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On connecting to electricity network

Case No. 47/04

THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

RULING

ON THE COMPLIANCE OF PARAGRAPH 2 OF ARTICLE 15 OF THE REPUBLIC OF LITHUANIA’S LAW ON ELECTRICITY (WORDING OF 1 JULY 2004) WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA

4 December 2008
Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Armanas Abramavičius, Toma Birmontienė, Pranas Kuconis, Kęstutis Lapinskas, Zenonas Namavičius, Ramutė Ruškytė, Egidijus Šileikis, Algirdas Taminskas, and Romualdas Kęstutis Urbaitis

The court reporter—Daiva Pitrėnaitė

Advocate Gytis Kaminskas, acting as the representative of a group of members of the Seimas of the Republic of Lithuania, the petitioner

Dainius Zebleckis, senior advisor of the Civil Law Unit of the Legal Department of the Office of the Seimas, acting as the representative of the Seimas of the Republic of Lithuania, the party concerned

The Constitutional Court of the Republic of Lithuania, pursuant to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, in its public hearing, on 18 November 2008, considered case No. 47/04 subsequent to the petition of a group of Members of the Seimas of the Republic of Lithuania, consisting of Julius Sabatauskas, Rimantas Sinkevičius, Alfonsas Macaitis, Kęstutis Kriščiūnas, Viktoras Rinkevičius, Kazimira Danutė Prunskienė, Antanas Baura, Gražina Šmigelskienė, Edvardas Karečka, Jūratė Juozaitienė, Nikolaj Medvedev, Ona Babonienė, Jonas Korenka, Gintautas Mikolaitis, Dobilas Jonas Kirvelis, Mindaugas Bastys, Petras Papovas, Jonas Jurkus, Janė Narvilienė, Algimantas Salamakinas, Giedrė Purvaneckienė, Antanas Valys, Virmantas Velikonis, Valerijus Simulik, Gintautas Kniukšta, Nijolė Steiblienė, Jonas Čiulevičius, Egidijus Klumbys, Gintautas Babravičius, Vasilijus Popovas, and Artur Plokšto, the petitioner, requesting an investigation into whether the provision “the equipment of a customer may be connected to transmission network only in cases where the operator of the distribution network refuses, due to established technical or maintenance requirements, to connect the equipment of the customer to the distribution network which is on the territory indicated in the licence of the distribution network operator” of Paragraph 2 of Article 15 of the Republic of Lithuania’s Law on Electricity (wording of 1 July 2004) is not in conflict with Paragraph 2 of Article 5, Paragraphs 1, 2, 4, and 5 of Article 46 of the Constitution of the Republic of Lithuania and with the constitutional principle of a state under the rule of law.

The Constitutional Court

has established:

I

A group of members of the Seimas, the petitioner, have applied to the Constitutional Court with the petition requesting an investigation into whether the provision “the equipment of a customer may be connected to transmission network only in cases where the operator of the distribution network refuses, due to established technical or maintenance requirements, to connect the equipment of the customer to the distribution network which is on the territory indicated in the licence of the distribution network operator” of Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) is not in conflict with Paragraph 2 of Article 5, Paragraphs 1, 2, 4, and 5 of Article 46 of the Constitution and with the constitutional principle of a state under the rule of law.

After the petition of the group of members of the Seimas had been received at the Constitutional Court and after a preliminary investigation had been carried out, seven members of the Seimas (J. Jurkus, A. Plokšto, E. Karečka. G. Mikolaitis, A. Salamakinas, J. Juozaitienė, and O. Babonienė) applied to the Constitutional Court with the request to revoke their signatures in the said petition of the group of members of the Seimas and to adopt a decision to refuse to consider the said petition.

The Constitutional Court decided to accept the petition of the group of members of the Seimas, the petitioner, for consideration. Such a decision was substantiated by the fact that, in case one granted the request of the members of the Seimas to revoke their signatures, one would virtually deny the already implemented right of the group of members of the Seimas to apply to the Constitutional Court, i.e. “one would deny the legitimate expectation of the other 24 members of the Seimas who signed the aforesaid petition <…> that their already implemented right to apply, together with the other members of the Seimas, to the Constitutional Court requesting an investigation into the compliance of a legal act with the Constitution, will not be denied after their common request is received at the Constitutional Court and the procedural actions which are indicated in the Law on the Constitutional Court and the Rules of the Constitutional Court are commenced” (the Constitutional Court’s decision of 15 December 2004).

II

1. The group of members of the Seimas, the petitioner, substantiate the petition and the doubt set forth in it by the doctrine of the Constitutional Court set forth in the rulings of 18 June 1996, 29 May 1997, 3 June 1999, and 6 October 1999, as well as by the Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity (hereinafter also referred to as Directive 2003/54/EC or the Directive).

According to the petitioner, the Seimas, while passing legal acts, must ensure that they do not conflict with one another and that they are harmonised; the right of the Seimas to adopt, amend, and supplement laws and other legal acts and to recognise them as no longer valid is undisputable, however, the Seimas may implement it only by following the procedure established in the Constitution and the principles of harmonisation of legal acts; in itself, the freedom of economic activity of an individual does not guarantee competition, therefore, the state must protect fair competition; the possibility for competition becomes diminished or competition is removed from the corresponding market when a monopoly becomes dominant in it; the state must limit monopolistic tendencies by legal means. If there exists a monopoly, the state regulates the monopolistic economic activity by establishing, in a law, corresponding requirements to the monopolist.

In addition, Article 1 of the Law on Electricity provides that the provisions of this act are harmonised with the acts of the European Union, which are specified in the annex to this law. The annex points out, among other legal acts, Directive 2003/54/EC. Under Article 150 of the Constitution, the Constitutional Act “On Membership of the Republic of Lithuania in the European Union” is a constituent part of the Constitution. Paragraph 2 of the said Constitutional Act provides that norms of the European Union law shall be a constituent part of the legal system of the Republic of Lithuania. Therefore, in the opinion of the petitioner, it is also important to consider the impugned provision of the law also in accordance with the European Union law.

The petitioner notes: “Directive 2003/54/EC does not establish any direct limitations on the customer to connect his equipment to the electricity transmission network, nor any obligation to connect only to the electricity distribution network, nor does it establish the right and freedom of the consumer to connect to any electricity network at his discretion. Presumably, if the freedom to choose the supplier (and that of the supplier to choose the customer) could not be implemented otherwise but only by directly connecting the customer to the electricity transmission network, the limitations established in the law might be regarded as an improper implementation of the directive. The RL Law on Electricity virtually grants such a right to the consumer (para. 33 and 35 of art. 2, art. 15), however, paragraph 2 of Article 15 of the said law provides for limitations.”

2. In the course of the preparation of the case for the Constitutional Court’s hearing, the 5 January 2007 letter from the advocate G. Kaminskas, a representative of the petitioner, was received wherein additional explanations were presented as to the conflict of the impugned provision of the Law on Electricity with the Constitution. In his another letter of 29 January 2007, the same representative of the petitioner specified the said additional explanations.

III

In the course of the preparation of the case for a Constitutional Court’s hearing written explanations were received from the representatives of the Seimas, the party concerned, who were Seimas member Vaclovas Karbauskis and Paulius Griciūnas, senior advisor of the Legal Department of the Office of the Seimas, in which it is asserted that the impugned provision of Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) is not in conflict with the provisions of the Constitution specified by the petitioner.

Such position is substantiated, inter alia, by the fact that the impugned legal regulation “does not deny the right of the customers to demand that their equipment be connected to the electricity network”, but it merely establishes “the procedure for connecting to electricity network”, which “is in line with the principle of separation of the transmission and distribution activities and with the principle of rational development of networks”. In addition, the established procedure for connecting the equipment of customers to electricity network is directly related with “the chosen conception of regulation of the prices for transmission of electricity” in the aspect that “when the amount of the distributed electricity diminishes, the distribution price increases for the customers” and “if the equipment of the customers who use much electricity is directly connected to the transmission network, while bypassing the transmission network, the amount of electricity distributed by the distribution network would decrease and, correspondingly, the distribution price would increase for the rest of the users of the distribution network”, therefore, the impugned provision of the law “secures the stability of the electricity price and thus protects the interests of those customers, which are financially weak and most vulnerable, i.e. the interests of the population and small enterprises”. According to the petitioner, the fact is of importance that the expenses of the operator of the distribution network, which are linked with the connecting the equipment of the consumers and the distance of transmission of electricity, are covered by all users of the distribution network by paying for distribution of electricity. Therefore, the impugned legal regulation seeks to achieve a balance of interests of society.

The position of the representatives of the party concerned is also substantiated by the interpretation of the provisions of Directive 2003/54/EC that, allegedly, the Directive does not limit the right of the user of electricity to connect the equipment directly to the electricity transmission network, since it does not regulate such matters altogether; nor does the Directive establish any obligation to connect the equipment of customers of electricity only to the electricity distribution network, however, it does not prohibit any such legal regulation which is established in the impugned provision of the Law, either. According to the representatives of the party concerned, it is clear from the Directive that these matters are within the competence of Member States and must be decided on the national level.

IV

In the course of the preparation of the case for judicial consideration written explanations were received from V. Uspaskich, the Minister of Economy of the Republic of Lithuania, D. Kriaučiūnas, Director General of the European Law Department under the Ministry of Justice of the Republic of Lithuania, R. Stanikūnas, Chairperson of the Competition Council of the Republic of Lithuania, F. Petrauskas, General Director of the State Consumer Rights Protection Authority, V. Jankauskas, Chairperson of the National Control Commission for Prices and Energy, S. Juodvalkis, Vice-president of the Lithuanian Consumers Association, and J. Vilemas, Chairperson of the Council of the Lithuanian Energy Institute.

V

In the course of the preparation of the case for the judicial consideration, the letter titled “On the information about the instituted violation procedure regarding Directive 2003/54/EC of 23 June 2003” was received from V. Sarapinas, the Government Secretary, whereby the Constitutional Court was informed about the 12 December 2006 Reasoned Opinion No. 2006/2059 of the European Commission addressed to the Republic of Lithuania on insufficient transfer of Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity into national law and about the answer of V. Navickas, the Minister of Economy of the Republic of Lithuania, “On Reasoned Opinion No. 2006/2059” to the Secretariat-General of the European Commission. The obligations which the Republic of Lithuania failed to carry out subsequent to Directive 2003/54/EC, which were pointed out in the said Reasoned Opinion of the European Commission, are not related with Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) whose provision is impugned in the constitutional justice case at issue.

VI

1. On 8 May 2007, while preparing the case for the hearing and taking account of the fact that the Law on Electricity (wording of 1 July 2004) implements the Directive which, according to the reference of the recital thereof, was adopted while acting in accordance with the procedure laid down in the Treaty establishing the European Community, and, meanwhile, under the Constitutional Act “On Membership of the Republic of Lithuania in the European Union” (which is a constituent part of the Constitution), in the event of collision, the norms of the European Union law arising from the founding Treaties of the European Union shall have supremacy over the laws of the Republic of Lithuania, the Constitutional Court adopted the Decision “On the application to the Court of Justice of European Communities for a preliminary ruling” whereby it decided to apply to the Court of Justice of European Communities for a preliminary ruling on this issue: Is Article 20 of Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC to be construed as obliging Member States to establish the legal regulation whereby any third party has the right, at its discretion, providing there exists “the necessary capacity” of electricity system, to choose as to which system—electricity transmission or electricity distribution—it wishes to connect, while the operator of such system has a duty to grant access to such network?

While reasoning such an application, the Constitutional Court noted in the said decision, inter alia, that the provisions of Paragraph 2 of the Constitution Act of the Republic of Lithuania “On Membership of the Republic of Lithuania in the European Union” (which is a constituent part of the Constitution) establish expressis verbis the collision rule, which consolidates the priority of application of European Union legal acts in the cases where the provisions of the European Union arising from the founding Treaties of the European Union compete with the legal regulation established in Lithuanian national legal acts (regardless of what their legal force is), save the Constitution itself (the Constitutional Court’s rulings of 14 March 2006 and 21 December 2006).

The Constitutional Court also noted that Paragraph 1 of Article 20 titled “Third Party Access” of Chapter VII of the Directive establishes a duty of Member States to create a system of third party access to the transmission and distribution systems based on published tariffs, applicable to all eligible customers and applied objectively and without discrimination between system users. If the clause “a system of third party access to the transmission and distribution systems <…>, applicable to all eligible customers” is construed only linguistically, one could presume that Member States must create a system, where all eligible customers are granted access, if they wish so, to transmission as well as distribution systems. Paragraph 2 of this article provides for a single reservation in granting this access: one may refuse access where it lacks the necessary capacity; the Directive does not provide explicitly for any other reservations when the system operator could refuse to connect the electricity equipment to the transmission or distribution system. The said presumption that all eligible customers are granted access, if they wish so, to transmission as well as distribution systems is supported by the fact that Paragraph 3 of Article 2 titled “Definitions” of the Directive defines the notion “transmission“ as “the transport of electricity on the extra high-voltage and high-voltage interconnected system with a view to its delivery to final customers or to distributors, but not including supply”; thus, it is established expressis verbis that transmission of electricity to the customer also includes transport of electricity, inter alia, to final customers. The linguistic construction of this notion would permit asserting that also direct transmission to the final customer is possible, without making use of distribution networks. On the other hand, the provisions of the Directive can be construed not only linguistically, but also while taking account of not only the provisions of the Directive by which the competition in the electricity market is promoted. Therefore, it is necessary to give an answer to the question whether the provisions of Article 20 of the Directive mean that Member States are required to ensure that every (even household) customer might enjoy the right to connect directly to electricity transmission networks. In other words, it should be ascertained whether the Directive requires that legal acts of Member States consolidate the right of every customer to choose as to which—transmission or distribution—networks he desires to connect directly, or whether the Directive consolidates only a possibility for the customer to be connected to a network, so that his electricity needs and reasonable electricity price might be ensured.

On 9 October 2008, the Court of Justice of European Communities adopted a preliminary ruling in which it ruled:

Article 20(1) of Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC is to be interpreted as defining the Member States’ obligations only in respect of the access and not the connection of third parties to the electricity transmission and distribution systems and as not laying down that the system of network access that the Member States are required to establish must allow an eligible customer to choose, at his discretion, the type of system to which he wishes to connect.

Article 20 must also be interpreted as not precluding national legislation which lays down that an eligible customer’s equipment may be connected to a transmission system only where the distribution network operator refuses, on account of established technical or operating requirements, to connect to its system the equipment of the eligible customer which is on the territory included in its licence. It is, however, for national courts to verify that the implementation and application of that access system takes place in accordance with objective and non-discriminatory criteria between the users of the transmission and distribution systems.”

VII

At the Constitutional Court’s hearing, the advocate G. Kaminskas, the representative of the group of members of the Seimas, the petitioner, reiterated the arguments set forth in his written explanations and presented additional arguments, also, he answered to the questions given to him and he presented questions to the specialists.

At the Constitutional Court’s hearing, D. Zebleckis, a senior advisor of the Civil Law Unit of the Legal Department of the Office of the Seimas, the representative of the Seimas, the party concerned, assented to the arguments set forth in the written explanations of the members of the Seimas V. Karbauskis and P. Griciūnas, former representatives of the Seimas, the party concerned.

At the Constitutional Court’s hearing the specialists—Prof. Hab. Dr. J. Vilemas, Chairperson of the Council of the Lithuanian Energy Institute, V. Poderys, Chairperson of the National Control Commission for Prices and Energy, and A. Zaremba, Director of the Energy Department of the Ministry of Economy—took the floor and gave answers to presented questions.

The Constitutional Court

holds that:

I

1. A group of members of the Seimas, the petitioner, requests an investigation whether the provision “the equipment of a customer may be connected to transmission network only in cases where the operator of the distribution network refuses, due to established technical or maintenance requirements, to connect the equipment of the customer to the distribution network which is on the territory indicated in the licence of the distribution network operator” of Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) is not in conflict with Paragraph 2 of Article 5, Paragraphs 1, 2, 4, and 5 of Article 46 of the Constitution and with the constitutional principle of a state under the rule of law.

2. The Constitutional Court has held that the provisions of Article 46 of the Constitution are interrelated and supplement one another (rulings of 23 February 2000, 18 October 2000, and 26 January 2004), that the principles entrenched in these provisions are harmonised among one another, that there is a balance among them, that each of these constitutional principles must be construed without denying another constitutional principle (rulings of 6 October 1999, 17 March 2003, 13 May 2005, and 5 March 2008).

3. Taking account of this, in the constitutional justice case at issue the Constitutional Court will investigate whether the impugned provision of Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) is not in conflict with Paragraph 2 of Article 5, Article 46 of the Constitution and with the constitutional principle of a state under the rule of law.

II

1. Paragraph 2 of Article 5 of the Constitution provides that the scope of power shall be limited by the Constitution. While construing this provision, the Constitutional Court has noted more than once that the Seimas, as the issuer of laws and other legal acts, is independent insofar as its powers and its broad discretion, inter alia, the discretion to regulate economic activity, are not limited by the Constitution, inter alia, the constitutional principles of a state under the rule of law, the separation of powers, responsible governance, the protection of legitimate expectations, legal clearness, and other principles.

2. The principles laid down in Article 46 of the Constitution constitute a whole, which is the constitutional basis of the economy of this country (the Constitutional Court’s rulings of 6 October 1999, 17 March 2003, 13 May 2005, and 5 March 2008).

The Constitutional Court has held the following: the formula “the State shall regulate economic activity” of Paragraph 3 of Article 46 of the Constitution means not the right of the state to administer all or certain economic activity at its discretion, but its right to establish legal regulation of economic activity, i.e. establishment of limitations (prohibitions) and conditions of economic activity, regulation of procedures in legal acts (the Constitutional Court’s ruling of 13 May 2005); “Legal regulation is a form of establishment of certain social order. Peculiarities of legal regulation depend on the specific character of the regulated social relations” (rulings of 6 October 1999 and 13 May 2005); due to complexity of economic activity and dynamism of particular relations, regulation in this area may be subject to change (the Constitutional Court’s ruling of 13 May 2005); legal regulation of economic activity is not an end in itself, it is a means of social engineering and a way to seek welfare of the Nation through law (rulings of 13 May 1995, 31 May 2006, and 30 June 2008); the content of the notion “general welfare of the Nation” is revealed in each concrete case by taking account of economic, social and other important factors (rulings of 6 October 1999, 18 October 2000, 26 January 2004, and 13 May 2005); on the other hand, the “general welfare of the Nation” cannot be opposed to the welfare, rights and legitimate interests of the economic subject itself, i.e. the subject the activity of which is regulated (the Constitutional Court’s ruling of 13 May 2005); freedom of individual economic activity is “inseparable from an opportunity of a person, who is willing to engage in an economic activity or, conversely, who is willing to drop it, to get into the market without artificial barriers and to abandon it without artificial barriers” (the Constitutional Court’s ruling of 13 May 2005); it is prohibited to introduce a monopoly, i.e. it is prohibited to grant, by law, an economic subject the exceptional rights to operate in a certain sector of economy due to which this sector would become monopolised, however, it is not prohibited, under certain circumstances, to state in the law the existence of monopoly in a certain sector of economy or to reflect factual monopolistic relations otherwise and to regulate them accordingly (rulings of 18 October 2000, 17 March 2003, and 26 January 2004); individual economic activity may be restricted when it is necessary to protect the interests of consumers, fair competition and the other values entrenched in the Constitution; the prohibitions provided for in the law must be reasonable, adequate to the objective sought, non-discriminatory, and clearly formulated (rulings of 13 May 2005 and 21 January 2008); under the Constitution, it is permitted to limit the rights and freedoms of the person, as well as the freedom of economic activity, if the following conditions are followed: this is done by law; the limitations are necessary in a democratic society in order to protect the rights and freedoms of other persons and values entrenched in the Constitution, as well as constitutionally important objectives; the limitations do not deny the nature and essence of the rights and freedoms; the constitutional principle of proportionality is followed (the Constitutional Court’s ruling of 31 May 2006); proper state regulation of economic activity is linked with protection of interests of consumers, which implies that the laws and other legal acts ought to establish various measures of protection of the interests of consumers, that state institutions ought to control economic subjects how the latter are following the requirements established by means of laws and other legal acts (the Constitutional Court’s ruling of 17 March 2003); the special measures of protection of the interests of consumers are: restriction of establishment of discriminatory prices, state regulation of the size of prices and tariffs for the goods of the monopolistic market, establishment of the requirements for the quality of goods as well as other requirements for monopolistic subjects of economy, etc. (the Constitutional Court’s ruling of 6 October 1999).

It needs to be noted that the constitutional values upon which the economy of this country is based are related with other constitutional values (the Constitutional Court’s ruling of 13 May 2005), inter alia, with the constitutional principle of a state under the rule of law.

3. The Constitutional Court has noted more than once that the constitutional principle of a state under the rule of law implies, inter alia, the hierarchy of legal acts and various requirements to the legislature, inter alia, in the aspect that the legal regulation established in laws must be non-contradictory, it must be based upon the objective differences of the situation of the subjects of the regulated social relations, it must secure the consistency and inner harmony. In addition, “legal norms must be formulated precisely, they may not contain ambiguities” (the Constitutional Court’s ruling of 13 May 2005)

In the context of the constitutional justice case at issue it needs to be noted that the legislature, while implementing the corresponding norms of EU law by means of the impugned legal regulation, must follow, inter alia, the requirement, which stems from the constitutional principle of a state under the rule of law, to base the established legal regulation upon the objective differences of the situation of the subjects of the regulated social relations, to secure the hierarchy of legal acts and the inner harmony of the system of domestic law.

It also needs to be noted that, under Paragraph 2 of the Constitutional Act “On Membership of the Republic of Lithuania in the European Union”, the norms of the European Union law shall be a constituent part of the legal system of the Republic of Lithuania.

It has been mentioned that the Constitutional Court held that the Constitution expressis verbis established the collision rule consolidating the priority of application of European Union legal acts in the cases where the provisions of the European Union arising from the founding Treaties of the European Union compete with the legal regulation established in Lithuanian national legal acts (regardless of what their legal force is), save the Constitution itself (the Constitutional Court’s rulings of 14 March 2006, 21 December 2006, and 8 May 2007).

III

1. While construing the impugned legal regulation established in the provision “the equipment of a customer may be connected to transmission network only in cases where the operator of the distribution network refuses, due to established technical or maintenance requirements, to connect the equipment of the customer to the distribution network which is on the territory indicated in the licence of the distribution network operator” of Paragraph 2 of Article 15 (wording of 1 July 2004) of the Law on Electricity, it is important to reveal the historical legal context of this regulation and the content of the notions and formulas employed therein.

2. After the restoration of the independent State of Lithuania on 11 March 1990, the then existing state (monopolistic) electricity energy sector, in which electricity generation, transmission and supply were not separate, but were run and developed in a centralised manner, persisted for some time. In this context it needs to be noted that the equipment of some big manufacturing enterprises was connected to the high-voltage networks as far back as the time of Soviet government. Five enterprises of the Soviet period, on the grounds of which the joint-stock company (hereinafter referred to as JSC) Achema, JSC Akmenės cementas, JSC Ekranas, JSC Lifosa and the state-owned enterprise Visagino energija came into being in the Republic of Lithuania, were connected to the high-voltage electricity networks (the present transmission networks) and ran local networks designed for meeting the requirements of residents living in adjacent territory (established customers). In addition, during the Soviet period the equipment of six big enterprises, on the grounds of which JSC Dirbtinis pluoštas, the closed-type joint-stock company (hereinafter referred to as the CJSC) Kauno vandenys, the special-purpose joint-stock company Lietuvos geležinkeliai, JSC Mažeikių nafta, JSC Mažeikių elektrinė, and JSC Vilniaus energetinė statyba came into being in the Republic of Lithuania, was connected to the high-voltage electricity networks, i.e. to the present transmission networks.

3. After the Constitution had been adopted by the 25 October 1992 referendum and after it came into force on 2 November 1992, the duty arose for the legislature, when it regulated the relations linked with electricity, to heed the requirements stemming from the Constitution, inter alia, Article 46 thereof.

4. It needs to be mentioned that, on 28 March 1995, the Seimas adopted the Republic of Lithuania’s Law on Energy, which came into force on 14 April of the same year, and which, inter alia, prescribed: “The principal goals of the State energy policy are as follows: <…> reliable, good-quality and cost-effective production and supply of electricity <…>” (Article 3); “Electric <…> energy <…> prices and tariffs may be differentiated according to consumer groups, energy quality, reliability of supply <…>” (Paragraph 2 of Article 15). It also needs to be mentioned that, on 23 June 1998, the Seimas adopted the Law “On Ratifying the Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects” which came into force on 24 July of the same year. The said law ratified the 17 December 1994 Energy Charter Treaty, which provides, inter alia, that “Each Contracting Party shall work to alleviate market distortions and barriers to competition in Economic Activity in the Energy Sector” (Paragraph 1 of Article 6). In addition, it needs to be mentioned that, on 5 October 1999, the Seimas adopted the Resolution “On Approving the National Energy Strategy”. In the National Energy Strategy approved by the said resolution it was prescribed that “in Lithuania, there would be the least electric energy supply expenses <…> if the electricity sector would, without delay, be restructured till 2001, and after one prepares to work under the free market conditions, and after electric energy generation, transmission and supply are separated” (Section 1 “Electricity” of Chapter 4 “Energy Supply Strategy” of the National Energy Strategy).

5. On 18 May 2000, the Seimas adopted the Republic of Lithuania’s Law on Reorganising the Special-Purpose Joint-stock Company Lietuvos energija, which came into force on 2 June of the same year. This law provided for the ways and procedure of the reorganisation of the said special-purpose joint-stock company.

6. On 20 July 2000, the Seimas adopted the Republic of Lithuania’s Law on Electricity. The law established the basic principles regulating the generation, transmission, distribution, and supply of electricity in the Republic of Lithuania with account of the requirements of European Union law, as well as it established the relations between suppliers of electricity and their customers, and the conditions for the development of competition in the electricity sector (Article 1). It was established in Paragraph 1 of Article 7 of the said law that the electricity sector shall comprise electricity producers, suppliers, transmission and distribution undertakings, the market operator, and operators of the transmission and distribution networks. It was established in Paragraph 2 of Article 15 (which regulates the principles of transmission activities) of the same law that the transmission system operator, following the rules for operation of power plants and electricity networks approved by the Government or a body authorised by it, the grid code and other legal acts, must ensure that conditions for the connection to the transmission system of generating installations, distribution systems, and customers’ equipment are in conformity with the rules for operation of electricity networks approved by the Government or a body authorised by it and are non-discriminatory. Paragraph 2 of Article 47 of the law commissioned the Government, prior to a corresponding date, to draw up and/or adopt legal acts and approve legal acts necessary for the implementation of this law. In this context it needs to be noted that, under Paragraph 1 of Article 10 of this law, inter alia, the electricity distribution activity was subject to licensing, while under Paragraph 2 of the same paragraph the licensing procedure shall be approved by the Government or an institution authorised by it.

The Law on Electricity (wording of 20 July 2000) has been amended and supplemented more than once, however, said Paragraph 2 of Article 15 thereof has not been amended or supplemented.

7. On 28 June 2001, the Seimas adopted the Republic of Lithuania’s Law on Amending the Law on Reorganising the Special-Purpose Joint-stock Company Lietuvos energija, which came into force on 18 July 2001. By Article 1 of this law, the Law on Reorganising the Special-Purpose Joint-stock Company Lietuvos energija (18 May 2000) was set forth in its new wording.

The following was established in Paragraph 1 of Article 2 of the Law on Reorganising the Special-Purpose Joint-stock Company Lietuvos energija (wording of 28 June 2001): “The special-purpose joint-stock company ‘Lietuvos energija’ shall be reorganised according to the method of division of companies, i.e. by separating from the special-purpose joint-stock company ‘Lietuvos energija’, which shall continue its activity after reorganisation as a company, the parts of property, rights and obligations and by establishing new companies based on them.” In addition, Paragraph 2 of Article 2 of the same law prescribed: “The property assigned to regional affiliated units of electricity network exploitation, except 330 kV and 110 kV voltage electricity networks as well as buildings, constructions, and equipment needed to operate and administer them, as well as other property, shall be separated from the special-purpose joint-stock company ‘Lietuvos energija’. On the basis of property assigned to the individual regional affiliated units of electricity network exploitation an economically reasonable company (companies) of electricity distribution network shall be established.” Thus, this legislative regulation created a legal basis for separation the energy transmission networks (system) from the distribution networks (system).

On 29 October 2001, on such grounds, the Government adopted the Resolution (No. 1264) “On Assenting to the Project of the Reorganisation of the Special-Purpose Joint-stock Company Lietuvos energija and on Granting the Authorisations” which, inter alia, prescribed: “To assent to the project of the reorganisation of the special-purpose joint-stock company Lietuvos energija”; “To commission the Ministry of Economy, which is the possessor of the state-owned shares, to authorise its representative to vote in the general meeting of shareholders of the special-purpose joint-stock company Lietuvos energija in order that the following decisions would be adopted: <…> to approve the articles of association of the joint-stock companies Lietuvos energija, Rytų skirstomieji tinklai, Vakarų skirstomieji tinklai, Lietuvos elektrinė, and Mažeikių elektrinė.

Thus, the state (monopolistic) electricity system which had been formed during the Soviet time was reformed; out of the former centralised monopolistic system one formed the electricity transmission system whose operator was JSC Lietuvos energija, and two distribution networks, which were run by the joint-stock companies Rytų skirstomieji tinklai, and Vakarų skirstomieji tinklai.

8. It is clear from the material of the case that corresponding power plants generate electricity, and the Ignalina Atomic Power Plant is the biggest of these power stations; JSC Lietuvos energija is the operator of the transmission system which transports (transmits) electricity by means of high-voltage electricity networks to regions of Lithuania in which the operators of distribution networks transmit the electricity that is suitable for use by the consumers; the JSC Rytų skirstomieji tinklai, an operator of distribution networks, provides services to the eastern part of Lithuania, while JSC Vakarų skirstomieji tinklai, an operator of distribution networks, provides services to the western part of Lithuania; in addition, there are five more companies (JSC Achema, JSC Akmenės cementas, JSC Ekranas, JSC Lifosa, the state-owned enterprise Visagino energija, and CJSC Prekybos namai Giro (formerly—JSC Ekranas)) that possess electricity distribution licences, which specify the corresponding territory (which, as a rule, coincides with the territory of the former Soviet period enterprises previously connected to the high-voltage networks) of activity for each enterprise.

9. On 5 December 2001, the Government, while following the Law on Electricity (wording of 20 July 2000), adopted the Resolution (No. 1474) “On Approving the Legal Acts Necessary for the Implementation of the Republic of Lithuania’s Law on Electricity” whereby it, inter alia, approved the Rules for Licensing the Activity in the Electricity Sector. These rules were amended and set forth in its new wording by the Government Resolution (No. 588) “On Amending the Resolution of the Government of the Republic of Lithuania (No. 1474) ‘On Approving the Legal Acts Necessary for the Implementation of the Republic of Lithuania’s Law on Electricity’ of 5 December 2001” of 14 May 2003.

10. On 1 July 2004, the Seimas adopted the Republic of Lithuania’s Law on Amending the Law on Electricity, which came into force on 10 July of the same year.

The Law on Electricity (wording of 1 July 2004) established the basic principles regulating the generation, transmission, distribution, and supply of electricity in the Republic of Lithuania, the relations between providers of electricity services and their customers as well as the conditions promoting competition in the electricity sector (Paragraph 1 of Article 1); in addition, it was stipulated that the provisions of this law had been harmonised with “the legal acts of the European Union listed in the annex to this law”. This annex pointed out, inter alia, the Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC.

The Law on Electricity (wording of 1 July 2004) has not been amended or supplemented.

11. Article 15 (“Principles of Transmission Activities”) of the Law on Electricity (wording of 1 July 2004) provides:

1. The transmission system operator shall be responsible for stability and reliability of the electricity system, performance of the national balance function as well as provision of system services in the territory of the Republic of Lithuania, operation, maintenance, management and development of interconnectors to other systems by eliminating bottlenecks in the transmission networks in accordance with its customers’ needs.

2. The transmission system operator shall be responsible for ensuring that conditions for the connection of equipment of electricity producers, distribution network operators and customers are in conformity with the requirements laid down in legal acts and that discriminatory conduct is excluded. The equipment of a customer may be connected to transmission network only in cases where the operator of the distribution network refuses, due to established technical or maintenance requirements, to connect the equipment of the customer to the distribution network which is on the territory indicated in the licence of the distribution network operator.

3. The transmission system operator shall provide, on the basis of reciprocity, the operator of any other system with sufficient information to ensure the secure and efficient operation, co-ordinated development, integrity and interoperability of the interconnected system.

4. The transmission system operator shall be responsible for ensuring objective and non-discriminatory conditions for the access to the system for transmission networks users.”

12. While comparing the legal regulation established in Article 15 (of the wordings of 20 July 2000 and 1 July 2004) of the Law on Electricity, it is clear that this legal regulation differs, inter alia, in that Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) consolidated a new provisions whereby the customers’ equipment could be connected to the transmission grid only in certain cases.

13. While construing the impugned provision “the equipment of a customer may be connected to transmission network only in cases where the operator of the distribution network refuses, due to established technical or maintenance requirements, to connect the equipment of the customer to the distribution network which is on the territory indicated in the licence of the distribution network operator” of Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004), it is important to reveal the content of the notions (the formulations “the equipment of a customer”, “transmission network”, “distribution network”, “the operator of the distribution network”, “established technical or maintenance requirements”, “the territory indicated in the licence of the distribution network operator”) in a systemic manner, i.e. to take account of the fact that, under the provisions of Article 15 and other articles of this law:

the customer is any person who purchases electricity for consumption (Paragraph 35 of Article 2);

the transmission system operator manages the transmission network in which electricity is transmitted from its producer to its distribution operator or customer (Paragraph 18 of Article 2), and is responsible for stability and reliability of the electricity system, as well as provision of system services in the territory of the state (Paragraph 18 of Article 2 and Paragraph 1 of Article 15). The transmission system operator shall be responsible for ensuring that conditions for the connection of equipment of electricity producers, distribution network operators and customers are in conformity with the requirements laid down in legal acts and that discriminatory conduct is excluded (Paragraph 1 of Article 15). In addition, the transmission system operator must “give duly substantiated reasons in writing for refusal to provide the existing and potential customers with the service of electricity transport” and “such a refusal must be substantiated by technical criteria only” (Item 7 of Article 17);

the distribution network operator manages the distribution network, by which electricity is transmitted (supplied) to the customer, and is responsible for the maintenance and development of the network (Paragraph 30 of Article 2). The distribution network operator must ensure, inter alia, non-discriminatory conditions for using the distribution network to users of the network (Paragraph 2 of Article 19), connect the customer and producer equipment, located in the territory specified in the license for distribution activity, to the distribution network in accordance with the corresponding technical specifications (Item 6 of Article 21). In addition, the distribution network operator must give duly substantiated reasons in writing for refusal to provide the existing and potential customers with energy transport service and such a refusal must be substantiated by technical criteria only (Item 7 of Article 21);

the technical or maintenance requirements, which must be followed by the distribution network operator when he decides on the possibility of connecting the equipment of the consumer to the distribution network, are established by the Government or an institution authorised by it (Article 5, Paragraph 1 of Article 48);

the exclusive rights to engage in activity are granted to the distribution network operator in the territory specified in his licence (Paragraph 5 of Article 10).

14. Thus, while construing the impugned provision of Paragraph 2 of Article 15 (wording of 1 July 2004) of the Law on Electricity in the context of the entire legal regulation established in this article and in other articles (parts thereof) of this law, it needs to be held that, under the established legal regulation, the right must be ensured to the customer to have access to the electricity system; the transmission network is designed for transmission of generated electricity to regions and for this purpose electricity producers are connected to the distribution system operators; the equipment of all consumers must be connected to the distribution network with the exception of the cases where the connection of the equipment of the customer is impossible due to established technical or maintenance requirements; only in such cases the equipment of the customer can be connected to the transmission network.

It needs to be noted that such a model of electricity system where the electricity transmission and distribution systems are separated is widespread in Member States of the European Union. In such a model, the equipment of the customer is, as a rule, connected to the electricity distribution system, i.e. to the distribution network.

15. It has been mentioned that the impugned provision is entrenched in the Law on Electricity (wording of 1 July 2004) which implements Directive 2003/54/EC. In addition, it has been mentioned that by the 8 May 2007 decision the Constitutional Court applied to the Court of Justice of European Communities for a preliminary ruling regarding whether Article 20 of the Directive (“Electricity customers should be able to choose their supplier freely. Nonetheless a phased approach should be taken to completing the internal market for electricity to enable industry to adjust and ensure that adequate measures and systems are in place to protect the interests of customers and ensure they have a real and effective right to choose their supplier”) should be construed as obliging Member States to establish the legal regulation whereby any third party has the right, at its discretion, providing there exists “the necessary capacity” of electricity system, to choose as to which system—electricity transmission or electricity distribution—it wishes to connect, while the operator of such system has a duty to grant access to such network.

It has also been mentioned that, on 9 October 2008, the Court of Justice of European Communities adopted a preliminary ruling in which it ruled that Article 20 does not lay down that “the system of network access that the Member States are required to establish must allow an eligible customer to choose, at his discretion, the type of system to which he wishes to connect” and that it does not preclude national legislation “which lays down that an eligible customer’s equipment may be connected to a transmission system only where the distribution network operator refuses, on account of established technical or operating requirements, to connect to its system the equipment of the eligible customer which is on the territory included in its licence. It is, however, for national courts to verify that the implementation and application of that access system takes place in accordance with objective and non-discriminatory criteria between the users of the transmission and distribution systems.” Such a decision is substantiated, inter alia, by the following arguments:

the freedom of choice of customers, which is established in the Directive, is equally ensured when the provider connects them both to the transmission system and to the distribution system;

Member States retain a certain flexibility in steering system users towards one or another type of system, provided, however, that they do so for non-discriminatory reasons and in accordance with objective considerations. System users thus have a right of access to the electricity system, but Member States may decide that the connection is to be made on one or another type of system. It is necessary, however, to verify that the criteria chosen by Member States are objective and non-discriminatory;

in that respect, the wish to prevent large customers from connecting directly to transmission systems, which would result in the costs related to the distribution systems falling on small customers alone and, thus, in an increase in the price of electricity, may justify the obligation to connect primarily to a distribution system. It is, however, for national courts alone to verify the truth of those grounds and whether they are based on objective and non-discriminatory criteria.

It needs to be noted that the jurisprudence of the Court of Justice of European Communities as a source of construction of law is also important to construction and application of Lithuanian law (the Constitutional Court’s rulings of 21 December 2006 and 15 May 2007).

IV

On the compliance of the provision of Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) with Paragraph 2 of Article 5, Article 46 of the Constitution and with the constitutional principle of a state under the rule of law.

1. While deciding whether the provision “the equipment of a customer may be connected to transmission network only in cases where the operator of the distribution network refuses, due to established technical or maintenance requirements, to connect the equipment of the customer to the distribution network which is on the territory indicated in the licence of the distribution network operator” of Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) is not in conflict with Paragraph 2 of Article 5, Article 46 of the Constitution and with the constitutional principle of a state under the rule of law, it needs to be noted that, as it has been held in this ruling of the Constitutional Court:

the formula “the State shall regulate economic activity” of Paragraph 3 of Article 46 of the Constitution means not the right of the state to administer all or certain economic activity at its discretion, but its right to establish legal regulation of economic activity, i.e. establishment of limitations (prohibitions) and conditions of economic activity, regulation of procedures in legal acts; peculiarities of legal regulation depend on the specific character of the regulated social relations;

legal regulation of economic activity is not an end in itself, it is a means of social engineering and a way to seek welfare of the Nation through law; the content of the notion “general welfare of the Nation” is revealed in each concrete case by taking account of economic, social and other important factors;

it is not prohibited, under certain circumstances, to state in the law the existence of monopoly in a certain sector of economy or to reflect factual monopolistic relations otherwise and to regulate them accordingly;

the prohibitions provided for in the law must be reasonable, adequate to the objective sought, non-discriminatory, and clearly formulated; in each case a legislatively established prohibition on economic freedom of a person must be clear and designed for protection of the values (fair competition, interests of consumers, etc.) established in the Constitution;

under the Constitution, it is permitted to limit the rights and freedoms of persons, as well as the freedom of economic activity if the following conditions are followed: this is done by law; the limitations are necessary in a democratic society in order to protect the rights and freedoms of other persons and values entrenched in the Constitution, as well as constitutionally important objectives; the limitations do not deny the nature and essence of the rights and freedoms; the constitutional principle of proportionality is followed;

individual economic activity may be restricted when it is necessary to protect the interests of consumers, fair competition and the other values entrenched in the Constitution; the special measures of protection of the interests of consumers are: restriction of establishment of discriminatory prices, state regulation of the size of prices and tariffs for the goods of the monopolistic market, establishment of the requirements for the quality of goods as well as other requirements for monopolistic subjects of economy, etc.

due to the complexity of economic activity and dynamism of particular relations, the regulation in this area may be subject to change.

2. It has been mentioned that such a model of electricity system where the electricity transmission and distribution systems are separated is widespread in Member States of the European Union; in such model the equipment of the customer is, as a rule, connected to the electricity distribution system, i.e. to the distribution network.

3. Under the legal regulation, which is impugned in the constitutional justice case at issue, the equipment of the customer is connected to the distribution network, while it is permitted to connect such equipment to the transmission network only in the cases where, due to established technical or maintenance requirements, the operator of the distribution network refuses to connect the equipment (which is in the territory of the activity of the distribution network operator specified in the licence) of the customer to the distribution network. Such legal regulation does not deny the right of the consumer to have access to the electricity energy system and this regulation is applied to all customers. Thus, such legal regulation equally ensures the right of all customers to have access to the electricity system.

The limitation on the opportunity of the customer to choose the electricity provider (either the operator of the distribution network or the operator of the transmission network), which is established in the impugned provision of Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004), is not absolute, and it does not create any preconditions for the discrimination of the customer. In itself, such legal regulation does not mean that a certain group of persons is discriminated or that a certain group of persons is granted privileges. Quite to the contrary, by such legal regulation one seeks to equally ensure the interests of electricity customers. Thus, such legal regulation seeks to ensure the general welfare of the Nation as well.

Therefore, the legal regulation which is established in Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) and which is impugned in this constitutional justice case does not violate the imperatives stemming from Article 46 of the Constitution.

It also needs to be noted that the Seimas, while establishing the legal regulation in Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004), which is impugned in the constitutional justice case at issue, did not exceed the powers granted to it by the Constitution. Thus, there are not any grounds for stating that the impugned legal regulation violates also the requirements arising from Paragraph 2 of Article 5 of the Constitution, or that the constitutional principle of a state under the rule of law is deviated from.

4. Taking account of the arguments set forth, the conclusion should be drawn that the provision “the equipment of a customer may be connected to transmission network only in cases where the operator of the distribution network refuses, due to established technical or maintenance requirements, to connect the equipment of the customer to the distribution network which is on the territory indicated in the licence of the distribution network operator” of Paragraph 2 of Article 15 of the Law on Electricity (wording of 1 July 2004) is not in conflict with Paragraph 2 of Article 5, Article 46 of the Constitution and with the constitutional principle of a state under the rule of law.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 53, 54, 55 and 56 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

To recognise that the provision “the equipment of a customer may be connected to transmission network only in cases where the operator of the distribution network refuses, due to established technical or maintenance requirements, to connect the equipment of the customer to the distribution network which is on the territory indicated in the licence of the distribution network operator” of Paragraph 2 of Article 15 of the Republic of Lithuania’s Law on Electricity (wording of 1 July 2004; Official Gazette Valstybės žinios, No. 107-3964) is not in conflict with Paragraph 2 of Article 5, Article 46 of the Constitution of the Republic of Lithuania and with the constitutional principle of a state under the rule of law.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court: Armanas Abramavičius
                                                                      Toma Birmontienė
                                                                      Pranas Kuconis
                                                                      Kęstutis Lapinskas
                                                                      Zenonas Namavičius
                                                                      Ramutė Ruškytė
                                                                      Egidijus Šileikis
                                                                      Algirdas Taminskas
                                                                      Romualdas Kęstutis Urbaitis