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Success for the RES producers before the Supreme Court of Cassation, but what comes next?

The Supreme Court of Cassation ruled on the controversial issue for the access fee and the retroactive effect of the cancelation of Decision № C-33 of SEWRC.

On May 20, 2015 the Supreme Court of Cassation (SCC) ruled in a case, brought by a producer of renewable energy source (RES) against an electricity distribution company (EDC) for reimbursing the price, paid for access, determined by Decision № C-33 as of 14 September 2012 (Decision № C-33) of the State Energy and Water Regulatory Commission (the Commission). With its Ruling, the SCC answers to a question, which is the basis of the long-lasting legal battles between the RES producers and the grid operators, and namely the SCC took the position that the decision for cancelation of an individual administrative act, such as Decision № C-33 is, has a retroactive effect, i.e. its legal consequences are repealed retroactively.

In 2012 and 2013, the grid companies collected from the RES producers around 300 million leva1 by the controversial measure “temporary access fee”, introduced by Decision № C-33. The Ruling of the SCC as of May 20, 2015 supports the view that the price paid for access from the RES producers on a lapsed ground – the canceled Decision № C-33, should be reimbursed by the grid operators.

How it all comes to that

With Decision № C-33, as of 18 September 2012 the Commission determined temporary access fees to the transmission and distribution grids of the “Electricity System Operator” EAD (ESO), EVN ER (EVN), “Energo-Pro Grids” AD (Energo-Pro), “CEZ Distribution Bulgaria” AD (CEZ). According to the Decision, the fees had to be paid monthly, depending on the accession to the respective grid, by the RES producers, which benefit from preferential prices for the sold electricity. The RES producers appealed Decision № C-33 and with a series of final court decisions in 2013 the Supreme Administrative Court (SAC) repealed it in most of its sections and points as unlawful. In its canceling decisions the SAC ruled as part of its reasoning that the annulment of Decision № C-33 has a retroactive effect. In practice, however, in order to claim reimbursement of the unduly paid amounts for access fee, the RES producers would have to file civil proceedings against ESO, EVN, Energo-Pro or CEZ, respectively.

Meanwhile, as the initiated from the RES producers civil proceedings were awaiting the court decisions, in March 2014 the Commission made two new Decisions № КМ-1 and № C6 concerning the access fee in question. As a result of these for the RES producers to which the access fee is not repealed under Decision № C-33, compensatory measures are applicable and the grid operators were to recover the difference between the temporary and the final price for access by April 15, 2014. For the rest of the producers, which do not fall within the scope of the compensatory mechanism, the possibility remained to bring claims against the EDCs and ESO under the civil law.

What happened in the civil courts

Along with the already initiated court proceedings, after Decisions № C-6 and № КМ-1, and particularly with a view to the position of the Commission in Decision № KM-1 that the cancelation of Decision № C-33 has a retroactive effect, a big number of subsequent claims against the grid operators were filed. The legal battle was on three fronts according to the seat of the defendant EDC or ESO, respectively in Sofia, Plovdiv and Varna courts. The Civil courts, however, are not bound by the stated by the SAC and confirmed by the Commission retroactive effect of the cancelation of Decision № C-33. This led to opposite decisions and reasoning of Sofia, Plovdiv and Varna courts, in their different panels, on the controversial issue. While some panels of the appellate courts agreed with the SAC and ruled for the grid companies to reimburse the unduly paid amounts for access to a number of RES producers, others expressed radically different interpretation of the legal provisions and principles concerning the annulment of an individual administrative act, such as Decision № C-33 is. For example, the Varna Appellate Court accepted in its decision that the cancelation of Decision № C-33 does not have a retroactive effect, but has a constitutive effect for the future and it only means that the administrative act shall be deemed repealed in respect to everyone. Currently, both lines of decisions of the courts of appeal – some in favour of the RES producers, and others – of the grid operators are subject to cassation appeal before the Supreme Court of Cassation.

The Ruling of the SCC as of 20 May 2015 and what comes next?

With its Ruling the SCC expressed its firm position on the issue of the retroactive effect of the cancelation of Decision № C-33. The SCC did not allow the cassation appeal of EVN, stating that there is a practice of the courts in the country on the issue of the retroactive effect of the cancelation of an individual administrative act, by referring to a final decision of a district court, according to which after the cancelation of IAA the ground, on which the defendant had his receivable, was repealed retroactively.

According to the SCC with the question for the retroactive effect of the IAA (as Decision № C-33 is) “the need of amendment or updating is not justified in view to changes in legislation and social conditions, neither there are legal provisions that are incomplete, unclear or contradictory and there is no case law under them”.

The Ruling of the SCC is beyond question a success for the RES producers in the battle on the controversial access fee, but what comes next with the pending proceedings under similar cases?

The Ruling of the SCC is not binding for the civil courts and it is possible that the controversial practice of the first instance and appellate courts in Sofia, Varna and Plovdiv concerning the retroactive effect of Decision № C-33 continues. It is neither impossible (although the chance is quite limited in view to the consistency of the SCC) another panel of the SCC to rule in the opposite sense on the same issue and thus to lead to controversial practice of the SCC itself. On the other hand, it is worth noting that in their previous decisions in favour of the grid operators the appellate courts also gave other reasons, besides the lack of retroactive effect, on the dismissal of the claims for reimbursement of the access fee. It remains to be seen whether the SCC will allow other cassation appeals and what its decisions on them will be. In any case, what is possible both in theory and practice, is the result in similar cases to be controversial, and namely to have final decisions in favour of RES producers and in favour of grid operators at the same time. This would lead to another legal absurdity – the RES producers who fall within the scope of the compensation mechanism under Decision № KM-1 to receive back an essential part of the access fee under Decision № C-33, while the producers who would lose their civil cases to have no legal mechanism to recover the unduly paid amounts under the same Decision № C-33, although the latter has been repealed and according to the SCC it does not exist in the legal order.

The case “access fee” for the RES shows off some of the flaws of the Bulgarian judicial system. The stakes are high and the majority of the investments in the sector are foreign, which could lead to a serious challenge for the Bulgarian state in case that foreign investors bring before an international arbitration tribunal claims for breaching of investment standards (such as “fair and equitable treatment”), which Bulgaria has undertaken under international bilateral investment treaties and the Energy Charter Treaty.

The article has been published in Bulgarian, in Capital Daily.