The Legal and Economic Challenges for Single Interconnector Companies in the European Electricity Market – The Baltic Cable Case

Abstract

The legal and economic challenges, which Single Interconnector Companies face, are currently subject to a preliminary ruling procedure in front of the European Court of Justice (“ECJ”, Case C-454/18). This case deals with the application and interpretation of Article 16 (6) of Regulation (EU) No 714/2009 of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity (“Regulation 714/2009”). Article 16 (6) Regulation 714/2009 regulates the use of congestion revenues that are obtained by allocating interconnector capacity to the market. Interconnectors can be classified into two types: - interconnectors owned by a Transmission System Operator (“TSO”) as part of a larger transmission system (“regular TSO”), where the costs of the interconnector are carried by network users, and - interconnectors owned by a so-called “Single Interconnector Company” without network users. The application of Article 16 (6) Regulation 714/2009 to regular TSOs is straightforward. Article 16 (6) Regulation 714/2009 aims to ensure that network users benefit from the congestion revenues. In the case of regular TSOs, network users cover all costs and risks associated with the interconnector through network tariffs: Congestion revenues should thus be used to invest in additional interconnection capacity or to reduce network tariffs. The application of Article 16 (6) Regulation 714/2009 to Single Interconnector Companies is not straightforward. Congestion revenues are the sole source of income for Single Interconnector Companies and they do not socialise costs and risks to network users. Applying Article 16 (6) Regulation 714/2009 to Single Interconnector Companies in exactly the same way as to regular TSOs would cause Single Interconnector Companies to go bankrupt, an effect obviously not intended by the EU regulation. Therefore, another interpretation and application of Article 16 (6) Regulation 714/2009 is needed. And solutions do exist. Current practice for interconnectors between Great Britain on the one hand, and Ireland, France and Belgium on the other hand, show that such different interpretation and application is possible and already good practice of renowned national regulatory authorities applying respective European Union (“EU”) law. The following assessment shows that this practice is fully in line with the objectives of Article 16 (6) Regulation 714/2009 and of EU legislation in general, as it fosters investments in new interconnection capacity and provides incentives to make all interconnection capacity available. The wording of Article 16(6) Regulation 714/2009 has been changed and can now be found in the new Article 19 of Regulation (EU) 2019/943 of 5 June 2019 on the internal market for electricity (“Regulation 2019/943”) which is part of the so-called Clean Energy Package. It allows the Agency for the Cooperation of Energy Regulators (“ACER”) to provide guidance on a proper application of the regulations regarding the use of congestion revenues. These developments flowing from the Clean Energy Package point in the right direction as a harmonised, fair and legally sound application of EU law to Single Interconnector Companies as truly European companies running cross-border infrastructure and bearing risk without being able to pass it on to network users, is much needed.