Provisional text

delivered on 3 April 2025 (1)

Case C‑87/24

AS „Gaso”,

AS „Conexus Baltic Grid”

Sabiedrisko pakalpojumu regulēšanas komisija

(Request for a preliminary ruling from the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia))

( Reference for a preliminary ruling – Approximation of laws – Energy – Directive 2009/73/EC – Common rules for the internal market in natural gas – Article 41(8) – Concept of ‘appropriate incentive’ – Regulation (EC) No 715/2009 – Access to natural gas transmission networks – Article 13(1) – Concept of ‘appropriate return on investments’ – Tariffs for access to networks – Methodology established by the national regulatory authority – Rate of return on capital for the purpose of calculating tariffs – Criteria to be taken into account in fixing those tariffs )

I.Introduction

1.This request for a preliminary ruling from the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia) concerns the interpretation of Article 41(8) of Directive 2009/73/EC (2) and of Article 13 of Regulation (EC) No 715/2009. (3)

2.The request has been made in connection with an action for annulment brought by, on the one hand, Gaso AS (‘Gaso’), a company incorporated under Latvian law which operates the natural gas distribution system in Latvia, and, on the other hand, Conexus Baltic Grid AS (‘Conexus Baltic Grid’), a company incorporated under Latvian law which operates the natural gas transmission system and natural gas storage facilities in the same Member State (together, ‘the applicants’), against a decision of the Sabiedrisko pakalpojumu regulēšanas komisija (Public Utilities Commission, Latvia; ‘the Latvian regulatory authority’), by which the latter set the rate of return on capital of the natural gas transmission system, the natural gas distribution system and natural gas storage for the calculation of access tariffs (‘the contested decision’).

3.Specifically, the referring court asks, in essence, how the concepts of ‘appropriate incentive’ within the meaning of Article 41(8) of Directive 2009/73 and ‘appropriate return on investments’ within the meaning of the first subparagraph of Article 13(1) of Regulation No 715/2009 should be interpreted, and how a national regulatory authority for the natural gas market, when calculating and determining tariffs for access to natural gas transmission and distribution networks and storage facilities, must ensure that the operators of such networks and facilities benefit from such an appropriate incentive and/or such an appropriate return on investments.

II.Legal context

A.European Union law

1.Directive 2009/73

4.Recitals 23, 25, 30 and 32 of Directive 2009/73 state:

‘(23) Further measures should be taken in order to ensure transparent and non-discriminatory tariffs for access to transport. Those tariffs should be applicable to all users on a non-discriminatory basis …

…

(25) Non-discriminatory access to the distribution network determines downstream access to customers at retail level. …

…

(30) Energy regulators need to be able to take decisions in relation to all relevant regulatory issues if the internal market in natural gas is to function properly, and to be fully independent from any other public or private interests. This precludes neither judicial review nor parliamentary supervision in accordance with the constitutional law of the Member States. …

…

(32) National regulatory authorities should be able to fix or approve tariffs, or the methodologies underlying the calculation of the tariffs, on the basis of a proposal by the transmission system operator or distribution system operator(s) or liquefied natural gas (LNG) system operator, or on the basis of a proposal agreed between those operator(s) and the users of the network. In carrying out those tasks, national regulatory authorities should ensure that transmission and distribution tariffs are non-discriminatory and cost-reflective, and should take account of the long-term, marginal, avoided network costs from demand-side management measures.’

5.Article 1 of that directive, which is entitled ‘Subject matter and scope’, provides in paragraph 1 thereof:

‘This Directive establishes common rules for the transmission, distribution, supply and storage of natural gas. It lays down the rules relating to the organisation and functioning of the natural gas sector, access to the market, the criteria and procedures applicable to the granting of authorisations for transmission, distribution, supply and storage of natural gas and the operation of systems.’

6.Article 2 of that directive, entitled ‘Definitions’, is worded as follows:

‘For the purposes of this Directive, the following definitions apply:

…

4. “transmission system operator” means a natural or legal person who carries out the function of transmission and is responsible for operating, ensuring the maintenance of, and, if necessary, developing the transmission system in a given area …;

…

6. “distribution system operator” means a natural or legal person who carries out the function of distribution and is responsible for operating, ensuring the maintenance of, and, if necessary, developing the distribution system in a given area and, where applicable, its interconnections with other systems …;

…

9. “storage facility” means a facility used for the stocking of natural gas and owned and/or operated by a natural gas undertaking, including the part of LNG facilities used for storage …;

10. “storage system operator” means a natural or legal person who carries out the function of storage and is responsible for operating a storage facility;

…’

7.Article 39 of that directive, entitled ‘Designation and independence of regulatory authorities’, provides in paragraph 4 thereof:

‘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. …’

8.Article 40 of Directive 2009/73, entitled ‘General objectives of the regulatory authority’, provides:

‘In carrying out the regulatory tasks specified in this Directive, the regulatory authority shall take all reasonable measures in pursuit of the following objectives within the framework of their duties and powers as laid down in Article 41, in close consultation with other relevant national authorities, including competition authorities, as appropriate, and without prejudice to their competencies:

…

(f) ensuring that system operators and system users are granted appropriate incentives, in both the short and the long term, to increase efficiencies in system performance and foster market integration;

…’

9.Article 41 of that directive, entitled ‘Duties and powers of the regulatory authority’, is worded as follows:

‘1. The regulatory authority shall have the following duties:

(a) fixing or approving, in accordance with transparent criteria, transmission or distribution tariffs or their methodologies;

…

(n) monitoring and reviewing the access conditions to storage, linepack and other ancillary services as provided for in Article 33. In the event that the access regime to storage is defined according to Article 33(3), that task shall exclude the reviewing of tariffs;

…

6. The regulatory authorities shall be responsible for fixing or approving sufficiently in advance of their entry into force at least the methodologies used to calculate or establish the terms and conditions for:

(a) connection and access to national networks, including transmission and distribution tariffs, and terms, conditions and tariffs for access to LNG facilities. Those tariffs or methodologies shall allow the necessary investments in the networks and LNG facilities to be carried out in a manner allowing those investments to ensure the viability of the networks and LNG facilities;

…

8. In fixing or approving the tariffs or methodologies and the balancing services, the regulatory authorities shall ensure that transmission and distribution system operators are granted appropriate incentive, over both the short and long term, to increase efficiencies, foster market integration and security of supply and support the related research activities.

…

16. Decisions taken by regulatory authorities shall be fully reasoned and justified to allow for judicial review. The decisions shall be available to the public while preserving the confidentiality of commercially sensitive information.

…’

2.Regulation No 715/2009

10.Recitals 7 and 8 of Regulation No 715/2009 state:

‘(7) It is necessary to specify the criteria according to which tariffs for access to the network are determined, in order to ensure that they fully comply with the principle of non-discrimination and the needs of a well-functioning internal market and take fully into account the need for system integrity and reflect the actual costs incurred, in so far as such costs correspond to those of an efficient and structurally comparable network operator and are transparent, whilst including appropriate return on investments, and, where appropriate, taking account of the benchmarking of tariffs by the regulatory authorities.

(8) In calculating tariffs for access to networks, it is important to take account of the actual costs incurred, in so far as such costs correspond to those of an efficient and structurally comparable network operator, and are transparent, as well as of the need to provide appropriate return on investments and incentives to construct new infrastructure, including special regulatory treatment for new investments as provided for in Directive 2009/73/EC. …’

11.Article 1 of that regulation, entitled ‘Subject matter and scope’, provides:

‘This Regulation aims at:

(a) setting non-discriminatory rules for access conditions to natural gas transmission systems taking into account the special characteristics of national and regional markets with a view to ensuring the proper functioning of the internal market in gas;

(b) setting non-discriminatory rules for access conditions to LNG facilities and storage facilities taking into account the special characteristics of national and regional markets;

…

The objectives referred to in the first subparagraph shall include the setting of harmonised principles for tariffs, or the methodologies underlying their calculation, for access to the network, but not to storage facilities …

…’

12.Article 13 of that regulation, entitled ‘Tariffs for access to networks’, provides, in the first and third subparagraphs of paragraph 1:

‘Tariffs, or the methodologies used to calculate them, applied by the transmission system operators and approved by the regulatory authorities pursuant to Article 41(6) of Directive 2009/73/EC, as well as tariffs published pursuant to Article 32(1) of that Directive, shall be transparent, take into account the need for system integrity and its improvement and reflect the actual costs incurred, in so far as such costs correspond to those of an efficient and structurally comparable network operator and are transparent, whilst including an appropriate return on investments, and, where appropriate, taking account of the benchmarking of tariffs by the regulatory authorities. Tariffs, or the methodologies used to calculate them, shall be applied in a non-discriminatory manner.

…

Tariffs, or the methodologies used to calculate them, shall facilitate efficient gas trade and competition, while at the same time avoiding cross-subsidies between network users and providing incentives for investment and maintaining or creating interoperability for transmission networks.’

3.Regulation (EU) 2017/460

13.Article 1 of Regulation (EU) 2017/460, (4) entitled ‘Subject matter’, provides that that regulation establishes a network code setting out the rules on harmonised transmission tariff structures for gas, including rules on the application of a reference price methodology, the associated consultation and publication requirements as well as the calculation of reserve prices for standard capacity products.

14.Article 30 of that regulation, entitled ‘Information to be published before the tariff period’, states in paragraph 1 thereof:

‘The following information shall be published … by the national regulatory authority or the transmission system operator(s), as decided by the national regulatory authority:

…

(b) the following information:

…

(iii) the following parameters:

…

(2) cost of capital and its calculation methodology;

…

(5) incentive mechanisms and efficiency targets;

(6) inflation indices.

…’

B.Latvian law

1.Law on public utility regulatory authorities

15.In accordance with Article 7(2) of the likums ‘Par sabiedrisko pakalpojumu regulatoriem’ (Law on public utility regulatory authorities) of 19 October 2000, (5) the Latvian regulatory authority is a body governed by public law, institutionally and functionally independent and autonomous in the implementation of its budget, which is ratified by law. One of its tasks is to regulate the provision of public utilities in relation to the supply of natural gas.

16.Article 9(1)(2) of that law states that the Latvian regulatory authority must determine the methodology for calculating and fixing tariffs or tariff ceilings, as well as the procedures for applying tariffs or tariff ceilings, unless special laws and regulations of the sector provide for other principles for fixing tariffs. Article 9(2) of that law specifies that, within the exercise of its jurisdiction, the authority must independently adopt decisions and administrative acts which are binding on the providers and users of the public utilities concerned.

17.Under Article 20(1) of the same law, tariffs are to be fixed at a level such that their payment by users covers the economically substantiated costs of public utilities and ensures their profitability, unless special laws and regulations of the sector provide for other principles for fixing tariffs. In the event of a change in the factors affecting tariffs, such as profitability, the Latvian regulatory authority may instigate a tariff review and require the public utility provider to submit, within a specified period, a draft tariff accompanied by an explanation of their cost components.

2.Decision on the methodology to be used by the Latvian regulatory authority

18.On 13 August 2018, the board of the Latvian regulatory authority adopted Decision No 1/23 on the methodology to be used to calculate the rate of return on capital (‘the decision on methodology’). (6) That decision established the procedures for the calculation and application of the rate of return on capital for the preparation of draft tariffs for regulated services, including natural gas network services. It defines, inter alia, the formula for calculating the weighted average rate of return on capital in real terms.

III.The dispute in the main proceedings, the questions referred and the procedure before the Court

20.On 20 August 2020, in accordance with the decision on methodology, the Latvian regulatory authority adopted the contested decision, in which it held that, for 2021, natural gas transmission, distribution and storage system operators should apply the weighted average rate of return on capital in real terms. It thus determined that, for an operator falling into the category of medium-sized or large enterprises – according to the data contained in the latest available annual report – the rate of return on capital was 2.65%. (7)

21.According to that authority, the rates of return on capital determined for operators falling into the category of medium-sized or large enterprises were in line with the situation on the financial markets and adequately assessed the risks associated with fund-raising. Therefore, they enabled natural gas transmission, distribution and storage system operators to take out loans, invest in the renovation and development of the natural gas network and obtain a reasonable return, at the same time ensuring that users could receive uninterrupted, reliable and high-quality services whose tariffs corresponded to economically substantiated costs.

22.Following the adoption of the contested decision, Gaso, which was the natural gas distribution system operator in Latvia, and Conexus Baltic Grid, which was the natural gas transmission and storage system operator in Latvia, brought actions for annulment of the contested decision before the Administratīvā apgabaltiesa (Regional Administrative Court), the referring court.

23.In support of their actions, the applicants argued, in essence, that the Latvian regulatory authority had exceeded its powers, committed serious procedural and substantive errors in determining the criteria used to calculate the rate of return on capital and disregarded its obligation to state reasons by setting an abnormally low rate of return on capital. According to the applicants, the contested decision infringed, in particular, Directive 2009/73, which imposes on the competent regulatory authorities of the Member States the obligation to promote, inter alia, the development and functioning of the natural gas market by providing investors with sufficient incentives to make the necessary infrastructure investments. In the same way, the decision disregarded Regulation No 715/2009, which requires regulatory authorities, when calculating tariffs, to allow for an appropriate return on the investments made.

24.In that context, the referring court states, in the first place, that Article 40(f) and Article 41(8) of Directive 2009/73, as well as Article 13(1) of Regulation No 715/2009, read in conjunction with recitals 7 and 8 thereof, are applicable to the dispute in the main proceedings.

25.It notes, in the second place, that, although it is clear from the abovementioned provisions that Member States must include an ‘appropriate return on investments’ when calculating tariffs for access to natural gas transmission networks, it does not have clear guidelines for assessing the compatibility with EU law of the methodology followed by the Latvian regulatory authority in determining the rate of return on capital applied in the main proceedings.

26.The referring court notes, in the third place, that, although the content of the provisions of Directive 2009/73 is not sufficiently clear, the Law on public utility regulatory authorities provides a regulatory framework that does not contain any provisions corresponding to those of the directive and, in particular, Article 40, which defines the general objectives of the regulatory authority, and Article 41, which determines the duties and powers of that authority. In that regard, it states that, in all likelihood, Article 20(1) of that law, on the basis of which the Latvian regulatory authority adopted the contested decision, did not cover all the objectives of the abovementioned provisions. The question therefore arises as to whether the provisions of that directive have been correctly transposed into Latvian law.

27.In the fourth and final place, the referring court expresses doubts, in the light of the provisions of Directive 2009/73 and Regulation No 715/2009, as to the applicability of Article 13(1) of that regulation to the tariff relating to access to natural gas storage facilities, which in the present case are operated by Conexus Baltic Grid. It takes the view that Article 13(1) of that regulation, which lays down the conditions to be met by the tariffs applied by transmission system operators and approved by the regulatory authorities under Article 41(6) of Directive 2009/73, as well as the tariffs published under Article 32(1) of the directive, applies only to tariffs for the natural gas transmission system and does not cover the fixing of tariffs for gas storage facilities.

28.In those circumstances, the Administratīvā apgabaltiesa (Regional Administrative Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) Does Article 41(8) of Directive 2009/73/EC preclude a national provision that does not impose an obligation on the regulatory authority, when calculating tariffs or establishing methodologies, to explain how they ensure that transmission and distribution system operators are granted an appropriate incentive, over both the short and long term, to increase efficiencies, foster market integration and security of supply and support the related research activities?

(2) Is it consistent with Article 41(8) of Directive 2009/73/EC to interpret a national provision as meaning that an appropriate incentive, over both the short and long term, to increase efficiencies, foster market integration and security of supply and support the related research activities, is ensured when the tariff payments by users cover only the economically substantiated costs of public utilities and ensure a profit, albeit at a minimum level?

(3) Is a national provision which, when fixing an “appropriate incentive, over both the short and long term” and incentives to “foster market integration and security of supply and … research activities”, does not provide for account to be taken of principles that are accepted in the financial sector when determining the weighted average rate of return on capital, principles which take into consideration comparable undertakings that operate in the free market, consistent with the objectives set out in Article 41(8) of Directive [2009/73]?

(4) In interpreting the concepts of “appropriate return on investments”, within the meaning of Article 13 of Regulation [No 715/2009], and of “incentives for investment”, under Article 41 of Directive 2009/73, must the regulatory authority be guided by the concept of the [“average rate of return on capital”] (weighted average cost of capital (WACC)) accepted in the financial sector and by the methodology used to determine it?

(5) If the answer to the above question is in the affirmative, may the regulatory authority legitimately depart from the methodology used in the financial sector when determining the average rate of return on capital and adjust that rate as it considers appropriate?

(6) If the answer to the above question is in the affirmative, may the regulatory authority legitimately adjust the average rate of return on capital so that its calculation takes into account a size premium based on the borrowing costs of other companies in the Member State’s economy?

(7) If the answer to the fourth question is in the affirmative, may the regulatory authority legitimately adjust the average rate of return on capital in such a way that it does not have to compensate natural gas transmission or storage system operators for the increase in inflation during the preceding tariff period?

(8) If the answer to the fifth question is in the affirmative, and in a case where the system operator does not agree with the amount of the average rate of return on capital proposed by the regulatory authority or with the elements underpinning it, should the regulatory authority, when determining the average rate of return on capital (WACC), use an independent third party to assess the appropriate amount for that rate?

(9) Is a procedure for fixing tariffs in which the average rate of return on capital is determined by the regulatory authority and in which the natural gas transmission or storage system operators are not entitled to adjust that calculation in accordance with the individual indicators of the system operator’s business contrary to the aims set out in Article 41(8) of Directive 2009/73/EC?

(10) Must [point (b) of the first paragraph of Article 1] of Regulation [No 715/2009], in relation to the second paragraph of that article, be interpreted as meaning that recitals 7 and 8 and Article 13(1) of [that regulation] are applicable to natural gas storage facilities and to the tariffs fixed by the regulatory authority if access to liquid natural gas storage facilities is regulated?’

28.Written observations were submitted by Gaso, Conexus Baltic Grid, the Latvian regulatory authority and the European Commission. The parties presented oral argument at the hearing which took place on 15 January 2025.

IV.Analysis

A.Admissibility

29.Before analysing the questions referred for a preliminary ruling by the referring court, it is necessary to examine the pleas of inadmissibility raised by the Latvian regulatory authority.

30.First, according to that authority, the first question referred for a preliminary ruling is hypothetical and relates to the interpretation not of EU law, but of national law. That question is based on the incorrect assumption that the regulatory authority is exempt from the obligation to state reasons both for the methodology used to calculate the rate of return on capital and the rates of return themselves. However, it states that is not the case here, since national law requires the authority to state the reasons for its decisions. (8)

31.Second, as regards the second to sixth questions referred for a preliminary ruling, the Latvian regulatory authority considers that those questions are formulated in too general a manner and relate not to the interpretation of EU law, but to its application. It also argues that both Article 41(8) of Directive 2009/73 and Article 13(1) of Regulation No 715/2009 merely state the objective to be achieved by regulatory authorities, while leaving them the choice of the means or methods to achieve it. However, that choice, which gives rise to the referring court’s doubts, concerns, according to that authority, the application of EU law rather than its interpretation, and therefore does not fall within the jurisdiction of the Court of Justice, but within that of the national courts.

32.Third, the authority maintains that, as for the first question referred for a preliminary ruling, the second, eighth and ninth questions do not relate to the interpretation of EU law, but to the interpretation of national law.

33.Fourth, the authority submits that the fourth to eighth questions referred for a preliminary ruling bear no relation to the situation described in the main proceedings. Therefore, they do not meet an objective need for the purposes of giving a decision in the case, particularly since, as an operator of natural gas storage facilities, Conexus Baltic Grid is not subject to Article 13(1) of Regulation No 715/2009, which does not apply to such facilities.

34.In that regard, it should be borne in mind that, according to the settled case-law of the Court of Justice, questions on the interpretation of EU law referred by a national court in the factual and legislative context which that court is responsible for defining, and the accuracy of which is not a matter for the Court to determine, enjoy a presumption of relevance. The Court may refuse to rule on a question referred by a national court only where it is quite obvious that the interpretation of EU law that is sought bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer to the questions submitted to it. (9) However, that is not the case here, such that the objection alleging the inapplicability of the provisions of EU law cited by the referring court to the case in the main action does not relate to the admissibility of the request for a preliminary ruling, but concerns the substance of the questions. (10) It should be pointed out that, in its request, the referring court has clearly identified the provisions of EU law whose interpretation is required in order for it to resolve the dispute before it.

35.Accordingly, in view of the foregoing, the pleas of inadmissibility raised by the Latvian regulatory authority should be rejected. It is appropriate therefore to proceed with an analysis of the substance.

B.Substance

36.By its ten questions, the referring court raises the question, in essence, (i) of the material scope of the tariff rules in the natural gas sector (seventh, ninth and tenth questions); (ii) of the interpretation of the concepts of ‘appropriate incentive’ within the meaning of Article 41(8) of Directive 2009/73 and ‘appropriate return on investments’ within the meaning of the first subparagraph of Article 13(1) of Regulation No 715/2009 (first and second questions); and (iii) of whether the way in which the national regulatory authority for the natural gas market, when calculating and fixing tariffs for access to transmission and distribution networks and natural gas storage facilities, must ensure that the operators of such networks and facilities benefit from such an incentive and/or such an appropriate return on investments (third to ninth questions).

37.I shall therefore examine the questions referred for a preliminary ruling, grouping them together into three sets of questions.

1.The material scope of the tariff rules in the natural gas sector (seventh, ninth and tenth questions)

38.By its seventh, ninth and tenth questions, which should be examined together, the referring court asks, in essence, what the material scope of the tariff rules in the natural gas sector is, and specifically whether Article 41(8) of Directive 2009/73 and the first subparagraph of Article 13(1) of Regulation No 715/2009 must be interpreted as applying not only to the operators of those systems, but also to natural gas storage facilities. (11)

39.As a preliminary point, I note that the contested decision has set an identical rate of return on capital both for Gaso, as operator of the natural gas distribution system in Latvia, and for Conexus Baltic Grid, as operator of the natural gas transmission system and storage facilities. The question therefore arises as to whether the Latvian regulatory authority was correct in applying the same methodology to natural gas storage facilities as that used to calculate the tariff applicable to system operators.

40.I note, in that regard, that while, the activities of transmission, distribution and supply of natural gas, on the one hand, and storage activities, on the other hand, fall within the scope of both Directive 2009/73 (12) and Regulation No 715/2009, EU law nevertheless makes a distinction, in certain cases, between ‘systems’ and ‘storage facilities’, such that all the provisions that are applicable to natural gas distribution and transmission system operators do not necessarily apply to the operators of natural gas storage facilities. (13)

41.This is particularly the case for the rules on fixing tariffs for system operators.

42.Specifically, Directive 2009/73 entrusts the national regulatory authorities, in accordance with Article 41(1)(a) thereof, with the task of ‘fixing or approving, in accordance with transparent criteria, transmission or distribution tariffs or their methodologies’. (14) In addition, Article 41(6)(a) of the directive specifies that those authorities are responsible for fixing or approving at least the methodologies used to calculate or establish the terms and conditions for access to national networks, including transmission and distribution tariffs.

43.As regards Regulation No 715/2009, which applies to the transmission of natural gas, Article 1 thereof, relating to tariffs and their calculation methodologies, expressly excludes storage facilities from its scope.

44.It follows that the rules on fixing tariffs provided for in Article 41(8) of Directive 2009/73 and the first subparagraph of Article 13(1) of Regulation No 715/2009 only apply to ‘networks’ and not to ‘gas storage facilities’.

45.However, that does not mean that the principles for fixing network tariffs cannot be relevant for the purposes of fixing storage tariffs. Although those principles are not directly applicable to storage facilities, it must be noted that the provisions of Directive 2009/73 and of Regulation No 715/2009 do not prohibit national regulatory authorities from extending to storage facilities the tariff principles applicable to ‘networks’. (15)

46.In the light of the foregoing, I propose that the answer to the seventh, ninth and tenth questions should be that Article 41(8) of Directive 2009/73 and Article 13(1) of Regulation No 715/2009 must be interpreted as meaning that they do not apply, in principle, to natural gas storage facilities, although the national regulatory authorities may apply, by analogy, the general principles provided for in those provisions to the control of tariffs for access to storage.

2.The interpretation of the concepts of ‘appropriate incentive’ within the meaning of Article 41(8) of Directive 2009/73 and ‘appropriate return on investments’ within the meaning of the first subparagraph of Article 13(1) of Regulation No 715/2009 (first and second questions)

47.By its first two questions, which it is appropriate to consider together, the referring court asks, in essence, whether Article 41(8) of Directive 2009/73 must be interpreted as precluding national legislation according to which an ‘appropriate incentive’, within the meaning of that provision, is ensured when the tariff payments by users cover only the economically substantiated costs of public utilities and ensure a profit, albeit at a minimum level, without any obligation being imposed on the national regulatory authority to explain how it provides for such an ‘appropriate incentive’. (16)

48.In that regard, under Article 41(6)(a) of the directive, the regulatory authorities are responsible for fixing or approving at least the methodologies used to calculate or establish the terms and conditions for access to national natural gas networks, including transmission and distribution tariffs. According to that provision, those tariffs must allow the necessary investments to be carried out to ensure the viability of the networks. Article 41(8) of the directive states that ‘in fixing or approving the tariffs or methodologies …, the regulatory authorities shall ensure that transmission and distribution system operators are granted appropriate incentive

, over both the short and long term, to increase efficiencies, foster market integration and security of supply and support the related research activities.’ (17)

It is thus clear from the wording of those provisions that the directive requires the national regulatory authorities, either when adopting the methodology for calculating the tariffs for access to the natural gas transmission and distribution networks, or when actually fixing those tariffs, to provide, in addition to the calculation of the costs borne by the operators of those networks in order to ensure access to them, on the one hand, for coverage of the investments necessary for the viability of those networks and, on the other hand, an appropriate incentive to cover the financing of the objectives listed in Article 41(8) of Directive 2009/73.

It seems appropriate to point out that, in the present case, national regulations and, in particular, Article 20(1) of the Law on public utility regulatory authorities, requires the Latvian regulatory authority to ensure that tariffs for access to natural gas networks are fixed at a level such that their payment ‘covers the economically substantiated costs of public utilities and ensures their profitability’.

Like the Commission, I note, first, that the fact that that legislation does not reproduce, word for word, the terms used in Article 41(8) of Directive 2009/73 or that it uses a different term does not, in itself, call into question the legality of that legislation or the accuracy of the transposition of that directive. Nothing in the order for reference indicates that the legislation prohibits the competent national authority from providing the ‘appropriate incentive’ referred to in Article 41(8) of the directive or that, within the exercise of its jurisdiction, that authority would not take into account the requirements arising from that provision.

Having clarified that point, the fact that the wording adopted by the national legislation is not identical to that of Article 41(8) of Directive 2009/73 should not be interpreted by the Latvian regulatory authority (or the national courts) as placing a limit on the discretion available to that authority, under that directive, when calculating and fixing tariffs for access to natural gas transmission and distribution networks.

Second, as regards the contested decision, I note that it only concerns the weighted average rate of return on capital, which is just one of the factors taken into account when fixing the amount of tariffs. Still, it does not appear from Directive 2009/73 that the attainment of the objectives set out in Article 41(8) thereof should be assessed solely on the basis of the rate of return on capital. Rather, it seems that the attainment of those objectives must be ensured by means of the tariffs and the methodology used to fix them as a whole.

The same applies, in my view, to the second part of the issue raised by the first two questions referred for a preliminary ruling, concerning the obligation for national regulatory authorities to state reasons pursuant to Article 41(16) of Directive 2009/73. That provision cannot be interpreted as requiring the competent national authorities to give a step-by-step account of how they fix the tariff in question or to explain, for each factor and parameter used in their methodology, how they include an appropriate incentive and help to ensure it. Irrespective of the fact that no such obligation arises from the relevant provisions of EU law, to impose such a requirement would, in my view, be both paradoxical and impractical. (18) That obligation must therefore be understood as requiring the national regulatory authority to explain, in the statement of reasons for its decision, how it ensures that the tariffs or methods it uses comply with the requirements under Article 41(8) of the directive.

In addition, I note that the contested decision was adopted on the basis of, and in accordance with, the decision on methodology, which sets out in detail the procedures for calculating the rate of return on capital. For my part, I consider that the fact that the Latvian regulatory authority published in advance, in complete transparency, the methodology that it subsequently intended to apply, in detail, by disclosing the economic and technical parameters on which that methodology is based, is sufficient, in principle, to satisfy the authority’s obligation to state reasons. However, it would appear that, in the present case, the applicants do not directly dispute that methodology, but the rate of return obtained on the basis of it. In such a case, the methodology can only be called into question if the applicants claim that it has not been followed, given the fact, for example, that the rate of return ultimately obtained does not reflect the elements on which it is based.

Third, I would add that, by its first two questions, the referring court also seeks guidance on the interpretation of the concept of ‘appropriate incentive’ contained in Article 41(8) of Directive 2009/73. In its decision, the referring court mentions the concept of ‘appropriate return on investments’ contained in Article 13(1) of Regulation No 715/2009, which could also be relevant, according to that court, in the dispute before it.

Although those two concepts may indeed be of particular importance in the present case, I would point out that the concept of ‘appropriate return on investments’ concerns the cost of investment or capital and aims to ensure that system operators obtain a sufficient return on capital or the investment made. By contrast, the concept of ‘appropriate incentive’ has a broader scope and aims to ensure the attainment of the objectives set out in that provision – namely to increase efficiencies, foster market integration and security of supply and support the related research activities.

Nevertheless, in so far as Directive 2009/73 and Regulation No 715/2009 pursue a common objective (namely, to establish an open and competitive internal market for natural gas within the EU), the abovementioned concepts must be interpreted in a complementary manner in the sense that the tariff ultimately adopted by the Latvian regulatory authority – and therefore the methodology used to fix that tariff – must not only guarantee coverage of the actual costs, but allow the system operator to make the necessary investments, over both the short term and long term, to ensure the efficiency, security and development of the network infrastructure.

It should be noted that although it is for the Court to provide guidance on interpretation to clarify the scope of those concepts, as I have done in points 57 to 58 of this Opinion, it is for the competent regulatory authorities or, where applicable, the national court to assess, according to the relevant facts and points of law in each case, whether the tariffs or the methodology used by those authorities are actually in line with those concepts.

In the light of the foregoing, I propose that the answer to the first and second questions should be that Article 41(8) of Directive 2009/73 must be interpreted as meaning that it does not preclude national legislation that does not expressly provide that the competent regulatory authority, when fixing tariffs or establishing a methodology for fixing them, must include in its statement of reasons the manner in which it provides an appropriate incentive, over both the short and long term, to encourage natural gas transmission and distribution system operators to improve performance, foster market integration and security of supply, and support related research activities.

The way in which the national regulatory authority for the natural gas market must ensure that the operators of networks and facilities benefit from incentives and/or an appropriate return on investments (third to ninth questions)

By its third to ninth questions, which it is appropriate to consider together, the referring court asks, in essence, what the extent of the discretion available to the national regulatory authorities is as to the choice of methods applicable to the calculation of the rate of return on capital and the parameters included in that calculation when fixing the tariffs for access to the natural gas transmission and distribution networks. (19) In that regard, the referring court asks whether that discretion should be governed or even limited – and, if so, under what conditions – by the requirement to provide system operators with an ‘appropriate incentive’, within the meaning of Article 41(8) of Directive 2009/73, and/or an ‘appropriate return on investments’, within the meaning of the first subparagraph of Article 13(1) of Regulation No 715/2009.

I would like to point out, in the first place, that the abovementioned provisions of EU law do not provide for a specific and binding methodology that a national regulatory authority would be required to follow when fixing tariffs for access to the natural gas transmission and distribution networks or for the calculation of the rate of return on capital of the network. Moreover, none of those provisions indicates what an ‘appropriate’ rate of return might be. It must also be noted that, by its very nature, such a rate cannot be determined abstractly in advance.

More specifically, while Article 41 of Directive 2009/73 entrusts the national regulatory authorities with the task of fixing or approving tariffs for access to the natural gas transmission and distribution networks, complying with the conditions of transparency and non-discrimination, that provision does not, however, specify in any way how those tariffs are fixed and does not provide, a fortiori, any indication as to the methodology or procedures for calculating the rate of return on capital. The same can be said for the first subparagraph of Article 13(1) of Regulation No 715/2009, which merely provides that those tariffs and their calculation methodologies must meet a series of criteria and conditions set out in that article. (20)

In the second place, I note that it is clear from the abovementioned regulatory framework that although the methods used by national regulatory authorities must comply with the principles laid down in Article 13 of Regulation No 715/2009 and Article 41(8) of Directive 2009/73, those provisions leave the authorities a wide margin of discretion in the choice of the exact method to be used.

It follows, in my view, that, particularly when complex technical and economic parameters must be considered, those authorities must have broad discretion in fixing tariffs for access to the natural gas transmission or distribution network, (21) without being required, as regards the need to ensure an appropriate incentive or an appropriate return on investments, to adopt a specific methodology, such as that based on the WACC. (22) In that context, the discretion available to those authorities must allow them to adjust that methodology and their calculations according to parameters that they consider necessary in the light of the objectives pursued both by EU law and by the applicable national regulations, including taking into account the specific conditions on the national natural gas market, without there being any obligation to perform those calculations in advance, taking into account inflation and/or corporate income tax. (23)

In that regard, in their written and oral observations, the applicants concentrated on the level of the rate of return on capital selected by the Latvian regulatory authority, which they claim was unfair and abnormally low and at odds with the concept of appropriate return. The applicants also dedicated a significant part of their observations to the fact that the factors taken into account in the methodology used by the Latvian regulatory authority were incorrect. In that respect, they considered that the authority should have opted for the methodology used in the financial sector – namely the WACC method – which would have led it either to omit or ignore certain parameters in its calculations, or, alternatively, to take other factors into account.

Although the Court of Justice has jurisdiction to interpret provisions of EU law, it is not for it to rule on the rate of return on capital adopted by the Latvian regulatory authority, or for it to identify a rate of return that could be considered ‘appropriate’. The calculation and setting of that rate depend on a series of facts and technical parameters which are not available to the Court of Justice, and which, in any event, the national court alone has jurisdiction to assess. It follows that it is not for the Court of Justice to determine the specific methodology that the authority would be required to apply in order to calculate the rate of return on capital, nor to rule on the appropriateness of alternative economic models which could have been used in the present case.

In the third place, I note that the fact that EU law does not set out more detailed principles concerning the calculation methods referred to in the third to ninth questions does not mean that when fixing network access tariffs, the national regulatory authority is free to choose which method to apply at its own discretion. The discretion conferred upon that authority is governed formally by the obligation to state reasons, set out in Article 41(16) of Directive 2009/73, and substantively by the principles provided for in Article 13 of Regulation No 715/2009 and Article 41(8) of Directive 2009/73. Moreover, as the Commission rightly points out, that authority is not only bound by the principles of EU law relating to the fixing of tariffs, but it must also comply with other relevant provisions and principles of EU law, such as competition rules, (24) rules of good administration and the general principles of proportionality and non-discrimination.

In the fourth and final place, as follows from Article 39(4) of Directive 2009/73, only the national regulatory authorities are competent and responsible for fixing or approving, according to the criteria established by EU law and the objectives pursued by it, natural gas transmission and distribution tariffs or their calculation methods. Accordingly, although transmission system or distribution system operators may submit a proposal to those authorities in that regard, (25) the authorities are not bound by it.

It follows that the assessment of the various parameters for calculating tariffs carried out by the national regulatory authorities cannot, in the event of an objection by the entities to which those tariffs apply, be contingent on the intervention of a third party, such as a firm of experts. (26) I recall in that regard that Article 39(4) of Directive 2009/73, read in the light of recital 30 thereof, provides that those authorities must exercise their power independently of any public or private entity, ensuring that they take their decisions autonomously and solely in the public interest, without being subject to external instructions from other public or private entities. (27) In addition, the exercise of that power by those authorities is without prejudice to the possibility, if any, for the undertakings concerned to rely on the reports of third-party experts in support of their requests brought before the regulatory authority or the competent courts, to the extent permitted by national law.

In the light of the foregoing, I propose that the answer to the third to ninth questions should be that Directive 2009/73 and Regulation No 715/2009 must be interpreted as meaning that in so far as they do not provide for a specific and binding methodology for the calculation and fixing of tariffs for natural gas transmission and distribution networks as well as storage facilities, it is for the national regulatory authority, under the supervision of the national courts, to determine the appropriateness of the method used for the purposes of that calculation, on the basis of the relevant facts, while complying with the general principles for fixing tariffs established by EU law.

V.Conclusion

In the light of the foregoing, I propose that the Court’s answer to the questions referred for a preliminary ruling by the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia) should be as follows:

(1)Article 41(8) of Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC and Article 13(1) of Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005,

must be interpreted as meaning that they do not apply, in principle, to natural gas storage facilities, although the national regulatory authorities may apply, by analogy, the general principles provided for in those provisions to the control of tariffs for access to storage.

(2)Article 41(8) of Directive 2009/73

must be interpreted as meaning that it does not preclude national legislation that does not expressly provide that the competent regulatory authority, when fixing tariffs or establishing a methodology for fixing them, must include in its statement of reasons the manner in which it provides an appropriate incentive, over both the short and long term, to encourage natural gas transmission and distribution system operators to improve performance, foster market integration and security of supply, and support related research activities.

(3)Directive 2009/73 and Regulation No 715/2009

must be interpreted as meaning that in so far as they do not provide for a specific and binding methodology for the calculation and fixing of tariffs for natural gas transmission and distribution networks as well as storage facilities, it is for the national regulatory authority, under the supervision of the national courts, to determine the appropriateness of the method used for the purposes of that calculation, on the basis of the relevant facts, while complying with the general principles for fixing tariffs established by EU law.

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Original language: French.

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Directive of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ 2009 L 211, p. 94).

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Regulation of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (OJ 2009 L 211, p. 36).

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Commission Regulation of 16 March 2017 establishing a network code on harmonised transmission tariff structures for gas (OJ 2017 L 72, p. 29).

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Latvijas Vēstnesis, 2000, No 394.

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Latvijas Vēstnesis, 2018, No 161.

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The order for reference further states that, for an operator who, according to the data contained in the latest available annual report, fell into the category of micro-enterprises or small enterprises, the rate of return on capital was 4.37%.

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According to the Latvian regulatory authority, that obligation arises from Article 67(2) of the Administratīvā procesa likums (Law on administrative procedure).

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See, to that effect, judgment of 25 February 2025, Sąd Rejonowy w Białymstoku and Adoreikė (C‑146/23 and C‑374/23, EU:C:2025:109, paragraph 37 and the case-law cited).

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See, to that effect, judgment of 12 December 2019, Slovenské elektrárne (C‑376/18, EU:C:2019:1068, paragraph 29 and the case-law cited).

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I note that, unlike the tenth question referred for a preliminary ruling which solely concerns storage facility operators and by which the referring court asks, in essence, whether the rules on fixing tariffs provided for in Article 13(1) of Regulation No 715/2009 also apply to natural gas storage facilities, the seventh and ninth questions concern both system operators and natural gas storage operators.

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See Article 1(1) of Directive 2009/73. See, also, to that effect, judgment of 19 December 2019, GRDF (C‑236/18, EU:C:2019:1120, paragraph 34 and the case-law cited).

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The fact that the EU legislature has established separate regulatory frameworks for ‘storage facilities’ and ‘gas networks’ can be explained by the different technical characteristics of the two types of infrastructure and the conditions of competition which characterise them. Although gas transmission systems can, in general, be considered natural monopolies, natural gas storage facilities in principle compete with other storage facilities or flexibility instruments.

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See recitals 23, 25 and 32 of Directive 2009/73.

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Accordingly, it will be for the referring court to ascertain, in the light of its national law and the specific circumstances of the case in the main proceedings, whether the application of an identical rate of return on capital by the contested decision concerning Conexus Baltic Grid, as transmission system operator and at the same time as operator of natural gas storage facilities, is objectively justified.

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As I noted in point 25 of this Opinion, those questions arise from the more general doubts that the referring court has as to the correct transposition of Article 41(8) of Directive 2009/73 into the Latvian legal system. The referring court submits, in effect, that the tariff-setting objectives provided for in Article 41(8) of that directive are broader than those provided for by Latvian law and, in particular, by Article 20(1) of the Law on regulators of public utilities.

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Emphasis added.

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It seems to me that in exercising their power to assess and fix tariffs, the competent authorities must take into account a plethora of factual elements as well as economic and technical parameters (which may be significant in number), without it being possible to assess, measure or quantify each of its elements (taken individually) in relation to the ‘appropriate incentives’ criterion.

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Specifically, by its third to ninth questions, the referring court essentially asks whether the applicable EU law on fixing tariffs requires national regulatory authorities to use specific methods of calculating tariffs, such as the ‘weighted average cost of capital’, or ‘WACC’, applied in the financial sector (third and fourth questions), or whether it is possible to deviate from those methods (fifth question), to compare the cost of capital with that of other non-regulated companies (sixth question), to make adjustments to take into account inflation (seventh question), and to consider the individual performance of system operators (ninth question). The referring court also asks to what extent it is possible for an independent third party to intervene in fixing the average rate of return on capital in the event that the system operator does not agree with the rate proposed by the national regulatory authority (eighth question).

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The tariffs in question must be transparent and reflect the actual costs incurred by operators, while including an appropriate return on investments, and be applied in a non-discriminatory manner. It is also important to note that Regulation 2017/460, which the Commission refers to in its written observations, provides, in Article 30(1), in connection with the objective of increasing the transparency of the tariff structure for operators, for certain information to be published before each tariff period, including, in particular, the ‘cost of capital and its calculation methodology’, ‘incentive mechanisms and efficiency targets’ and ‘inflation indices’. However, the regulation does not specify the content of those concepts, nor the methods or procedures by which the ‘cost of capital’ or ‘incentive mechanisms’ can or should be calculated. In any event, it would appear that in the present case, the Latvian regulatory authority has fulfilled its obligations under Article 30(1) of that regulation in adopting the decision on methodology.

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See, by analogy, other areas of EU law such as competition law, where, according to the settled case-law of the Court of Justice, the Commission has a wide margin of discretion with regard to economic matters, in particular when it carries out forward-looking economic analyses, in connection, for example, with the control of concentrations between undertakings under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) (OJ 2004 L 24, p. 1) or in connection with the application of Article 9 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles [101 TFEU] and [102 TFEU] (OJ 2003 L 1, p. 1). See, to that effect, judgments of 29 June 2010, Commission v Alrosa (C‑441/07 P, EU:C:2010:377, paragraph 94), and of 13 July 2023, Commission v CK Telecoms UK Investments (C‑376/20 P, EU:C:2023:561, paragraph 82), and my Opinion in Orlen v Commission (C‑255/22 P, EU:C:2024:466, point 39 and the case-law cited).

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Specifically, the WACC represents the amount of compensation that investors must receive in return for their investment, which is the appropriate return on investment. It corresponds to the weighted average cost of a company’s financial resources, namely debt and equity. It may be calculated before or after tax. However, no similar approach exists in the natural gas sector; see, in the electronic communications sector, Commission Notice on the calculation of the cost of capital for legacy infrastructure in the context of the Commission’s review of national notifications in the EU electronic communications sector (OJ 2019 C 375, p. 1.).

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It follows from the reports on national practices for implementing the provisions of EU law established by the Council of European Energy Regulators (CEER) that, since natural gas transmission and distribution networks are organised very differently from one Member State to another, national regulatory authorities in the EU have used various regulatory approaches when fixing tariffs for access to those networks. This is also the case with the calculation of the rate of return, where the methods used vary from one regulatory authority to another. Thus, although the WACC is one of the methods commonly used by regulatory authorities to calculate the rate of return for system operators, a regulatory authority may still use a different method or adapt the method used to the specific characteristics and needs of the networks subject to regulation. See, in that regard, the report of the Council of European Energy Regulators, entitled ‘Report on Regulatory Frameworks for European Energy Networks 2021’, available on its website (https://www.ceer.eu/documents/104400/-/-/ae4ccaa5-796d-f233-bfa4-37a328e3b2f5).

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System operators, as monopolies (or ex-monopolies), regularly hold a dominant position within the meaning of Article 102 TFEU. It is therefore incumbent on those operators not to undermine, by their behaviour, effective and undistorted competition in their respective markets.

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See recital 32 of Directive 2009/73.

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In the light of the written observations of Conexus Baltic Grid, it appears that the eighth question referred for a preliminary ruling originates from the expert’s report which that company requested from KPMG Baltics AS, an audit and consultancy firm specialising, inter alia, in economics and finance, to assess the impact of the average rate of return on capital set by the Latvian regulatory authority.

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See, to that effect, judgment of 2 September 2021, Commission v Germany (Transposition of Directives 2009/72 and 2009/73) (C‑718/18, EU:C:2021:662, paragraph 109 and the case-law cited).