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CJEU ‘should dismiss’ Tempus UK capacity market challenge

The Court of Justice of the EU (CJEU) should overturn a finding that the UK’s electricity capacity market breached state aid rules, a legal adviser to the court has said.

In a formal opinion, advocate general Evgeni Tanchev said that the EU’s highest court should overturn a 2018 General Court judgment annulling the European Commission’s approval of the scheme. The General Court did so in response to a challenge by UK energy management technology business Tempus Energy, which had argued that the Commission should have opened a formal investigation procedure before granting its approval.

The European Commission later carried out an in-depth investigation and cleared the scheme, which was then reinstated by the UK government, meaning that the CJEU’s final decision in the case would be of limited practical impact, said state aid law expert Totis Kotsonis of Pinsent Masons, the law firm behind Out-Law. The CJEU is not bound by the opinions of its advocates general, although they are followed in the majority of cases.

“Despite carrying out an in-depth investigation, the Commission also challenged the General Court’s original decision. It did so, essentially so as to avoid unhelpful principles being established as to the circumstances which require it to carry out in-depth investigations before state aid clearances may be granted.” he said.

The UK’s capacity market auction system is intended to boost energy security by subsidising plant to be on standby for generation in times of additional need or peak demand, including additional winter demand. Energy suppliers and generators bid in regular auctions to provide a share of capacity when the system needs it in exchange for a regular revenue stream.

Tempus, which acts as a ‘demand-side’ response provider, challenged the Commission’s decision not to raise objections to the scheme proposed by the UK back in 2014 when the UK, still a member of the EU, formally notified the Commission about its plans under state aid rules. The General Court agreed, ruling that the Commission should have had doubts about certain aspects of the planned scheme and should therefore have initiated a formal investigation procedure in order to better assess the compatibility of the scheme with state aid laws.

However, in his opinion, advocate general Tanchev said that the General Court had “erred” when upholding Tempus’ claim of “serious difficulties” with the scheme meriting further investigation. He said that the court’s approach “amounts to imposing on the Commission an obligation to investigate, of its own motion, unsubstantiated matters” raised by the challengers.

“It seems to me that, in the context of a preliminary examination, the Commission fulfils its obligation to carry out a diligent and impartial examination of a measure by examining all the facts and points of law brought to its attention by the member state concerned, without being required to investigate of its own motion the circumstances of the case,” he said.

“[T]his follows from the nature of the preliminary examination, which … is intended not to enable the Commission to be fully informed of all the facts of the case, but merely to allow it to form a ‘prima facie’ opinion … It is true that, as Tempus argues, it cannot be excluded that the member state concerned provides incomplete, inaccurate or misleading information. However, in that case, the Commission must exercise its power … to request additional information from that member state,” he said.

In addition, the General Court had incorrectly found that the length of the preliminary examination itself, and the complexity and novelty of the scheme, should be treated as evidence of the “serious difficulties” alleged by Tempus, Tanchev said.

“Whether or not the duration of a procedure for the preliminary examination is reasonable must be determined in relation to the particular circumstances of each case … Thus, as the Commission argues, the complexity of a case may justify a longer preliminary examination,” he said.

“I would add that the General Court has held that the complexity of a case does not necessarily require the initiation of a formal investigation procedure (as it is conceivable that, during the preliminary examination, the Commission overcomes the difficulties encountered),” he said.

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