Having examined the information supplied by your authorities on the measure referred to above, the Commission has decided to extend the scope of the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union («TFEU») which it had initiated on 3 June 2019 in relation to the measure referred to above.

1.   PROCEDURE

(1)

By letter dated 3 June 2019, the Commission informed Lithuania that it had decided to initiate the procedure under Article 108(2) TFEU in relation to the measure (the «Opening Decision»).

(2)

By letter dated 11 July 2019, Lithuania sent its comments on the Opening Decision to the Commission.

(3)

On 2 August 2019, the Commission published the Opening Decision in the Official Journal of the European Union (1) . The Commission invited interested parties to submit their comments.

(4)

The Commission received comments from interested parties. It forwarded them to Lithuania, which was given the opportunity to react to them. By letter dated 27 November 2019, Lithuania sent its comments to the Commission.

(5)

On 1 June 2022 and 27 June 2022, the Commission provided a list of additional questions to Lithuania. On 29 June 2022, Lithuania responded to those questions.

(6)

On 12 May 2025, the Commission provided a list of additional questions to Lithuania. On 30 July 2025, Lithuania responded to those questions.

(7)

The case was discussed in meetings between Lithuania and the Commission services on 10 March 2022, 11 April 2022, 22 June 2022, 26 July 2022, 15 February 2023, and 6 June 2025.

(8)

By letter dated 3 December 2025, Lithuania agreed to exceptionally waive its rights deriving from Article 342 TFEU in conjunction with Article 3 of Regulation 1/1958 (2) and to have the present decision adopted and notified in English.

2.   DESCRIPTION OF THE FACTS RELEVANT FOR THE EXTENSION OF THE FORMAL INVESTIGATION PROCEDURE (3)

2.1.   The Opening Decision of 3 June 2019

(9)

The Opening Decision was based on the information at the Commission’s disposal at the moment of its adoption. Based on that information, the Commission preliminarily concluded that the measure constitutes State aid (4) and raised doubts about the compatibility of the measure with the internal market under Articles 106(2) and 107(3)(c) TFEU (5).

(10)

As regards the existence of aid (see section 3.1 of the Opening Decision), the Commission considered, on a preliminary basis, that the cumulative criteria for the existence of State aid under Article 107(1) TFEU are likely to be met as the measure: (i) was financed through a levy paid by all electricity consumers to a fund that was established by, and remained under the control of, the State and was imputable to the Lithuanian State; (ii) granted a selective advantage to one particular company, Ignitis Gamyba, that the latter would not have been able to obtain under normal market conditions; and (iii) had the potential to distort competition and was liable to affect trade between Member States as the Lithuanian electricity market was open to competition with electricity producers competing to sell their electricity to suppliers on that market and the Lithuanian electricity system was connected to the systems of other Member States such as Latvia, Sweden and Poland.

(11)

As regards the compatibility of the measure (section 3.3 of the Opening Decision), the Commission first assessed the measure under Article 106(2) TFEU and then assessed it directly under Article 107(3)(c) TFEU for the period from 1 January 2013 to 31 December 2014, as there were no specific guidelines for assessing the compatibility of generation adequacy measures during that period, and under the Guidelines on State and for environmental protection and energy 2014-2020 («EEAG») (6) for the period from 1 January 2015 until 31 December 2018. The Commission raised doubts about the compatibility of the measure with the internal market under those legal bases. Those doubts are summarised below.

2.1.1.   Assessment under Article 106(2) TFEU

(12)

First, the Commission doubted that the services at issue qualified as a genuine service of general economic interest («SGEI») under Article 106(2) TFEU and in line with the requirements established in the 2009 Electricity Directive (7). In particular, the Commission doubted that the measure: a) addressed a security of supply issue that could not be addressed by undertakings operating under normal market conditions (8); b) was transparent and non-discriminatory, given that it was limited to a single undertaking without Lithuania having demonstrated that it had checked and excluded other available technologies and/or providers (9); and c) was proportionate, given that it appeared to have significant distortive effects on market functioning and price formation (10).

(13)

In the light of the above, the Commission raised doubts about the qualification of the services at issue as genuine SGEI compatible with Article 106(2) TFEU without assessing if the other criteria set out in the European Union framework for State aid in the form of public service compensation (the «SGEI Framework») were met (11).

2.1.2.   Assessment under Article 107(3)(c) TFEU and EEAG

(14)

Second, the Commission doubted that the measure was compatible with the internal market on the basis of Article 107(3)(c) TFEU and EEAG. In particular, the Commission doubted that the measure: a) was necessary for the period 2015-2018, in view of the absence of any analysis justifying the need to achieve a reliability standard of zero hours LOLE, and in view of the lack of a detailed adequacy assessment establishing the size of the problem (12); b) was appropriate for the period 2013-2018, in view of its restrictive eligibility requirements and the way in which the design seems to have distorted market price formation and undermined potential market investment that may have contributed to security of supply (13); c) was proportionate for the period 2013-2018, in view of its restrictive eligibility requirements, the lack of a competitive process to establish the aid level, and the lack of calculations justifying the proportionality of the aid level (14); and d) sufficiently avoided negative impacts on competition and trade for the period 2013-2018, in view of its restrictive eligibility requirements benefitting only one plant owned by the incumbent generation company, and the way in which the design seems to have distorted market price formation and undermined market investment (15).

(15)

In the light of the above, the Commission decided to initiate the formal investigation pursuant to Article 108(2) TFEU and invited Lithuania and interested parties to submit comments and to provide all such information as may help assess the measure.

2.2.   Grounds for the extension of the formal investigation procedure

(16)

The Commission has decided to extend the formal investigation to enable a comprehensive assessment of both the existence of aid, taking into account all the conditions relevant for the existence of aid under the so-called Altmark test, and the potential compatibility of the measure with the internal market under Article 106(2) TFEU, taking into account the criteria set out in the SGEI Framework. The purpose of this extension is to cover the relevant arguments advanced by Lithuania and to provide the Commission’s preliminary views on those arguments, in order to allow interested parties to comment on them.

(17)

This extension is without prejudice to the doubts expressed in the Opening Decision concerning the compatibility of the measure, which remain in place.

(18)

Lithuania’s submissions regarding the Altmark conditions and the criteria set out in the SGEI Framework are summarised below.

2.2.1.   Economic advantage – Altmark conditions

(19)

In their response to the Opening Decision, the complainants argue that the Commission should have assessed the measure also under the so-called Altmark criteria.

(20)

Lithuania submits that the measure complies with the conditions established in the Altmark Judgment (16) and therefore does not confer an economic advantage, nor qualifies as State aid within the meaning of Article 107(1) TFEU.

(21)

As regards the 4th Altmark criterion (17), Lithuania argues that the measure ensured the provision of the services at issue at the least cost to the community. In this respect, Lithuania first compares the profitability ratios of the services at issue with those of other activities in the energy sector, such as electricity transmission and distribution.

Table 1

Comparison of profitability ratios for the provision of the production service from 2013 to 2015 with ratios of other activities in the energy sector in Lithuania  (18)

Source:

Lithuanian authorities

Table 2

Comparison of profitability ratios for the provision of the reserves service from 2016 to 2018 with ratios of other activities in the energy sector in Lithuania  (19)

Source:

Lithuanian authorities

(22)

Lithuania then compares the WACC ratios applicable to Ignitis Gamyba from 2016 to 2018 with those applicable in other Member States, which allegedly indicates that the WACC applicable to Ignitis Gamyba was similar or lower to that applicable in other Member States for electricity generation. According to Lithuania, that comparison shows that the rate of return paid to the beneficiary reflected market conditions, meaning that the beneficiary was paid a reasonable profit under the measure.

Table 3

Comparison of WACC ratios applicable to Ignitis Gamyba from 2016 to 2018 with WACC ratios in other Member States

Source:

Lithuanian authorities

(23)

Finally, Lithuania compares the prices paid under the measure with those paid under different capacity mechanisms (including some strategic reserves) in other Member States, as well as with the prices paid for the provision of tertiary active power reserve services in Lithuania. Lithuania argues that the cost structure of the services used in those comparisons is similar to that of the services at issue, while the entities providing those services are efficient and well run.

Figure 1

Comparison of compensation paid for the provision of the reserves service from 2016 to 2018 with prices of different capacity mechanisms in other Member States

Source:

Lithuanian authorities

Table 4

Comparison of compensation paid for the provision of the reserves service from 2016 to 2018 with prices of tertiary active power reserve service in Lithuania

Source:

Lithuanian authorities

2.2.2.   SGEI Framework requirements

2.2.2.1.   Genuine service of general economic interest as referred to in Article 106 TFEU

(24)

In their second complaint to the Commission in 2017, the complainants questioned the character of the services at issue as genuine SGEIs and urged the Commission to assess whether the SGEI created by the Lithuanian authorities have been correctly identified.

(25)

In their response to the Opening Decision, the complainants observe that the services at issue did not qualify as genuine SGEIs as they were in breach of Article 3(2) of the Electricity Directive. Specifically, the complainants alleged that the services did not qualify as SGEI by virtue of the existence of discrimination between (1) the incumbent and other potential providers of those services, and (2) the various technologies that could be used to provide those services. According to the complainants, by limiting the services at issue to the energy incumbent, without demonstrating that Lithuania checked and excluded the existence of other available technologies and/or of alternative providers, the measure at issue was discriminatory.

(26)

Lithuania maintains that the services at issue constitute genuine SGEIs compatible with Article 106(2) TFEU that meet the requirements established in the 2009 Electricity Directive.

(27)

In particular, Lithuania argues that the services at issue pursued a legitimate goal, explicitly provided in Article 3(2) of the 2009 Electricity Directive, namely security of supply and that it committed no manifest error in defining those services, considering the exceptional circumstances that Lithuania faced, such as: (i) the closure of the Ignalina nuclear power plant, (ii) the interruptible work of interconnections with Sweden (NordBalt) and Poland (LitPol Link), and (iii) the process of integration with the electricity network of Continental Europe.

(28)

In this context, Lithuania states that the content and the technical requirements that were essential for the provision of the services at issue were the following: a) Under the so-called «production service» (service 7.3), the beneficiary had to generate a certain pre-determined quota of electricity and received compensation for each megawatt hour (MWh) generated within that quota. In order to provide that service, the beneficiary had to be able to: (i) adjust output power +/– 25 MW within 15 minutes; and (ii) operate throughout the year without being impacted by maintenance and/or repair works. b) Under the so-called «reserves service» (service 7.4), the beneficiary had to make available certain pre-determined electricity generation capacity (in megawatts – MW) and make offers on the market to generate electricity at a price equivalent to avoidable running costs of the plant so that it would generate only when the market price matched its running costs. The beneficiary received compensation for the availability of its capacity regardless of whether it actually generated electricity. To provide that service, the beneficiary had to have power units connected to the 330 kV network.

(29)

Lithuania maintains that the measure was transparent as the services at issue were clearly defined in the Lithuanian Electricity Law, the relevant Lithuanian Government resolutions as well as two contracts concluded between Ignitis Gamyba and the Lithuanian TSO for the years 2014 and 2015.

(30)

Moreover, Lithuania explains that the measure was non-discriminatory as other technologies and/or providers could not ensure the required level of security of supply. According to Lithuania, it was not possible to open the measure to a competitive process involving other potential service providers for several technical reasons, including the need to ensure 330 kV grid voltage regulation and the dynamic stability of the electricity system in the event of a three-phase shortage, as well as the need to provide adequate «black start services» and to address the possibility of overloads at BRELL system points.

(31)

Lithuania states that the need to provide such ancillary services and safeguards against different security of supply problems could be addressed only by Ignitis Gamyba, while other market participants (including complainants and potential new entrants) were incapable of providing all or part of the required services (20). In particular, Ignitis Gamyba was the only electricity producer in Lithuania that fully satisfied the +/– 25 MW power adjustment requirement (21), as well as the only synchronous generator connected to the Lithuanian 330 kV network (22).

(32)

In that regard, Lithuania confirms that the production service was activated at least 135 days between 15 April and 15 October each year from 2013 to 2015 to ensure +/– 25 MW spinning reserves for system balancing purposes, while electricity generated under the reserves service was sold in a total of 1 724 hours in 2016 mostly due to failures of the interconnector between Sweden and Lithuania. In the latter case, activating the reserves service enabled Lithuania to cover the electricity shortage in the market and eliminate unreasonable price spikes caused by an imbalance of demand and supply.

(33)

Moreover, Lithuania submits that the services at issue were different from tertiary active power reserve services provided in Lithuania in terms of their objectives, reaction times and operation regimes, connection to the 330 kV network as well as participation in the market. More specifically: a) in terms of objectives, tertiary active power reserve services aimed to resolve operational issues in the electricity network (grid stability and reliability in the short-term), while the reserves service was designed to meet the broader objective of ensuring the security of electricity supply and was hence acquired on top of tertiary active power reserve services; b) in terms of reaction times and operation regimes, providers of tertiary power reserve services were obliged to activate those services within 12 hours, while providers of the production service were obliged to adjust output power +/– 25 MW within 15 minutes; c) in terms of connection to the 330 kV network, not all types of tertiary active power reserve services required the provider to be connected to that network (for example, providers of reserve services for secondary emergency power reserve restoration could also be connected to the 110 kV network); and d) in terms of participation in the market, the provider of the reserves service could participate in the power exchange selling electricity in the market, while units providing tertiary power reserve services had to be taken out of the market and could be activated only upon instruction of the TSO.

(34)

As regards the alleged findings of the Lithuanian Competition Council of 4 April 2017 that the entrustment of the services at issue only to Ignitis Gamyba discriminated against other entities, that Council recommended: (i) defining the content and the technical requirements for the services at issue; and (ii) conducting tenders to select the providers of those services (23).

(35)

Lithuania submits that the Competition Council terminated that investigation for procedural reasons (24), while its recommendations were based solely on assumptions included in the initial complaint that other undertakings could also provide the services at issue. In other words, Lithuania claims that the Competition Council did not conduct its own technical analysis to verify the content of services at issue or ascertain the accuracy of the statements submitted by the complainants (25).

(36)

Finally, Lithuania explains that it had given proper consideration to the public service needs supported by the measure as stakeholders were able to comment on those needs during the preparation of the ten-year plan by the TSO that is drafted annually, published for public discussion on the website of the National Regulatory Authority («NRA») and serves as the technical foundation for the TSO’s report to the Ministry of Energy concerning the need for SGEI to ensure security supply, as well as prior to the adoption of the Government resolutions approving the list of SGEI and entrusting those services to the entities concerned (26).

2.2.2.2.   Need for an entrustment act specifying the PSOs and the methods of calculating compensation

(37)

Lithuania submits that the services at issue were entrusted to Ignitis Gamyba by means of several acts containing all information required under point 16 of the SGEI Framework.

(38)

As regards the content of the public service obligations, Lithuania submits that the Government resolutions listed in recital 12 of the Opening Decision specified the two types of services entrusted to Ignitis Gamyba (i.e., the production and reserves services) as well as the quantities of electricity/capacity required to be produced/reserved under those services.

(39)

Moreover, as regards the technical requirements of the production service (see recital (28)a), Lithuania indicates that those requirements were laid down in the contracts signed between the TSO and the beneficiary for years 2014 and 2015. Lithuania acknowledges that there was no such contract for the year 2013, but argues that certain underlying principles, such as generating electricity only during the warm season, were the same as in 2014-2015, while the monthly quantities of electricity to be produced in 2013 were anticipated in exchanges that had taken place between the TSO and the beneficiary in the first half of that year.

(40)

Furthermore, as regards the technical requirements of the reserves service (see recital (28)b), Lithuania acknowledges that no contracts were concluded between the TSO and the beneficiary for the provision of that service from 2016 to 2018. That said, Lithuania indicates that that service was provided in accordance with the Electricity Law and the Government resolutions listed in recital 12 of the Opening Decision. According to Lithuania, those acts established comprehensively the conditions for the provision of the service and obliged the beneficiary to provide that service, thus that the conclusion of contracts was not necessary.

(41)

As regards the duration of the public service obligations, Lithuania submits that the Government resolutions listed in recital 12 of the Opening Decision indicated the year for which services at issue had to be provided. Moreover, Resolution 916 clarified that such services are approved for each calendar year.

(42)

As regards the territory concerned, Lithuania submits that the Government resolutions listed in recital 12 of the Opening Decision did not refer to the territory for the provision of services at issue. However, considering the nature of the entrustment, Lithuania considers it evident that such an entrustment concerned the security of supply of the entire Lithuanian electricity network.

(43)

As regards the undertaking concerned, Lithuania submits that the Government resolutions listed in recital 12 of the Opening Decision explicitly entrusted the services at issue to Ignitis Gamyba.

(44)

As regards the nature of any exclusive or special rights assigned to the undertaking by the granting authority, Lithuania submits that the nature of the services at issue was clearly defined in the Government resolutions listed in recital 12 of the Opening Decision and that Ignitis Gamyba was the only electricity producer capable of meeting all technical parameters required by the TSO.

(45)

As regards the description of the compensation mechanism and the parameters for calculating, monitoring and reviewing the compensation, Lithuania submits that the principles for the calculation of compensation for the provision of the services at issue were established in legal acts adopted by various authorities. Although the Electricity Law and Resolution 916 established general principles for the calculation of compensation for Ignitis Gamyba, detailed calculation rules were established by the NRA by means of the following acts: a) NRA methodology O3-229 approved on 14 September 2012 for the 2013-2018 period concerning the calculation of the prices of the services at issue. b) NRA methodology O3-279 approved on 28 September 2012 for the 2013-2018 period concerning the calculation of the annual budget for all SGEI in the electricity sector and of the levy paid by electricity consumers. c) NRA methodology O3-510 approved on 22 September 2015 for the period from 2016 until 2018 concerning the calculation of the reasonable return on investment for undertakings engaged in the provision of SGEI (27). d) NRA Resolution O3-112 approved on 29 April 2014 for the period from 2014 until 2018 concerning the separation of accounts of undertakings engaged in the provision of SGEI, rules on cost allocation and auditing of accounts (28).

(46)

As regards the arrangements for avoiding and recovering any overcompensation, Lithuania submits that control of overcompensation was ensured via ex post controls of actual costs incurred for providing the services at issue as well as profitability controls. a) As regards the former (ex post controls), pursuant to point 27 of the NRA methodology O3-229, the NRA determined the price paid for the services at issue for the following year. During that process (29), Lithuania submits that the NRA reconciled the difference between actual and projected costs and profitability (30). b) As regards the latter (profitability controls), until 13 December 2014, NRA Methodology O3-229 contained the basic principles for determining the level of reasonable profit, while details were left to the discretion of NRA, which relied on external benchmarks, such as return on Government bonds and benchmarks published by Damodaran. As from that date, the relevant methodology was amended to indicate specifically which profitability benchmarks should be used, while, as from 9 September 2015, NRA methodology O3-510 established a methodology for calculating reasonable return in all sectors regulated by the NRA, including the electricity sector (31). c) Finally, Lithuania submits that, to ensure compatibility with all rules controlling the level of SGEI prices, NRA Resolution O3-112 established an obligation to perform independent auditing of annual reports submitted by the SGEI provider to the NRA.

2.2.2.3.   Duration of the period of entrustment

(47)

Lithuania submits that the services at issue were entrusted annually for a one-year period. According to Lithuania, such an entrustment period was appropriate as it reflected evolving market conditions and the need for certain electricity quotas during that period, while it did not result in foreclosing the electricity market. The relevant market conditions were evaluated annually taking into account the applicable TSO requirements, which ensured system adequacy and established the required quantities of capacities that were necessary for the reliability of the system and ensuring the reserves.

2.2.2.4.   Compliance with Directive 2006/111/EC

(48)

Lithuania submits that Article 74 of the Electricity Law provided that accounts related to the provision of an SGEI should be kept separate in accordance with the account separation rules approved by the NRA. Detailed rules for the separation of accounts, including the allocation of costs between different services, were established in NRA methodology O3-229 and NRA Resolution 03-112, which was explicitly dedicated to regulating the separation of accounts. Independent auditors confirmed that the beneficiary complied with such account separation rules on an annual basis. In any event, such an account separation was in line with the principles set out in point 31 of the SGEI Framework (see section 2.2.2.6).

2.2.2.5.   Compliance with Union public procurement rules

(49)

As regards compliance with Union public procurement rules, Lithuania maintains that the beneficiary did not enter into a «contract» in the sense of the applicable public procurement rules. According to Lithuania, the beneficiary was awarded the services at issue based on legislation adopted unilaterally by the Lithuanian government. Lithuania maintains that, in such cases, the rights and obligations of each of the parties are determined by law, resulting in the absence of a concurrence of wills (i.e., a contract) between the parties. Lithuania thus argues that the Public Procurement Directives do not apply in the present case.

(50)

Moreover, Lithuania argues that there were no payments to the beneficiary for the provision of the services at issue from the budget of the contracting authorities, just a reimbursement of the costs for providing the services at issue, that was paid for by consumers through a fund. As such, there was no «pecuniary interest» in the sense of Article 2(5) of Directive 2014/24/EU.

(51)

Lithuania also argues that an alleged failure to follow the requirements of Directive 2014/24/EU does not necessarily mean that it failed to comply with public procurement rules and/or awarded the SGEIs inappropriately, as point 19 of SGEI Framework imposes only a general requirement to comply with «Union rules in the area of public procurement».

(52)

Finally, Lithuania maintains that, regardless of the applicability of Directive 2014/24/EU, the outcome in the present case would be the same, namely that the beneficiary was the only entity technically able to provide the services at issue, and – as the State-controlled undertaking – the only one able to provide a service in the interest of national security, which would be eligible for direct award under Article 32(2)(b) of that Directive (32).

2.2.2.6.   Absence of discriminatory compensation

(53)

Lithuania submits that the criterion set out in point 20 of the SGEI Framework is not applicable in the present case, as the services at issue were entrusted to a single undertaking, Ignitis Gamyba.

2.2.2.7.   Amount of compensation

(54)

As regards the choice of methodology for the calculation of the net cost necessary for the discharge of the public service obligations at issue, Lithuania submits that that calculation took place using the cost allocation methodology in accordance with NRA Methodology 229.

(55)

According to Lithuania, the amount of compensation that Ignitis Gamyba received for the services at issue would not have been different if the net cost had been calculated using the net avoided cost methodology. That is because, in the absence of those public service obligations, Ignitis Gamyba (considering only its commercial interests) would have dismantled its old power-generating units. The net cost in the counterfactual scenario would have therefore been zero.

(56)

Moreover, Lithuania submits that the NRA chose the cost allocation methodology as it ensured that costs are assigned based on what service causes or benefits from them, in line with regulatory principles of fairness and equity, and is typically more transparent and auditable than the net avoided costs methodology, which often relies on complex models and assumptions about future avoided costs. The cost allocation methodology was also deemed well-suited to tackle cases of multi-purpose assets as well as enable long-term infrastructure planning.

(57)

As regards the attribution of costs common to both the SGEI and other activities, Lithuania submits that, in addition to the services at issue, Ignitis Gamyba provided tertiary power reserve and heat production services. According to Lithuania, Ignitis Gamyba kept separate accounts for each of those services, as required by NRA Resolutions O3-229 and O3-112.

(58)

The NRA determined which costs should be attributed to any particular service or to several/all services. In case of services involving common costs or assets, the NRA also decided what portions of such costs should be allocated to each service (allocation keys), including what portion of the costs should be allocated to heat production.

(59)

Moreover, Lithuania submits that the common costs incurred in the production of electricity were calculated by excluding non-regulatory costs and heat production costs. Until 2017, such costs were shared equally among all electricity production units that were operated in the respective year. From 2018 onwards, those costs were distributed proportionally based on the maximum output (installed capacity) of power units.

(60)

On the other hand, indirect costs, such as administrative expenses, were allocated across all of the primary activities of Ignitis Gamyba according to cost carriers approved by the NRA. Those cost carriers were required to be coordinated with the NRA in advance and meet the criteria set forth in NRA Resolution O3-112. The main carrier for distributing administrative expenses was the relative share of direct expenses of a specific asset compared to the total direct costs of all company activities. The distribution of costs, assets and revenues was subject to independent regulatory audit on a yearly basis, while the rules for that distribution of costs had to be coordinated with the NRA in advance (33).

(61)

As regards the reasonable profit, Lithuania submits that the control of profitability / rate of return was ensured by the NRA. NRA Resolution 03-229 indicated that the compensation provided for the services at issue should include costs related to return on investments, which must be «reasonable». The same resolution established principles and formulas stipulating how such reasonable return on investments must be included in the compensation. Under that methodology, the rate of return on investments was determined based on the «weighted average costs of capital» (WACC) methodology applicable to regulated services in the energy sector. Lithuania also submits that the profitability of the services at issue was only slightly higher than that of activities of other market participants in the energy sector, as well as within the range of the profitability of applied by NRAs in other Member States.

(62)

As regards efficiency incentives, Lithuania submits that the Lithuanian regulatory framework provided that SGEI compensation should include only efficient (reasonable / necessary) costs for the provision of SGEI, thus obliging the SGEI provider to cover the difference between the actual costs and efficient costs from its profit and/or other sources of income.

(63)

In particular, Lithuania submits that Article 4(5) of the Electricity Law established that regulation in the electricity sector must be based on provision of services to consumers on the basis of «economically reasonable price» and that entrustment of SGEI in that sector must be based on the criteria of «economical soundness, least cost and impact on electricity price paid by electricity consumers».

(64)

In that context, the NRA, which was appointed to approve the methodology for the calculation of SGEI compensation as well as the specific level of that compensation, ensured that SGEI prices would be «economically reasonable» and lead to the «least cost to electricity consumers» in the following ways (34).

(65)

First, in approving the methodology used for the calculation of the SGEI costs, point 20 of NRA Methodology No O3-229 stipulated an extensive list of expenses that the NRA shall not deem reasonable and shall hence not include in that compensation even if the SGEI provider incurred those costs (35).

(66)

Second, in approving the specific level of the SGEI compensation, the NRA controlled the efficiency of costs both ex ante and ex post. As regards ex ante controls, the process for the determination of the SGEI compensation always started from the submission of projected costs by the SGEI provider. The NRA then considered whether such projected costs were reasonable and made its own calculations of costs that were actually needed to perform the services at issue. As regards ex post controls, for the approval of the SGEI compensation for the upcoming year, the provider was required to provide figures that would reveal the difference between the projected and actual costs incurred. In deciding on the adjustment of the SGEI compensation by the difference between projected and actual costs, the NRA also considered whether the actual costs were effective. In other words, the NRA included in the adjustment not the mathematical difference between the actual and projected costs, but difference between the projected and effective actual costs.

(67)

Lithuania acknowledges that the calculation of SGEI compensation did not have specific efficiency targets established before provision of service. Nevertheless, Lithuania argues that the provider was aware that the compensation shall include only such costs, which were deemed efficient by the NRA. Hence, any inefficiency would automatically result in a de facto penalty on the provider, namely an obligation to cover the difference between the actual costs and costs deemed reasonable by the NRA from its profit or any other sources (36).

(68)

As regards the avoidance of overcompensation, Lithuania submits that control of overcompensation was ensured via ex post controls of actual costs incurred for providing the services at issue as well as profitability controls (see recital (46)).

2.2.2.8.   Additional requirements which may be necessary to ensure that the development of trade is not affected to an extent contrary to the interests of the Union

(69)

Lithuania submits that the measure complies with the criteria set out in sections 2.1 to 2.8 of the SGEI Framework, which is sufficient to ensure that the development of trade is not affected to an extent contrary to the interests of the Union, so that no additional measures are necessary.

(70)

In any event, Lithuania submits that the measure did not unduly distort competition or appreciably affected trade between Member States in the light of the longstanding isolation of Lithuania’s energy markets and the objective of the measure to ensure the security of supply and the integrity of Lithuania’s electricity system, an objective widely recognised and endorsed in Union legislation.

2.2.2.9.   Transparency

(71)

Lithuania submits that it has published on the internet or by other appropriate means all information required under point 60 of the SGEI Framework.

(72)

As regards the results of the public consultation or other appropriate instruments referred to in point 14 of the SGEI Framework, Lithuania submits that the ten-year plans prepared by the TSO on an annual basis are available on the TSO’s website, while all feedback received during the adoption of the Government resolutions listed in recital 12 of the Opening Decision were published on the information system of the Lithuanian Parliament. In cases where feedback received from stakeholders was more extensive, any reports detailing the reasons for either accepting or rejecting that feedback were also published on the Lithuanian Parliament’s website.

(73)

As regards the content and duration of the public service obligations, Lithuania submits that the relevant information was published through the publication of Resolution 916, which stipulated that the TSO should approve the technical requirements for the provision of services at issue and make them public on its website and that the entrustment of those services was made for one year.

(74)

As regards the undertaking and the territory concerned, Lithuania submits that the Government resolutions listed in recital 12 of the Opening Decision entrusted the services at issue to Ignitis Gamyba. Although those resolutions did not refer to the territory for the provision of those services, it was evident that the entrustment concerned the security of supply of the entire Lithuanian electricity network.

(75)

As regards the amounts of aid granted to the undertaking on a yearly basis, Lithuania submits that the relevant information was published on the website of the NRA on an annual basis.

3.   ASSESSMENT OF THE AID (37)

3.1.   Existence of aid within the meaning of Article 107(1) TFEU

3.1.1.   Economic advantage

(76)

As explained in the Opening Decision (38), the measure granted a selective advantage to one particular company, Ignitis Gamyba, that the latter would not have been able to obtain under normal market conditions.

(77)

However, compensation granted to an undertaking for the provision of SGEIs does not constitute an economic advantage if certain conditions, strictly defined in the Altmark judgment, are met (39). Those four cumulative criteria are the following: a) the recipient undertaking must actually have public service obligations to discharge, and those obligations must be clearly defined; b) the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner; c) the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public services obligation, taking into account the relevant receipts and a reasonable profit; d) where the undertaking which is to discharge public service obligations, in a specific case, is not chosen pursuant a public procurement procedure, which would allow for the selection of the tenderer capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs, which a typical undertaking, well-run and adequately provided within the same sector would incur, taking into account the receipts and a reasonable profit from discharging the obligations.

(78)

Due to the cumulative nature of the four Altmark criteria, if any of those criteria is not fulfilled, the compensation will be deemed to constitute an advantage in the meaning of Article 107(1) TFEU.

(79)

In the present case, Ignitis Gamyba was not chosen pursuant to a public procurement procedure that would allow for the selection of a tenderer capable of providing the services at issue at the least cost to the community. Consequently, in order for the fourth Altmark criterion to be fulfilled, it has to be further verified whether the compensation under the measure was determined based on an analysis of the costs which a typical undertaking, well run and adequately provided with means to meet the public service obligations, would have incurred, taking into account the relevant receipts and a reasonable profit from discharging the obligations.

(80)

In that regard, point 75 of the SGEI Communication (40) notes that «[i]f the Member State can show that the cost structure of the undertaking entrusted with the operation of the SGEI corresponds to the average cost structure of efficient and comparable undertakings in the sector under consideration, the amount of compensation that will allow the undertaking to cover its costs, including a reasonable profit, is deemed to comply with the fourth Altmark criterion».

(81)

Point 73 of the SGEI Communication further notes that «the analysis and comparison of the cost structures must take into account the size of the undertaking in question and the fact that in certain sectors undertakings with very different cost structures may exist side by side».

(82)

It is therefore for the Member State to demonstrate that the cost structure of the undertaking entrusted with the operation of an alleged SGEI corresponds to the average cost structure of efficient and comparable undertakings in the sector under consideration.

(83)

In the present case, the comparisons provided by Lithuania (recitals (21) to (23)) do not demonstrate that the level of compensation was determined based on an analysis of the costs of a typical undertaking, well-run and adequately provided within the same sector.

(84)

First, as regards the comparisons of the profitability ratios of the services at issue from 2013 to 2018 with those of other activities in the energy sector in Lithuania as well as of the WACC ratios applicable to Ignitis Gamyba from 2016 to 2018 with those applicable in other Member States (recitals (21) to (22)), the Commission notes that those comparisons do not concern the cost structure of the undertakings performing those activities. Moreover, contrary to what Lithuania submits, the WACC ratios applicable to Ignitis Gamyba were higher than those applicable in Estonia from 2016 to 2018 as well as in Hungary in 2018.

(85)

Second, as regards the comparisons of the prices paid under the measure with those paid under different capacity mechanisms in other Member States, as well as with the prices paid for the provision of tertiary active power reserve services in Lithuania, the Commission notes that those comparisons cover both strategic reserves (e.g., in Belgium and Finland) and market wide capacity mechanisms (e.g., in the United Kingdom, Ireland and Poland). Although those mechanisms differ in their design and scope, Lithuania has not explained why the costs of a market wide capacity mechanism are comparable to those of a strategic reserve. The Commission also observes that, while the costs of the Lithuanian strategic reserve were lower than the costs of the Belgian strategic reserve, they were also significantly higher than the costs of the Finnish strategic reserve. The Commission further notes that Lithuania itself has submitted that the services at issue were different from tertiary active power reserve services provided in Lithuania in terms of their objectives, reaction times and operation regimes, connection to the 330 kV network as well as participation in the market (recital (33)).

(86)

Third, and in any event, with respect to all the comparisons indicated above, Lithuania has not demonstrated that the different services and mechanisms used in those comparisons are comparable to those compensated by the measure, nor that the undertakings used in those comparisons are typical, well-run and efficient or comparable to Ignitis Gamyba, as the provider of the services at issue.

(87)

In the light of the above, since one of the four cumulative Altmark conditions does not appear to have been fulfilled, the Commission preliminarily concludes that the measure appears to have conferred an advantage to Ignitis Gamyba, which can be qualified as an economic advantage granted to an undertaking within the meaning of Article 107(1) TFEU.

3.2.   Compatibility assessment

3.2.1.   Service of general economic interest

(88)

In accordance with Article 106(2) TFEU, the Commission may declare compensation for SGEI compatible with the internal market, provided that certain conditions are met. The Commission has laid down the conditions according to which it applies Article 106(2) TFEU in a series of instruments: the SGEI Framework and the SGEI Decision.

(89)

As the annual compensation for the services at issue exceeded the threshold of EUR 15 million per year (recital 15 of the Opening Decision), that compensation falls outside the scope of the SGEI Decision (41).

(90)

State aid falling outside the scope of the SGEI Decision may be declared compatible under Article 106(2) TFEU if it is necessary to the operation of the SGEI concerned and does not affect the development of trade to such an extent as to be contrary to the interests of the Union. The SGEI Framework sets out the guidelines for assessing the compatibility of SGEI compensation.

(91)

Under the SGEI Framework, public service compensation can be compatible under Article 106(2) TFEU if the following conditions are met:

3.2.2.   Genuine service of general economic interest as referred to in Article 106 TFEU

Genuine service of general economic interest

(92)

Point 12 of the SGEI Framework provides that the aid granted must relate to a genuine service of general economic interest within the meaning of Article 106(2) TFEU. Point 13 specifies that Member States may not attach specific public service obligations to services which are already provided or can be provided satisfactorily and under conditions (price, objective quality characteristics, continuity and access to the service) compatible with the general interest, as defined by the State, by undertakings operating under normal market conditions.

(93)

The Commission recalls that, according to point 46 of the SGEI Communication, Member States have a wide discretion in defining a service of general economic interest. The Commission's competence in this respect is limited to checking whether the Member State has made a manifest error when defining the services as an SGEI (42). Point 56 of the SGEI Framework confirms Member States’ wide margin of discretion to define SGEI.

(94)

In that regard, the Union Courts have ruled that there are certain minimum criteria common to every SGEI and that the inability of a Member State to demonstrate that a particular service fulfils those criteria constitutes a manifest error in defining this mission as an SGEI (43). According to the Union Courts, those criteria are the presence of an act of the public authority entrusting the operators in question with an SGEI and the universal and compulsory nature of that service (44).

(95)

The Commission has further explained in the SGEI Framework that it considers it inappropriate to attach specific public service obligations to an activity which is already provided or can be provided for satisfactorily and under conditions, such as price, objective quality characteristics, continuity and access to the service, consistent with the public interest, as defined by the State, by undertakings operating under normal market conditions. The Commission's assessment in this regard is also limited to checking that the Member State has not made a manifest error.

(96)

In the present case, Lithuania submits that the services at issue qualify as genuine SGEI and are in line with the relevant requirements of the 2009 Electricity Directive (see recitals (24) and (27)).

(97)

On that point, Article 3(2) of the 2009 Electricity Directive provides that 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, energy from renewable sources and climate protection.

(98)

In that regard, considering the wide margin of discretion in defining a given service as an SGEI that Member States enjoy, the Commission prima facie considers that, in defining the services at issue, Lithuania may have exercised its discretion without committing a manifest error of assessment, in particular in the light of the objectives pursued by those services, which relate to those set out in Article 3(2) of the 2009 Electricity Directive.

(99)

On the other hand, as regards the specific requirements set out in Article 3(2) of the 2009 Electricity Directive and the relevant case law (i.e., transparency, non-discrimination, proportionality), the Commission refers to the doubts expressed in recitals 47 to 56 of the Opening Decision, which remain in place.

(100)

At this stage, considering the information submitted by Lithuania thus far, the Commission continues to doubt that the measure complies with those requirements. In particular: a) As regards the transparency requirement, the Commission notes that the technical requirements for the provision of the services at issue described in recital (28) do not appear to have been sufficiently laid down in the applicable legal framework over the entire 2013-2018 period, save for two contracts between the TSO and the beneficiary for 2014 and 2015 (for more details, see recitals (112) to (114)). b) As regards the non-discrimination requirement, the Commission notes that, save for a 2014 study by Teisingi energetikos sprendimai, the justifications put forward by Lithuania, as summarised in recitals (30) to (35), appear to postdate the assignment of the services at issue to Ignitis Gamyba and have not been substantiated by reference to any contemporaneous evidence. On the other hand, the 2014 study was completed only in July 2014 after the production service had been assigned for 2013 and 2014, while it appears to focus on the production service, thus not demonstrating that Ignitis Gamyba was the only entity capable of providing the reserves service as well (45). The doubts on this point were apparently shared by the Lithuanian Competition Council (recitals (34) to (35)). c) As regards the proportionality requirement, Lithuania has thus far not explained sufficiently why the presence of Ignitis Gamyba on the electricity market was necessary to achieve the objective of general economic interest over the entire 2013-2018 period. For example, Lithuania has not detailed why the production service needed to be activated at least 135 days from 2013 to 2015 to ensure +/– 25 MW spinning reserves for system balancing purposes, nor how exactly the electricity generated under the reserves service was linked to technical failures of the interconnector between Sweden and Lithuania. On the contrary, Lithuania appears to acknowledge that activating the reserves service enabled it to cover the electricity shortage in the market and eliminate unreasonable price spikes caused by imbalance of demand and supply (thus acting more than a temporary, last resort measure to address resource adequacy concerns) (46).

(101)

In the light of the above, the Commission invites views on whether the measure complies with the abovementioned requirements, also taking into account Lithuania’s latest submissions, as summarised in recitals (24) to (33).

Public consultation

(102)

Point 14 of the SGEI Framework requires Member States to show that they have given proper consideration to the public service needs supported by way of a public consultation or other appropriate instruments to take the interests of users and providers into account. This does not apply where it is clear that a new consultation will not bring any significant added value to a recent consultation.

(103)

According to the case law of the Union Courts, it is apparent from the wording of that point that «a public consultation is not mandatory, as such a procedure constitutes only one of the appropriate instruments that the Member State may use in order to give consideration to the needs of the public service supported and to take account of the interests of service users and providers» (47).

(104)

In the present case, Lithuania submits that stakeholders were able to comment on the public service needs supported by the measure during the preparation of the ten-year plan by the TSO that is drafted annually, published for public discussion on the website of the NRA and serves as the technical foundation for the TSO’s report to the Ministry of Energy concerning the need for SGEI to ensure security supply. Moreover, stakeholders were able to comment prior to the adoption of the Government resolutions approving the list of SGEI and entrusting those services to the entities concerned (see recital (72)).

(105)

The Commission however notes the absence of a clear and more detailed definition of content of and the technical requirements for the provision of the services at issue in the applicable legal framework and/or in contracts between the TSO and the beneficiary at least for years 2013 and 2016 to 2018 (see recitals (112) to (114)). As a result, it is not clear, at this stage, whether alternative «appropriate measures» indicated above were specific enough for stakeholders to be able to meaningfully assess and comment on the public service needs supported by the measure.

(106)

Moreover, the Commission notes that, contrary to what Lithuania submits, the ten-year plan prepared by the TSO for year 2013 did not contain a section dedicated on the TSO’s generation capacity adequacy assessment, which might indicate a consideration by the TSO of Lithuania’s generation capacity adequacy needs for that year, while the duration of public consultation prior to the adoption of the Government resolutions approving the list of SGEI and entrusting those services for certain years appears to have been very limited (48).

(107)

In the light of the above, the Commission invites the views of interested parties and Lithuania as to whether the measure complies with the conditions set out in point 14 of the SGEI Framework.

3.2.3.   Need for an entrustment act specifying the PSOs and the methods of calculating compensation

(108)

In accordance with point 15 of the SGEI Framework, the provision of an SGEI, within the meaning of Article 106 TFEU, must be entrusted to the undertaking in question by way of one or more official acts.

(109)

In accordance with point 16 of the SGEI Framework, the act or acts must include, in particular: (a) the content and duration of the public service obligations; (b) the undertaking and, where applicable, the territory concerned; (c) the nature of any exclusive or special rights assigned to the undertaking by the granting authority; (d) the description of the compensation mechanism and the parameters for calculating, monitoring and reviewing the compensation; and (e) the arrangements for avoiding and recovering any overcompensation.

(110)

In the present case, Ignitis Gamyba was designated as the provider of the services at issue for the period between 2013 and 2018 by means of the Government resolutions listed in recital 12 of the Opening Decision. Those resolutions specified the duration of the public service obligation and the undertaking concerned (see recitals (38) and (41)). Although the resolutions did not refer to the territory for the provision of services at issue, the Commission may accept that, considering the nature of the entrustment, that entrustment concerned the security of supply of the entire Lithuanian electricity network (see recital (45)).

(111)

Moreover, the compensation mechanism and the methodology used to calculate the compensation as well as the arrangements for avoiding and recovering overcompensation were established in the various legal acts indicated in recitals (45) to (46). No exclusive or special rights linked to activities other than the services at issue appear to have been assigned to Ignitis Gamyba by the granting authority (see recital (44)).

(112)

On the other hand, as regards the content of the public service obligation, the Commission notes that the Government resolutions listed in recital 12 of the Opening Decision specified the nature of the services at issue only in very general terms.

(113)

The technical requirements of the production service (see recital (28)a) were laid down for the first time only in in the contracts signed between the TSO and the beneficiary for 2014 and 2015, while no relevant contract was signed for 2013. For 2013, Lithuania has referred to certain «underlying principles» that were allegedly the same as in 2014-2015 as well as to certain exchanges between the TSO and the beneficiary concerning the quantities of electricity to be produced in 2013. At this stage, the Commission considers that those principles require further substantiation, since the information available is not apt to demonstrate compliance with the relevant requirements of the SGEI Framework.

(114)

The same applies to the technical requirements of the reserves service (see recital (28)b). Since no contracts were concluded between the TSO and the beneficiary for the provision of that service from 2016 to 2018, while the Electricity Law and the Government resolutions listed in recital 12 of the Opening Decision do not appear to mention those requirements, Lithuania would need to provide further evidence demonstrating where those technical requirements were provided for.

(115)

In the light of the above, the Commission invites the views of interested parties and Lithuania as to whether the entrustment of Ignitis Gamyba for 2013 and for the period 2016-2018 is in line with point 16(a) of the SGEI Framework concerning the content of the public service obligations at issue.

3.2.4.   Duration of the period of entrustment

(116)

According to point 17 of the SGEI Framework, the period of entrustment should «be justified by reference to objective criteria such as the need to amortise non-transferable fixed-assets [and] should not exceed the period required for the depreciation of the most significant assets required to provide the SGEI».

(117)

In the present case, the services at issue were entrusted annually for a one-year period. According to Lithuania, such an entrustment period was appropriate as it reflected evolving market conditions and the need for certain electricity quotas during that period, while it did not result in foreclosing the electricity market. The relevant market conditions were evaluated annually taking into account the applicable TSO requirements, which ensured system adequacy and established the required quantities of capacities that were necessary for the reliability of the system and ensuring the reserves (see recital (47)).

(118)

Without prejudice to the above explanations by Lithuania, the Commission notes that, according to the consolidated annual report for the year ended 31 December 2024 of the group of companies UAB Ignitis (Ignitis), to which the beneficiary belongs, the depreciation period of the most significant assets exceeds one year (49).

(119)

In the light of the above, the Commission considers, at this stage, that the duration of the entrustment may be sufficiently justified in line with point 17 of the SGEI Framework.

3.2.5.   Compliance with Directive 2006/111/EC

(120)

According to point 18 of the SGEI Framework, «aid will be considered compatible with the internal market on the basis of Article 106(2) of the Treaty only where the undertaking complies, where applicable, with Directive 2006/111/EC on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings».

(121)

Furthermore, point 44 of the SGEI Framework requires that: «[w]here an undertaking carries out activities falling both inside and outside the scope of the SGEI, the internal accounts must show separately the costs and revenues associated with the SGEI and those of the other services in line with the principles set out in paragraph 31».

(122)

According to point 31 of the SGEI Framework, in such a scenario, «the costs to be taken into consideration may cover all the direct costs necessary to discharge the public service obligations, and appropriate contribution to the indirect costs common to both the SGEI and other activities».

(123)

In the present case, Lithuania submits that Article 74 of the Electricity Law provides that accounts related to the provision of SGEI should be kept separate in accordance with the account separation rules approved by the NRA. Detailed rules for the separation of accounts, including the allocation of costs between different services, were established in NRA methodology O3-229 and NRA Resolution 03-112. Independent auditors confirmed that Ignitis Gamyba complied with those rules on an annual basis (see recital (48)).

(124)

In addition to the services at issue, Ignitis Gamyba provided tertiary power reserve and heat production services. Ignitis Gamyba kept separate accounts for each of those services, as required by NRA Resolutions O3-229 and O3-112. The NRA determined which costs should be attributed to any particular service or to several/all services. In case of services involving common costs or assets, the NRA also decided what portions of such costs should be allocated to each service, including what portion of the costs should be allocated to heat production (see recitals (57) and (58)).

(125)

Moreover, the common costs incurred in the production of electricity were calculated by excluding non-regulatory costs and heat production costs. Until 2017, such costs were shared equally among all electricity production units that were operated in the respective year. From 2018 onwards, those costs were distributed proportionally based on the maximum output (installed capacity) of power units (see recital (59)).

(126)

On the other hand, indirect costs, such as administrative expenses, were allocated across all primary activities of Ignitis Gamyba according to cost carriers approved by the NRA. Those cost carriers were required to be coordinated with the NRA in advance and meet the criteria set forth in NRA Resolution O3-112. The main carrier for distributing administrative expenses was the relative share of direct expenses of a specific asset compared to the total direct costs of all company activities. The distribution of costs, assets and revenues was subject to independent regulatory audit on a yearly basis, while the rules for that distribution of costs had to be coordinated with the NRA in advance (see recital (60)).

(127)

Finally, any revenues from unregulated services such as energy sales on the market (resulting in a positive gross profit) were used by the NRA to reduce the price of regulated services for the upcoming years (see footnote 33).

(128)

The Commission invites the view of interested parties and Lithuania as to whether the absence of a clear and more detailed definition of content, in particular of the technical requirements for the provision of the services at issue in the applicable legal framework and/or in contracts between the TSO and the beneficiary at least for years 2013 and 2016 to 2018 (see recitals (112) to (114)) might have affected the identification of the costs and revenues from the provision of the services at issue and their separation from those of other services. If that were the case, the Commission invites views as to whether the accounting separation was appropriate and in line with Directive 2006/111/EC and point 44 of the SGEI Framework. In particular, the Commission invites views as to how Ignitis Gamyba determined and, subsequently, how the NRA checked that the internal accounts showed separately the costs and revenues associated with the services at issue and those of the other services.

3.2.6.   Compliance with Union public procurement rules

(129)

Point 19 of the SGEI Framework requires the responsible authority to entrust the provision of the service in question in compliance with the applicable Union rules in the area of public procurement, including any requirements of transparency, equal treatment and non-discrimination resulting directly from the Treaty and, where applicable, secondary EU legislation.

(130)

In the present case, Lithuania states that the Public Procurement Directives did not apply to the services at issue, as the beneficiary was subject to legal obligations imposed in a binding manner by Lithuania, leading to the absence of a «contract» as defined in the Directives (see recital (49)).

(131)

Lithuania further argues that the Public Procurement Directives did not apply as there was no «pecuniary interest» in the sense of Article 2(5) of Directive 2014/24/EU as there were no payments to the beneficiary for the provision of the services at issue from the budget of the contracting authorities, just a reimbursement of the costs for providing the services at issue (see recital (51)).

(132)

All genuine SGEI impose legal obligations on providers in a binding manner by the State, the costs of which can be appropriately compensated. The Commission therefore has doubts about Lithuania’s interpretation of point 19 of the SGEI Framework on the grounds that it would remove point 19 of its useful legal purpose (effet utile). The services at issue must therefore have been awarded in line with the applicable Union rules in the area of public procurement for them to be considered compatible with the internal market.

(133)

Article 3(3) of the 2004 Utilities Directive (50), and Article 9(2) of the 2014 Utilities Directive (51) state that they apply to the supply of electricity to fixed networks. The services at issue involve the supply of electricity to fixed networks. The EU public procurement rules applicable to the services at issue were therefore the 2004 Utilities Directive (52), and the 2014 Utilities Directive.

(134)

Article 10 of the 2004 Utilities Directive and Article 36(1) of the 2014 Utilities Directive require contracts to be awarded on the basis of objective criteria which ensure compliance with the principles of transparency, non-discrimination and equal treatment.

(135)

Lithuania maintains that the beneficiary – as a State-controlled undertaking – was the only one able to provide a service in the interest of national security (see recital (52)).

(136)

The Commission notes that Article 4 of Lithuania’s 2002 Law on Enterprises and Facilities of Strategic Importance to National Security lists the beneficiary as an enterprise in which the State – directly or through other State-controlled companies – must hold over half of the voting rights (53). The Commission notes that this law does not set out further obligations or duties that are relevant to providing the security of supply services.

(137)

The Commission also notes that being «an enterprise of national strategic importance to national security» was not a formal requirement of the security of supply services (see recitals (29) to (40)).

(138)

There therefore appear to be no grounds in the 2004 Utilities Directive and the 2014 Utilities Directive for excluding the services at issue from the requirements in those directives.

(139)

Lithuania maintains that, regardless of the applicability of the public procurement rules, the beneficiary was the only entity technically able to provide the services at issue (see recital (52)).

(140)

At this stage, it is not clear to the Commission whether the services at issue were awarded in a transparent manner as notices regarding procurement were never published, and not all the technical requirements for those services appears to have been pre-defined and set out in the relevant documentation (see also recitals (112) to (114)). Other providers were therefore arguably not in a position to understand the process, or the criteria, used for the selection of Ignitis Gamyba.

(141)

The Commission invites the views of interested parties and Lithuania as to whether other providers were able to meet the requirements of the services that were pre-defined and set out in the relevant contemporaneous documentation, or entrustment act.

(142)

In the light of the above, the Commission invites the views of interested parties and Lithuania as to whether Lithuania complied with the applicable Union public procurement rules and that the measure therefore complies with point 19 of the SGEI Framework.

3.2.7.   Absence of discriminatory compensation

(143)

According to paragraph 20 of the SGEI Framework, «[w]here an authority assigns the provision of the same SGEI to several undertakings, the compensation should be calculated on the basis of the same method in respect of each undertaking».

(144)

Since the services at issue were assigned only to Ignitis Gamyba (see recital (53)), the Commission considers, at this stage, that there cannot be a question of discriminatory compensation between SGEI providers within the meaning of point 20 of the SGEI Framework.

3.2.8.   Amount of compensation

Methodology used for the calculation of the net cost

(145)

According to point 21 of the SGEI Framework, «the amount of compensation must not exceed what is necessary to cover the net cost of discharging the public service obligations, including a reasonable profit». In this respect, point 24 of the SGEI Framework establishes that «the net cost necessary, or expected to be necessary, to discharge the public service obligations should be calculated using the net avoided cost methodology where this is required by Union or national legislation and in other cases where this is possible».

(146)

Point 27 of the SGEI Framework stipulates that where the use of that methodology is not feasible or appropriate «where duly justified, the Commission can accept alternative methods for calculating the net cost necessary to discharge the public service obligations, such as the methodology based on cost allocation».

(147)

In the present case, Lithuania submits that the calculation of the amount of compensation for the provision of the services at issue based on NRA methodology O3-229 took place using the cost allocation methodology laid down in point 28 of the SGEI Framework, which provides that «the net cost necessary to discharge the public service obligations can be calculated as the difference between the costs and the revenues for a designated provider of fulfilling the public service obligations, as specified and estimated in the entrustment act» (see recital (54)).

(148)

Among other things, Lithuania justifies the choice of that methodology over the net avoided costs methodology by reference to the fact that, in the absence of the assignment of the services at issue to Ignitis Gamyba, the latter (considering only its commercial interests) would have dismantled its old power-generating units, meaning that the net cost in the counterfactual scenario would have been zero (see recital (55)) (54).

(149)

Considering the explanations provided by Lithuania, the Commission considers the counterfactual scenario may be credible and grounded in rational assumptions, reflecting Ignitis Gamyba’s commercial incentives. The Commission therefore considers, at this stage, that the choice of the cost allocation methodology may be justified.

(150)

Point 29 of the SGEI Framework indicates that the costs to be taken into consideration under the cost allocation methodology include all the costs necessary to operate the SGEI.

(151)

In the present case, NRA methodology O3-229 listed the costs that could be taken into consideration stipulating, inter alia, that compensation for the provision of the services at issue could include only such costs that are specifically recognised by the NRA as dedicated to the provision of those services.

(152)

The Commission invites the view of interested parties and Lithuania as to whether the absence of a clear and more detailed definition of content of and the technical requirements for the provision of the services at issue in the applicable legal framework and/or in contracts between the TSO and the beneficiary at least for years 2013 and 2016 to 2018 (see recitals (112) to (114)) might have affected the costs necessary to operate the services at issue. If that were the case, the Commission invites views as to whether the measure complies with point 29 of the SGEI Framework. In particular, the Commission invites views as to how and based on what criteria the NRA determined which costs are dedicated to the provision of the services at issue.

Attribution of common costs

(153)

Point 31 of the SGEI Framework further indicates that «[w]here the undertaking also carries out activities falling outside the scope of the SGEI, the costs to be taken into consideration may cover all the direct costs necessary to discharge the public service obligations and an appropriate contribution to the indirect costs common to both the SGEI and other activities. The costs linked to any activities outside the scope of the SGEI must include all the direct costs and an appropriate contribution to the common costs».

(154)

In the present case, in addition to the services at issue, Ignitis Gamyba provided tertiary power reserve and heat production services and kept separate accounts for each of those services, as required by NRA Resolutions O3-229 and O3-112 (see recital (57)).

(155)

The NRA determined which costs should be attributed to any particular service or to several/all services. In case of services involving common costs or assets, the NRA also decided what portions of such costs should be allocated to each service, including what portion of the costs should be allocated to heat production (see recital (58)).

(156)

Moreover, the common costs incurred in the production of electricity were calculated by excluding non-regulatory costs and heat production costs. Until 2017, such costs were shared equally among all electricity production units that were operated in the respective year. From 2018 onwards, those costs were distributed proportionally based on the maximum output (installed capacity) of power units (see recital (59)).

(157)

On the other hand, indirect costs, such as administrative expenses, were allocated across all of the primary activities of Ignitis Gamyba according to cost carriers approved by the NRA. Those cost carriers were required to be coordinated with the NRA in advance and meet the criteria set forth in NRA Resolution O3-112. The main carrier for distributing administrative expenses was the relative share of direct expenses of a specific asset compared to the total direct costs of all company activities. The distribution of costs, assets and revenues was subject to independent regulatory audit on a yearly basis, while the rules for that distribution of costs had to be coordinated with the NRA in advance (see recital (60)).

(158)

Moreover, any revenues from unregulated services such as energy sales on the market (resulting in a positive gross profit) were used by the NRA to reduce the price of regulated services for the upcoming years. As regards the reserves service in particular, the compensation for that service covered only the units’ availability costs, while no additional payments were made when the units were actually activated and bid in the market (see footnote 33).

(159)

The Commission invites the view of interested parties and Lithuania as to whether the absence of a clear and more detailed definition of content, in particular of the technical requirements for the provision of the services at issue in the applicable legal framework and/or in contracts between the TSO and the beneficiary at least for years 2013 and 2016 to 2018 (see recitals (112) to (114)), might have affected how the NRA determined which costs should be attributed to any particular service or to several/all services, including how it allocated common costs to each of those services. If that were the case, the Commission invites views as to whether Lithuania’s attribution of costs common to both the SGEI and other activities was in line with point 31 of the SGEI Framework.

Revenue

(160)

Point 32 of the SGEI Framework requires the revenue to be taken into account to include at least the entire revenue earned from the SGEI, and the excessive profits generated from special or exclusive rights.

(161)

In the present case, Lithuania submits that the revenue taken into account was that earned by Ignitis Gamyba for the provision of the services at issue. Moreover, no exclusive or special rights linked to activities other than the services at issue appear to have been assigned to Ignitis Gamyba by the granting authority. Moreover, any revenues from unregulated services such as energy sales on the market (resulting in a positive gross profit) were used by the NRA to reduce the price of regulated services for the upcoming years.

(162)

The Commission invites the view of interested parties and Lithuania as to whether the absence of a clear and more detailed definition of content, in particular of the technical requirements for the provision of the services at issue in the applicable legal framework and/or in contracts between the TSO and the beneficiary at least for years 2013 and 2016 to 2018 (see recitals (112) to (114)), might have affected the revenue earned from the provision of the services at issue and the profits generated from special or exclusive rights. If that were the case, the Commission invites views as to whether the revenue taken into account for the provision of the SGEIs in question was in line with point 32 of the SGEI Framework

Reasonable profit

(163)

Points 33 to 38 of the SGEI Framework allow for the entity fulfilling the PSOs to achieve a reasonable profit. This is the rate of return on capital that would be required for a typical company considering whether or not to provide the SGEI for the entire duration of the entrustment act, taking into account the level of risk. Where duly justified, other profit level indicators can be used.

(164)

In the present case, the NRA controlled the profitability / rate of return. More specifically, NRA Resolution 03-229 indicated that the compensation provided for the services at issue should include costs related to return on investments, which must be «reasonable». The same resolution established principles and formulas stipulating how such reasonable return on investments must be included in the compensation. Under that methodology, the rate of return on investments was determined based on the «weighted average costs of capital» (WACC) methodology applicable to regulated services in the energy sector. Lithuania also submits that the profitability of the services at issue was only slightly higher than that of activities of other market participants in the energy sector, as well as within the range of the profitability of applied by NRAs in other Member States (see recital (61)).

(165)

The Commission invites the view of interested parties and Lithuania as to whether the absence of a clear and more detailed definition of content, in particular of the technical requirements for the provision of the services at issue in the applicable legal framework and/or in contracts between the TSO and the beneficiary at least for years 2013 and 2016 to 2018 (see recitals (112) to (114)) might have affected the level of profit included in the compensation under the measure, as calculated by the NRA. If that were the case, the Commission invites views as to whether that level was reasonable and whether the measure complied with points 33 to 38 of the SGEI Framework. The Commission also invites views on the fact that until 13 December 2014, NRA Methodology O3-229 contained only basic principles for the determination of the level of the reasonable profit, while details were left to the discretion of the NRA.

Efficiency incentives

(166)

Point 39 of the SGEI Framework requires Member States to introduce incentives for the efficient provision of the SGEI unless they can justify why it is not feasible or appropriate to do so. Point 42 of the SGEI Framework requires the incentives to be based on objective and measurable criteria set out in the entrustment act, and subject to a transparent ex post assessment carried out by an entity independent from the SGEI provider.

(167)

In the present case, Lithuania submits that the relevant legal framework provided that SGEI compensation should include only efficient (reasonable / necessary) costs for the provision of SGEI, thus obliging the SGEI provider to cover the difference between the actual costs and efficient costs from its profit and/or other sources of income (see recital (62)).

(168)

Moreover, the NRA was appointed to approve the methodology for the calculation of SGEI compensation as well as the specific level of that compensation and ensure that SGEI prices would be «economically reasonable» and lead to the «least cost to electricity consumers» in the following ways (see recitals (63) and (64)).

(169)

First, in approving the methodology used for the calculation of the SGEI costs, point 20 of NRA Methodology No O3-229 stipulated an extensive list of expenses that the NRA shall not deem reasonable and shall hence not include in that compensation even if the SGEI provider incurred those costs (see recital (65)).

(170)

Second, in approving the specific level of the SGEI compensation, the NRA carried out a control of the efficiency of costs both ex ante and ex post. As regards ex ante controls, the process for the determination of the SGEI compensation always started from the submission of projected costs by the SGEI provider. The NRA then considered whether such projected costs were reasonable and made its own calculations of costs that were actually needed to perform the services at issue. As regards ex post controls, for the approval of the SGEI compensation for the upcoming year, the provider was required to provide figures that would reveal the difference between the projected and actual costs incurred. In deciding on the adjustment of the SGEI compensation by the difference between projected and actual costs, the NRA also considered whether the actual costs were effective. In other words, the NRA included in the adjustment not the mathematical difference between the actual and projected costs, but difference between the projected and effective actual costs (see recital (66)).

(171)

The Commission invites the views of interested parties and Lithuania as to whether the measure complies with points 39 to 43 of the SGEI Framework. In particular, the Commission invites views as to whether the alleged mechanism for incentivising efficiency improvements was based on objective and measurable criteria set out in the entrustment act or whether it was subject to a transparent ex post assessment carried out by the NRA.

Separate accounts

(172)

Point 44 of the SGEI Framework requires the internal accounts of undertakings that carry out activities falling both inside and outside the scope of the SGEI to show separately the costs and revenues associated with the SGEI and those of the other services.

(173)

As explained in recitals (120) to (128), the Commission invites the views of interested parties and Lithuania as to whether the accounting separation between non-SGEI activities and SGEI activities, as implemented, is appropriate and that Ignitis Gamyba complies with point 44 of the SGEI Framework.

Overcompensation

(174)

Point 49 of the SGEI Framework requires Member States to regularly check that there is no overcompensation and provide evidence of this to the Commission upon request. For aid granted by means other than a public procurement procedure with publication, checks should normally be made at least every two years.

(175)

In the present case, Lithuania submits that control of overcompensation was conducted via ex post controls of actual costs incurred for providing the services at issue as well as profitability controls (see recital (68)). a) As regards ex post controls, pursuant to point 27 of the NRA methodology O3-229, the NRA determined the price paid for the services at issue for the following year. During that process (55), Lithuania submits that the NRA reconciled the difference between actual and projected costs and profitability (56). b) As regards profitability controls, until 13 December 2014, NRA Methodology O3-229 contained the basic principles for determining the level of reasonable profit, while details were left to the discretion of NRA, which relied on external benchmarks, such as return on Government bonds and benchmarks published by Damodaran. As from that date, the relevant methodology was amended to indicate specifically which profitability benchmarks should be used, while, as from 9 September 2015, NRA methodology O3-510 established a methodology for calculating reasonable return in all sectors regulated by the NRA, including the electricity sector (57). c) Finally, to ensure compatibility with all rules controlling the level of SGEI prices, NRA Resolution O3-112 established an obligation to perform independent auditing of annual reports submitted by the SGEI provider to the NRA.

(176)

The Commission invites the views of interested parties and Lithuania as to whether the measure complies with points 47 to 50 of the SGEI Framework. In particular, the Commission invites views as to whether the various mechanisms put in place by Lithuania in the present case ensured that the compensation granted for the provision of the services at issue met the requirements set out in the SGEI Framework and, in particular, whether Ignitis Gamyba was not receiving compensation in excess of the amount determined in accordance with this those requirements.

3.2.9.   Additional requirements which may be necessary to ensure that the development of trade is not affected to an extent contrary to the interests of the Union

(177)

Point 52 of the SGEI Framework states that, even when the requirements of the framework recalled above are met, «in some exceptional circumstances, serious competition distortions in the internal market could remain unaddressed and the aid could affect trade to such an extent as would be contrary to the interest of the Union».

(178)

In such exceptional circumstances, the Commission may require additional conditions or request additional commitments from the Member States to mitigate serious distortions of competition, as stated in point 53 of the SGEI Framework.

(179)

Point 54 of the SGEI Framework further states that «[s]erious competition distortions such as to be contrary to the interests of the Union are only expected to occur in exceptional circumstances. The Commission will restrict its attention to those distortions where the aid has significant adverse effects on other Member States and the functioning of the internal market, for example, because they deny undertakings in important sectors of the economy the possibility to achieve the scale of operations necessary to operate efficiently».

(180)

In the present case, taking into account the provisional assessment in sections 3.2.2, 3.2.3, 3.2.5, 3.2.6 and 3.2.8, and considering that the measure is no longer in force, the Commission invites the views of interested parties and Lithuania as to whether additional requirements to ensure that the development of trade is not affected to an extent contrary to the Union interest are necessary as well as to the potential form and content of such additional requirements.

3.2.10.   Transparency

(181)

Point 60 of the Framework provides that Member States must publish, for each SGEI compensation they grant: (i) the results of the public consultation, (ii) the content and duration of the PSO, (iii) the undertakings and the territory concerned and (iv) the amounts of aid granted to the undertakings on a yearly basis.

(182)

According to the case law of the Union Courts, it is apparent from the wording of point 60(a) of the SGEI Framework that «Member States are not obliged to publish the results of the public consultation separately, and those results may appear, for example, in the act by which a Member State entrusts responsibility for the operation of the SGEI to the undertaking concerned» (58).

(183)

Nevertheless, the Union Courts have held that «where a Member State decides to satisfy the obligation to publish the results of the public consultation by means of the publication of the act imposing responsibility for the operation of an SGEI, it is necessary, in order not to deprive that obligation of its effectiveness, that that publication make sufficiently detailed, express reference to the results of the public consultation carried out as part of the procedure which led to the adoption of that act» (59).

(184)

In other words, «the requirements following from paragraph 14 [of the SGEI Framework], regarding proof that consideration has been given to the public service needs supported, by means of a public consultation or other appropriate instruments, cannot be equated with the transparency requirement laid down in paragraph 60(a) of the SGEI Framework, which specifically concerns the publication of the results of the public consultation. Consequently, the fact that a Member State has complied with the requirements of paragraph 14 of the SGEI Framework does not necessarily imply that it has also complied with the transparency obligation, within the meaning of paragraph 60(a) thereof» (60).

(185)

In the present case, Lithuania submits that it has published on the internet or by other appropriate means all information required under point 60 of the SGEI Framework. In particular:

(186)

As regards the results of the public consultation or other appropriate instruments referred to in point 14 of the SGEI Framework, the ten-year plans prepared by the TSO on an annual basis are available on the TSO’s website, while all feedback received during the adoption of the Government resolutions listed in recital 12 of the Opening Decision were published on the information system of the Lithuanian Parliament. In cases where feedback received from stakeholders was more extensive, any reports detailing the reasons for either accepting or rejecting that feedback were also published on the Lithuanian Parliament’s website (see recital (72)).

(187)

As regards the content and duration of the public service obligations, the relevant information was published through the publication of Resolution 916, which stipulated that the TSO should approve the technical requirements for the provision of services at issue and make them public on its website and that the entrustment of those services was made for one year (see recital (73)).

(188)

As regards the undertaking and the territory concerned, the Government resolutions listed in recital 12 of the Opening Decision entrusted the services at issue to Ignitis Gamyba. Although those resolutions did not refer to the territory for the provision of those services, it was apparent that the entrustment concerned the security of supply of the entire Lithuanian electricity network (see recital (74)).

(189)

As regards the amounts of aid granted to the undertaking on a yearly basis, the relevant information was published on the website of the NRA on an annual basis (see recital (75)).

(190)

As regards however the requirement to publish the results of the public consultation or other appropriate instruments referred to in point 14 of the SGEI Framework, the Commission notes that, in line with the case law cited in recitals (182) to (184), the fact that the ten-year plans prepared annually by the TSO were available on the TSO’s website in itself might not be sufficient to demonstrate compliance with point 60(a) of the SGEI Framework.

(191)

In the light of the above, the Commission invites the views of interested parties and Lithuania as to whether the transparency requirements of point 60(a) of the SGEI Framework were complied with, in particular the requirement to publish the results of the public consultation or other appropriate instruments referred to in point 14 of the SGEI Framework. Moreover, the Commission invites views as to whether the publication on the information system of the Lithuanian Parliament of the feedback received during the consultation of stakeholders prior to the adoption of the Government resolutions approving the list of SGEI and entrusting those services might suffice to demonstrate compliance with point 60(a) of the SGEI Framework.

3.2.11.   Compliance with other relevant provisions of Union law

(192)

According to settled case law of the Union Courts, the procedure under Article 108 TFEU must never produce a result which is contrary to the specific provisions of the Treaty. Accordingly, State aid which, as such or by reason of some modalities thereof, contravenes provisions or general principles of Union law cannot be declared compatible with the internal market (61).

(193)

In line with that case law, the Commission must take into account infringements of provisions of Union law other than those relating to State aid where such an infringement arises from the economic activity financed, from the aid or from its object as such or from aspects inextricably linked to the object of the aid (62).

(194)

Furthermore, according to settled case law, for a tax or levy to be regarded as forming an integral part of an aid measure, it must be hypothecated to the aid under the relevant national rules, in the sense that the revenue from the tax/levy is necessarily allocated to the financing of the aid and has a direct impact on the amount of the aid and, consequently, on the assessment of the compatibility of that aid with the internal market (63).

(195)

The Court has already held that, where the body responsible for granting aid financed by a tax/levy has the discretion to allocate the revenue from that tax/levy to measures other than those having all the features of aid within the meaning of Article 107(1) TFEU, such a circumstance is likely to exclude the existence of hypothecation between the tax and the aid. In cases involving such discretion, the revenue from the tax/levy does not directly affect the amount of the advantage granted to the beneficiaries of that aid. However, such a hypothecation may exist where the revenue from the tax/levy is wholly and exclusively allocated for the grant of aid, even where that aid is of different types (64).

(196)

It is also apparent from the case law of the Court that there may be no such hypothecation when the amount of aid is determined solely on the basis of objective criteria, not related to the allocated revenue, and subject to an absolute statutory ceiling (65).

(197)

Thus, the Court has held, in particular, that there was no hypothecation between the tax/levy and the aid granted in a case where the amount of the aid was determined according to criteria unrelated to the allocated tax/levy revenue, such as the net cost of providing the services at issue and where national legislation provided that any surplus in relation to this aid had to be reallocated, as appropriate, to a reserve fund or the treasury, that revenue also being the subject of an absolute ceiling, with the result that any surplus is also reallocated to the State’s general budget (66).

(198)

In the present case, as regards the first of the requirements listed in recital (194) (revenue from the levy necessarily allocated to the financing of the aid), the Commission notes that Resolution 916 provided that several «services of public interest in the electricity sector», including the services at issue (67), were to be compensated through a levy paid by all the electricity consumers in Lithuania based on their electricity consumption (68). Resolution 1338 appointed Baltpool as the administrator of the fund to which that levy was collected (69).

(199)

At this stage, the Commission invites the views of interested parties and Lithuania on whether the revenue from the levy at issue was necessarily allocated to the financing of the aid. In particular, in line with the case law cited in recital (195), the Commission invites views on whether the body responsible for granting aid financed by the levy at issue had discretion to allocate the revenue from that levy to measures that did not qualify as State aid under Article 107(1) TFEU or whether the revenue from that levy was wholly and exclusively allocated for the grant of aid, even where that aid is of different types (70). In that regard, the Commission invites views on whether the financing of each of the «services of public interest» listed in Resolution 916 qualified as State aid within the meaning of Article 107(1) TFEU.

(200)

As regards the second of the requirements listed in recital (194) (revenue from the levy having a direct impact on the amount of the aid), the Commission notes that Resolution 1157 established the rules for administering the fund to which the levy at issue was collected (71).

(201)

In that regard, on one hand, point 30 of Resolution 1157 provided that if the revenue from the levy exceeded the amount of aid paid, Baltpool should transfer («store») any surplus to «risk-free financial instruments». On the other hand, point 31 of that Resolution provided that if the amount of aid to be paid exceeded the revenue from the levy, Baltpool should cover the deficit by using the surplus «accumulated and stored» in previous periods. If such a surplus was not sufficient, Baltpool was required to borrow additional funds to cover the deficit.

(202)

At this stage, the Commission invites the views of interested parties and Lithuania on whether the revenue from the levy at issue had an impact on the amount of the aid. In particular, in line with the case law cited in recital (196) and (197), the Commission invites views on whether the amount of aid under the measure at issue was determined solely on the basis of objective criteria, not related to the allocated revenue, and subject to an absolute statutory ceiling.

(203)

In particular, the Commission invites views on whether the amount of the aid was determined according to criteria unrelated to the allocated levy revenue, such as the net cost of providing the services at issue, and on whether national legislation provided that any surplus in relation to the aid at issue had to be reallocated to a reserve fund or the treasury, that revenue also being the subject of an absolute ceiling, with the result that any surplus was also reallocated to the State’s general budget.

(204)

The Commission also invites views on: (i) whether any potential dividends derived from the financial instruments used to store surpluses were (supposed to be) used to finance the measure at issue; (ii) how it was ensured that Baltpool could borrow additional funds to cover deficits not covered by previously stored surpluses; and (iii) whether, at any stage, any deficits were (supposed to be) covered by the State budget, including in the event Baltpool would be required but possibly unable to reimburse previous loans.

(205)

In the event that it cannot be excluded that the levy at issue forms an integral part of the measure at issue within the meaning of the case law cited in recital (194), the Commission would have to assess whether that levy complies with Articles 30 and 110 TFEU.

(206)

According to settled case law (72), a charge which is imposed on domestic and imported products according to the same criteria may nevertheless be prohibited by the TFEU if the revenue from such a charge is intended to support activities which specifically benefit the taxed domestic products. If the advantages which those products enjoy wholly offset the burden imposed on them, the effects of that charge are apparent only with regard to imported products and that charge constitutes a charge having equivalent effect within the meaning of Article 30 TFEU. If, on the other hand, those advantages only partly offset the burden borne by domestic products, the charge in question constitutes discriminatory taxation for the purposes of Article 110 TFEU, the collection of which is prohibited as regards the proportion used to offset the burden borne by the domestic products.

(207)

As regards Article 110 TFEU in particular, the Union Courts have held that differentiation in the field of internal taxation is compatible with Union law if, inter alia, the detailed rules are such as to avoid any form of discrimination, direct or indirect, against imports from other Member States or any form of protection of competing domestic products (73).

(208)

In the same vein, in his Opinion in Visnapuu, Advocate General Bot observed that Article 110 TFEU does not prohibit internal taxation as such but its discriminatory or protective effect, so that it is sufficient to eliminate that discriminatory or protective effect in order to comply with Article 110 TFEU (74).

(209)

In any event, the Commission has previously found that where a strategic reserve is only dispatched after the market failed to clear and imbalance settlement prices are set to at least the value of lost load, cross border participation is not technically feasible, while such a participation (even if feasible) would have no effect on security of supply, there is no discrimination against electricity producers in other Member States and hence there is no scope for the assessment of the application of Articles 30 and 110 TFEU (75).

(210)

Moreover, the Commission has found in another case that, in the light of the objective and design of the measure at issue, the limited interconnection capacity with the rest of the European markets, and the general rules underpinning the functioning of the wholesale electricity market, that measure, including its financing method, was not expected to impact the trade flows into the relevant market, while direct participation of foreign production in that market was not technically or practically feasible. In the light of the above, the Commission concluded that, for the purpose of assessing that measure and its financing method, domestic and imported electricity production were not in a comparable legal or factual situation, with the result that that measure and its financing were found not to breach Articles 30 and 110 TFEU (76).

(211)

In the present case, the levy financing the measure at issue appears to have been imposed on the consumption of both domestic and imported electricity, while the revenue from that levy or part thereof was ultimately used to support a domestic electricity producer, Ignitis Gamyba, as the beneficiary of that measure.

(212)

As regards the compliance of the levy at issue with Article 30 TFEU, the Commission, at this stage, invites the views of interested parties and Lithuania on whether that levy constitutes a charge having equivalent effect to customs duties within the meaning of that provision. In particular, the Commission invites views on whether, in line with the case law cited in recital (206), the alleged advantages which Lithuanian electricity production (in this case, Ignitis Gamyba) enjoyed from the revenue derived from that levy wholly offset the burden imposed on it.

(213)

As regards the compliance of the levy at issue with Article 110 TFEU, if the alleged advantages which Lithuanian electricity production enjoyed from the revenue derived from the levy at issue only partly offset the burden borne by it, the Commission, at this stage, invites the views of interested parties and Lithuania on whether the applicable national rules were such as to avoid discrimination against imports from other Member States or protection of competing domestic products, in line with the case law cited in recitals (207) to (208).

(214)

In any event, the Commission invites the views of interested parties and Lithuania on whether the present case contains elements that are similar to or different from the Commission’s decisional practice cited in recitals (209) to (210), taking into account the specific situation of interconnections (including their capacity) between Lithuania and other Member States during the period when the measure at issue was in force, namely from 2013 until 2018, as well as the considerations described in recital (100).

(215)

Finally, the Commission invites the views of interested parties and Lithuania on the existence of any potential remedies put in place by Lithuania during the relevant period to address any potential discrimination against electricity producers in other Member States, under Articles 30 and 110 TFEU.

(216)

Without prejudice the preliminary analysis set out in this section and the specific points on which the Commission invited interested parties and Lithuania to express their views, the Commission has no indication, at this stage, that the measure at issue breached any other relevant provisions of Union law.

4.   CONCLUSION

In the light of the above, the Commission extends the procedure laid down in Article 108(2) of the TFEU in order to cover the elements described in the present decision. The extension will give the opportunity to third parties whose interests may be affected by the granting of the aid to provide comments. In the light of the information submitted by Lithuania and that provided by interested parties, the Commission will assess the measure and take its final decision.

Taking into account the foregoing considerations and acting under the procedure set out in Article 108(2) TFEU, Lithuania must send the Commission its comments on this letter, and any information that may help to assess the aid, within one month. Lithuania must forward a copy of this letter to the potential recipient of the aid immediately.

Article 108(3) TFEU has suspensory effect. Article 16 of Council Regulation (EU) 2015/1589 (77) explains that all unlawful aid may be recovered from the recipient.

The Commission will inform interested parties of this letter by publishing it, and a summary of it, in the Official Journal of the European Union. The Commission will inform interested parties in countries that are signatories to the EEA Agreement of this letter by publishing a notice in the EEA Supplement to the Official Journal of the European Union. The Commission will send a copy of this letter to the EFTA Surveillance Authority. All interested parties will be invited to submit their comments to this letter within one month of its publication.

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(1)   OJ C 261, 2.8.2019, p. 5.

(2)  Regulation No 1 determining the languages to be used by the European Economic Community (OJ 17, 6.10.1958, p. 385).

(3)  This decision uses the same short forms and abbreviations established in the Opening Decision.

(4)  See recital 45 of the Opening Decision.

(5)  See recital 122 of the Opening Decision.

(6)   OJ C 200, 28.6.2014, p. 1.

(7)   OJ L 211, 14.8.2009, p. 55.

(8)  See recital 49 of the Opening Decision.

(9)  See recital 50 of the Opening Decision.

(10)  See recitals 51 to 55 of the Opening Decision.

(11)   OJ C8, 11.1.2012, p. 15.

(12)  See recitals 76 to 87 of the Opening Decision.

(13)  See recitals 88 to 98 of the Opening Decision.

(14)  See recitals 103 to 109 of the Opening Decision.

(15)  See recitals 110 to 119 of the Opening Decision.

(16)  Judgment of 24 July 2003, Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH, C-280/00, ECLI:EU:C:2003:415, paragraphs 89 to 93.

(17)  Where the undertaking which is to discharge PSO, in a specific case, is not chosen pursuant to a public procurement procedure which would allow for the selection of the tenderer capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant revenues and a reasonable profit for discharging the obligations.

(18)  Lithuania explains that the profitability ratio for electricity generation (Ignitis Gamyba) was slightly higher in 2015 due to the fact that profitability ratios for electricity transmission and distribution activities were set for the whole regulatory period that ended in 2015.

(19)  Lithuania explains that the profitability ratio for electricity generation (Ignitis Gamyba) was slightly higher due to higher cost of debt.

(20)  Although certain other units such as the Kruonis hydro pumped storage power plant (Kruonis HPSP) were also connected to the 330 kV network and provided voltage regulation and black start services, Lithuania explains that Ignitis Gamyba’s units were needed to manage the N-1 situation (i.e., outage of Kruonis HPSP) and complete the process of restoring the electricity supply in the 330 kV network.

(21)  To substantiate that claim, Lithuania relies on the 2014 study prepared by Teisingi energetikos sprendimai, « Comparative Analysis of the Regulation of Services of Public Interest in Lithuania and Other EU Countries and Identification of the Optimal Scheme for Lithuania », available at https://enmin.lrv.lt/uploads/enmin/documents/files/TES_VIAP_ataskaita20140722.pdf.

(22)  In this context, Lithuania submits that the structure and topology of the Lithuanian electricity transmission network and the limited capability of most power plants connected to the 110 kV network to participate in the system restoration process due to requirements applied to significant grid users with the highest reliability category did not allow to initiate the system restoration process by using such power plants and ensure continuous services for security of supply. Moreover, Lithuania submits that the restoration process of the Lithuanian electricity system in case of total blackout begins primarily from the 330 kV voltage grid (i.e., top-down system restoration process).

(23)   https://kt.gov.lt/lt/naujienos/konkurencijos-taryba-siulo-nbsp-keisti-elektros-energetikos-sistemos-rezervo-uztikrinimo-paslaugas-reglamentuojancius-teises-aktus.

(24)  According to Article 18(1)(3) of the Lithuanian Competition Law, in the version that entered into force on 1 January 2017, the Competition Council was no longer competent to examine compliance with the requirements of that law with respect to legal acts adopted by the Lithuanian Government (« The Competition Council shall: […] examine whether or not legal acts or other decisions adopted by entities of public administration, except legal acts adopted by the Government of the Republic of Lithuania , are in compliance with the requirements set out in Article 4 of this Law »). Nevertheless, according to Article 18(1)(8) of the same law, the Competition Council could still submit proposals to the Lithuanian Government for the amendment of legal acts that were deemed to restrict competition (« The Competition Council shall: […] submit to the Government for assessment proposals on the amendment of laws and other legal acts restricting competition where the Competition Council imposes such restrictions of competition in performing its functions »).

(25)  Lithuania further submits that the decision of the Lithuanian Competition Council to terminate the investigation was not appealed before the Lithuanian courts. In any event, Lithuania submits that the Ministry of Energy did not ignore the recommendations of the Competition Council, but established a working group with the TSO to set out parameters of the reserve service in legal acts and consider whether tendering such a service was possible without threatening the security of the electricity supply.

(26)  In that regard, Lithuania submits that drafts of those Government resolutions were made available on the website of the Lithuanian Parliament so that interested parties had the opportunity to comment on the necessity of the services at issue.

(27)  Prior to that period, Lithuania submits that the level of reasonable profit was established based on the rules of the NRA methodology O3-229.

(28)  Prior to that period, Lithuania submits that detailed rules on the separation of accounts were stipulated in the NRA methodology O3-229, while independent auditors engaged in the review of regulatory reports as from 2014 have confirmed compliance with the account separation requirements established in the NRA Resolution O3-112 and the NRA Methodology O3-229.

(29)  As from 14 December 2017, NRA methodology O3-229 was amended by eliminating from price calculation formula the adjustment reflecting the price difference between projected and actual costs. Nevertheless, Lithuania claims that such an amendment was technical in nature since the obligation to adjust payments to providers of the services at issue was established in other acts such as Government resolution No. 1157 on the rules of administration of PSO funds (Resolution 1157) and the NRA methodology O3-279.

(30)  Lithuania submits that the NRA evaluated differences between approved and factual return on investments for 2017 and obliged the beneficiary to return EUR 2.8 million in 2019. The NRA also evaluated differences between approved and factual return on investments of LEG for 2018 and allocated EUR 1.0 million to the beneficiary in 2020.

(31)  Lithuania further notes that the adjustment of the prices paid for the service at issue subject to the difference between actual and projected costs could result in a change in the profitability of the undertaking providing those services. In that regard, NRA methodology O3-229 stipulated that the price paid for the provision of those services must also be adjusted in the coming year to ensure that the provider would not earn a higher profit than that approved by the NRA.

(32)  In that regard, Lithuania submits that the Lithuanian Law on Undertakings of Strategic Importance and National Security and other facilities having importance of national security stipulates that: (i) Ignitis Gamyba is an enterprise of national strategic importance to national security; (ii) the Lithuanian Government has to ensure that the Lithuanian energy system is capable to secure independent electricity generation and that Lithuania is ready for immediate synchronization with Continental Europe; and (iii) the TSO has to ensure uninterrupted, reliable and independent supply of electricity for an indefinite period of time at the most economically advantageous conditions.

(33)  Lithuania also submits that any revenues from unregulated services such as energy sales on the market (resulting in a positive gross profit) were used by the NRA to reduce the price of regulated services for the upcoming years. As regards the reserves service in particular, Lithuania submits that the compensation for that service covered only the units’ availability costs, while no additional payments were made when the units were actually activated and bid in the market.

(34)  Lithuania claims that the Commission considered a similar efficiency incentive mechanism to be in line with the requirements set out in the SGEI Framework in its decision of 20 November 2013 in case SA.36740 Klaipedos nafta LNG terminal (recitals 253 to 259).

(35)  For example, Lithuania refers to unrecovered debt costs, penalties and delay damages paid by the provider, costs of advertising/representation, costs of suspended constructions, costs incurred in the implementation of investment projects not coordinated by the NRA in advance. NRA Methodology O3-229 also suggested that only reasonable return on investment shall be included in the price.

(36)  For example, in the process of approving the SGEI compensation for 2015, the NRA refused to include into that compensation all payments made by Ignitis Gamyba for the construction of the CCGT unit. The NRA concluded that Ignitis Gamyba had failed to evaluate properly currency exchange risk and decided that it shall not receive compensation for costs originating from the change in the currency exchange rate. Additional controls of the effectiveness of costs were exercised by the NRA as a part of its general control of regulated services. For example, in 2014, the NRA decided that the company had to return EUR 13,6 million of overcompensation paid in the previous years for several regulated services during the 2010-2012 period). Such decision was mainly based on the conclusion that some costs were not effective.

(37)  The assessment in this section is additional to and complements the respective assessment in section 3 of the Opening Decision. In any event, as indicated in recital (17), this extension decision is without prejudice to the doubts expressed in the Opening Decision concerning the compatibility of the measure, which remain in place.

(38)  See recitals 40 to 41 of the Opening Decision.

(39)  Judgment of 24 July 2003, Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH, C-280/00, EU:C:2003:415, paragraphs 89 to 93.

(40)  Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest (OJ C 8, 11.1.2012, p. 4).

(41)  See Article 2 of the SGEI Decision.

(42)  Judgments of 12 February 2008, BUPA and Others v Commission, T-289/03, EU:T:2008:29, paragraphs 166 to 169 and 172; and of 15 June 2005, Fred Olsen v Commission, T-17/02, EU:T:2005:218, paragraph 216.

(43)  Judgment of 12 February 2008, BUPA and Others v Commission, T-289/03, EU:T:2008:29, paragraph 172.

(44)  Judgment of 12 February 2008, BUPA and Others v Commission, T-289/03, EU:T:2008:29, paragraph 172.

(45)  Moreover, the 2014 study does not appear to include a comprehensive analysis of eligibility for the services at issue. In particular, it does not appear to have addressed the suitability of demand response for the provision of the security of supply services, nor did it address whether a tender open to new generation capacity or potential new entry could have provided the services at issue.

(46)  Moreover, as indicated in recital 54 of the Opening Decision, the measure effectively capped the market price and foreclosed the market to any other capacity – including imports and demand response – with costs higher than the running costs of the supported plant.

(47)  Judgment of 17 December 2020, Inpost and Others v Commission, C-431/19 P and C-432/19 P, EU:C:2020:1051, paragraph 47.

(48)  In particular, according to information submitted by Lithuania, the duration of the public consultation for the services entrusted in 2013 appears to have been three days, one day for the services entrusted in 2015 and three days for the services entrusted in 2018.

(49)   https://ignitis.lt/sites/default/files/inline-files/-ignitis-uab-annual-financial-statements-2024.pdf.

(50)  Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors (OJ L 134, 30.4.2004, p. 1).

(51)  Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC (OJ L 94, 28.3.2014, p. 243).

(52)  Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors (OJ L 134, 30.4.2004, p. 1).

(53)  Law on Enterprises and Facilities of Strategic Importance to National Security and other Enterprises of Importance to Ensuring National Security, 10 October 2002 Nr. IX-1132, (As last amended on 21 June 2012 No. XI-2087).

(54)  See, also, recitals 99 to 102 of the Opening Decision concluding that the measure had an incentive effect, among other things, because, competition from imports meant that most of the domestic generation in Lithuania was uncompetitive, while, without the obligation to provide the services at issue, the beneficiary’s units would not have provided sufficient electricity to ensure the provision of those services.

(55)  As from 14 December 2017, NRA methodology O3-229 was amended by eliminating from price calculation formula the adjustment reflecting the price difference between projected and actual costs. Nevertheless, Lithuania claims that such an amendment was technical in nature since the obligation to adjust payments to providers of the services at issue was established in other acts such as Resolution 1157 and the NRA methodology O3-279.

(56)  Lithuania submits that the NRA evaluated differences between approved and factual return on investments for 2017 and obliged the beneficiary to return EUR 2.8 million in 2019. The NRA also evaluated differences between approved and factual return on investments of LEG for 2018 and allocated EUR 1.0 million to the beneficiary in 2020.

(57)  Lithuania further notes that the adjustment of the prices paid for the service at issue subject to the difference between actual and projected costs could result in a change in the profitability of the undertaking providing those services. In that regard, NRA methodology O3-229 stipulated that the price paid for the provision of those services must also be adjusted in the coming year to ensure that the provider would not earn a higher profit than that approved by the NRA.

(58)  Judgment of 17 December 2020, Inpost and Others v Commission, C-431/19 P and C-432/19 P, ECLI:EU:C:2020:1051, paragraph 56.

(59)  Judgment of 17 December 2020, Inpost and Others v Commission, C-431/19 P and C-432/19 P, ECLI:EU:C:2020:1051, paragraph 59.

(60)  Judgment of 17 December 2020, Inpost and Others v Commission, C-431/19 P and C-432/19 P, ECLI:EU:C:2020:1051, paragraph 62.

(61)  Judgment of 11 September 2025, Austria v Commission, C-59/23 P, ECLI:EU:C:2025:686, paragraph 52 and the case law cited.

(62)  Judgment of 11 September 2025, Austria v Commission, C-59/23 P, ECLI:EU:C:2025:686, paragraph 53 and the case law cited.

(63)  Judgment of 20 September 2018, Carrefour Hypermarchés, C-510/16, ECLI:EU:C:2018:751, paragraph 19 and the case law cited.

(64)  Judgment of 20 September 2018, Carrefour Hypermarchés, C-510/16, ECLI:EU:C:2018:751, paragraph 20 and the case law cited.

(65)  Judgment of 20 September 2018, Carrefour Hypermarchés, C-510/16, ECLI:EU:C:2018:751, paragraph 21 and the case law cited.

(66)  Judgment of 20 September 2018, Carrefour Hypermarchés, C-510/16, ECLI:EU:C:2018:751, paragraph 22 and the case law cited.

(67)  The relevant « services of public interest » were the following: (1) electricity generation using renewable energy resources, (2) electricity generation in cogeneration mode in combined cycle power plants, (3) electricity generation to ensure security of electricity supply, (4) reserves service to ensure the security of electricity supply, (5) development of strategically important generation capacities, (6) implementation of strategic projects in the electricity sector, including interconnection lines, (7) ensuring the safety of work at energy facilities and radioactive waste management activities, (8) connection of renewable energy power plants to electricity networks, and (9) optimisation, development and/or reconstruction of electricity networks.

(68)  NRA methodology O3-279 approved on 28 September 2012 for the 2013-2018 period set out detailed rules for the calculation of the annual budget for all services at issues and of the respective levy paid by electricity consumers.

(69)  See recitals 21 and 36 of the Opening Decision.

(70)  In that regard, in line with the relevant case law, it is also relevant to examine whether Baltpool’s resources, other than those generated by the revenue from the levy at issue, are negligible (Judgment of 22 December 2008, Société Régie Networks, C-333/07, ECLI:EU:C:2008:764, paragraph 105).

(71)  See recitals 21 and 36 of the Opening Decision.

(72)   Ex multis, Judgments of 11 March 1992, Compagnie Commerciale de l’Ouest and Others, C-78/90 to C-83/90, EU:C:1992:118, paragraph 27; of 27 October 1993, Scharbatke, C-72/92, ECLI:EU:C:1993:858, paragraph 10; and of 17 July 2008, Essent Netwerk Noord and Others, C-206/06, ECLI:EU:C:2008:413, paragraphs 40 to 57.

(73)  See, to that effect, Judgment of 2 April 1998, Outokumpu, C-213/96, ECLI:EU:C:1998:155, paragraph 30.

(74)  AG Opinion of 9 July 2015, Visnapuu, C-198/14, ECLI:EU:C:2015:463, paragraph 56.

(75)  Commission Decision C(2022) 7306 final of 11 October 2022 on State Aid SA.55604 (2022/N) – Finland – Finnish strategic reserve (OJ 2022 C/439, p. 1), recitals 129 to 135. A similar conclusion was reached in Commission Decision C(2025) 5336 final of 29 July 2025 on State Aid SA.112968 (2025/N) – Sweden – Electricity Strategic Reserve, recitals 138 to 145.

(76)  Commission Decision C(2022)3942 final of 8 June 2022 on State Aid SA. 102454 (2022/N) – Spain and SA.102569 (2022/N) – Portugal – Production cost adjustment mechanism for the reduction of the electricity wholesale price in the Iberian market (OJ 2022 C/253, p. 3), recitals 167 to 173 (upheld in Judgment of 12 March 2025, PGI Spain and Others v Commission, T-596/22, ECLI:EU:T:2025:251).

(77)  Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union (codification) (OJ L 248, 24.9.2015, p. 9, ELI: http://data.europa.eu/eli/reg/2015/1589/oj).