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19 juillet 2017

Regulated tariffs for the supply of natural gas

The Conseil d’Etat judges that the continuation of regulated tariffs for the supply of natural gas is contrary to E.U. law.

> read the decision (in french)

> read the french press release

The essentials

  • The Association nationale des opérateurs détaillants en énergie (National Association of energy retailer operators, ANODE) brought proceedings to the Conseil d’Etat arguing that the decree of 16 May 2013 regarding regulated tariffs for the supply of natural gas was ultra vires. The ANODE submitted that this tariff regulation breached European Union Law.
  • Applying the findings of the preliminary ruling of 7 September 2016 given in this matter by the European Court of Justice, the Conseil d’Etat, in today’s decision, annulled the decree of 16 May 2013 on the grounds that the imposition of a natural gas tariff regulation infringed European Union Law.
  • In light of the great uncertainty that would affect contracts signed by millions of consumers as a result of such an annulment, and with regard to the necessity to prevent the legal insecurity that would ensue, the Conseil d’Etat has judged, exceptionally, that the past effects of this decree, which ceased to apply on 1 January 2016, must nevertheless be regarded as irrevocable.

Facts and Procedures

The Association nationale des opérateurs détaillants en énergie (National Association of energy retailer operators, ANODE) brought proceedings to the Conseil d’Etat, arguing that the decree of 16 May 2013 regarding regulated tariffs for the supply of natural gas was ultra vires. The ANODE submitted that this tariff regulation had been enacted by the government on the basis of legislation that was contrary to European Union Law.

In its prior decision handed down on 15 December 2014, the Conseil d’Etat suspended its judgment on this case and referred various questions that posed a serious difficulty of interpretation to the European Court of Justice, requesting specification as to the scope of the obligations imposed by European Union Law in the promotion of a single competitive European gas market. The European Court of Justice answered these questions in a preliminary ruling decided on 7 September 2016 (Case C-121/15).

The decision of the Conseil d’Etat

In today’s decision, the Conseil d’Etat, applying the European Court of Justice’s preliminary ruling of 7 September 2016, annulled the decree of 16 May 2013 on the grounds that its provisions requiring certain suppliers to provide consumers with natural gas based on regulated tariffs must be qualified as a restriction to the existence of a competitive common gas market that failed to respect the conditions that would have made this restriction permissible in European Union law. The ECJ had indeed listed three conditions that could justify such a restriction:

- the restriction must pursue a general economic interest objective, for instance by seeking to guarantee supply security, territorial cohesion or affordable tariffs;

- the restriction can only hamper the free evolution of prices to the extent that the pursuit of this objective makes it necessary  and only for a limited period of time;

- the restriction must be clear, transparent, non discriminatory and controllable.

After thorough proceedings that included the holding of a hearing during which both parties expressed their positions, the Conseil d’Etat found that no general economic interest objective could, at the time the impugned decree was enacted, justify the upholding of regulated gas tariffs. It therefore annulled the decree of 16 May 2013.

In principle, such annulments extinguish the act retroactively.

However, in light of the severity of the effects that such a retroactive annulment would entail, the parties and various stakeholders of the natural gas market that provided statements during the hearing asked the Conseil d’Etat to defer the effects of its decision to a future date. As the decision of the Conseil d’Etat states, more than 9 million consumers had entered into contracts for gas supply on the basis of regulated tariffs at the time that the decree was enacted, and could have contested the legality of such contracts.

In answer to this request, the Conseil d’Etat recognised that the dispositions contained in the impugned decree had been abrogated by a subsequent decree of 30 December 2015. The Conseil d’Etat therefore held that it did not need to defer the effects of its decision, since the annulled dispositions had already ceased to apply. However, the Conseil d’Etat did find that the past effects of the decree had to be consolidated in the frame set out by the European Court of Justice, which has allowed for supreme national courts to, under certain conditions, adjust over time the effects of their decision, even when they establish a breach of European Union Law. Taking into account the serious consequences that a retroactive annulment would generate on the past contractual situation of millions of consumers, and the imperious necessity to prevent any legal insecurity that would otherwise follow, the Conseil d’Etat held that all past effects generated by the impugned decree, subject to the existence of any prior litigation already triggered at the date of this decision, as exceptionally irrevocable. This means that, in practice, consumers will be unable to commence proceedings relating to the Decree of 16 May 2013, unless they had already lodged a claim in this regard before today’s decision.