Security of Energy Supply: When Could National Policy Take Precedence Over European Law?

SECURITY OF ENERGY SUPPLY: WHEN COULD
NATIONAL POLICY TAKE PRECEDENCE OVER

EUROPEAN LAW?
Carlos Padrós
Endrius E. Cocciolo*
Synopsis: The European Energy Market is currently under construction. In

this complex process Member States have traditionally retained the power to
secure each State’s energy supply as a matter of national security. However, the
European Court of Justice (ECJ) has recently issued several judgments in which
national policies are declared to be in breach of core European Union (EU)
principles: free movement of capital and freedom of establishment. The article
explores the risks of adopting this approach (negative integration) without a clear
European regulatory framework (positive integration). Dismantling national
regulatory controls without providing a true European alternative can result in a
critical precedence of free market over national administrative law.
I. Energy Policy, Free Markets, and Security of Supply: A Complex

Interrelationship ........................................................................................ 31
II. Recent Case Law ............................................................................................. 40
A. Legal Authority for Prior Approval: CNE and Endesa Takeover,
Judgments of March 6 and July 17, 2008, Case C-196/07 and C-
207/07 ................................................................................................ 41
1. Critical Analysis of CNE Judgments ............................................. 44
B. Subsidies for Stranded Costs: ECJ Judgment of July 17, 2008,
Essent Netwerk Noord BV et al. Case C-206/06 ............................... 49
C. Open Third-Party Access: ECJ Judgment of May 22, 2008,
Citiworks AG, Case C-439/06 ........................................................... 51
III. Main Findings ................................................................................................ 53
I. ENERGY POLICY, FREE MARKETS, AND SECURITY OF SUPPLY: A COMPLEX

INTERRELATIONSHIP
This article focuses on the transformation of public intervention
mechanisms (i.e., the administrative/regulatory framework) in companies
operating in energy sectors, particularly in regards to legal tools designed to
meet “security of energy supply” requirements.
The energy sector is strategically important because energy products and
services are absolutely essential for society to function. In general terms,
strategic sectors involve “public infrastructure and services of great individual or
* Dr. Carlos Padrós is a Professor of European and Economic Law at Universidad Autónoma de Barcelona
(Spain), PhD European University Institute (1997), L.L.M. Universidad Autónoma de Barcelona (1994).
Currently he serves as a Judge of the Catalan Supreme Court, Administrative Law Section. Dr. Endrius Eliseo
Cocciolo is an Associate Professor of Administrative Law at Universidad Autónoma de Barcelona (Spain),
PhD in International Relationships and European Integration, Universidad Autónoma de Barcelona (2006).
31
32 ENERGY LAW JOURNAL [Vol. 31:31
collective importance. . . . All of these sectors provide for vital individual needs,
formally recognised as such, or vital collective needs which must be met through
the establishment of business enterprises.”1
In more concrete terms, the energy sector’s strategic importance derives
from its role as a
provider of inputs that are essential to the overall productive system and to final
demand. It is all the more strategic in an economy such as that of Spain, which
largely lacks energy resources, particularly in the area of foreign trade, which is
conducted in very sensitive and unstable markets. It is also strategic because sector
2
companies are part of the essential framework of the economic system.
The energy sector is subject to pervasive and extensive administrative
regulation for the following reasons:
a) Energy is a service of general economic interest. Public
intervention is designed on the one hand to ensure the existence
of a real market and, on the other, to ensure that public service
obligations are met.3
b) Energy is a network-based service requiring extensive
regulation.4 Energy products are impossible or very expensive to
store, making them very vulnerable to market abuse. Therefore,
monitoring by national regulatory authorities is crucial.
c) Certain functions of the energy industry (e.g., distribution,
transportation and network management) are “natural
monopolies” and are thus viewed as regulated activities, while
others (e.g., generation and supply) are open to competition.
d) Electricity supply is viewed as a universal service.5
e) The electricity sector is investment-intensive, thus hampering
the entry of new competitors.
1. Gaspar Ariño, Algunas ideas básicas sobre regulación de sectores estratégicos [Basic Ideas About
Strategic Sectors Regulation], 9 CUADERNOS DE DERECHO PÚBLICO [PUBLIC LAW JOURNAL] 12 (2000) (Esp.).
2. Juan Carlos Jiménez, Una década de profundas transformaciones en el sector energético español [A
Decade of Deep Transformations in the Spanish Energy Sector], in AA.VV., ENERGÍA: DEL MONOPOLIO AL
MERCADO. CNE, DIEZ AÑOS EN PERSPECTIVA [ENERGY: FROM MONOPOLY TO MARKET. CNE [SPANISH NATIONAL
ENERGY COMMISSION], A TEN YEARS PERSPECTIVE] 67-68 (Thomson-Civitas Madrid 2006).
3. Tomás De la Quadra-Salcedo, Diez años de legislación energética en España [Ten Years of Energy
Regulation in Spain], in AA.VV., ENERGÍA: DEL MONOPOLIO AL MERCADO. CNE, DIEZ AÑOS EN PERSPECTIVA
[ENERGY: FROM MONOPOLY TO MARKET. CNE [SPANISH NATIONAL ENERGY COMMISSION], A TEN YEARS
PERSPECTIVE] 329 (Thomson-Civitas Madrid 2006) (Esp.).
4. Maria Yolanda Fernández García, Reflexiones sobre la noción de red (su relevancia en la regulación
de los servicios esenciales económicos en red) [Thoughts About the Network Concept (Its Relevance in the
Regulation of the General Economic Services in Network)] 18 REVISTA DE DERECHO DE LAS
TELECOMUNICACIONES E INFRAESTRUCTURAS EN RED [TELECOMMUNICATIONS AND NETWORK
INFRASTRUCTURE LAW REVIEW] 11-34 (2003) (Esp.); see also Francesco Vetrò, Il servizio pubblico a rete.
L’esempio paradigmático dell’energia elettrica [Network-Based Services. The Electric Energy Paradigm]
(Torino 2005) (Italy).
5. See, e.g., Wolf Sauter, Services of General Economic Interest and Universal Service in EU Law, 2
European Law Journal (2008); Gianfranco Cartei, Il servizio universale [The Universal Service] (Milano 2002)
(Italy); Vittorio Gasparini Casari, Il servizio universale [The Universal Service], in Diritto dell’economia
[Economy Law] 265 (2000).
2010] SECURITY OF ENERGY SUPPLY 33
There are a number of additional considerations that underscore even more

clearly the strategic nature of energy and the energy industry:
a) The issue of energy dependence. Foreign energy sources
currently account for fifty percent of Europe’s total
consumption; that figure is forecast to reach seventy percent
over the next twenty years. Spain’s prospects are even worse
since oil and natural gas – almost all of which must be imported
– account for seventy percent of the primary energy consumed
in the country.6
b) The powerful geopolitical interests of certain countries, which
are reflected in technical issues, are closely interwoven with the
issue of energy dependence. Europe largely depends on Russia,
Saudi Arabia, Algeria, Norway, Niger, Libya, Qatar, Egypt,
Iran, and Iraq, which have the largest energy stocks. Many of
those countries pose considerable risks (e.g., Middle East
instability, the political situation in Venezuela, Bolivia, Niger,
Iran, and Iraq, supply disruptions in Russia).7
This combination of factors creates intractable energy supply problems.
Energy supply guarantees, which legitimise government intervention in the
market, are viewed as a matter of national sovereignty by the EU member states,
which are free to choose their energy sources and supply structures,8 in
accordance with Article 175 of the Treaty of the European Community (TEC).
These guarantees should be understood as a matter of public security. In other
words, in the energy field, public security translates into security of supply
concerns.
Given the EU’s common requirements and the global dimension and scope
of the issues at stake, security of supply concerns should be dealt with jointly at
the European level to strengthen collective negotiating capacity. To that end, an
effective European energy policy and a true European energy market will prove
essential. However, the accomplishment of these goals is hampered by the
resistance, inertia, and distrust of the EU member states, which are concerned
about controlling energy and corresponding interests, i.e., by issues that have
always been and are still considered of primary national political importance.
This is the core of the difficulty in developing a single European energy policy.
It also explains the limited devolution of regulatory powers authorized by the EU
Member States.9 Following the Maastricht Treaty, the essential legal basis of this
common policy is set out in TEC Article 3.u, under which the EU is required to
adopt measures in the energy sphere in order to achieve shared objectives. In
reality, however, the development of a common energy policy encompasses
6. Gaspar Ariño, Energía en España y desafío europeo [Energy in Spain and European Challenge] 41
(Comares 2006) (Gren.) [hereinafter Energy in Spain].
7. Gaspar Ariño, Privatizaciones y liberalizaciones energéticas: balance de situación [Energy
Privatization and Deregulation: An Evaluation of the Situation], in AA.VV., ENERGÍA: DEL MONOPOLIO AL
MERCADO. CNE, DIEZ AÑOS EN PERSPECTIVA [ENERGY: FROM MONOPOLY TO MARKET. CNE [SPANISH NATIONAL
ENERGY COMMISSION], A TEN YEARS PERSPECTIVE] 466 (Thomson-Civitas Madrid 2006) (Esp.).
8. Energy in Spain, supra note 6, at 31.
9. On the difficult process of elaborating European policy in the field of energy, see generally Ester
Zapater Duque, La Unión Europea y la cooperación energética internacional [The European Union and the
International Energy Cooperation] 58 (Dykinson Madrid 2002) (Esp.).
several areas of EU jurisdiction, e.g. the common market, the free movement of
capital, services and persons, the environment, etc.10
Over the past twenty years, the European Community, followed by the
European Union, have sought to liberalize the energy sector, initiated by the
publication of Commission Working Document COM (88) 238 on the internal
energy market. In that document, European institutions emphasized the need to
reform the energy sector with the aim of ensuring more economically efficient
and dynamic services management.11 In 1992, the European Commission (EC)
issued two electricity and natural gas directives designed to:
a) Abolish exclusive rights with respect to energy generation and
construction of electricity networks and natural gas pipelines.
b) Introduce the right of third party access to networks for major
industrial clients and distribution companies.
c) Distinguish between generation, transportation, and distribution of
energy services, divide up the service infrastructure (unbundling),
differentiate between basic services (which may continue to be
public services), and value-added services (which are open to free
competition).
d) Separate the regulatory and operating functions.
These proposals led to Directive 96/92/EC (repealed by Directive
2003/54/EC) concerning common rules for the internal market in electricity, and
Directive 98/30/EC (repealed by Directive 2003/55/EC) concerning common
rules for the internal market in natural gas. Sector liberalization is not the
ultimate aim, but rather a way to achieve closer integration of energy markets,
where “energy market integration means . . . not just the liberalisation of [27]
national markets, which to a greater or lesser extent continue to respond
according to a national logic, but also the effective achievement of a true single
market at the European level.”12 Integration is one of the fundamental objectives
10. In the first 50 years, a great emphasis has been placed on the free movement of goods and services.
The internal market had to be completed in 1992. The integrative potential of free movement of goods and
firms is quite impressive. However, free movement of capital (investment and ownership of undertakings) has
only very recently being fostered as an integration strategy. In fact, the adoption of a single currency in 2002
and the need for a strong European capital market pushes the European Commission in that direction. Capital
is much more mobile than the rest of the market elements (goods, services, people) and conflicts between
European principles and national (public) laws have arisen. On the working of the internal European market
and the process of harmonization, see generally Manuel Ballbé & Carlos Padrós, Estado competitivo y
armonización europea [Competitive State and European Harmonization] (Ariel Barcelona 1997) (Esp.).
11. From an institutional point of view, Europe is neither a federal State, nor governed by a simple
commercial treaty. Although it is clear that the origins of the European Union are based on an international
treaty (Treaty of Rome 1956), the development of both institutions and policies through this first fifty years
makes it impossible to recognise the original structure and scope of European integration. Today, the European
Parliament acts as a true legislative chamber (together with the Council of Ministers) and the role of political
impulse of the European Commission has been very much enhanced. Therefore, the European Community is a
structure under construction and in permanent evolution. There are neither clear limits nor a rational design for
the integration process. The same can be said about the geographical dimension, completely transformed after
the last East widening which took place in 2004.
12. Ester Zapater Duque, La gestión de la seguridad de aprovisionamiento energético en la Unión
Europea: ¿Una cuestión política o económica? [Energy Supply Security Management in the European Union:
An Economy or Policy Matter?] 17 (Dykinson Madrid 2002) (Esp.); see also Ester Zapater Duque, La
seguridad energética de la Unión Europea en el contexto de la nueva política energética y el Tratado de Lisboa
[The European Union Energy Security in the Context of the New Energy Policy and the Treaty of Lisbon], in
of the EU’s energy policy, as set out in the EC’s 1996 White Paper, which also
emphasised:
a) Global competitiveness, through European energy integration
b) Security of supply
c) Environmental protection
The development of the process of creating a single European energy
market reality has two implications: in the first place, the greater the European
market the less the grounds for national security measures. If we assume that an
integrated market would itself provide greater security for Member States, there
is less room for national measures. In the second place, and related to the
previous, the greater the legal tools the European institutions provide for
regulating energy, the stronger the pre-emption will be of national legislation.
These two phenomena are self-reinforcing.
Conversely, a poor development of an integrated energy market would
mean the need for national measures and national regulation. In fact, European
freedoms can be achieved through the two classical integration mechanisms:
positive integration (European legislation) and negative integration (European
prohibitions of given norms). Given that decision making processes are
extremely complex, Europe is moving forward, using a combination of two legal
techniques: negative and positive integration. Negative integration can be
defined as the suppression of all unjustifiable obstacles to market integration.
That consists of forbidding the adoption or maintenance of certain national
policies or regulations. This opens the door for firms to operate in a single
economic space, for example, through mutual recognition of national corporate
laws. Along with this negative approach, European institutions rely upon
positive integration. That is, they pass a considerable amount of European
legislation (Regulations, Directives, Decisions, etc.) that harmonize different
legal orders and create a common European legal standard. There is no doubt
that positive integration is more difficult (due to complexities of European
decision making process) and more aggressive with State’s competences. In any
case, the worst scenario is that of negative integration through prohibition of
national measures without a true European energy market.
In 2002, the Commission launched a Communication to the Parliament and
to the Council where it observed the high degree of energy dependence of
European countries and the lack of adequate means of action at EU level. At that
moment, the degree of completion of the internal market revealed insufficient
harmonization of community measures with regard to oil stocks and insufficient
coordination for gas supplies. These two elements required a common
framework as a solution in order: to promote solidarity among Member States in
the event of a crisis; to manage security supplies to deal with physical disruption
of energy supplies; to manage infrastructures safety; and to promote market
stability. In light of the ideas expressed in the present Communication, the
Commission proposes, on the basis of Article 95 of the EC Treaty, some
legislative measures, that look to the adoption of:
a) Council Directive 2004/67/EC of April 26, 2004 concerning
measures to safeguard security of natural gas supply;
Francesc Morata (Coor.), Energía del siglo XXI: perspectivas europeas y tendencias globales [The Energy in
the XXI Century: European Perspectives and Global Trends] (IUEE Barcelona 2009) (Esp.).
b) Directive 2005/89/EC of the European Parliament and of the Council

of January18, 2006 concerning measures to safeguard security of
electricity supply and infrastructure investment; and
c) Council Directive 2006/67/EC of July 24, 2006 imposing an
obligation on Member States to maintain minimum stocks of crude
oil and/or petroleum products.
More recently, the EC Communication from the Commission to the
European Council and the European Parliament of January 10, 2007, “An
Energy Policy for Europe”, once again affirmed that:
the point of departure for a European energy policy is threefold: combating climate
change, limiting the EU’s external vulnerability to imported hydrocarbons and
promoting growth and jobs, thereby providing secure and affordable energy to
consumers. . . . [For that reason] Europe needs to act now, together, to deliver
sustainable, secure and competitive energy. In doing so the EU would return to its
roots. In 1952 with the Coal and Steel Treaty and 1957 with the Euratom Treaty,
the founding member states saw the need for a common approach to energy. Energy
markets and geopolitical considerations have changed significantly since then, but
the need for EU action is stronger than ever. Without this, the EU’s objectives in
other areas, including the Lisbon strategy for growth and jobs and the Millennium
Development Goals, will also be more difficult to achieve. A new European energy
policy needs to be ambitious, competitive and long-term – and to the benefit of all
13
Europeans.
Thus far, however, it must be recognized that “the absence of a single
market means the mere juxtaposition of mutually isolated national markets. . . .
The European single market requires transnational networks, harmonized
regulations and joint (or at least coordinated) network management. None of
these elements are in place.”14 This is due to the member states’ strategic
interests, as well as to the inherent characteristics of energy goods and services
and, in some ways, to the policy of consolidating and protecting national
companies. This latter factor deserves close attention in light of well-publicized
cases such as Électricité de France (EDF)/Montedison, E.ON/Ruhrgas, Suez/Gaz
de France, and particularly the “battle” for ENDESA, initiated by Gas Natural,
continued by E.ON, and finally won by Enel and Acciona on October 10, 2007.
This list would be much longer if other strategic sectors such as
telecommunications (Telefónica/KPN), motorways (Abertis/Autostrade), and
banking (BNL/BBVA) were considered, all of which are examples of
government intervention designed to protect the public interest by safeguarding
essential services or, in the opposing view, unjustified examples of “economic
patriotism.”
These cases show the tension between safeguarding public services and
national service providers, on the one hand, and the free market and its rules, on
the other, i.e., between national public economic law and European law. “This
dichotomy is reinforced by the lack of specific European legislation relating to
public services, an area that has not yet been subject to EC pre-emption.”15
13. An Energy Policy for Europe, COM(2007) 1 final (Oct. 1, 2007).

14. Energy in Spain, supra note 6, at 1.
15. The relationship between national law and European Law is based on the principle of supremacy of
the latter. European legislation preempts national law and prevails over it. This is partially compensated by the
principle of progressivity. European legal instruments vary in their preemptive potential (from simple
recommendations to imperative Council and Parliament Regulations). Therefore, States retain much of their
Conversely, the principle of “property neutrality” set out in TEC Article

295 implies that European law prejudices neither the energy companies’
ownership regimes nor the way services of general economic interest are
managed. Therefore, Member States are free to determine their own public
service systems. In addition, TEC Article 86.2 recognizes that the public services
mission can be used to justify the existence of exclusive or special rights.
Compensation measures can also be determined, regardless of the private or
public status of the entities involved. Public service obligations are also set out
in the two directives concerning electricity and natural gas liberalisation. Article
3.2 of Directive 2003/54/EC expressly states as follows:
Having full regard to the relevant provisions of the Treaty, in particular Article 86
thereof, member states may impose on undertakings operating in the electricity
sector, in the general economic interest, public service obligations which may relate
to security, including security of supply, regularity, quality and price of supplies
and environmental protection, including energy efficiency and climate protection.
Such obligations shall be clearly defined, transparent, non discriminatory, verifiable
and shall guarantee equality of access for EU electricity companies to national
consumers. In relation to security of supply, energy efficiency/demand-side
management and for the fulfilment of environmental goals, as referred to in this
paragraph, member states may introduce the implementation of long term planning,
taking into account the possibility of third parties seeking access to the system.”
According to Hancher:
It is now increasingly clear that Community action on energy cannot be limited to
market integration and the removal of national obstacles to free movement of goods
alone. A number of these same obstacles may be justified on either environmental
protection or security of supply grounds. In other words, the Commission has
gradually been forced to abandon its purely market-driven approach to creating a
single energy market. The Commission is now grappling with the task of
developing a more coherent energy policy framework within which more efficient
competition can flourish. . . . It is suggested that the present Community law
framework is not ideally suited to the simultaneous realisation of the complex task
of reconciling energy market integration with other objectives. The paradox of
increased competition in energy markets is that it can only be achieved by close
regulation, which in turn requires stricter regulatory controls and the adoption of
16
suitable mechanisms and instruments.
Mergers between energy companies and corresponding public intervention
measures do not pertain to the internal energy market, but rather to the market
for corporate control, in which those companies are embedded. The EC has
exclusive jurisdiction over mergers within the EU under Regulation
EC/139/2004. Nevertheless, “public security” appears to be one of the EU
Member States’ last areas in which they have ample authority and room to avoid
compliance with European economic requirements. Indeed, Article 21 of the
abovementioned regulation stipulates that:
sovereign competence in so far as they are exerted in a way that is compatible with free market principles (free
movement). On European Economic Law as a space for the relationship between the public and private
spheres; see, e.g., Carlos Padrós Reig, La transformación del régimen jurídico de la acción de oro en la
jurisprudencia comunitaria europea [The Transformation of the Golden Share Regulation in the ECJ Doctrine]
244 (Thomson-Civitas Madrid 2007) (Esp.).
16. Lee Hancher, A Single European Energy Market: Rhetoric or Reality? 11 ENERGY L.J. 217, 218
(1998). On the concept of an EU energy policy, see also Pekka Voutilainen, Developing Energy Policy for
Europe: A Finnish Perspective on Energy Cooperation in the European Union, 29 ENERGY L.J. 121 (2008).
Member States may take appropriate measures to protect legitimate interests other
than those taken into consideration by this Regulation and compatible with the
general principles and other provisions of Community law. Public security,
plurality of the media and prudential rules shall be regarded as legitimate interests
within the meaning of the first subparagraph. Any other public interest must be
communicated to the Commission by the member state concerned and shall be
recognised by the Commission after an assessment of its compatibility with the
general principles and other provisions of Community law before the measures
referred to above may be taken. The Commission shall inform the member state
concerned of its decision within 25 working days of that communication.
It is hardly surprising that security of supply, or more generally speaking,
public security, has become the critical factor underlying the relationship
between, on the one hand, free market, as defended by European institutions and,
on the other hand, state powers in strategic sectors.
In recent years, the goal of a single European energy policy has gained
momentum. In March 2007, the European Council invited the EU Executive to
take measures, adopting a 2007/2009 Action Plan based on the European
Commission’s communication entitled “An Energy Policy for Europe” and
setting out a series of high-priority issues, including security of supply. In this
regard, the European Council has established the following goals:
• To enhance security of supply through effective diversification
of energy sources and transport routes which will also contribute
to a more competitive internal energy market.
• To develop more effective crisis response mechanisms on the
basis of mutual co-operation and to build notably on existing
mechanisms, and consider a wide range of options, taking into
account the primary responsibility of Member States regarding
their domestic demand.
• To improve oil data transparency and review EU oil supply
infrastructures and oil stock mechanisms, complementary to the
IEA crisis mechanism, especially with respect to availability in
the event of a crisis.
• To carry out a thorough analysis of the availability and costs of
gas storage facilities in the EU.
• To carry out an assessment of the impact of current and
potential energy imports and the conditions of related networks
on each member state’s security of supply.
• To establish an Energy Observatory within the EC.17
On July 10, 2007, the European Parliament also expressed clear support for
the introduction of a single energy policy. Building on these analyses,
declarations, and commitments, the EC adopted on September 19, 2007 a third
package of legislative proposals aimed at achieving a “true market” in addition
to security of supply. This new energy package included the adoption of the
following: 1) a regulation creating a European agency aimed at fostering
cooperation between national energy regulators; 2) a directive and a regulation
on electricity, amending current Directive 2003/54/EC and Regulation
1228/2003/EC; and 3) a directive and a regulation on natural gas, amending
17. The European Council of Brussels, The Conclusions of the Presidency, 7224/1/07 REV 1 CONCL 1,
Annex I (March 8-9, 2007).
current Directive 2003/55/EC and Regulation 1775/2005/EC. Under the draft

version of the package, the internal energy market would be integrated and
infrastructure would be interconnected. The goal is to build an internal market
that is more open to competition; for that reason, network management must be
kept separate from gas and electricity generation/distribution.18 The basic
equation established by these proposals is that greater competition equals greater
security: in effect, a vertically integrated company has little incentive to increase
network capacity or to expose itself to greater market competition given the
resulting price reductions. In addition, separating network management from
production and distribution activities would stimulate network-related
investment, paving the way for new market participants and enhancing security
of supply.19
The proposed energy package also contains norms aimed at making
investments and the establishment of third-country companies contingent on the
fulfilment of reciprocity clauses between country-of-origin regulations and those
of the European Union. In other words, these are “anti-Gazprom mechanisms”
aimed at forestalling predatory actions by non-European companies seeking to
take advantage of a liberalized European market. This important and timely
regulation has created perplexity among some observers because, in effect, the
EC, in attempting to guarantee security of supply and liberalise national markets,
has seized on the member states’ arguments aimed at defending special rights
and powers. One thus wonders if the reciprocity principle and various “golden
share” mechanisms should be condemned (as the EC and the European Court of
Justice have done) or praised (within certain limits), at least while a truly internal
energy market has not been fully achieved.
A strategy concentrating on market freedom and integration without
providing a proper regulatory framework could weaken Europe’s overall
Security of Energy Supply. In this respect, recent reforms introduced by the
Lisbon Treaty, signed December 13, 2007, leave unaltered the competence
balance between European Union and Member States.20 After Lisbon, a new
Title XXI was introduced devoted to energy that underlines the principle of
solidarity among States. Moreover, article 194.1 establishes that the goals of
Union’s energy policy are:
a) to ensure the functioning of the energy market;
b) to ensure security of energy supply in the Union;
18. There are two formulas to achieve this objective: on the one hand, property separation and, on the
other hand, the introduction of a so-called “independent network manager.”
19. On October 10, 2008, a step towards the approval of the new legislative package in the matter of
energy was carried out through the agreement reached by European Ministers of Energy. See, e.g., Press
Release, Council Deal on Energy Package: A Crucial Step Towards Completing the Internal Energy Market,
IP/08/1484 (Oct. 10, 2008), available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1484.
20. However, European competences are not clearly defined. There is no such a thing as a list of
competences which are reserved to States or to European institutions. Instead, European institutions guarantee
a delicate equilibrium of State interests in the Council and competences are attributed according to an open
legal clause: the internal market clause. This mechanism resembles very much the U.S. “Commerce Clause”
upon which it based. This goal oriented distribution of competences is very often under discussion before the
ECJ which some scholars consider to be the true engine of European integration. As an example, energy policy
was neither in the original mind of European founding fathers nor in the early Treaties.
c) to promote energy efficiency and energy saving and the development

of new and renewable forms of energy; and
d) to promote the interconnection of energy networks.
In order to achieve a functional energy market, which is safe, efficient,
sustainable, and interconnected, the European Parliament and the Council shall
adopt necessary measures according to ordinary legislative procedure. However,
the second paragraph of article 194.2, indicates that such measures shall not
affect a Member State’s right to determine the conditions for exploiting its
energy resources, its choice between different energy sources and the general
structure of its energy supply, without prejudice to Article 192(2)(c) (i.e., the
norm that establishes the unanimity rule).21
II. RECENT CASE LAW

The European Court of Justice (ECJ) is a powerful institution in the process
of European integration. However, judicial decisions operate between two poles:
the construction of Europe and respect for national governments’ legitimate
efforts to safeguard energy security. When the ECJ goes too far in approving
national measures that may limit free movement principles, problems arise. Until
a number of recent cases, ECJ jurisprudence gave member states the discretion
to deviate from European principles in the interest of public security.22 This
notion, however, may be evolving in line with efforts to provide for free
movement of capital.
21. Lisbon Treaty, Art. 192.2, Dec. 13, 2007 states:

By way of derogation from the decision-making procedure provided for in paragraph 1 and without
prejudice to Article 114, the Council acting unanimously in accordance with a special legislative
procedure and after consulting the European Parliament, the Economic and Social Committee and the
Committee of the Regions, shall adopt: (c) measures significantly affecting a Member State’s choice
between different energy sources and the general structure of its energy supply.
22. See, e.g., Campus Oil Ltd. and Others v. Minister for Industry and Energy and Others, Case C-72/83
(July 10, 1984) (Reference for preliminary ruling referred by the High Court of Ireland); Bulk Oil (Zug) Ag v.
Sun International Ltd., Case C- 174/84 (July 18, 1985) (Reference for preliminary ruling of the Queen´s Bench
Division of the UK High Court). In regard to the scope of the public security objection, the Court established
the following in Campus Oil:
(34) It should be stated in this connection that petroleum products, because of their exceptional
importance as an energy source in the modern economy, are of fundamental importance for a
country’s existence since not only its economy, but above all its institutions, its essential public
services and even the survival of its inhabitants depend upon them. An interruption of supplies of
petroleum products, with the resultant dangers for the country’s existence, could therefore seriously
affect the public security that article 36 allows states to protect. (35) it is true that, as the court has
held on a number of occasions, most recently in its judgment of 9 June 1982 (case 95/81 commission
v. Italy (1982) ECR 2187), article 36 refers to matters of a non-economic nature. A member state
cannot be allowed to avoid the effects of measures provided for in the treaty by pleading the
economic difficulties caused by the elimination of barriers to intra-community trade. However, in the
light of the seriousness of the consequences that an interruption in supplies of petroleum products
may have for a country’s existence, the aim of ensuring a minimum supply of petroleum products at
all times is to be regarded as transcending purely economic considerations and thus as capable of
constituting an objective covered by the concept of public security. (36)It should be added that to
come within the ambit of article 36, the rules in question must be justified by objective circumstances
corresponding to the needs of public security. Once that justification has been established, the fact
that the rules are of such a nature as to make it possible to achieve, in addition to the objectives
covered by the concept of public security, other objectives of an economic nature which the member
state may also seek to achieve, does not exclude the application of article 36.
This section is devoted to an analysis of recent ECJ judicial reviews of

“security of supply” measures.
A. Legal Authority for Prior Approval: CNE and Endesa Takeover, Judgments of
March 6 and July 17, 2008, Case C-196/07 and C-207/07
When the German electricity producer, E.ON, launched a takeover bid for
Spanish utility Endesa, the Spanish government modified the control functions
reserved for the Comisión Nacional de la Energía (CNE), the Spanish energy
authority. The battle over Endesa shed light on a major legal inconsistency in the
regulatory mechanisms: CNE’s fourteenth function was designed to control
investments made by energy companies operating in regulated sectors in order to
prevent negative impacts on their financial status.23 However, nothing was said
about the reverse scenario, i.e., ordinary (non-regulated) firms acquiring control
over energy companies, jeopardizing energy suppliers’ operating continuity.
For that reason, Royal Decree 4/2006 was passed on February 24, 2006.
This norm widened the energy regulators’ powers, enabling the CNE to approve
or reject economic transactions involving energy companies or to subject them to
conditions.24 Once again, the “golden share mechanism” did not disappear but
23. See original version of Eleventh Additional Provision. Third. 1. Fourteenth of Act 34/1998.
24. After Decree Law 4/2006, function fourteenth appears as follows:
1. Authorize the acquisition of shares made by companies whose activities are considered regulated
or activities subject to an administrative intervention that implies a special subjection relationship,
such as nuclear power stations, coal-fired thermal power stations of special relevance for the
consumption of nationally produced coal, or that are developed in island or non-peninsular electricity
systems, as well as natural gas storage activities and the transport of natural gas via international
pipelines destined for the Spanish territory or transit through the same.
The authorization will be equally required when the aim is to acquire shares of a greater percentage
than 10% of the share capital or any other that awards significant influence, made by any subject of a
company that, by its own account or via others that belong to the same group of companies, develops
any of the aforementioned activities in the previous paragraph of this section 1. The same
authorization will be required when assets required to undertake said activities are acquired directly.”
2. The authorizations defined in the two paragraphs of the previous section 1 can be denied or subject
to conditions for any of the following causes:
The existence of significant risks or negative effects, direct or indirect, regarding the activities
contemplated by the previous section 1.
Protection of the general interests of the energy sector and, in particular, guarantee of adequate
maintenance of the objectives of sector policy, with special attention to what are considered to be
strategic assets. Considered strategic assets for energy supply are those that could affect the guarantee
and security of gas and electricity supplies. For such a purpose, the following assets are defined as
strategic:
Installations included in the basic natural gas grid as defined in article 59 of the present law.
International pipelines destined for the Spanish territory or transit through the same.
Electrical energy transport installations as defined in article 35 of Law 54/1997, of November 27, on
the Electricity Sector.
Installations for the production, transport and distribution of island and non-peninsular electricity
systems.
Nuclear power stations and coal-fired thermal power stations of special relevance for the
consumption of nationally produced coal.
The possibility of a company undertaking the activities described in the previous section 1 of this
fourteenth function being exposed as unable to develop the same in guaranteed fashion as a
consequence of any other activities undertaken by the acquiring or acquired party.
d. Any other cause related to public security and in particular:
was transformed. Following these reforms, the CNE oversaw not only economic
and financial criteria, which meant assessing significant direct or indirect risks or
negative impacts on regulated activities, but also had regulatory authority, which
included safeguarding public security and the general interest.25
The CNE’s powers had previously been criticized by the EC on March 27,
2006, when it objected that Spain could impose conditions on mergers having a
“Community dimension” (in the case of E.ON’s takeover of Endesa) pursuant to
EC Regulation 139/2004, which granted the EC exclusive powers in this area.
The European Executive maintained that prior authorization to acquire an
ownership interest in power companies violated the principles of free movement
of capital and freedom of establishment. For those reasons, both the exercise of
this control, as set out in the CNE’s resolution of July 27, 2006 on the merger
proposal, and the norm set out in Royal Decree 4/2006, were challenged by the
Commission before the ECJ, which issued condemnatory judgements on March
6, 2008 (Case C-196/07) and July 17, 2008 (Case C-207/07).
The first of the ECJ’s two decisions had merely procedural value since the
Court did not examine the merits of the case; however, the decision shed light on
how the process of adopting national intervention measures must be coordinated
with the EC’s process of authorizing European mergers and acquisitions. The
facts that led to the litigation are as follows: On April 25, 2006, the EC
unconditionally authorized E.ON’s takeover; on July 27, 2006, the CNE,
The security and quality of the supply understood to be the uninterrupted physical availability of the
products or services on the market at reasonable short and long term prices to all customers,
regardless of their geographic location; and also:
Security against the risk of an investment or the insufficient maintenance of infrastructures such that
they cannot guarantee a continuous set of demandable services for the guarantee of supply.
25. Eleven Additional Provision. Third. 2. Fourteenth of Act 34/1998 establishes as follows:
2. The authorizations defined in the two paragraphs of the previous section 1 can be denied or subject
to conditions for any of the following causes:
a) The existence of significant risks or negative effects, direct or indirect, regarding the activities
contemplated by the previous section 1.
b) Protection of the general interests of the energy sector and, in particular, guarantee of adequate
maintenance of the objectives of sector policy, with special attention to what are considered to be
strategic assets. Considered strategic assets for energy supply are those that could affect the guarantee
and security of gas and electricity supplies. For such a purpose, the following assets are defined as
strategic:
Installations included in the basic natural gas grid as defined in article 59 of the present law.
International pipelines destined for the Spanish territory or transit through the same.
Electrical energy transport installations as defined in article 35 of Law 54/1997, of November 27, on
the Electricity Sector.
Installations for the production, transport and distribution of island and non-peninsular electricity
systems.
Nuclear power stations and coal-fired thermal power stations of special relevance for the
consumption of nationally produced coal.
c) The possibility of a company undertaking the activities described in the previous section 1 of this
fourteenth function being exposed as unable to develop the same in guaranteed fashion as a
consequence of any other activities undertaken by the acquiring or acquired party.
Any other cause related to public security and in particular:
1. The security and quality of the supply understood to be the uninterrupted physical availability of
the products or services on the market at reasonable short and long term prices to all customers,
regardless of their geographic location; and also:
2. Security against the risk of an investment or the insufficient maintenance of infrastructures such
that they cannot guarantee a continuous set of demandable services for the guarantee of supply.
exercising the powers granted under the amended version of its fourteenth
function, decided to make the transaction authorization contingent on the
fulfilment of various conditions. The Commission subsequently held that Spain
had violated Article 21 of the EC regulation on mergers because of the adoption
of the CNE decision without notifying the Commission, nor its authorization.
Spain based its legal defense on two arguments: the first held that the case
lacked merit since E.ON’s takeover had no real effect; the second asserted that
the controversial national measures were justified because they were intended to
guarantee security of energy supply – a key element of the Spanish
Government’s energy policy. Given Endesa’s important role in the energy sector,
Spain maintained that the notion of public security constituted a legitimate
exception to the enforcement of the European rules.
On the first point, the ECJ ruled that the violation should be considered in
light of the member state’s circumstances at the end of the period considered in
the opinion (this period had expired on March 16, 2007, whereas E.ON
abandoned the merger on April 10). In addition, the Court ruled that, even
though the violation had stopped after the prescribed period, there was an
interest in continuing the proceedings to determine the member state’s
responsibility as a result of the violation. The ECJ thus rejected Spain’s first
argument and examined the merits and interest of the case.
Spain’s second argument – that its national measures were in accordance
with Article 21 of the merger regulation since they sought to protect a legitimate
interest (i.e. public security) – was not addressed by the ECJ because:
the system of review that the Treaty establishes distinguishes between Articles 226
and 227 EC cases, where what is intended is a declaration that a member state has
failed to fulfill the obligations that are incumbent on it, and cases of Articles 230
and 232 EC, whose aim is controlling whether acts or omissions of European
institutions are according to Law. This complains persecute different goals and are
subject to different procedures. Therefore, a Member State cannot, if a provision of
the Treaty does not expressly authorize it, to invoke the illegality of a decision of
which he is addressee as ground for opposition of a breach based on the non-
observance of this decision. . . . In fact, in a situation in which the member State has
not communicated the interests protected by the national measures that it has
adopted, it is unavoidable that the Commission examines in the first place if such
measures are justified by any of the interests contemplated in Article 21, section 4
second paragraph, of merger Regulation. . . .Therefore, it can be indicated, without
being necessary to examine if the controverted national measures were adopted to
protect a legitimate interest, such as the public security in the sense of Article 21,
separated 4, paragraph second, of merger Regulation, that the validity of the
decisions of the Commission cannot be questioned within the framework of the
26
present procedure.
Among the reasons cited in the first judgement, only one consideration is
relevant for our purposes: although national governments may act to protect a
superior public interest, the process of approving or rejecting European mergers
due to reasons of public security must be coordinated with the corresponding
European process.27
26. See, e.g., Case C-196/07, Comm’n. V. Spain (2008), at §§ 34, 37-38.
27. The ECJ doctrine refers to “imperative reasons of general interest”. See, e.g., Case C-503/99,
Comm’n. v. Belgium (2002), at § 45.
The second judgement, issued on July 17, 2008, condemned Spain for
violating European law by amending the CNE’s fourteenth function under Royal
Decree 4/2006. The decision examined the Spanish norm and the criteria arising
from the Court’s jurisprudence concerning golden shares. The CNE’s powers of
authorization – regulated in the additional eleventh provision (section 3.11
subsection 1, second paragraph) – were deemed to be in violation of European
law for the following reasons:
a) The freedom of movement of capital is restricted because
investors in other member states are dissuaded from acquiring
an interest in Spanish companies operating in the energy sector.
b) The administrative authorisation regime is inadequate to
guarantee the energy provision since merely acquiring a stake or
assets does not pose a real or sufficiently serious threat to energy
security.
c) The regime is disproportionate in relation to the stated goal
since it enables the public authority to consider energy policy
objectives not necessarily related to Security of Energy Supply.
d) The criteria regulating the exercise of the CNE’s powers are
general and vague.
e) CNE’s “fourteenth function” also sets out restrictions the
freedom of establishment (art. 43 EC).
This judgement warrants criticism for three reasons relating to the
suitability of the measure, its proportionality and its applicability criteria.
1. Critical Analysis of CNE Judgments
As a result of the judgement against Spain concerning the CNE’s amended
fourteenth function, the ECJ opened a new chapter in its doctrine on golden
shares. This out of focus jurisprudence, centred exclusively on the free
movement of capital, has been described by some scholars as “simplistic” and
“mechanical”28 – an example of improper “judicial activism” by the ECJ.29 The
EC’s vision and the decisions of the European judges were also harshly criticized
by Advocate General Ruiz-Jarabo Colomer.30
28. Giuseppe F. Ferrari, Motivi imperativi di interesse pubblico e libera circolazione dei capitali
[Imperative Reasons of Public Interest and the Free Movement of Capital], DIRITTO PUBBLICO COMPARATO ED
EUROPEO [COMPARATIVE AND EUROPEAN PUB. L.] 1459 (2005) . See also Endrius Eliseo Cocciolo, La Golden
Share in Spagna: “Regulating Corporate Governance” [The Golden Share in Spain: “Regulating Corporate
Governance”], 2 SERVIZI PUBBLICI E APPALTI [PUBLIC SERVICES AND PUBLIC PROCUREMENT] 247-282 (2004).
29. See, e.g., Luis Miguel Hinojosa Martínez, La acción de oro en derecho comunitario: activismo
judicial versus intervencionismo estatal [The Golden Share in the European Law: Judicial Activism Versus
State Interventionism], 228 GACETA JURÍDICA [LAW JOURNAL] 11 (Nov./Dec. 2003); see also, Carlos Padrós
Reig, La transformación del régimen jurídico de la acción de oro en la jurisprudencia comunitaria [The
Transformation of the Golden Share Regulation in the ECJ Doctrine] (Civitas, Madrid 2007); see also Jose
Antonio Rodríguez Míguez & Carlos Padrós Reig, Las acciones de oro, el derecho de sociedades y el mercado
interior: Reflexiones a propósito de la STJCE sobre la Ley Volkswagen [Golden Shares, Corporate Law and
Internal Market: Comments about the ECJ Judgement Regarding the Volkswagen Law], 8 GACETA JURÍDICA
DE UNIÓN EUROPEA Y DE LA COMPETENCIA [EUROPEAN UNION AND COMPETITION LAW JOURNAL] 47-75
(2009).
30. Opinion of Advocate General Dámaso Ruiz-Jarabo Colomer, presented in C-463/00, Comm’n. v.
Spain & C-98/01, Comm’n. v. United Kingdom (Feb. 6, 2003).
It is clear why the ECJ insisted on considering the CNE case from the
perspective of free movement of capital. As Torrent has observed, “This is one
of the most indefensible arguments in all of the golden share jurisprudence.”
Instead of analyzing the amendments to the CNE’s fourteenth function in terms
of movement of capital, the Court should have considered the national norms
treaty compliance, which the Commission criticized in terms of freedom of
establishment, particularly with regard to national treatment obligation.31 The
ECJ’s error is especially evident in this case since the aim of the norm in the
second paragraph of the fourteenth function is to control acquisitions that grant
significant influence; this situation is not controvertible, according to the
wording of the norm. The European judges’ abstract statement that acquisitions
in excess of ten percent do not inherently result in real influence is quite
simplistic and lacks economic common sense. It is more likely that the ECJ, in
adopting the Commission’s single market vision, chose to examine the dispute in
terms of freedom of movement of capital and not from the more appropriate
perspective of freedom of establishment because the latter viewpoint would have
legitimized national golden share measures. In effect, the principle of freedom of
establishment essentially prohibits measures placing citizens of member states in
an unfavorable situation in comparison to that of citizens in the state of
establishment, in addition to stipulating that activities aimed at establishing
companies must be carried out in accordance with the legislative conditions set
by the country of establishment for its own nationals. It should also be noted
that the free movement of capital has two components: the freedom to transfer
capital, and the use of such capital by other member states, which is regulated in
accordance with the destination country’s laws.
The ECJ also ruled that under the CNE’s fourteenth function, the regime is
disproportionate in relation to the stated goal since it enables the public authority
to consider energy policy objectives. However, if we compare the Spanish
regulation with the norm on Belgium’s “action spécifique,”32 which was backed
by ECJ judgements,33 it is difficult to understand why urgent reasons of public
interest and public security were validated in the Belgian case, whereas Spanish
Royal Decree 4/2006 violated European law. In effect, it is difficult to
distinguish between the Spanish and Belgian norms.
The Spanish norm stipulates that:
[t]he general interest in the energy sector will be protected and, in particular, a
suitable maintenance of sectorial policy goals will be guaranteed, with special
emphasis on assets considered strategic. Strategic assets for energy provision will
be taken into consideration if they affect the guarantee and security of the gas and
electricity supply.
31. Ramone Torrent, Derecho comunitario e inversiones extranjeras directas: libre circulación de los
capitales vs. Regulación no discriminatoria del establecimiento. De la golden share a los nuevos open skies”
[European Law and Foreign Direct Investments: Free Movement of Capital vs. Freedom of Establishment
Regulation. From “Golden Share” to the New “Open Skies”], 22 REVISTA ESPAÑOLA DE DERECHO EUROPEO
[SPANISH JOURNAL OF EUROPEAN LAW] 300, (2007) (dismantles the entire jurisprudential construction on
golden shares).
32. Belgian Royal Decree of June 10, 1994, regarding the Société Nationale de Transport par
Canalisations, and Belgian Royal Decree of June 16, 1994, regarding Distrigaz.
33. Case C-503/99, Comm’n. v. Belgium (2002).
The Belgian norm, by contrast states that the Minister may oppose a
merger:
[i]f the transaction is deemed to be against the national interests in the energy field.
Furthermore, it establishes that the government’s representatives may take
action against an energy company’s decision:
[i]f it is deemed to be in conflict with the guidelines of the country’s energy policy,
34
including the government’s objectives with respect to the country’s energy supply.
In both cases, the wording is equivalent and should be construed as
meaning that the general interest and the energy policy guidelines refer to the
guarantee and security of energy supply and that the conditions governing the
exercise of administrative powers meet various objective economic and technical
criteria. The Spanish regulation does not lead to reduced objectivity or imprecise
criteria since strategic assets are strictly defined and comprise:
a) The facilities included in the basic natural gas network.
b) International pipelines that terminate in or cross Spanish
territory.
c) Electricity transmission facilities as defined in Article 35 of
Act 54/1997 (27 November) regulating the electricity sector.
d) Electricity production, transmission and distribution facilities.
e) Nuclear and coal thermal power stations of special relevance
to the consumption of nationally produced coal.
The only noteworthy difference between the Belgian norm and the CNE’s
fourteenth function lies in the fact that the former covers only the disposition
(assignment, pledge, or transfer) of energy-related assets, whereas the latter
refers to ownership interests or assets. Nevertheless, the ECJ does not consider
this to be a substantive reason in favour of the Belgian norm.
In its doctrine, the ECJ recognizes that security of supply is a justification
for limiting the free movement of capital but goes on to specify that “the
exigencies of public security . . . must be interpreted in strict sense, so that a
single member state cannot unilaterally determine its reach without control on
the part of the institutions of the European Community. Thus, the public security
only can be invoked in case that a real and sufficiently serious threat exists that
affects a fundamental interest of the society.”35 The Court apparently reserves
itself the right to define the notion of public security, as if it could be
“communitarised.” Nevertheless, unlike the legal definition of “workers” or
“merchandise”, “public security” is tied to the definition set out in national
norms. In this way, security continues to be one of the member states’ last areas
of unfettered sovereignty. The existence of assets such as nuclear power plants
provides further guarantees for such strategic considerations and justifies
restrictions on movements of capital and freedom of establishment due to
reasons of nuclear security and thus national security, i.e., an issue that goes to
the heart of national sovereignty and entails (as applicable) reinforced guarantee
34. See, e.g., Articles 3 & 4 of Belgian Royal Decree of June 10, 1994.
35. Case C-207/07, Comm’n v. Spain (2007), at § 47; but see Case 463/00, Comm’n. v. Spain (2003), at
§ 72.
measures.36 According to Fleischer, after the golden share judgements, the ECJ
had to be more tolerant with the member states and with security-related
restrictions37 because the ECJ otherwise ran the risk of becoming a dangerous
mechanism of market deregulation, “playing a role that went beyond the
ideological neutrality that should characterize the European judicial function.”38
The nuclear security argument has been upheld in other cases. In effect, in
addition to the completed or pending cases, other golden shares exist in Europe
that have not been contested by the EC. In Belgium, in addition to its two
golden shares in the Société Nationale de Transport par Canalisations (SNTC)
and Distrigaz reviewed and approved by the ECJ, the government has another
golden share in the Société Belge des Combustibles Nucléaires, which was not
included in the Commission’s inquiry. The Commission acted in the same way
with respect to the United Kingdom, whose case focused exclusively on the
government’s golden share in airport management companies, not on its golden
share in companies such as Rolls Royce, Vickers Shipbuilding and Engineering
(VSEL), or Sealink. In Gippini-Fournier’s view, “this may indicate that the
Commission considers that certain sectors (nuclear energy, defence) require
special treatment.”39
Another argument on which the judgment against Spain was based is that
the intervention mechanism must be proportional to the stated goal, i.e., the same
goal cannot be reached with less restrictive measures, particularly a system of ex
post facto declarations. In other words, in the ECJ’s view, an intervention is
more proportional when carried out using an ex post facto instrument, normally
through an opposition regime, like that of Belgium. Based on the evidence, we
view this as a European example of “placebo.” The basic idea is that measures
are acceptable if they respect a private company’s autonomy. 40 However, it is
difficult to differentiate between a regime of a posteriori opposition that
establishes the suspension of the effects of acts or agreements before the expiry
of the prescribed period, and a regime of previous authorization that anticipates a
positive silence after the prescribed period.
If we consider the utility for the companies, in both cases it is necessary to
wait because private autonomy is equally conditional. In fact, true progress
towards the establishment of an administrative law in accordance with the
market economy is not made by substituting authorization regimes with an
(anomalous) opposition regime, but rather by developing procedures that set out
the proper limits and means that provide protection for private persons.
36. Opinion of the Advocate General Georges Cosmas, presented on March 23, 2000, Case C-423/98,
Cabletron Systems, Ltd. v. The Revenue Commissioners (2001).
37. Holger Fleischer, Golden Share: Judgments of the Full Court of 4 June 2002, 40.2 COMMON
MARKET L. REV. 49 (2003).
38. Hinojosa Martinez, supra note 29, at 23.
39. Eric Gippini Fournier & Jose Antonion Rodríguez Miguez, Golden shares en la Comunidad
Europea: ¿fin de la edad dorada? [Golden Shares in the European Community: The End of the Golden Age?],
220 GACETA JURIDICA DE LA UNIÓN EUROPEA Y DE LA COMPETENCIA [EUROPEAN UNION AND COMPETITION
LAW JOURNAL] 60 (July/August 2002).
40. Maria Nieves De la Serna Bilbao, Comentario a la jurisprudencia del Tribunal de Justicia de la
Comunidad Europea en relación con las denominadas acciones de oro: las restricciones a las libertades de la
libre circulación de capitales y establecimiento [Comments on the ECJ Judgements about Golden Shares:
Restrictions to Free Movement of Capital and Freedom of Establishment], 7 REVISTA ESPAÑOLA DE DERECHO
EUROPEO (SPANISH JOURNAL OF EUROPEAN LAW) 557 (2003).
Anticipating a reduced resolution period protects a company’s decision-making

freedom as an a posteriori control system would. In addition, a posteriori
control mechanisms are not viable solutions, according to the ECJ itself. In
effect, in the Analir judgement (C-205/99), the ECJ stated that
for a regime of previous administrative authorisation to be correct, even though
introduces an exception to a fundamental freedom, must, in any case, to be based on
objective criteria, non-discriminatory and known beforehand by the interested
companies, so that the limits of the exercise of the faculty of appreciation are
established for the national authorities, in order that these power cannot be used in
41
an arbitrary way.
On the other hand, it seems that the ECJ is suggesting that the opposition
regime is proportional. In effect, in the Belgian case, the Court analysed the ex
post facto control mechanism using the same parameter of legality it used for the
authorization regime. As Hinojosa Martínez rightly points out:
When analysing a posteriori control mechanisms on certain management decisions
in privatised companies created by the Belgian and French governments, the ECJ
uses four criteria . . . to evaluate their compatibility with European law. In the case
of the EC vs. Belgium, the Court identified the existence of a legitimate public
interest, which it interpreted restrictively (par. 46-47), indicated that the
Commission did not show that such an objective could be reached with less
restrictive means (par. 53), confirmed that the measures were sufficiently precise
and objective (par. 50) and stated that any administrative decision in this context
should be formally motivated and subject to effective judicial control (par. 51). . . .
The ECJ’s analysis is identical to the previous administrative authorisation. The
relevant issue, therefore, is not if the restriction is before or after the fact as regards
the decision on the management of the company, but rather that the analysis should
42
focus on adjusting concrete measures to protect a legitimate public interest.
Based on this reasoning, it is possible to infer that, without minimizing the
importance of the previous measure aimed at protecting the general interest, the
true basic requirement concerns the relation between this intervention measure
and the public interest, in accordance with the principle of proportionality.43
Therefore, modifying the CNE’s fourteenth function to create a system of
communication with opposition power and as a way of reforming a previous
administrative authorization regime (the Spanish golden share) may be ill-
advised. This solution was already addressed in Act 62/2003 (December 30)
concerning fiscal, administrative, and social measures (additional provision 20).
Advocate General Ruiz-Jarabo Colomer critizised the supposed ex post facto
character of the Belgian administrative opposition model.44 The fact that a
communication regime does not suppose any substantial change and that
adopting an a posteriori control mechanism is preferable stems from a correct
dogmatic reconstruction of the mechanism itself. This mechanism, in fact,
represents a regime of communicated activities in which the national government
holds veto power during a prescribed period, which the doctrine has described
clearly as a “preventive instrument, although sometimes exercised concurrently
41. Case C-205/99, Analir v. Administracion General Del Estado, 2001 E.C.R. I-1271, at § 38.
42. Hinojosa Martinez, supra note 29, at 25.
43. On the principle of proportionality in European Administrative Law, see, e.g., Jurgen Schwarze, The
Principle
of Proportionality and the Principle of Impartiality in European Administrative Law, 1 RIVISTA
TRIMESTRALE DI DIRITTO PUBBLICO [QUARTERLY JOURNAL OF PUBLIC LAW] at 53-75 (2003).
44. Case C-463/00, Comm’n. v. Spain, and Case C-98/01, Comm’n. v. United Kingdom (2003), at § 39.
with citizens’ activities.”45 In effect, on some occasions, lawmakers may ignore

the nature of the prevailing norms, under pressure or even duress from European
institutions, and may limit themselves to emulating the legal institutions of other
member states.46
Finally, although the fact that the activities subject to control by the public
authorities are made without an administrative measure of the government may
appear more respectful of private autonomy, freedom of establishment and
corporate governance, the nature, complexity, and special characteristics of these
activities should dissuade the use of the previous communication technique and
advise the control procedure that finishes with an administrative act.47
B. Subsidies for Stranded Costs: ECJ Judgment of July 17, 2008, Essent
Netwerk Noord BV et al. Case C-206/06
According to Dutch law, purchasers of electricity must satisfy a price
surcharge for the transmission of electricity in year 2000. Since the State and its
subsidiary company SEP, are responsible for ensuring the proper functioning of
the electricity infrastructures and since during the period previous to
liberalization SEP made certain investments to secure supply, an agreement
between four generating undertakings and twenty-three distribution companies
was concluded in order to cover those non-market-compatible cost. The payment
of that amount by the distribution companies was to be financed by an increase
in the price of electricity charged to small, medium, and large consumers.
In a February 20, 1998 letter, the Netherlands government informed the
Commission of the proposed compensation payments to the four electricity
generating undertakings and asked the government to approve them in
accordance with Article 24 of the Directive. By Decision 1999/796/EC of July
8, 1999, concerning the application of the Netherlands for a transitional regime
under Article 24 of Directive 96/92 (OJ 1999 L 319, p. 34), the Commission
took the view that the system of levies and the transfer of compensation
payments provided for did not require a derogation from Chapters IV, VI, or VII
of the Directive, and therefore could not be regarded as a transitional regime
within the meaning of Article 24 of the Directive.
On December 21, 2000, the Transitional Law on the electricity generating
sector (OEPS) was adopted governing the issue of non-market-compatible costs.
As the Commission had expressed doubts concerning the compatibility of article
6 to 8 of the norm with the Treaty, the Netherlands government decided not to
bring those articles into force and to provide for some non-market-compatible
costs to be financed out of general resources.
45. Maria Del Carmen Núñez Navarro, Las actividades comunicadas a la administración. La potestad
de veto sujeta a plazo [Regime of Communicated Activities to the Administration:The Veto Power Subject to a
Term] 110 (Marcial Pons Madrid 2001).
46. On the doctrine of “European Commandeering”, see generally Manuel Ballbé, Roser Martínez,
Soberanía dual y constitución integradora. La reciente doctrina federal de la Corte Suprema norteamericana
[Dual Sovereignity and Integrative Constitution. The Recent Federal Doctrine of the US Supreme Court] 192
(Ariel Barcelona 2003).
47. Nuñes Navarro, supra note 45, at 152.
In the main proceedings, Essent Netwerk48 is seeking payment of the

amounts which it invoiced to Aldel,49 together with interest and costs, under
Article 9 of the OEPS. Aldel refuses to pay those amounts on the ground that
Article 9 of the OEPS is contrary to Articles 25 EC, 87 EC, and 90 EC. Aldel
has brought an action for indemnification against the State. Essent Netwerk has,
in turn, brought an action for indemnification against Nederlands Elektriciteit
Administratiekantoor BV and Saranne BV.
In those circumstances the Groningen District Court requested to the ECJ a
prejudicial ruling about the interpretation of the Articles 25 EC, 87 (1) EC, and
90 EC, in connection with national legislation, establishing to surcharge on the
price of electricity and payable, during to transitional period, to the net operator
by consumers established in the Netherlands. Considering that the Dutch
regulation also established the obligation on the net operator to pay that
surcharge to to statutorily designated undertaking of the national electricity
generators for the purpose of defraying to sum representing the amount of
obligations incurred and investments made by that undertaking prior to
liberalization of the market.
The judgement is rich and complex and we summarize its main findings:
a) [a] charge which is imposed on domestic and imported products
according to the same criteria may nevertheless be prohibited by the
Treaty 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. It is for the national court to ascertain
whether the generating undertakings were required to ensure that
SEP defrayed those non-market-compatible costs or whether they
could have enjoyed an advantage as a result of the charge, for
example, because of a selling price incorporating the revenue from
that advantage, by the grant of dividends or by any other means.
b) Article 25 EC is to be construed as precluding a statutory rule under
which domestic purchasers of electricity are required to pay to their
net operator a price surcharge on the amounts of domestic and
imported electricity which are transmitted to them, where that
surcharge is to be paid by that net operator to a company designated
by the legislature, with that company being the joint subsidiary of
the four domestic generating undertakings and having previously
managed the costs of all the electricity generated and imported, and
where that surcharge is to be used in its entirety to pay non-market-
compatible costs for which that company is personally responsible,
48. Essent Netwerk is an autonomous legal person, a net operator, and a subsidiary of Essent NV, which
is wholly controlled by provincial and local authorities. It delivered 717,413,761 kWh to Aldel’s connection
between Aug. 1, 2000 and Dec. 31, 2000.
49. On Dec. 19, 1996 Aldel a “special large consumer”, acting pursuant to Article 32 of the EW 1989,
concluded a contract for the provision of electrical capacity and the supply of electrical energy and “load
management” with SEP, Elektriciteits-Productiemaatschappij Oost- en Noord-Nederland NV (a generating
undertaking) and Energie Distributiemaatschappij voor Oost- en Noord-Nederland (a distribution undertaking).
with the result that the sums received by that company wholly
offset the burden borne by the domestic electricity transmitted.
c) The amounts paid to SEP constitute intervention by the State through
State resources. Where a State measure must be regarded as
compensation for the services provided by the recipient
undertakings in order to discharge public service obligations, so
that those undertakings do not enjoy a real financial advantage and
the measure thus does not have the effect of putting them in a more
favourable competitive position than the undertakings competing
with them, such a measure is not caught by Article 87(1) EC
(Altmark Trans and Regierungspräsidium Magdeburg). Therefore,
Article 87 EC must be construed as meaning that the amounts paid
to the designated company under Article 9 of the Transitional Law
on the electricity generating sector (Overgangswet
Elektriciteitsproductiesector) of 21 December 2000 constitute
“State aid” for the purposes of that provision of the EC Treaty in so
far as they represent an economic advantage and not compensation
for the services provided by the designated company in order to
discharge public service obligations.
C. Open Third-Party Access: ECJ Judgment of May 22, 2008, Citiworks AG,
Case C-439/06
Citiworks is a German electricity company that supplied electricity to DFS
located on the site of Leipzig/Halle airport. DFS is a state owned entity
responsible for air traffic control in Germany. FLH is the company which
operates Leipzig/Halle Airport. In that capacity, it maintains an energy supply
system by which it meets its own electricity requirements and those of ninety-
three other users established on the airport site “the system at issue in the main
proceedings.” During 2004, that system supplied in total approximately
22,200 MWh, of which 85.4% was used by FLH itself.
FLH applied for the system at issue in the main proceedings to be classified
as a site network within the meaning of Paragraph 110 of the EnWG. During the
inquiry into that application, on January 20, 2006, the regulatory authority
invited Citiworks to intervene. By decision of July 12, 2006, the regulatory
authority granted FLH’s application. Citiworks appealed against that finding to
the Oberlandesgericht Dresden (Higher Regional Court, Dresden, Germany).
The Oberlandesgericht Dresden requested to the ECJ a prejudicial ruling
about the interpretation of Article 20(1) of Directive 2003/54/EC in connection
with National legislation which excludes networks wholly situated on the
premises of an undertaking from the principle of free access of third persons to
electricity transport and distribution networks.
Citiworks argues that the national provision which derogates from the
principle of open third-party access to energy supply systems is contrary to that
European established objective. There is no provision in Directive 2003/54/EC
which authorizes Member States to freely determine in what situations they may
derogate from that principle. On the contrary, the German government argues
that the airport system is neither a transmissions system nor a distribution
system.50 It is just an internal installation which distributes energy in a closed

area. Therefore, it is not subject to interconnection obligations. It constitutes a
site network and does not affect competition because of its low consumption and
because the operation of that system is merely ancillary to the main activity of
operating the airport.
According to recital in the preamble to Directive 2003/54, one of the main
obstacles in arriving at a fully operational and competitive internal market relates
to issues of access to the network, tarification issues, and different degrees of
market opening between Member States. Recitals and in the preamble to that
directive state that, for competition to function, non-discriminatory, transparent,
and fairly priced network access is of paramount importance in bringing about
the internal electricity market. Finally, articles 16 to 20 of Directive 96/92
provided for a negotiated system of access to electricity transmission and
distribution systems. The Community legislature decided to bring an end to that
system in order to create more openness in the internal electricity market, as is
apparent from the proposal for a directive submitted by the Commission on
March 13, 2001.51 It follows that open third-party access to transmission and
distribution systems constitutes one of the essential measures which member
states are required to implement in order to bring about the internal market in
electricity.
Article 20(1) of Directive 2003/54 leaves the Member States free to take the
measures necessary to establish a system of third-party access to transmission or
distribution systems. It follows that, in accordance with Article 249 EC, the
Member States have authority over the form and the methods to be used to
implement such a system. Having regard to the importance of the principle of
open access to transmission or distribution systems, that margin of discretion
does not, however, authorize them to depart from that principle except in those
cases where Directive lays down exceptions or derogations.
It is therefore only where a national provision comes within the scope of
those exceptions or derogations that it will be compatible with Directive
2003/54, i.e.:
a) An operator of a distribution system may refuse access where it lacks
the necessary capacity, on condition that duly substantiated reasons
are given for such refusal. This possibility of refusing access to the
system is, however, to be assessed on a case-by-case basis and does
not authorize the Member States to lay down those derogations in a
general manner.
b) Member States will be able to not to apply the provisions of
Directive thereof where the application of those provisions would
obstruct the performance of the obligations imposed on electricity
undertakings in the general economic interest and in so far as the
development of trade would not be affected to such an extent as
would be contrary to the interests of the Community.
50. Detailed explanations on the German concept of negotiated access to networks is to be found in
Thomas Von Danwitz, Regulation and Liberalization of the European Electricity Market: A German View, 27
ENERGY L. J. 423 (2006).
51. Completing the Internal Energy Market, COM (2001) 125 final (Mar. 13, 2001), OJ 2001 C 240 E,
p. 60
c) Member States may decide to restrict third-party rights of access to

transmission and distribution systems in order to ensure the supply
of a public electricity service. However, in order to do so, the
Member States must, on the one hand, ascertain whether an
unrestricted right of access to the systems would obstruct the
performance by the system operators of their public-service
obligations and, on the other, determine whether that performance
cannot be achieved by other means which do not impact adversely
on the right of access to the systems, which is one of the rights
enshrined in Directive 2003/54.
However, the Court has considered that the exception within the German
regulation is not justified by the risk that the operators of systems coming within
the scope of that provision would be prevented from performing their public-
service obligations by the fact of that open access. That derogation can be
justified only by the geographical or legal configuration of the area in which
those systems are operated. Nor is it alleged by the German government that the
Federal Republic of Germany would like to ensure the obligations imposed on
electricity undertakings in the general economic interest.
From those arguments, it follows:
a) that a provision such as the first point of Paragraph 110(1) of the
EnWG does not come within the scope of any of the exceptions or
derogations from the principle of open access to electricity
transmission or distribution systems laid down by Directive
2003/54.
b) that Article 20(1) of Directive 2003/54 must be interpreted as
precluding a provision such as the first point of Paragraph 110(1) of
the EnWG, which exempts certain operators of energy supply
systems from the obligation to provide third parties with open
access to those systems on the grounds that they are located on a
geographically connected operation zone and that they
predominantly serve to supply the energy needs of the undertaking
itself and of connected undertakings.
III. MAIN FINDINGS

The Treaty of Lisbon will not increase the power Europe needs to build a
truly single energy market. It will introduce the basic principle of solidarity in
confronting hypothetical energy crises while promoting network
interconnectivity as a safety valve against potential crises. Taken together, these
measures represent the first steps towards a truly single energy market.
Member states retain their ability to determine the operating conditions of
their energy resources. They can also choose between various power plants and
general supply structures, without prejudice to section 2(c) of Article 192. This
provision, however, is difficult to enforce practically since the measures must be
approved unanimously within a joint decision framework.
The existing European normative framework is still underdeveloped. We

fully agree with Judge Von Danwitz’s answer to the question of whether the
Second Electricity Directive can really be considered an instrument for the
establishment of an internal market for electricity. This question must be

answered in the negative in light of the broad discretion still given to member
states.52 As regards various European integration methodologies (both positive
and negative), the present emphasis is on the elimination of obstacles, with no
true European norm. It seems, then, that market dictates will take precedence
over national administrative law (with regulation viewed as an obstacle to free
movement principles).
Since stable European energy market norms are non-existent, the fight for
security of energy supply has shifted to economic transactions such as asset
acquisitions or interests in energy companies. In the E.ON/Endesa case, the ECJ
considered that the national authorities could not impose economic conditions or
prior administrative controls on mergers.
The imposition of free market restrictions based on security of energy
supply is limited to national energy regulations. When it declared the CNE’s
fourteenth function unlawful, the ECJ ruled that public intervention could only
be carried out following the merger (by means of public service contracts or
administrative opposition). Stranded cost subsidies were also declared in
violation of European law, together with unconditional declarations of third
parties’ rights to access energy networks, even in closed facilities.
The EC and the ECJ have progressively drained the member states’ capacity
(recognized in TEU Article 194.2) to guarantee security of supply. The adoption
of measures based exclusively on the free movement of capital entails a
weakening of the member states’ jurisdictional authority without simultaneously
creating a new European legal corpus to replace the old one. In this ongoing
battle, security of supply safeguards are stuck in a no-man’s land. Official
approach tend to privilege opening the markets as a way of guaranteeing a secure
energy supply.53 At most, there is recognition of the need of a balance between
(European) competition and (national) regulation. 54
Security of supply has been diminished because the ECJ has prohibited half
the tools designed to guarantee it. In addition, according to several recent
rulings, the existing administrative controls must be dismantled (i.e., member
states’ technical-economic capacity) in order to ensure access rights, leaving
only a posteriori controls on the fulfilment of public service obligations in
service provision contracts. In other words, security of supply yields on the land
of administrative controls and it remains in the effectiveness of the remedies in
case of contractual breach.
52. Von Danwitz, supra note 50, at 443.

53. Voutilainen, supra note 16.
54. Von Danwitz, supra note 50, at 450 (“administered form of competition”).

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Security of Energy Supply: When Could National Policy Take Precedence Over European Law?

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SECURITY OF ENERGY SUPPLY: WHEN COULD

NATIONAL POLICY TAKE PRECEDENCE OVER

Synopsis: The European Energy Market is currently under construction. In

I. Energy Policy, Free Markets, and Security of Supply: A Complex

I. ENERGY POLICY, FREE MARKETS, AND SECURITY OF SUPPLY: A COMPLEX

There are a number of additional considerations that underscore even more

b) Directive 2005/89/EC of the European Parliament and of the Council

13. An Energy Policy for Europe, COM(2007) 1 final (Oct. 1, 2007).

Conversely, the principle of “property neutrality” set out in TEC Article

current Directive 2003/55/EC and Regulation 1775/2005/EC. Under the draft

c) to promote energy efficiency and energy saving and the development

II. RECENT CASE LAW

21. Lisbon Treaty, Art. 192.2, Dec. 13, 2007 states:

This section is devoted to an analysis of recent ECJ judicial reviews of

Anticipating a reduced resolution period protects a company’s decision-making

with citizens’ activities.”45 In effect, on some occasions, lawmakers may ignore

In the main proceedings, Essent Netwerk48 is seeking payment of the

system.50 It is just an internal installation which distributes energy in a closed

c) Member States may decide to restrict third-party rights of access to

III. MAIN FINDINGS

The existing European normative framework is still underdeveloped. We

establishment of an internal market for electricity. This question must be

52. Von Danwitz, supra note 50, at 443.

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