In its March 16 2016 decision the Federal Administrative Court deemed the constitutional right granting the federal minister of science, research and economy certain information rights regarding Austria's National Regulatory Authority to be inconsistent with EU law.

This update provides a broad overview of the decision's background and its possible legal implications.

Unlawful constitution of regulatory panel

The Federal Administrative Court's decision was initiated by the Supreme Administrative Court's December 15 2014 decision regarding an E-Control cost decision, which is the basis for calculating the network tariffs affecting distribution system operators.

E-Control's board issued cost decisions. Any appeals against these decisions had to be filed with E-Control's regulatory panel. In the case at hand, the appellant disputed the cost decision on the basis of the impartiality of three members of the regulatory panel. The Supreme Court examined the partiality of one of the members, Dorothea Herzele, and found that she did not fulfil the prerequisites of impartiality set out in the EU Gas Directive (2009/73/EC) due to her simultaneous positions as an energy expert in the Chamber of Labour and as a member of E-Control's regulatory panel. Consequently, the Supreme Administrative Court ruled that E-Control's regulatory panel was constituted unlawfully and revoked the disputed decision.

The Supreme Administrative Court's decision had various legal implications. First, the regulatory panel's independence was restored as Herzele was removed from office. Second, the Supreme Court revoked a number of other disputed decisions on the same grounds. Finally, the appeal against the board's tariffs decision had to be reassessed. Notably, the legal provision in this regard was amended while the decision was being assessed. As such, the competent appellate body for the reassessment of E-Control board decisions shifted from the regulatory panel to the Federal Administrative Court.

Federal Administrative Court's decision

The initial Supreme Administrative Court decision was mainly directed towards E-Control's regulatory panel. However, the court raised a similar but in effect different issue – namely, whether Section 5(3) of the Energy Control Act, which grants the federal minister certain information rights, generally complies with the independence requirements stipulated in the EU Gas Directive (2009/73/EC) and the EU Electricity Directive (2009/72/EC). Unlike the Supreme Administrative Court initial decision, this question is not directed at the independence of a single body member; instead, it focuses on whether the independence of all E-Control's bodies (eg, the board, regulatory body and supervisory body) is consistent with EU law.

Section 5(3) of the Energy Control Act reads as follows:

"The Federal Minister of Economy, Family and Youth [meanwhile: Science, Research and Economy] has the right to be informed at all times about all matters relating to the management and fulfillment of tasks. All of E-Control's bodies immediately have to answer all of the Federal Minister's inquiries in this respect; upon request the answers have to be submitted in writing."

In its March 16 2016 decision(1) the Federal Administrative Court explicitly addressed this initially rather peripheral question ex officio and ruled that the federal minister's information rights pursuant to Section 5(3) are incompatible with the independence criteria as stipulated in Article 39(4) of the EU Gas Directive and Article 35(4) of the EU Electricity Directive, which state as follows:

"Member States shall guarantee the independence of the regulatory authority and shall ensure that it exercises its powers impartially and transparently. For this purpose, Member States shall ensure that, when carrying out the regulatory tasks conferred upon it by this Directive and related legislation, the regulatory authority: (a) is legally distinct and functionally independent from any other public or private entity; (b) ensures that its staff and the persons responsible for its management: (i) act independently from any market interest; and (ii) do not seek or take direct instructions from any government or other public or private entity when carrying out the regulatory tasks. That requirement is without prejudice to close cooperation, as appropriate, with other relevant national authorities or to general policy guidelines issued by the government not related to the regulatory powers and duties under Article 41 [Article 37]."

The Federal Administrative Court assessed the independence question on the basis of a similar case regarding data protection, where the European Court of Justice ruled that the Austrian federal chancellor's right to obtain information from the Data Protection Commission under the Law on Data Protection violated the commission's right to exercise its functions with complete independence. According to this ruling, complete independence is maintained only if the authorities remain free from any direct or indirect external influence. The Federal Administrative Court found that, in particular, indirect external influences cannot be ruled out in light of the federal minister's right to obtain information regarding all matters within E-Control's management and the fulfilment of its tasks. In its decision, the Federal Administrative Court examined the disputed provision with respect to the wording and objectives of the Law on Data Protection and the EU gas and electricity directives. Moreover, it considered that under Austrian law, E-Control is regarded as an independent body according to Article 20(2) of the Constitution. Bodies that fall under Article 20(2) are subject to adequate supervision by governing bodies such as ministries. The governing bodies must at least have the opportunity to obtain information regarding the management of E-Control in an independent manner. Despite the constitutional implications and its considerations regarding the wording and objectives of the Law on Data Protection, the Federal Administrative Court held that the federal minister's right to information contradicted the independence requirements (from public entities) stipulated in the EU Gas Directive and EU Electricity Directive. Thus, E-Control's independence as a whole was violated.

Appeal permissible

In its press release dated March 17 2016, E-Control announced that it was planning to appeal the Federal Administrative Court's decision to the Supreme Administrative Court on the basis that it fulfils the independence criteria stipulated by the relevant EU provisions.

If the Supreme Administrative Court finds that Section 5(3) of the Energy Control Act does not comply with the independence requirements, all network cost decisions which have been referred to the court and are still pending will likely be revoked. The same applies to all other pending E-Control decisions, irrespective of whether they have been decided by the regulatory commission or E-Control's board. This would not only affect distribution system operators, but also transmission system operators. Further, the Energy Control Act would have to be changed in order to conform to EU and constitutional law.

For further information on this topic please contact Bernd Rajal or Azra Dizdarevic at Schoenherr by telephone (+43 1 53 43 70) or email (b.rajal@schoenherr.eu or a.dizdarevic@schoenherr.eu). The Schoenherr website can be accessed at www.schoenherr.eu.

Endnotes

(1) W219 2017000-1.

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