Insights

In a judgment delivered by the General Court of the European Union (the “Court”) on the 12 March 2025 in the case of PGI Spain and Others (the “Plaintiffs”) vs the European Commission (the “Commission”), the Plaintiffs sought the revocation of the Commission’s decision not to object to Spain and Portugal’s measures designed to mitigate the recent surges in electricity prices in the Iberian Peninsula.

Facts of the case:

In May 2022, Spain and Portugal notified the Commission of a plan aimed at reducing wholesale electricity prices by supporting fossil fuel generation amid escalating energy costs, exacerbated by various crises in the national and international energy markets (the “Notified Measure”). This notification sought approval under Article 108 of the Treaty on the Functioning of the European Union (“TFEU”), which governs state aid.

Certain key elements of the Notified Measure included:

• payments to operators of fossil fuel power plants to reduce production costs, intending to provide downward pressure on wholesale electricity prices that ultimately affect consumers;
• a response to significant increases in fossil fuel prices, particularly natural gas, affecting the market structure and electricity costs for consumers, especially vulnerable groups relying on regulated contracts;
• funding to be proportionate to electricity purchased on the wholesale market, with certain exemptions for buyers who had existing fixed-price contracts before April 26, 2022.

The Commission decided not to object to the Notified Measure (the “Decision”) under Article 4(3) of Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 TFEU (the “Regulation”).

In its Decision, the Commission evaluated, inter alia, whether the measures represented state aid under Article 107(1) TFEU, which would require the identification of an economic advantage conferred selectively to certain entities. It determined that while the Notified Measure did confer an economic advantage, the Commission found that buyers on the wholesale market which had entered into agreements to hedge their electricity purchases prior to the adoption of the Notified Measure would not benefit from the effects of such measure and concluded that the exemption did not lead to a selective advantage being conferred on them and, therefore, did not come within the definition of State aid.

The Commission further recognised the urgency dictated by rising energy prices and the overall economic context as justifying the measures. These were deemed essential to supporting vulnerable consumers and maintaining market stability.

The Plaintiffs were a group of Spanish companies which purchased their electricity not directly on the wholesale electricity market, but through an electricity supplier. In order to ensure the stability of the price of their electricity supply, the Plaintiffs entered into power purchase agreements. For part of their electricity supply, the Plaintiffs entered into agreements involving an undertaking other than their physical electricity supplier and based on offsetting payments depending on the difference between the market price and the price fixed in the contract. They describe that type of power purchase agreement as financial.

The Plaintiffs as interested parties and in order to safeguard their procedural rights under Article 108(2) TFEU and Article 1(h) of the Regulation, criticised the Commission for not having found that the Notified Measure raised serious difficulties such as to warrant the initiation of the formal investigation procedure.

The Court primarily observed that that the lawfulness of the Commission’s decision not to raise objections, based on Article 4(3) of the Regulation, depends on whether the assessment of the information and evidence which the Commission had at its disposal during the preliminary examination phase of the measure notified should have objectively raised doubts both as to the classification of that measure as aid and to its compatibility with the internal market, given that such doubts would necessarily lead to the initiation of a formal investigation procedure.

When any applicant seeks the annulment of a decision not to raise objections (such as the nature of this application) such applicant must show that the assessment of the information and evidence which the Commission had at its disposal during the preliminary examination phase of the measure notified should have raised doubts as to the classification of that measure as ‘aid’ or to the compatibility of that measure with the internal market.

In support of their action, the Plaintiffs relied on five pleas in law, alleging:

1. a misunderstanding by the Commission of the Notified Measure;
2. errors in the assessment of the appropriateness and proportionality of the Notified Measure;
3. infringement of EU laws on the free formation of electricity prices based on supply and demand^[1];
4. breach of the principle of non-discrimination; and
5. breach of the principle of the protection of legitimate expectations.

Pleas (I) and (IV)

Misunderstanding of the Notified Measure

The Plaintiffs argued that the Commission failed to accurately interpret the notified measure, specifically whether it recognized that retail buyers employed similar hedging mechanisms to wholesale market participants. They insisted that financial power purchase agreements (PPAs) used by retail buyers are standard and acknowledged within EU energy market frameworks.

Moreover, the Plaintiffs expressed doubt regarding the Commission’s clarity about which market participants were eligible for exemption from contributions under the Notified Measure. They believed this uncertainty led to the approval of a potentially non-compliant aid scheme.

The Commission re-asserted that the aim of the measure was clear: to mitigate the pressures of rising energy costs through targeted support to fossil fuel power plants, thereby reducing wholesale electricity prices for consumers.

The General Court found no substantial errors in the Commission’s analysis. It referenced multiple recitals of the Decision that illustrated the measure’s explicit objectives and the operational framework aimed at addressing the ongoing energy crises. The Court concluded that the Commission’s process was in line with EU legal requirements, dismissing the applicants’ assertions of misunderstanding.

Claims of Discrimination

The Plaintiffs contended that the Commission neglected to evaluate whether the measure adhered to the principle of non-discrimination. They argued that the criterion for comparison should not solely rely on whether purchases were made on the wholesale versus the retail market, but rather on whether buyers had the capability to hedge their electricity prices effectively.

The Plaintiffs insisted that their position was equivalent to that of direct consumers purchasing electricity on the wholesale market, implying that the Notified Measure favored wholesale buyers unjustly, hence constituting potential state aid under Article 107(1) TFEU.

The Commission maintained that the circumstances did not present a case of selective advantage or state aid. It emphasized that buyers in the wholesale and retail markets were not in comparable positions regarding the reduction of prices and the contribution payments. The structure of the energy market indicated that the dynamics of pricing and competition differed substantially between these two segments.

The General Court ultimately ruled that the Plaintiffs’ claim of discrimination did not hold, as they failed to show that the measure’s framework was inherently biased. The demonstrated distinctions in treatment were consistent with the operational logic behind the Notified Measure, which was designed to accommodate the realities of the energy market.

Plea (II)

The Plaintiffs submitted, that the Commission should have found that the notified measure was not appropriate or proportionate and should therefore have initiated the formal investigation procedure. They alleged that the Notified Measure excluded from its scope the use of financial power purchase agreements thereby limiting the opportunity to benefit from an exemption only to buyers on the wholesale market.

The Commission reiterated that the purpose of the Notified Measure is to bring about a reduction in electricity prices in the context of strong upward pressure on fuel prices linked to the crisis faced by national and international markets which crisis was not called into question by the Plaintiffs. Such an objective is consistent with that envisaged in Article 107(3)(b) TFEU, which is to ‘remedy a serious disturbance in the economy of a Member State’.

The Notified Measure seeks to attain that objective by supporting certain sources of electricity in order to achieve a reduction in prices on the wholesale market, which should in turn lead to a reduction on the retail market.

The Court noted that while EU laws encourage the free formation of electricity prices on the basis of supply and demand, it is clear that the Notified Measure, in so far as it limits the direct involvement of the national authorities in price formation on the wholesale market and does not extend it to the retail market, except in relation to regulated contracts, preserves as much as possible the principle of the free formation of electricity prices on the basis of demand and supply.

This plea was also rejected by the Court.

Plea (III)

The third plea brought forward by the Plaintiffs was rejected by the Court on the same grounds as highlighted above, ie: that the Notified Measure did not derogate from the principle of free price formation.

Plea (V)

The Plaintiffs argued that the Commission and, more generally, the European Union have incentivised the conclusion of financial power purchase agreements, particularly with a view to promoting renewable energy. They infer that they could have reasonably expected not to be treated worse than other undertakings which conversely did not seek to hedge market risks, were less efficient and more polluting.

The Commission contends that no legitimate expectation could have arisen on the part of the applicants.

The Court stated that under established case-law, the protection of legitimate expectations is a fundamental EU law principle. Any economic operator given precise assurances by an institution can rely on this principle. Regardless of the form in which such assurances were communicated, precise, unconditional and consistent information which comes from an authorised and reliable source constitutes such assurance. However, a person may not plead breach of that principle unless he has been given precise assurances by the administration

It is clear that the applicants’ line of argument is based on the premiss that the Commission caused them to entertain a legitimate expectation that final consumers who had used financial power purchase agreements would be treated at least as favourably as those who had entered into other types of agreement.

The Court found that the Plaintiffs failed to show that precise, unconditional and consistent information from authorised and reliable sources stipulated that the situation of consumers using financial power purchase agreements would be taken into account when the Commission exercised its powers to monitor State aid.

Accordingly, none of the pleas put forward by the Plaintiffs demonstrated that the Commission should have identified the existence of serious difficulties requiring the initiation of the formal investigation procedure in respect of the notified measure. The action was therefore dismissed by the Court.

[1] These articles state that ‘prices shall be formed on the basis of demand and supply’, ‘market rules shall encourage free price formation and shall avoid actions which prevent price formation on the basis of demand and supply’, ‘suppliers shall be free to determine the price at which they supply electricity to customers’ and ‘Member States shall take appropriate actions to ensure effective competition between suppliers.’