Opinion of the Advocate General — ECLI:EU:C:2025:249
Date: 2025-04-03
Language of the case: Latvian
Procedure: Reference for a preliminary ruling
Origin: Latvia

Summary C-87/24 – 1 
Case C-87/24 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged:  
2 February 2024 
Referring court:  
Administratīvā apgabaltiesa (Regional Administrative Court, 
Latvia) 
Date of the decision to refer:  
3 January 2024 
Applicants:  
AS Gaso 
AS Conexus Baltic Grid 
Defendant:  
Sabiedrisko pakalpojumu regulēšanas komisija (Public Utilities 
Commission) 
  
Subject matter of the main proceedings 
Requests by AS Gaso and AS Conexus Baltic Grid (‘the applicants’) for the court 
to set aside the decision adopted by the Council of the Sabiedrisko pakalpojumu 
regulēšanas komisija (Public Utilities Commission, ‘regulatory authority’) fixing 
the rate (weighted average) of return on capital (in real terms) for the calculation 
of the (draft) tariffs for natural gas transmission system, natural gas distribution 
system and natural gas storage services, since they believe the decision is vitiated 
by material and procedural errors that have resulted in that rate being fixed at an 
unjustifiably low level, preventing the applicants from obtaining an appropriate 
profit from the services they provide. 
EN 
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Subject matter and legal basis of the request 
The referring court asks, pursuant to Article 267 TFEU, for an interpretation of 
Article 41(8) of Directive 2009/73/EC in order to determine whether the 
regulatory authority, when adopting the decision fixing the rate of return on 
capital that is to be used for the calculation of tariffs in the natural gas supply 
sector, must provide an appropriate statement of reasons, in particular with regard 
to the compatibility of that rate with the objectives pursued by EU law. The court 
also asks about the meaning of the concepts ‘appropriate incentive’ and 
‘appropriate profit’ and whether, and in what way, a regulatory authority can or 
must apply, in full or in part, the financial methodology and principles used to 
calculate comparable indicators in the case of undertakings operating in the free 
market, and rely, if applicable, on the assessment of an independent third party. 
Questions referred 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/EC? 
4. In interpreting the concepts of ‘appropriate return on investments’, within 
the meaning of Article 13 of Regulation [(EC) 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 
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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 Article 1[(1)](b) of Regulation [(EC) 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 the 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? 
Provisions of European Union law relied on 
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 (‘the Directive’; OJ 2009 L 211, p. 94): recital 35, 
Articles 32(1), 33(1), (3) and (4), 40(f) and 41(1) and (8). 
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 (‘the Regulation’; OJ 2009 L 211, 
p. 36): recitals 7 and 8 and Articles 1 and 13(1). 
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Case-law 
Judgment of the Court of Justice of 12 July 2022, Nord Stream 2 v Parliament 
and Council, C-348/20 P, EU:C:2022:548 
Judgment of the General Court of 16 March 2022, MEKH v FGSZ/ACER, 
T-684/19 and T-704/19, EU:T:2022:138 
Judgment of the Court of Justice of 24 February 2022, Latvijas Gāze, C-290/20, 
EU:C:2022:119 
Judgment of the Court of Justice of 2 September 2021, Commission v Germany 
(Transposition of Directives 2009/72 and 2009/73), C-718/18, EU:C:2021:662 
Judgment of the Court of Justice of 3 December 2020, Commission v Belgium 
(Electricity and natural gas markets), C-767/19, EU:C:2020:984 
Judgment of the Court of Justice of 16 July 2020, Commission v Hungary 
(Charges for access to electricity and natural gas transmission systems), C-771/18, 
EU:C:2020:584 
Judgment of the Court of Justice of 30 April 2020, Оvergas Mrezhi and Balgarska 
gazova asotsiatsia, C-5/19, EU:C:2020:343 
Judgment of the Court of Justice of 19 December 2019, GRDF, C-236/18, 
EU:C:2019:1120. 
Judgment of the Court of Justice of 6 October 2015, Capoda Import-Export, 
C-354/14, EU:C:2015:658, paragraph 25 
Judgment of the Court of Justice of 19 March 2015, E.ON Földgáz Trade, 
C-510/13, EU:C:2015:189 
Provisions of national law relied on 
Enerģētikas likums (Law on Energy) (Latvijas Vēstnesis No 273/275 of 
22 September 1998, in the version in force on 20 August 2020): Articles 15, 44(8) 
and 85(1) 
Likums “Par sabiedrisko pakalpojumu regulatoriem” (Law on Regulators of 
Public Utilities) (Latvijas Vēstnesis No 394/395 of 7 November 2000, in the 
version in force on 20 August 2020): Articles 2(2) and (4), 6(1) and (2), 7(6), 9 
and 20(1) 
Ministru kabineta 2009. gada 27. oktobra noteikumi Nr. 1227 “Noteikumi par 
regulējamiem sabiedrisko pakalpojumu veidiem” (Cabinet Regulation No 1227 of 
27 October 2009 entitled ‘Regulations Regarding Types of Regulated Public 
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Utilities’) (Latvijas Vēstnesis No 172 of 29 October 2009, in the version in force 
on 20 August 2020): paragraph 4 
Sabiedrisko pakalpojumu regulēšanas komisijas padomes 2018. gada 13. augusta 
lēmums Nr. 1/23 “Kapitāla atdeves likmes aprēķināšanas metodika” (Decision 
No 1/23 of 13 August 2018 of the Board of the Public Utilities Commission on the 
methodology for calculating the rate of return on capital) (Latvijas Vēstnesis 
No 161 of 15 August 2018; ‘the Methodology’), as amended by Decision No 1/12 
of the Board of 22 August 2019: paragraphs 3 to 7 and 91 
Sabiedrisko pakalpojumu regulēšanas komisijas padomes 2020. gada 20. augusta 
lēmums Nr. 109 “Par kapitāla atdeves likmi dabasgāzes pārvades sistēmas, 
dabasgāzes sadales sistēmas un dabasgāzes uzglabāšanas pakalpojumu tarifu 
projekta aprēķināšanai” (Decision No 109 of 20 August 2020 of the Board of the 
Public Utilities Commission on the rate of return on capital for the calculation of 
the draft tariffs for natural gas transmission system, natural gas distribution system 
and natural gas storage services) (Latvijas Vēstnesis No 164 of 26 August 2020; 
‘the contested decision’) 
Succinct presentation of the facts and procedure in the main proceedings 
1 The applicants are public utilities operators in the natural gas supply sector in 
Latvia, in particular, AS Gaso, which is the (sole) natural gas distribution system 
operator, and AS Conexus Baltic Grid, which is the (sole) natural gas transmission 
system operator and natural gas storage system operator. 
2 On 20 August 2020, the regulatory authority adopted the contested decision, 
which determined the rate (weighted average) of return on capital in real terms 
(with two variants) to be used to calculate the tariffs for natural gas transmission 
system, natural gas distribution system and natural gas storage services. The 
decision was to enter into force in 2021. 
3 On the basis of the rate of return on own capital calculated in accordance with 
paragraph 5 of the Methodology, the rate of return on borrowed capital calculated 
in accordance with paragraph 7 of the Methodology, the rate of company tax in 
force and the average of the variations in the consumer prices index recorded in 
the official statistics for the previous five calendar years, the regulatory authority 
determined that the rate (weighted average) of return on capital (in real terms) 
applicable to operators falling into the category of micro enterprises or small 
enterprises was 4.37%, while, for operators in the category of medium-sized or 
large enterprises, the rate was 2.65%. 
4 In support of that decision, the regulatory authority indicated that the rates of 
return on capital fixed were in line with the situation of the financial markets, 
including the risks corresponding to obtaining finance, and that, therefore, they 
enabled a natural gas transmission system operator, a natural gas distribution 
system operator and a natural gas storage system operator to take out loans, invest 
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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 (prices) 
corresponded to economically substantiated costs. 
5 As they disagreed with the contested decision and with the reasons given for it, 
the applicants brought an action before the Administratīvā apgabaltiesa (Regional 
Administrative Court) asking for it to be set aside. 
The essential arguments of the parties in the main proceedings 
6 In their requests, the applicants submit the following pleas in law: 
7 In their view, in establishing the criteria for the calculation of the rate of return on 
capital, the regulatory authority made serious material and procedural errors, and 
therefore the rate of return on capital applicable to the applicants was fixed at an 
unduly low level, without taking into account the applicants’ interest in tariffs 
being fixed that allowed an appropriate profit. They submit that such a limitation 
on the allowable profit of a public utility operator constitutes an excessive 
restriction on the property rights of the applicants. 
8 According to the applicants, the Methodology (as amended) adopted by the 
regulatory authority significantly expands the content of the criteria laid down in 
the legislation, amounting to ultra vires conduct, as well as an infringement of the 
principles of sound administration, legal certainty and the protection of legitimate 
expectations. 
9 In their view, the regulatory authority has failed to meet the legal obligation to 
provide reasons for its decisions. 
10 They submit that the regulatory authority did not set out facts to demonstrate the 
necessity for such a decision and that it relied on erroneous and unsubstantiated 
assumptions about the business activities of the applicants and the indicators 
relating to them. 
11 In their opinion, the regulatory authority, acting contrary to the principle that 
prohibits arbitrary action, did not adequately set out or assess objective, rational 
legal considerations deriving from those factual materials, nor did it adequately 
assess considerations relating to the advisability of amending the methodology or 
provide reasons for the conclusions relating to the components of the calculation 
of the rate of return on capital. 
12 According to the applicants, the regulatory authority failed to provide reasons for 
its conclusions regarding the variables used to calculate (in real terms) the rate 
(weighted average) of return on capital. It did not explain why the benchmarking 
of the new rate of return on capital did not use data on natural gas storage, why 
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specific values were chosen for the benchmarking nor the reasons for the choice 
of the period for which the national risk premium was calculated. 
13 In the applicants’ view, the new rate of return on capital fixed by the regulatory 
authority has an unduly adverse impact on the applicants’ capacity to meet their 
obligation to develop their business and participate in the planning, provision and 
development of a coordinated and efficient energy supply. 
14 According to the case-law of the Court of Justice of the European Union (‘the 
Court of Justice’), Member States have an obligation, when fixing tariffs, to 
ensure a return on the investments made. It follows from the Directive that the 
regulatory authority of a Member States has an obligation to promote the 
development and operation of the natural gas market, by offering investors 
sufficient incentives for making the necessary investments in infrastructure. 
Similarly, the provisions of the Regulation impose an obligation on the regulatory 
authority, when fixing tariffs, to provide for an appropriate return on the 
investments made. 
15 The applicants argue that they were not properly heard prior to the adoption of the 
contested decision and that their claims and observations were not considered. 
They therefore submit that their participation in the determination of the new rate 
of return on capital was not ensured. 
16 In their opinion, the contested decision does not foster competition or 
development, contrary to the legislator’s aim of regulating the sector. 
17 They therefore submit that the flaws in the calculation of the new rate of return on 
capital are serious and make it impossible to understand how the regulatory 
authority reached the conclusions on which the contested decision is based; the 
absence of an adequate statement of reasons restricts the ability of the applicants 
to effectively exercise their rights of defence. 
18 For its part, the regulatory authority submits that its task, laid down in 
Article 20(1) of the Law on Regulators of Public Utilities, consists solely in 
ensuring that the tariffs cover the economically substantiated costs of public 
utilities (and that, moreover, the content of that concept is determined by the 
regulatory authority) and ensuring profitability in general. It is of the opinion that, 
in essence, those concepts are not linked to the objectives pursued by Article 41(8) 
of the Directive, namely, ensuring 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. 
Succinct presentation of the reasoning in the request for a preliminary ruling 
19 The referring court observes that in the main proceedings Articles 40(f) and 41(8) 
of the Directive and Article 13(1) of the Regulation, read in conjunction with 
recitals 7 and 8 thereof, are applicable. Those provisions lay down the obligation 
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of Member States to ensure an appropriate return on the investments made, but the 
content of the provisions is not adequately clarified or specified. That prevents the 
referring court from ruling on the substance of the case. 
20 As one of the Directive’s aims is to ensure sufficient investment for the 
development of the network, in its recital 35 and in its Article 40(f) reference is 
made to the obligation of the Member State’s regulatory authority to contribute to 
the development and operation of the natural gas market by providing investors 
with an adequate incentive to make the necessary investments. 
21 Article 13(1) of the Regulation provides that the regulatory authority is to fix a 
tariff for access to the transmission network that includes an appropriate return on 
investments. Tariffs must be of such a kind as will facilitate efficient gas trade and 
competition and provide incentives for investment and interoperability for 
transmission networks. 
22 Tariffs continue to be one of the instruments available to the regulatory authority 
for promoting investment, including after the original vertically integrated natural 
gas sector enterprise (historic operator) (AS Latvijas Gāze) divided into various 
different parts. With regard to the storage function, Article 41(1)(n) of the 
Directive imposes an obligation on the regulatory authority to monitor and review 
the access conditions to storage, linepack and other ancillary services as provided 
for in Article 33. Article 44(8) of the Law on Energy provides that access to the 
underground gas storage facility shall be organised through a procedure governed 
using tariffs fixed in accordance with the procedures laid down in Article 15(11) 
of the Law. Therefore, access to the underground gas storage facility must also be 
justified in technical and economic terms, which means that the regulatory 
authority must review the tariffs that it monitors. 
23 In the present case, the regulatory authority determines, within the scope of its 
competence, the tariffs or methodology for the calculation of tariffs, including the 
rate of return on capital. Despite the fact that it follows from the provisions of the 
Directive and the Regulation that, when setting the amount to be paid in order to 
access the natural gas transmission network, namely tariffs, Member States must 
include an appropriate return on investment in the calculations of such tariffs, 
those provisions do not specify the content of the concept of ‘appropriate return 
on investment’. 
24 Thus, they have not established legal criteria under which the regulatory authority 
might determine whether the return is to be considered ‘appropriate’. The 
referring court does not have clear guidelines available to it on how to assess the 
compliance with EU law of the methodology to determine the return (rate of 
return on capital). 
25 To date, the Court of Justice has not clarified the concept of ‘appropriate return on 
investment’. Although its case-law on the Directive and the Regulation (see the 
section headed ‘Case-law’) has interpreted Article 41 of the Directive, in none of 
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those cases has the Court of Justice interpreted Article 41(8) in factual and legal 
circumstances comparable to those of the present case. 
26 The Court of Justice has referred to the obligation of Member States to take into 
account investments made or to be made when fixing the tariffs for access to the 
natural gas transmission or storage network [judgment of 16 July 2020, 
Commission v Hungary (C-771/18, EU:C:2020:584)]. However, the Court of 
Justice has not precisely specified the way in which they should be taken into 
account when fixing the tariffs. 
27 Article 1 of the Law on Regulators of Public Utilities provides: ‘the purpose of 
this Law is to ensure that continuous, safe and qualitative public utilities may be 
obtained, under tariffs (prices) that are in line with economically substantiated 
costs, and also to promote development and economically justified competition in 
regulated sectors, determining the procedures for the regulation of public utilities 
and the legal relations in the provision of public utilities’. Article 20(1) of the Law 
provides: ‘tariffs shall be set at such levels that the tariff payments made by users 
cover the economically substantiated costs of public utilities and ensure their 
profitability, unless the special laws and regulations of the sector provide for other 
principles for fixing tariffs. In the event of a change to the factors impacting 
tariffs, such as profitability, the regulatory authority may propose a review of 
tariffs and request that a public utility provider submit, within a specific time 
period, draft tariffs together with a supporting statement substantiating the costs 
making up the tariffs’. From those provisions, the referring court concludes that, 
in transposing Article 41 of the Directive, the Latvian legislature did not use the 
wording of that article. The Law on Regulators of Public Utilities does not contain 
any provision that is in line with the wording of Articles 40 (General objectives of 
the regulatory authority) or 41 (Duties and powers of the regulatory authority) of 
the Directive. 
28 Having examined whether the objectives pursued by Article 20(1) of the Law on 
Regulators of Public Utilities correspond to those laid down in Article 41(8) of the 
Directive, the referring court concludes that the Directive’s objectives are broader 
and that it is possible that the wording of the above Law, pursuant to which the 
regulatory authority adopted the legal provision applicable to the present case, 
does not address all the objectives of EU law relating to the right of regulated 
public utilities providers to an appropriate incentive in the short and the long term. 
29 Therefore, there are grounds to make a reference to the Court of Justice in relation 
to the transposition into Latvian law of the above-mentioned provisions of the 
Directive. 
30 Article 1(2) of the Regulation provides that the objectives referred to in the first 
subparagraph of that article 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, the establishment of third-party access 
services and harmonised principles for capacity-allocation and congestion-
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management, the determination of transparency requirements, balancing rules and 
imbalance charges, and the facilitation of capacity trading. The referring court 
concludes that the Regulation is applicable to the determination of the principles 
or methods for calculating access tariffs with regard to the natural gas 
transmission network, but not to storage facilities. 
31 Pursuant to Article 1(3) of the Regulation, the Regulation is to apply only to 
storage facilities falling under Article 33(3) or (4) of the Directive. Article 33(1) 
of the Directive implies that the procedures established in paragraphs 3 and 4 of 
that article in relation to storage services are not mandatory, but are applicable 
when technically and/or economically necessary for providing efficient access to 
the system for the supply of customers, as well as for the organisation of access to 
ancillary services. 
32 The referring court concludes that, having regard to the provisions of the Directive 
and the obligations of the Member States, Article 13(1) of the Regulation – which 
applies to the tariffs and methodologies applied by the transmission system 
operators and approved by the regulatory authorities pursuant to Article 41(6) of 
the Directive and to tariffs published pursuant to Article 32(1) of the Directive – 
and, therefore, also the concept of ‘appropriate profit’ contained in it, refers solely 
to the tariffs applicable to natural gas transmission system services and not to 
natural gas storage services. The criteria mentioned in recitals 7 and 8 of the 
Regulation, regarding tariffs for access to networks, do not apply to storage 
services either. 
33 The referring court takes the view that there are well-founded grounds for 
referring questions to the Court of Justice concerning the interpretation of those 
provisions. 
34 Referring to the case-law of the Court of Justice on the admissibility of requests 
for a preliminary ruling [see, for example, the judgment of 6 October 2015, 
Capoda Import-Export (C-354/14, EU:C:2015:658, paragraph 25)], according to 
which the Court of Justice may refuse to examine such requests only where the 
interpretation that is sought is unrelated to the actual facts of the main action or its 
object, where the problem at issue is hypothetical or where the Court of Justice 
does not have before it the factual or legal material necessary to give a useful 
answer to the questions submitted to it, the referring court observes that the 
interpretation of the above-mentioned provisions of the Directive and Regulation 
are directly related to the factual and legal circumstances of the main action. In 
order for the referring court to be able to rule in the main proceedings, it is 
necessary for the Court of Justice to provide clarification with the aim of 
eliminating any reasonable doubt concerning the interpretation of the relevant 
provisions of EU law. 
35 In particular, it is necessary to raise questions as to the criteria to be applied when 
assessing the concepts of ‘appropriate profit’ and ‘appropriate incentive’ that 
appear in Article 13(1) of the Regulation, read in conjunction with recitals 7 and 8 
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thereof, and in Articles 40(f) and 41(8) of the Directive, and as to the correct 
interpretation of those concepts in the specific circumstances of the present case. 
The answers to the questions referred for a preliminary ruling will enable the 
referring court to determine, when considering the merits of the case, whether the 
contested decision, adopted on the basis of the Methodology, fixing a new rate of 
return on capital, and the Methodology itself, are in accordance with the 
obligation of the Member State, deriving from EU law, to include an appropriate 
return on investment in that calculation.