory. It generated and sold the electricity and supplied it via its own electricity networks to all customers connected to those networks.

21. Directive 96/92 (9) already provided, with a view to liberalising the internal market for electricity, that gradually more and more customers, as ‘eligible customers’, could freely choose the supply undertaking from which they purchase electricity. At the present time this central element of liberalisation is expressed in the fourth and twentieth recitals to Directive 2003/54:

‘(4) The freedoms which the Treaty guarantees European citizens – free movement of goods, freedom to provide services and freedom of establishment – are only possible in a fully open market, which enables all consumers freely to choose their suppliers and all suppliers freely to deliver to their customers.

...

(20) Electricity customers should be able to choose their supplier freely.

...’

22. In order to enable the customer to have a free choice of supply undertaking, the natural monopoly of the established undertakings, which resulted from control of the network, had to be eliminated by granting third parties a right to non-discriminatory access to the network. Opening up the network for third parties is consequently of paramount importance to creating the internal electricity market, as the legislature emphasised in particular in the seventh recital to Directive 2003/54. (10) By this means, a customer is no longer solely dependent on supply from the undertaking to whose network he is connected, but may freely choose another supply undertaking to deliver electricity to him through this network.

23. However, the wording of Article 20(1) of Directive 2003/54, which regulates third party access to the system, is not entirely clear in several respects. First of all, it is necessary to clarify whether ‘third party’ includes only the generating and supply undertaking or the customers as well. The main question is then what should be understood by access to the transmission and distribution systems. The essence of the dispute here is whether this also includes the right of the customer freely to choose the system to which he wishes to be connected.

The meaning of third party for the purposes of Article 20(1) of Directive 2003/54

24. The Finnish Government considers that the term third party in Article 20(1) of Directive 2003/54 means undertakings generating or supplying electricity which are not owned by the vertically integrated undertaking which operates the relevant system and which also combines the functions of generation or supply. (11) It submits that the provision prohibits a vertically integrated undertaking from disadvantaging this third party as compared to its own generating and supply divisions in relation to accessing the systems. It considers that customer access rights are not regulated in this provision.

25. The German wording of Article 20(1) of the directive does not appear to exclude that interpretation from the outset. In particular one could understand the passage ‘die Zugangsregelung gilt für alle zugelassenen Kunden’ in the sense that access by third party electricity generators or suppliers applies in relation to supplying all eligible customers. (12) In other words: the system operator could refuse electricity generators or suppliers use of the system if they do not intend to supply eligible customers. (13) In some other language versions the reference to eligible customers appears to lay down only a rule with regard to the tariffs for the fee for the use of the system but not to apply to the access right itself. (14)

26. However, the passage cited should not be seen out of context. On the contrary, it should be noted that the provision also states that the ‘system of third party access [shall be] ... applied objectively and without discrimination between system users’ [emphasis added].

27. The applicant group correctly refers to the fact that pursuant to Article 2(18) of Directive 2003/54 the ‘system user’ means both persons supplying electricity to, and persons being supplied electricity by , a transmission or distribution system. Consequently, by including all system users in its scope of application, Article 20(1) of the directive also grants the customers a right to system access without discrimination.

28. As the Lithuanian Government emphasises in this context, in order to realise the directive’s objective that the customer should be able to choose his supply undertaking freely, (15) unrestricted access to the system must actually be opened up to both parties to this supply relationship. (16) The right of access would be worthless to a supply undertaking if the customer who is to be supplied did not have a right to system access.

29. Therefore the contrary view expressed by the Finnish Government must be rejected.

Requirements of Article 20(1) of Directive 2003/54 for system access or connection to the system

30. Pursuant to Article 15(2) of the Law on electricity there is a right to connection without discrimination to the transmission system only where the distribution network operator has refused to connect the relevant customer. Before it can be examined whether Article 20(1) of the directive precludes the latter restriction on the choice of a system, the preliminary question of whether the provision regulates connection to a system at all must be clarified.

31. Unlike the applicant group and probably also the Italian Government, the Lithuanian and the Finnish Governments and the Commission have expressed the view that a distinction must be made between connection and access: they say that only access is regulated in Article 20 of the directive. Whilst in its written observations the Commission shared the applicant group’s view that the right to access without discrimination pursuant to Article 20 of the directive also precluded restrictions on the choice of connection to the system, it abandoned this theory in the oral procedure and concurred with Finland and Lithuania.

32. Support for the view of the Lithuanian and Finnish Governments and of the Commission is found in the wording of Article 20(1) of the directive, which only mentions access. Access and connection cannot be regarded as synonymous terms in this respect. As the abovementioned parties have correctly stated, the two terms are used in the directive with different meanings.

33. This is demonstrated particularly clearly in Article 23(2)(a) of the directive, which gives the regulatory authorities the task of fixing or approving, prior to their entry into force, ‘the conditions for connection and access to national networks, including transmission and distribution tariffs’. If the terms connection and access had the same meaning they would not have to be mentioned alongside one another at this point.

34. The term access to the system includes the right to use a system for the transportation of electricity or to be supplied with it in return for payment. Article 20 is the central provision in the directive in relation to access to the system, without which the liberalisation of the electricity market would not be possible. Pursuant to Article 20(2) of the directive the operator of a transmission or distribution system may refuse access only where the system lacks the necessary capacity.

35. On the other hand, specific provisions relating to connection to the system are found in the third sentence of Article 3(3) of the directive, which imposes a (public service) obligation on distribution companies to connect all household customers and other small customers to their grid. In addition, Article 5 of the directive gives Member States the task of adopting technical rules for the connection to the system which ensure the interoperability of systems and are objective and non-discriminatory. Finally the regulatory authorities are allocated certain supervisory duties pursuant to Article 23(1)(c) and (f) of the directive with regard to the conditions for making connections.

36. It is apparent, taking these provisions as whole, that ‘connection’ means the creation of a physical connection between a system and the equipment of the customer, plants producing electricity, other systems and other equipment.

37. Therefore, according to the clear wording of Article 20(1) of the directive, that provision does not regulate connection to a system directly. However, it must still be examined whether an unrestricted right to connection to a transmission system arises from the provisions concerning connection to the system; (17) moreover, indirect requirements for the connection could result from Article 20(1) of the directive, since the connection to a system is a prerequisite to the exercise of the right of access.

38. The provisions concerning connection to the system are essentially technical in nature and do not grant a general right of connection to a system of the customer’s choice. Only under the third sentence of Article 3(3) might a right arise for certain customers to connect to the distribution system, but not a right to connect to the transmission system.

39. Article 5 further requires the adoption of non-discriminatory rules with regard to connection to the system. It follows from this that comparable customers – in particular customers with equivalent purchase quantities and characteristics – must also be connected to a particular system under the same terms. In the event that the relevant national rules infringe this principle of non-discrimination, the disadvantaged system user has a right, possibly based directly on the directive, to equivalent treatment to that given to the favoured group, which can however only be assessed on the basis of actual cases.

40. Further, a right to choose in relation to connection to the system could arise indirectly from the provision concerning access to the system in Article 20(1) of the directive, if access would also be detrimentally affected without this right to choose.

41. The purpose of third party network access is – as explained – that the customer is able freely to choose the supplier from which he purchases electricity. However, the free choice of supply undertaking is not directly dependent on the system to which the customer is connected. Whilst final customers may essentially also be supplied via the transmission system, as is apparent from Article 2(3) of the directive, choice of supply undertaking is also guaranteed if the customer is connected to a distribution system, since the supply undertaking is entitled to transport electricity to customers through the transmission system and the distribution system.

42. The system of third party access to the transmission and distribution systems, which the Member States must implement in accordance with Article 20(1) of the directive, does not therefore require that each customer has a right to connection to the transmission system. On the contrary, it is open to the Member State to organise the system, taking into account the technical circumstances, so that every customer is to be connected to an appropriate system via which he is able to purchase electricity from a supply undertaking of his choice.

43. In so doing the Member State may also take into account public welfare interests, such as, for instance, the balanced load on the infrastructure and the appropriate allocation of system costs, without this requiring recourse to the exception in Article 3(8) of the directive. Such recourse would only be necessary in the event that the national system is not in conformity with Article 20(1).

44. According to the first sentence, in fine , of Article 20(1) of the directive, the system of third party access must however be applied objectively and without discrimination between system users. This does not exclude the possibility that some customers have direct access to the transmission system (for instance distribution system operators or certain major customers), whilst others only have indirect access to the transmission system via the distribution system. In granting direct access to the transmission or distribution system, the respective system operator may merely not differentiate between customers on an arbitrary basis, but must be guided by objective criteria, such as purchase quantity or purchase characteristics.

45. The applicant group further submits that the 2004 Law on electricity permits manipulation in setting costs for the operation of the distribution systems. Through the possibility of connection to the transmission system instead of the distribution system, the burden of unjustified system costs could be avoided.

46. This assertion, which is not expressed in the order for reference, would not – even if it were correct – call into question the solution proposed here. Directive 2003/54 introduced rules in order to ensure appropriate arrangements for payment for system usage and control over the cost elements to be taken into account in that regard. However, ‘inter-network competition’ is not an effective solution for dealing with improper cost structure arrangements for network operation, as switching to another system (the transmission system) with sound payment arrangements, which a few major customers would be technically in a position to do, does not change the fact that the remaining customers suffer unjustified costs, but makes the position even worse.

V – Conclusion

The answer to the question referred by the Konstitucinis Teismas of the Republic of Lithuania must therefore be:

Article 20(1) 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 does not preclude a national provision, which provides, in a non-discriminatory way, that a customer’s equipment may be connected to a transmission network only in cases where the distribution network operator refuses, on account of established technical or operating requirements, to connect to the distribution network the equipment of the customer which is on the territory indicated in the distribution network operator’s licence.

(1) .

(2)  – 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 – Statements made with regard to decommissioning and waste management activities (OJ 2003 L 176 p. 37).

(3)  – It is not entirely clear from the order for reference whether all of the undertakings with a distribution licence – namely the five industrial undertakings as well – are connected to the transmission network.

(4)  – Case 318/85 Greis Unterweger [1986] ECR 955, paragraph 4; Case C‑111/94 Job Centre [1995] ECR I‑3361, paragraph 9; Case C‑178/99 Salzmann [2001] ECR I‑4421, paragraph 14; Case C‑165/03 Längst [2005] ECR I‑5637, paragraph 25; and Case C‑96/04 Standesamt Niebüll [2006] ECR I‑3561, paragraph 13.

(5)  – Thus for instance the Austrian Verfassungsgerichtshof and the Belgian Cour d’arbitrage, now the Cour constitutionnelle, have made several references for preliminary rulings without having their status as a court called into question (see for example Joined Cases C‑465/00, C‑138/01 and C‑139/01 Österreichischer Rundfunk and Others [2003] ECR I‑4989 and Case C‑212/06 Gouvernement de la Communauté française and Others [2008] ECR I‑0000) .

(6)  – Case C‑18/93 Corsica Ferries [1994] ECR I‑1783, paragraph 12, and Standesamt Niebüll (cited in footnote 4, paragraph 13).

(7)  – See Job Centre (cited in footnote 4, paragraph 11), Salzmann (cited in footnote 4, paragraph 15) and Standesamt Niebüll (cited in footnote 4, paragraph 14).

(8)  – See Greis Unterweger (cited in footnote 4, paragraph 4).

(9)  – 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 p. 20).

(10)  – The seventh recital reads: ‘In order to complete the internal electricity market, non-discriminatory access to the network of the transmission or the distribution system operator is of paramount importance. A transmission or distribution system operator may comprise one or more undertakings.’ See Case C‑439/06 citiworks [2008] ECR I‑0000, paragraphs 42 to 44 and also the Opinion of Advocate General Mazák of 13 December 2007 in that case (points 72 to 74). See also in general on the meaning of non-discriminatory access to the network for third parties: Case C‑17/03 VEMW and Others [2005] ECR I‑4983, paragraphs 42 to 46.

(11)  – See Article 2(21) of Directive 2003/54 in relation to the definition of the term ‘vertically integrated undertaking’.

(12)  – See also the French version, for instance, in relation to this: ‘Les États membres veillent à ce que soit mis en place, pour tous les clients éligibles, un système d’accès des tiers aux réseaux de transport et de distribution. Ce système, fondé sur des tarifs publiés, doit être appliqué objectivement et sans discrimination entre les utilisateurs du réseau.’

(13)  – Since – assuming proper implementation of Directive 2003/54 – there have been no ineligible customers since 1 July 2007, this situation is no longer of practical relevance.

(14)  – See for example the Italian and Spanish versions of the first sentence of Article 20(1) of Directive 2003/54:

‘Gli Stati membri garantiscono l’attuazione di un sistema di accesso dei terzi ai sistemi di trasmissione e di distribuzione basato su tariffe pubblicate, praticabili a tutti i clienti idonei, ed applicato obiettivamente e senza discriminazioni tra gli utenti del sistema.’

‘Los Estados miembros garantizarán la aplicación de un sistema de acceso de terceros a las redes de transporte y distribución basado en tarifas publicadas, aplicables a todos los clientes cualificados de forma objetiva y sin discriminación entre usuarios de la red.’

(15)  – See above, point 22.

(16)  – See in relation to this the judgment in citiworks (cited in footnote 10, paragraph 43, with reference to point 72 of the Opinion of Advocate General Mazák in that case).

(17)  – Whilst the referring court did not ask for the interpretation of any provisions of Directive 2003/54 apart from Article 20, according to established case-law, in order to provide a satisfactory answer to a national court which has referred a question to it for a preliminary ruling, the Court may deem it necessary to consider provisions of Community law to which the national court has not referred in its question (Case 35/85 Tissier [1986] ECR 1207, paragraph 9; Case C‑107/98 Teckal [1999] ECR I‑8121, paragraph 39; and Case C‑2/07 Abraham and Others [2008] ECR I‑0000, paragraph 24).