The Supreme Court hands down the first 3 judgments confirming the legality of the reform carried out by the Government regarding the legal and economic framework of renewable energies

Written on 3 Jun 2016

The Third Chamber of the Supreme Court has handed down three judgments by which various appeals against Royal Decree 413/2014, of 6 June, and Order IET 1045/2014, of 16 June, were rejected. This legislation regulates the activity of the production of renewable energy and approved the retribution parameters of these facilities.

Through a judicial order handed down on 21 December 2015, the Supreme Court (SC) questioned the constitutionality of certain provisions of Royal Decree Law 9/2013 and Law 24/2013 on the Electricity Sector (hereinafter, “LES”) relating to the new framework of a specific remuneration regime for renewable energy facilities, due a possible breach of the principle of non-retroactivity. However, these three dismissing judgements accept the doctrine previously established by the Constitutional Court (CC) in its recent Judgement 270/2015, of 17 December 2015 (BOE no. 19, of 22 January 2016), finally opting for the legality of the reform of the economic system of the aforementioned facilities.

In this sense, we set forth below a summary of each of the grounds of appeal raised by the appellants, in comparison with the specific legal grounds on which the SC based its rejections:

  • The disputed regulations do not create the legal and economic framework for renewables “ex novo”

Indeed, by way of clarification before the arguments employed by the appellants, the SC holds that the new retribution system, repealing provisions of RD 661/2007, is introduced by Royal Decree Law 9/2013, of 12 July, which is subsequently assumed by the new LES. For this reason, the SC alleges that the infringements of the principles of legal certainty, legitimate expectations and non-retroactivity should refer precisely to Royal Decree Law 9/2013 and the LES and not the RD 413/2014, or by extension, the Ministerial Order on Parameters. Moreover, considering that the CC already ruled out the possible unconstitutionality of Royal Decree-Law 9/2013, the SC excludes the need to raise a new question of unconstitutionality based on the aforementioned infringements of the principles of legal certainty, legitimate expectations and non-retroactivity.

  • There is no breach of the principle of retroactivity

The SC rejects this argument referring to the doctrine established by the CC in several previous judgments in which it concluded that Royal Decree Law 9/2013 does not incur prohibited retroactivity. In this sense, it reminds us that Art. 9.3 of the CE does not contain an absolute prohibition of retroactivity, nor does it prevent laws from affecting rights and interests derived from legal situations that continue to produce effects. This is so as there is no prohibited retroactivity when a regulation governs future legal situations created prior to its entrance into force or whose effects have yet not been seen, since the legislator may vary “ex nunc” the existing legal regime of individual rights, provided it meets the other requirements laid out in the Constitution. The SC warns that although the legislature has amended the remuneration regime of the existing facilities in specifying what is meant by reasonable return, the fact that profitability impacts upon legal situations created prior to the entry into force of that regulation and that continue to produce effects, per se, does not necessarily imply a prohibited retroactivity to the extent that the new methodology only affects the overall calculation of the return to which the owners of these facilities are entitled. However, this has no bearing on the amounts received in the past, which cannot be claimed in any case. To the contrary, according to the SC, it would mean recognising the established right to receive a certain right to return, setting in stone the existing remuneration system.

The SC also rejects the allegations of the appellants regarding prohibited retroactivity in that which they incur “interim payments” established for the transitional period until the adoption of the disputed regulations. Thus, it points out that Royal Decree 9/2013 established the transitory application of the repealed remuneration system until the approval of the measures necessary for the operation of the new remuneration system. Thus, the person in charge of the payments would pay the settlement terms by way of part-payment, exclusively limiting said transitional period from the entrance into force of Royal Decree Law 9/2013 until the approval of the contested regulations, recalculating the previous payments collected under the ambit of RD 661/2007 which were definitely included in the assets of the owners. This is without producing the circumstance that, as a result of the application of the new criterion of “reasonable return”, some facilities have to return that “overcharged”, since it is specifically prohibited by the 3rd Final Provision, Part 4, of the LES.

  • There is no breach of the principles of legal certainty and legitimate expectations

The SC holds that the CC has already had the opportunity to reach a decision regarding this issue, and has held that these principles are not violated by the modifications introduced by Royal Decree Law 9/2013. Additionally, the SC argues that the appellants have not identified any type of commitment nor outward sign, addressed to them by the Administration, in relation to the unchanging nature of the regulatory framework in force at the time of the beginning of their activity in generating power from renewable sources, nor could the legal system in force at that time be considered to include a commitment, generating legitimate expectations of the unchanging nature of the economic system. In this sense the SC sustains that, according to its jurisprudence, the regulations governing the production of electrical energy guarantee the holders of these facilities the right to a reasonable return on their investments, but do not recognise an unalterable right for the remuneration framework to remain unchanged, provided that the requirements of the Electricity Sector Act as to a reasonable return on investments are respected.

  • There is no breach of the Maastricht Treaty or European law

The SC also rejects the argument on the infringement of European Directive 2009/28/CE, on the promotion of the use of energy from renewable sources, on the basis that, in their view, the new model preserves the promotion of the technology, while ensuring the global economic sustainability of the electricity system; and in any case European law gives great freedom to States in the defining of the promotional measures in the sector.

In relation to the claim of the appellants regarding the removal of the focus on priority to load dispatch and access to transmission and distribution networks, the SC understands that the recognition of an absolute priority access would mean that the State would be obliged to assume the difference between the price offered by renewable energy producers and that obtained from its sale in the market. This would create a priority regime of all energy generated at the price fixed by these producers, which would undermine the very basis of the designed regulatory system and would make it impossible to sustain the electricity system, without such a requirement is imposed by European rules.

  • There is no alleged violation of Arts. 10 and 13 of the Treat on the Energy Charter

The Chamber does not share the arguments of the appellants on this particular issue since it does not consider the provisions of the Treaty to be violated, to the extent that in their opinion this does not apply to Spanish investors, and further because it considers that we do not find ourselves before the cases contemplated in Articles 10 and 13 of the cited Treaty. Since the protection offered by the Treaty is to foreign investments against “unreasonable or discriminatory measures”, without the new retribution system established by Royal Decree Law 9/2013 and the LES, developing the contested regulatory standard may merit such consideration.

  • There is no breach of the European Convention for the Protection of Human Rights and Fundamental Freedoms and the Charter of Fundamental Rights of the European Union 

Likewise, the SC rejects arguments related to the question that the amendment to the current tariff system regulated by RD 661/2007, and its replacement by the new retribution system of the RD 413/2014, has resulted in an expropriation of their rights. This, on the basis that the repeal of the priority regime does not imply a removal of patrimonial rights previously consolidates and incorporated indefinitely into the assets of those subject to the regulatory legislation, nor does it impact upon legal situations now exhausted or completed.

  • In the judgment there are two dissenting votes signed by Magistrates Mr. Eduard Espín, and Mr. Eduardo Calvo, supported by Mrs. Isabel Perelló

The judgments handed down include two dissenting votes signed by the magistrates Mr. Eduardo Espín and Mr. Eduardo Calvo, with which Mrs. Isabel Perelló is in agreement, which defend the new regulation incurring an unlawful retroactivity and infringing the principles of legal certainty and legitimate expectations.

The dissenting vote signed by Mr. Eduard Calvo and Mrs. Isabel Perelló defends the argument of the invalidity of RD 413/2014 and the Ministerial Order on Parameters because, from their point of view, they expect to reformulate the situation prior to its entry into force, projecting onto it the same criteria and parameters that are applied to the new facilities. Thus, it will incur the severe defect that historians call “presentism”, which consists of judging the past according to information – or, as is the situation in this case, to legislation – that did not exist at that time. In the strictly legal ambit, to which this dissenting vote should be kept, it is, simply, that the statutory regulations are determined to operate retroactively because, as I have tried to explain, the effectiveness of the reform is not designed merely looking ahead but also behind.

It is noted in the dissenting opinion that the argumentative development regarding the invalidity of the IET Order/1045/2014 based on the lack of technical justification of the Order will be carried out at the time of judgments in which the aforementioned lack of technical justification is dealt with by the Chamber. Therefore, the argumentative development remains pending, and will be resolved in the coming days following the aforementioned judgements.

For its part, the dissenting opinion of Mr. Eduardo Espín stresses that although Royal Decree-Law 9/2013 and the LES can be interpreted in accordance with the EC, the development that been made by the Government through the contested Royal Decree and Order projects the application of the new model to one extreme of retroactivity that makes it incompatible with the principles of legal certainty and legitimate expectations. Consequently, he concludes that the two contested provisions should have been declared invalid. Based on the above, he disagrees with and criticises the fact that the majority judgment uses the position taken by the CC as support in order to justify its decision.