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TO THE PRESIDENT AI\D MEMBERS OF THE EFTA COURT

APPLICATION

Submitted pursuant to Article 36 of the Surveillance and Court Agreement,

Article 19 of the Statute of the EFTA Court, and Article 101 of the Rules of Procedure, by

Eviny AS

P.0. box 7050,

5020 Bergen, Norway

represented by advocate Svein Terje Tveit and advocate Paul Hagelund

with an address for service, in accordance with Article 102 of the Rules of Procedure, at

Ruselskkveien 30, PO box 2734, Solli - 0204 Oslo, Norway

Against

The EFTA Surveillance Authority

Avenue des Arts 19H

1000 Brussels, Belgium

(i) Seeking the annulment of Decision No. l6Il22/COL, of 6 July 2022, of the EFTA

Surveillance Authority ("ESA"), and an order that ESA shall bear the costs of the

proceedings.

(iD The Applicant is a Norwegian renewable energy company incorporated under

Norwegian law with its registered office in Solheimsgaten 5, PO 5058 Bergen,

Norway, represented by its Acting Managing Director, Kristin Aadland.

(iiD The Applicant is represented by advocate Svein Terje Tveit and advocate Paul

Hagelund, both at Arntzen de Besche law firm (Russelokkveien 30, 0251 Oslo,

Norway), 982 409 705. Documents and correspondence may be served on the

Applicant via e-EFTACourt to the representatives. The Authority to lodge this

application issued by the Applicant is attached in Exhibit 1. In Exhibit2 we attach

the registration certificate of Eviny AS proving that the Applicant is a legal person

1149

governed by Norwegian law and that Kristin Aadland who has signed the

authorization is entitled to do so. Documents certiffing the authorisation to practise

as lawyers are submitted as Exhibit 3 and Exhibit 4.

Contents I t 2.1

2.2

2.3

2.4

INTRODUCTrON............... ............2 AT FACTS.. ...............7 Introductory remarks....,,... ,...,...,,,,..,.7 The 1996-restructuring of the ownership to the streetlight infrastructure ...........8 Streetlight infrastructure owned by Eviny............. .......,..............10

Regulatory context to streetlights: The Planning and Building Act, the Road Act, the Road Standard (Norw.: "Vegnormalen") and local regulations 11

Regulatory context 1996-2016: Separation requirements in the Energy Act 132.5

2.5.1

2.5.2

2.6

2.7

2.8

3

3.1

3.2

J.J

The accounting separation in BKK Nett 1.4

The operation and maintenance of the infrastructure and the arbitration proceedings in 1.6

The demerger of Enotek and transfer to Veilys....... ....................17 Tender for streetlights owned by the Municipality 18

3.4

Admissibility 18

Introduction.. ............. 19

First plea in law: Manifest errors by applying the notion of undertakings and concluding that streetlight ownership and operation in the present case is an economic activity provided by an undertaking............... .......19

Second plea in law: Eviny did not receive any economic advantage through overcompensation - manifest error of assessment 25

Introduction - legal starting point.......... ...............25 Manifest error of the application of MEOP in relation to capital costs

Manifest error of the application of MEOP in relation to operation and maintenance............36

Third plea in law: There is not distortion of competition in any market - manifest error of assessment .............41 Fourth plea in law: There is no cross-border effect - manifest error of assessment................42

Fifth plea in law: Any alleged aid would be existing aid - recovery is contrary to EEA Article 62 and Protocol 3 SCA, Part II, article 14 and the related decision l95l04lCOL .......43

Sixth plea in law: The Contested Act is based on insufficient examination and fails to state a proper reasoning in violation of Article 16 SCA. 46

******

3.4.1

3.4.2

3.4.3

3.5

3.6

3.7

3.8

4

1

I

INTRODUCTION The present application seeks annulment of ESA Decision No l6ll22lCOL. The

Decision, hereinafter referred to as the Contested Act, is attached as Annex A.1. The

decision concerns alleged aid to BKK Nett AS, Veilys AS and Eviny Solutions AS

2l 49

2.

- all subsidiaries of Eviny AS (formerly "BKK Group", hereinafter collectively and

individually referred to as "Eviny"). The contested measures relate to alleged

overcompensation for payment of (l) operation and maintenance costs and (2)

capital costs in relation to streetlight infrastructure in Bergen. The vast majority of

the streetlights are owned by Eviny, whereas a minority is owned by Bergen

municipality ("the Municipality" or 'oBergen municipality"). The alleged aid

concerns the period from I June 2007 and continuing (capital costs), and the period

from I January 2016 and continuing (operation and maintenance costs). However,

for the streetlights owned by Bergen municipality, EFTA Surveillance Authority

(hereinafter "ESA" or "the Authority") concludes that no aid exists after I April

2020, after which the services were delivered by Eviny following a competitive

tender procedure.

The Contested Act was adopted following a complaint from the Norwegian Business

Federation organisation NELFO dated 1l May 2017 on State aid in relation to (l)

and (2) as mentioned above, as well as a third complaint rejected by ESA (Annex

A.2).

The Applicant is the renewable energy company Eviny, producing and distributing

electrical power in western Norway. Eviny also provides associated services relating

to broadband, digital services, electrification, el-security, digital and electrical

infrastructure, entrepreneur services, district heating etc. Eviny is publicly owned by

the state-owned renewable energy producer Statkraft (43,4Yo), Bergen municipality

(37,8%) and local municipalities and two local energy networks in the greater

Bergen area (18,8%o). Statkraft acquired its ownership stake in Eviny in 1999. At the

time of the transfer of the streetlights in 1996, Eviny (BKK) was owned by Bergen

municipality (70%) and other municipalities in the greater Bergen area.

The streetlight operations in scope of the Contested Act concern streetlights located

on municipal roads only. The streetlights are intrinsically linked to the local energy

network. Hence, in the period from 1996 to2016 been owned and operated by the

network company, BKK Nett AS (hereinafter "BKK Nett") and prior to that Bergen

Lysverker, the latter a unit in Bergen municipality. The Norwegian Energy Act of

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4.

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5

1999 require(d) a legal and functional separation between network activities,

production, and sales of electricity for all vertically integrated companies. The

regulation governing financial and technical reporting, income caps for network

operations and transmission tariffs of I I March 1999 No 302 (Nrw.:

"Kontrollforskriften") require (d) accounting separation to avoid cross-subsidisation

between network operations and commercial activities. This functional separation

and accounting separation is overseen by the Norwegian Water Resources and

Energy Directorate ("NVE").

The Contested Act, when considering the alleged aid relating to capital costs to BKK

Neff in the period from 2007 to 2016, ignores this separate cost accounting which is

instrumental to how BKK Nett operates and work with the accounts. Consequently,

the legal assessment ofthe notion of undertaking, economic advantage and distortion

of competition is fundamentally flawed. As from 2017, the streetlights owned by

Eviny were owned by the subsidiary, Veilys AS (hereinafter "Veilys"). Veilys is

established with the single purpose of owning the streetlight infrastructure, thereby

ensuring separation from the remaining business of Eviny. In this period, Veilys has

purchased maintenance and operation services by the sister company, Eviny

Solutions AS (formerly BKK Enotek AS). As will be shown below, Eviny Solutions

AS (hereinafter "Eviny Solutions"), has continued to observe separate cost

accounting for each of the business areas relevant to Eviny Solutions, including a

strict observation ofcost accounting and project cost accounting for all activities and

costs sorting under each business area.

The background for the NELFO complaint was in short that one of the NELFO

members, Nettpartner AS, in 2016 requested Bergen municipality to open up for

competition for the operation and maintenance services performed by Eviny

Solutions. Bergen Municipality responded to this request by correctly pointing out

that the Municipality did not own the streetlight infrastructure, and consequently that

they had legal right, and Eviny no legal obligation, to tender the services for the

streetlight infrastructure. Subsequently, NELFO submitted the complaint to ESA

requesting that ESA takes the necessary actions - in accordance with SCA Protocol

3 Part II Article 10 - in order to examine whether the annual compensation paid by

6

4l 49

7

Bergen Municipality to Eviny Solutions for operating and maintaining the

streetlights is in compliance with EEA Article 6l on state aid.

The Applicant submits six pleas in law. Firstly, ESA commits a manifest error by

applying the notion of undertakings and concluding that streetlight ownership and

operation is an economic activity. In doing so, ESA ignores the factual and

regulatory context for streetlight infrastructures. There was and is no market for

owning streetlight infrastructures, and the restructuring in 1996 ofthe municipal unit

Bergen Lysverker into a municipality owned energy network company, BKK Nett,

did not in and by itself create a market. The Contested Act ignores fundamental

market failures (no willingness to invest and no incentive to duplicate streetlights).

Equally important, the Contested Act does not consider the cost accounting and

separation performed by the Eviny companies throughout the relevant period.

Secondly, ESA commits a manifest error of assessment by concluding that Eviny

received an economic advantage through overcompensation. ESAs decision makes

an artificial distinction between the 1996 pricing mechanism (which indisputably

does not involve aid) and its practical implementation (which allegedly involves

aid). ESA does not present any accurate and reliable evidence to support any

overcompensation. Rather, ESA relies on unsupported assertions as to how the

Municipality and Eviny behaves and perceives the other party, and presumes the

likelihood of overprice and cross-subsidisation based on the.documents they have

not seen. In the absence of any suitable benchmarks, ESA relies on a selective and

arbitrary extract of the KOSTRA-database devoid of any evidential value in this

matter. The KOSTRA-database is a national information system providing public

information about the local government. The aim of the database is to provide basic

information for research, analysis, planning and governing purposes. The KOSTRA-

database does not provide any cogent justification for overcompensation and state

aid. Generally, the data is incomplete, inaccurate, and not fit for purpose to either

evidence or calculate state aid, as will be explained in detail below.

8.

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9 Thirdly andfourthly, there is no distortion of competition or effect on trade, because

there is no cross-subsidisation between Bergen municipality streetlights owned by

Eviny or operated for the Municipality and commercial tenders or other activities.

Fifthly, any alleged aid must be existing aid not subject to recovery since the aid

measure relates to a sales agreement entered into in 1996 and it is not possible to

separate the agreement from its implementation. The l0-year limitation period for

recovery has expired. The limitation period shall start "on the day on which the

unlavuful aid is awarded', cf. SCA Protocol 3, Article 15. The basic premise ofESAs

reasoning is the enabling of aid "by means ofthe sale ofthe streetlight infrastructure,

in combination with the establishment of the compensation mechanism allowingfor

a regulated level of return" (cf. Contested Act, para 127).The restructuring and the

compensation mechanism were executed and established in 1996.It is not disputed

that the capital costs have been fixed, not even adjusted for inflation, to NOK 303

per streetlight from 1996 to date. The operation and maintenance compensation has

also been fixed throughout the period, only subject to inflation adjustment. The

recovery decision must therefore in any event be set aside because it incorrectly

seeks to distinguish between the 1996 mechanism (which indisputably does not

involve aid) and its practical implementation (which allegedly involves aid). If there

is any aid (quod non), such aid would result from the 1996 agreement and therefore

qualify as existing aid.

Sixthly, and for all the reasons mentioned above, the Contested Act is based on an

insufficient examination of the facts and fails to state a proper reasoning in violation

of Article l6 SCA.

From a principled point of view this case concerns the local democratic right to

organise municipal tasks. Pursuant to the Norwegian Road Act and the Planning and

Building Act, organising the streetlight infrastructure falls within the competence of

the municipalities. How to organise the streetlight infrastructure, depends on a

complex appraisal of economic, legal, political and historical considerations.

Therefore, this responsibility has been administered in different ways, through

transfer of ownership and separate legal entities, public tenders or as in-house

services. Owning public road streetlights and purchasing streetlight operation is in

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6l 49

2

2.1

13.

14

essence a two-sided monopoly. There is no offering of services to a competitive

market; and there is no alternative infrastructure. Duplication is economically

meaningless. The streetlight infrastructure is to a large extent technically integrated

with the net-infrastructure (same masts/towers etc.) and there are synergies and local

knowledge benefits of having it integrated with the net operation (Annex A.3 Letter

from Bergen municipality to Nettpartner). Difficult technical and economic

unbundling issues must therefore be sorted prior to any potential reverse take-over

by the municipality (Annex A.3). The fact that some municipalities decide to

organise the purchase of services by way of competitive tenders does not, in the

Applicants view, turn streetlight infrastructure as such into a market.

AT FACTS

Introductory remarks

In 1996 Bergen municipality reorganised the ownership to the plectricity activities

in the municipal unit Bergen Lysverker by way of transfer to a separate legal entity,

Eviny. As part of this restructuring the Bergen municipal road streetlight

infrastructure was transferred together with the energy network and production

infrastructure. This agreement is described in further detail below (Annex A.4).

After 1996 new streetlights have been constructed, additional municipal road

streetlights have been transferred by developers to Bergen municipality. These

streetlights have remained in Bergen municipality's ownership, and no separate

transactions to transfer these streetlights have been entered into.

According to the Authority, the alleged overcompensation for maintenance and

operation took place from I January 201 6 until I April 2020 for infrastructure owned

by Bergen municipality. For infrastructure owned by Eviny, The Authority found

that the overcompensation started at the same time but is still ongoing. For the

payment of capital costs, ESA held that the unlawful aid comprises all

overcompensation awarded within the limitation period of l0 years, which was

interrupted when ESA forwarded the complaint to the Norwegian authorities, and

invited them to comment on it, by leffer dated 1 June 2017 (Annex A.5).

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15.

2.2

16.

17.

The Applicant shall below, for the purposes of this Application, provide information

relevant to the Contested Act as concerns the 1996-transfer of the streetlight

infrastructure from Bergen municipality to the publicly owned Eviny (then BKK);

the regulatory context for streetlight infrastructure; the EEA and Norwegian

regulations on functional separation and accounting separation relevant to BKK

Nett. This context is missing in the Contested Act, albeit fundamental for a correct

appraisal of the capital cost and maintenance compensation from Bergen

municipality to Eviny. Finally, the Applicant shall add key facts relating to the

operation of the streetlights, the demerger of Enotek and transfer of ownership to

Veilys in 2017, and describe the 2020-Bergen municipality tender for streetlight

services (which Eviny Solutions won as the economically advantageous tenderer).

The 1996-restructuring of the ownership to the streetlight infrastructure Historically, operation and maintenance of municipal streetlights have in Norway

been a matter for the municipality and connected to the energy infrastructure.

However, as part of the liberalisation of the energy markets in 1991, parts of the

streetlight infrastructure, and with that also the tasks related to the streetlight

infrastructure, were transferred to the energy companies, e.g., in Bergen the tasks

have been transferred to Eviny, in Trondheim to ON Energy, and in Fredrikstad to

Nettpartner - all publicly owned entities. Whereas the operation of energy networks

was made subject to national monopoly regulations requiring infrastructure owners

to operate their infrastructures, no monopoly regulation was established for

streetlight infrastructures, meaning ownership-structure and conditions for

operations were decided locally.

The electricity activities of Bergen Lysverker were until 1996 integrated in the legal

body of Bergen municipality and operated as a separate municipal unit. In 1996, this

municipal unit was transferred to BKK DA. The assets and operations transferred

concerned electricity production and distribution, including streetlight

infrastructure. The value of Bergen Lysverker was set to NOK 2.619 billion before

the deduction of debts and pension liabilities (Enskilda Securities). A number of

publicly owned companies were invited to bid (Contested Act, para 28). As part of

the restructuring, Bergen municipality became an owner in BKK DA, later

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20

2t

shareholder in Eviny. The 1996-agreement formed part of the restructuring of

Bergen municipality's ownership in line with the regulatory requirements following

the market liberalisation. Thus, the restructuring did not affect the operations of the

electricity activities, including the streetlight infrastructure.

In accordance with the Norwegian authorities' expressed aim to consolidate power

plants, other municipalities in the region took part in this restructuring by

transferring local electricity activities, including the power supply network and the

streetlights, in exchange for shares in Eviny. The power supply networks, including

streetlights, were organized in BKK Nett. The streetlights were so entangled with

the ordinary low voltage/power supply network that it was considered too complex

to separate the street light network from the ordinary power supply network. The

operation and maintenance of streetlights is not a core business area of BKK Nett,

and the value of the streetlight infrastructure was de minimis compared to the value

of the overall power supply network.

In so doing, BKK Nett became the owner of all of the municipal road street lighting

infrastructure in Bergen, as well as that belonging to other rural municipalities in the

region. Eviny has subsequently been responsible for delivering lights on the streets

to the public, and the municipalities have paid for the streetlighting-services to BKK

Nett according to the same pricing principles. When ownership ofthe streetlighting

assets lies with BKK Nett, the road owner is not in a position to call out a tender for

operation and maintenance.

There is no market for streetlighting-services. The only buyer is the road owner who

must purchase these services to comply with the requirements of the Norwegian

Road Act and the regulations of the individual zoning plan under the Planning and

Building Act. Consequently, the municipalities could not acquire these services from

anyone other than the owner of the infrastructure already in place.

For BKK Nett-owned streetlights, the 1996-pricing mechanism includes two cost

components. Firstly, the road owner pays a capital cost per road light per year. This

cost element covers depreciation and reinvestment in the infrastructure. Secondly,

the road owner pays a price for operation and maintenance per streetlight per year.

9l 49

Power and network rental are not included in the costs of operation and maintenance,

which is paid by the road owner to the power supplier and network owner similar to

any other customers of the electricity and network companies.

22 The pricing mechanism for streetlights owned by Eviny is set out in section 7 (c) of

the 1996-agreement requiring the operation of streetlights to be on market terms

(Annex A.4). The section reads that Eviny "is free to contract on marl(et terms the

operation of streetlights a compensation that shall cover costs + NVE rate of return

for the committed capital." The agreed capital cost compensation (NOK 303 per

streetlight) was calculated immediately following the restructuring and has remained

unchanged (Annex ^A.6 - invoice).

23 To safeguard the proper implementation of the streetlight-element of the 1996-

agreement, more detailing agreements have been entered into between Eviny and

Bergen municipality after 1996. These agreements regulate the number of

streetlights, i.e. when municipal roads are reclassified and/or streetlights should be

added or deducted on existing facilities. The agreements do not change the pricing.

The pricing mechanism from 1996 has remained unaltered, e.g. section 6 of the

Agreement on building and operation of streetlights of 2006 (Annex A.7) and

Appendix A to the Agreement on operation and maintenance of streetlights of 20 1 5

(Annex A.8). Accordingly, the Authority was wrong to introduce an (artificial)

distinction between the 1996 mechanism (which indisputably does not involve aid)

and its practical implementation (which allegedly involves aid).

2.3 Streetlight infrastructure owned by Eviny 24. As of 2022, Eviny owns approximately 25 535 streetlights in Bergen and the

Municipality owns 4 344 streetlights. The streetlights owned by Eviny may be

divided into four categories: (1) street lighting systems on their own street light

poles, (2) street lighting system on a pole jointly owned and managed with other

actors, (3) street lighting system on a pole owned by the electricity network provider,

and (4) street lighting system without the pole. Rental costs are paid when third

parties are the owner of the pole. The streetlight poles owned by Eviny were

established in the period 1960-1991. The lifespan of these poles varies, but based

on experience, the lifespan is estimated to somewhere in the range of 40-70 years.

10t49

2.4 Regulatory context to streetlights: The Planning and Building Act, the Road Act, the Road Standard (Norw.: 'oVegnormalen") and local regulations

25. The Contested Act is manifestly wrong and based on an incomplete and over-

simplified analysis of the Norwegian legal framework, when concluding that the

municipalities are not obliged "to provide streetlighting, or to provide streetlighting

at a certain level" (section l2l).

26. The legal basis for the municipalities obligation to facilitate safe roads by provision

of adequate streetlighting is twofold. Firstly, section 20 of the Norwegian Road Act

stipulates that the municipalities are responsible for operating and maintaining

municipal roads. This Act does not specifically require municipalities to provide

streetlighting, or to provide streetlighting at a certain level. However, the provision

of streetlighting is consistent with the main purpose of the Act, which is to secure

road safety. Secondly,and more importantly, is the role ofthe municipalities as local

area planning authorities under the Planning and Building Act. Construction and

development of an area requires that the future purpose of the area is regulated in a

zoning plan. Zoning plans are legally binding and stipulate how the specific area can

be used and what can be built.

27. Section 3-1 of the Planning and Building Act, stipulates that zoning plans must

promote public safety by preventing risks of loss of life and damage to health, the

environment and important infrastructure, material values etc. A zoningplan failing

to meet these requirements is null and void. Provision of streetlighting is consistent

with one of the main purposes of the Planning and Building Act and the Road Act,

and municipalities are as area planning authorities obliged to facilitate the

construction of streetlighting. The zoning plan itself and the provisions therein are

designed to ensure these legally binding obligations. In respect of the roads in the

zoning area, the zoning plans include provisions on road classification and standard,

including detailed lighting requirements.

28. The Road Standard (Vegnormalen) of the Norwegian Public Roads Administration

(Statens vegvesen) is a "best practice" description ofgeneral requirements for roads,

depending on road classification and other specifics such as traffic load, density of

population etc. This standard stipulates the technical requirements, including

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29

30

31.

32.

requirements relating to streetlights such as required degree of lighting applicable to

the specific road classification. Vegnormalen is supplemented by a detailed manual

(see Annex A.9 Road Standard / Vegnormalen and Annex A.10 Road Lighting

Handbook/Guidelines).

The Zoning plans commonly refer to the Road Standard. In addition, general local

streetlighting regulations apply (Annex A.11 Local regulations for Bergen

municipality). These are regulations issued by the municipal/City council laying

out detailed requirements for local streetlighting (number of lights, design and other

specific local requirements). [n effect, and contrary to what is held by ESA in the

Contested Act, the Road Standard and the local regulations are made legally binding

when the zoning plan is adopted, and these requirements must be complied with

when roads are planned, built or upgraded.

Section 3-3 of the Planning and Building Act obliges the municipalities to ensure

that the Planning and Building Act and all the requirements in zoning plans are

complied with. Any derogation from these provisions requires dispensation under

the Planning and Building Act (chapter 19). The threshold for dispensation is high.

Section l2-7 item 10 of the Planning and Building Act allows for provisions in a

zoning plan, to the extent necessary: "requirements for a special procedural order

for implementation of measures in accordance with the plan, and that development

of an area may not take place before technical facilities and societal services, such

as power supply, transportation and roads, social services, health and welfare

services, day-care institutions, recreation areas, schools etc., have been sfficiently

established" - so-called procedural order rules according to which development

work must be carried out.

The establishment of required infrastructure before any other measures in the zoning

areaate constructed or taken into use, is a standard procedural order rule. Thus, any

developer seeking to realise profits from developing the area must either wait for the

municipality to establish and pay for the infrastructure; or enter into a development

agreement with the municipality whereby the developer accepts the responsibility to

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JJ

2.5

2.5.1

34.

35.

construct and pay for the infrastructure. Logically, municipalities will seek to place

the costs of infrastructure on private developers to the extent possible.

Upon completion, the infrastructure is then transferred, free of charge, to the

municipality. This clearly illustrates that operation and maintenance of municipal

roads is considered a public good that the municipalities must provide the public at

large. Thus, the streetlights in Bergen, which in 1996 was acquired by BKK DA,

were comprising of infrastructure i) paid for and constructed by private developers

and transferred free of charge to the municipality, ii) paid for and constructed by the

municipality, and iii) existing streetlighting on private roads that had been

reclassified to municipal roads whereby the municipality assumed the responsibility

for future operation and maintenance. This is the practical and likely reason for why

parts of the municipal streetlight infrastructure currently is owned by Bergen

municipality, and not Eviny. Put differently, the Municipality currently owns

streetlight infrastructure on municipal roads constructed after 1996.

Regulatory context 1996-20162 Separation requirements in the Energy Act

Regulations

In the period 1996-2016, the streetlights were owned by BKK Neff, the energy

network company in the BKK Group. During this period, BKK Nett was subject to

mandatory requirements concerning legal, functional, and accounting separation

between monopoly activities and commercial activities. Compliance with these rules

and regulations is further described below in section 2.5.2 (overview of BKK Neff's

separation of accounts) and section3.4.2.2 (separation of accounts - capital cost).

The Energy Act (section 1-3, as amended 2006-06-30-59) described vertically

integrated companies as "An undertaking or group of undertakings engaged in the

production or transformation of electrical energy in addition to the transmission,

transformation or distribution of electrical energt (net business). A group of

undertakings is included if there is control between undertakings in the group."

For network companies with more than 10 000 network customers that are part of a

vertically integrated company, the Energy Act sections 4-6 and 4-7 ordered

36.

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2.5.2

38.

39

corporate and functional separation. Legal separation means that the net business

and the production or sales business are separated into separate companies

(independent legal entities). Functional separation excludes personnel from

management ofthe net company from involvement in the management of companies

within the group and vice versa. Later, the Energy Act also implemented the second

EU electricity market directive of 2003. NVE, as responsible supervisory authority,

has, through its practice, detailed the organisational requirements applicable to

Eviny in order to prevent cross-subsidisation from network activities.

Kontrollforskriften, as cited above, sets out requirements for accounting separation.

Section 2-8 explicitly sets out that: "The network company shall not charge its

network operations with costs related to activities subject to competition. The

transfer of revenues derived from network operations to business segments subject

to competition is not permitted. " The requirements in the regulation imply that the

activities must be distinguished into independent business areas with separate

budgets and accounts, cf. section 3-1 of the Control regulation. Direct and indirect

internal transfers of funds between the monopoly (network) and the activities subject

to competition, if any, must be shown in the accounts. Thus, up until I January 2016

when the streetlighting activities were separated from the network activities, the

financial reporting was required for each business areas. The division was as a

minimum to be done into the following categories: power transmission, power

generation, central network, regional network, distribution network,

telecommunications and other activities.

The accounting separation in BKK Nett BKK Nett AS' expansion into economic activities was based on the premise of a

clear separation between the monopoly activities and the commercial activities.

The streetlight operations were subject to the same accounting scrutiny as the

network activity. This meant that BKK Nett calculated and documented a continuous

and transparent calculation of all direct and indirect costs not only for the network

activity, including the alarm-, fibre-, industry-, energy- and streetlighting activities.

The cost allocation methodology and accounting principles applied by BKK Nett in

relation to separating the monopoly (network) activities from the other activities was

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42.

defining also for the income- and cost transparency within the various other

activities. BKK Nett has each year, through the accounting tool Agresso, produced

a granular overview of all the direct and indirect costs for each of the external-

(commercial customers), operation- (municipalities) and investment-projects in

order to calculate appropriate cost-plus hourly rates for work performed in relation

to streetlight operation and maintenance (and other business areas) (Annex A.12

Calculation hourly rates 2007 and Annex A.13 Calculations hourly rates 2014).

In effect, BKK Nett has for the relevant alleged state aid period from 2007 to 2016

kept separate accounts, fully allocating costs and benchmarking prices and rates

against internal cost calculations.

In 2005 the board of BKK AS requested aprofitability analysis of the commercial

activities in BKK Nett. (Annex A.14 Board Matter 13/2005 of 13 May 2005). The

streetlighting activities at this time included operation and maintenance of both

Bergen municipality streetlights as well as streetlights owned by smaller

municipalities in the region. The financial status was prepared on the basis of self-

cost/full-cost calculation separating the income and direct and indirect variable and

fixed costs for each of the business areas. These are the same principles and

calculations as applied to the monopoly activities audited by NVE. These principles

were also applied in the accounts for the other commercial activities going forward.

Throughout the period from 2007-2016 BKK Nett kept self-cost/full-cost

calculations separating the income and direct and indirect variable and fixed costs

for each of the business areas (Annex A.15 Self-cost calculation for 2007 / Annex

4.16 Self-cost calculation for 2014). Lighting is clearly identified as a separate

business area. The income and expenditures from the commercial activities are

identifiable and separate from the monopoly business in the segment accounts for

each year (Annex A.17 Segment Account for 2007 / Annex A.18 Segment

Account for 2014).

In parallel, the number of segments subject to separate accounts were extended. As

of 2011, BKK Nett also produced self-cost calculations clearly identifoing

municipality income and costs separate from i) streetlighting owned and/or operated

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on private roads and ii) the construction ofnew streetlight infrastructure based on

agreements with municipalities or private developers (Annex A.16).

43 The functional separation and accounting separation within BKK Nett is overseen

by the NVE and verified by an external auditor. The Contested Act, when

considering the alleged aid relating to capital costs to BKK Nett in the period from

2007 to 2016, ignores this separate cost accounting which is instrumental to how

BKK Nett lays out the principles of cost allocation. Consequently, the legal

assessment of the notion of undertaking, economic advantage and distortion of

competition is fundamentally flawed.

2.6 The operation and maintenance of the infrastructure and the arbitration proceedings in 2004

44. The Municipality and the BKK-group disagree on the reading and legal implications

of section 7 (c) of the 1996-agreement in respect of the calculation of capitalcosts.

That disagreement led the Municipality to file an application for arbitration in2004

(Annex A.19). The contested elements concerned, in particular what cost base

should be applied in the calculations, the legal significance of re-investments in the

infrastructure and how to account for depreciation. While the Municipality argued

in favour ofthe use ofthe book value, Eviny has argued in favour ofusing the assets'

replacement cost. The Municipality's view would imply that the streetlights were

depreciated in 2007, meaning they should no longer have any value regardless of,

among other things, the technical condition and the significant reinvestments

financed by BKK Nett. (Annex A.20). The Municipality did not pursue the suit

further. Instead, the Municipality requested a section included in the detailed

agreements pertaining to the streetlighting operation stating that "the size of the

remunerationfor capital costs is disputed and will be finally determined in relation

to the ongoing arbitration", cf. section 6 of the 2006 agreement between BKK Nett

and the Municipality (Annex A.7) and Section 7.2 of the 2015 agreement (Annex

A.8). Irrespective thereof, the capital costs invoiced and paid have remained

unchanged at NOK 303 per streetlight, cf. section 6 (3) in the 2006 Agreement: "In

addition comes capital costs for NOK 303 per streetlight".

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45

2.7

46.

47.

The detailed streetlight operation agreement entered into between BKK Nett and the

Municipality for the period January 2015- December 2017 has been extended and is

the prevailing regulation of these operations (Annex A.8 and Annex A.2l).

The demerger of Enotek and transfer to Veilys

Until December 2015, the streetlight activities were an integrated part of the

management of the overall network by BKK Nett. As of I January 2016 the

streetlight infrastructure was transferred to a separate company, BKK Enotek/Eviny

Solutions together with the other activities of BKK Nett subject to competition. The

demerger was a response to the expected changes to the regulatory framework for

network companies. A regulatory order for network companies to spin off activities

other than the monopoly activities were expected.

On I May 2017, the ownership to the streetlight infrastructure was transferred to

Veilys, a subsidiary of Eviny. The business rationale was to secure the interface

between streetlighting activities and other activities. Veilys has no employees.

Veilys has entered into an agreement with Eviny Solutions (formerly BKK Enotek)

for the operation- and maintenance-services on the streetlight infrastructure until 31

December 2025.Eviny Solutions has continued to observe separate cost accounting

for the services rendered to Veilys in the same manner as applied during the BKK

Nett ownership period. The continuity was also foreseen by the fact that the financial

controller responsible for the separate cost accounting at BKK Nett, Maren Kjetsi,

transferred to become financial controller of BKK Enotek/Eviny Solutions, where

she continued until 2020. ln essence, the cost allocation methodology and

accounting principles applied by BKK Nett in relation to separating the (network)

monopoly activities from the commercial activities have governed, and will continue

to govern, how Eviny ensures income- and cost transparency within the various

economic activities. (Annex A.22 Calculation hourly rates 2016, Annex A.23

Segment Account for 2016, Annex A.24 Accounting total 20L7, Annex A.25

Segment Account for 2019). All direct and indirect costs have been transparently

and completely calculated. In effect, Eviny has for the relevant alleged state aid

period from2007 up until today kept separate aceounts, fully allocating costs and

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benchmarking prices and rates against internal cost calculations. (Annex A.23 /

Annex A.25).

48. For the sake of completeness, we note that as of 2020 accounts were presented on a

more aggregated level based on regional profit centres. In practice, the accounts

from2020 is therefore not directly comparable to the previous accounts. Translated

into the state aid issue relevant to this case, however, all the direct and indirect costs

for each of the external- customers, operation- and investment-projects are

accounted for. This in turn forms the basis for an appropriate cost-plus hourly rate

for all work performed in relation to streetlight operation and maintenance (and other

business areas) to be calculated.

2.8 Tender for streetlights owned by the Municipality

49. In2020, Bergen municipality concluded a tender for the operation and maintenance

contract for the streetlights owned by the Municipality (a 355 streetlights as of

2022). Eviny won the tender on the merits based on the lowest price (NOK l0

554 689). The price of the five other tenders ranged from NOK 1l 930 826 to NOK

26 596947,50. The agreement commenced I April 2020 and is a framework

agreement with four-year duration. It includes the operation, maintenance, and

renewal tasks for the streetlights owned by the Municipality, which amounted to

approximately 3 100 at the time. The tendered-out contract also encompassed the 12

000 LED fixtures installed on the BKK-owned network. However, the latter LED

fixtures are new and does in general not require any service under the agreement.

Eviny has to date not registered any services renders for the LED fixtures under the

agreement, save for maintenance following rare strikes of lightening.

3

3.1

50.

PLEAS IN LAW

Admissibility The action is admissible pursuant to SCA Article 36. The Court has jurisdiction in

actions against a decision of the ESA on grounds of lack of competence,

infringement of an essential procedural requirement, infringement of the SCA and

the EEA Agreement or of any rule of law relating to the application or misuse of

powers. If the action is well founded the decision of ESA shall be declared void.

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5l

52.

3.2

53.

54.

3.3

The Contested Act is addressed to the Norwegian Government. However, as alleged

aid recipient and addressee of a recovery decision, the Applicant is directly and

individually concerned and have legal standing to challenge the Contested Act.

The Application is submitted within the relevant deadline. Pursuant to the SCA

Article 36, the Application must be submitted "within two months of the publication

of the measure" . The Contested Act has not yet been published. Our understanding

is in accordance with the jurisprudence of the CJEU (e.g. Joined Cases T-273106 and

T-297106, ECLI:EU:T:2009:233, paras 58-60 andT-745/18, ECLI:EU:T:2021:644,

para 42) and in line with past applications to the EFTA Court (e.g. Case E-9l19

Abeliav ESA). For the sake of legal certainty, the Applicant has nevertheless decided

to submit the Application within two months from notification of the non-

confidential version of the Contested Act (27 July 2022). We would respectfully

encourage the EFTA Court to state in its ruling that the application deadline for third

parties directly and individually concerned by an ESA decision runs from the

publication of the measure.

Introduction As stated in the introduction, the Applicant bases its application for annulment on

the following six pleas. Firstly, ESA commits a manifest error by applying the

notion of undertakings and concluding that streetlight ownership and operation is an

economic activity. Secondly, ESA commits a manifest error of assessment by

concluding that Eviny received an economic advantage through overcompensation.

Thirdly, there is no distortion of competition. Fourthly, there is no effect on trade.

Fifthly, any alleged aid is established and granted in 1996, and would therefore be

existing a\d. Sixthly, the Contested Act is based on an insufficient examination of

the facts and fails to state a proper reasoning in violation of SCA Article 16.

First plea in law: Manifest errors by applying the notion of undertakings and concluding that streetlight ownership and operation in the present case is an economic activity provided by an undertaking

The Applicant respectfully submits that the public funding of municipal streetlight

infrastructure and operation and maintenance of the streetlight infrastructure is not

an economic activity within the scope of the EEA Agreement Article 61.

'19 I 49

55

56.

57.

The concept of an undertaking encompasses every entity engaged in economic

activity, regardless ofthe legal status ofthe entity and the way in which it is financed

(Case E-5l07 opara 78; Case E-8/00, paru62). An economic activity presupposes the

assumption of risk for the purpose of remuneration (indicated in Case C-180/98

Pavlov, ECR I-0645 l, paru 7 6).

At the outset it is recalled that traditionally, the public funding of infrastructure was

considered to fall outside the scope ofthe State aid rules (see the Commission Notice

on the Notion of State aid as referred to in Article 107(1) of the Treaty on the

Functioning of the European Union 2016lC26210l (hereinafter "NOA"), para20l).

This remains true for infrastructure that is used to perform public tasks, if there is

no provision of services to the market. Pursuant to the CJEU, the future use of an

infrastructure determines whether its construction is an economic activity and

accordingly whether its public funding constitutes State aid or not (Joined Cases T-

443108 and T-455l08 Leipzig/Halle v Commission, EU:T:201l:117, paras 92-100).

In order to assess whether the activity is economic or not, "it must be verified

whether those activities, by their nature, their aim and the rules to which they are

subject, are connected with the exercise of public poulers or whether they have an

economic character which justifies the application of the EEA competition rules"

(see Case E-9/19 Abelia, para 89). Contrary to what was invoked by NELFO in the

state aid complaint to ESA in 2017, it cannot matter whether the activity might be

pursued by a private operator. Such a reasoning would bring any activity of the state

not consisting in an exercise of public authority under the notion of economic

activity (ibid, para 88). Next, if the entity carries out non-economic activity

separable from the economic activity, this separable activity is non-economic for the

purpose of state aid law (ibid, para 90). This Court has also observed that furthering

objectives in legislation and fulfilling duties toward the population, generally

indicates that the activity is non-economic (ibid, para92).

The EFTA Court has previously held that municipal kindergartens are not

undertakings within the meaning of the EEA Agreement. The underlying rationale

for this position is that there exist 'cultural, educational and social aspects to the

activities of municipalkindergartens' and that'provision of kindergarten services is

58

20149

59

a task of the municipalities acting as a public authority'. As authority to this finding,

the Court and ESA referred in particular to the purpose and contents of kindergartens

as laid down in Articles I and 2 of the Kindergarten Act and as developed by the

implementing regulation of I March 2006. ESA on its part also referred to the non-

enforceable duty of the municipalities to ensure sufficient kindergarten places (see

Joined Cases C-l59l91and C-160/91 Poucet and Pistre [1993] ECR I-637; Case

218100 Cisal 120021 ECR I-691; Joined Cases C-264101, C-306101, C-354/01; C-

355/01 AOK BundesverbandI2004)ECR I-2493). In addition, within the social and

educational fields, the contracting parties do not only have a"considerable degree

of discretion in deciding on the objective of their tasks, but also in determining how

to fulfil that objectlve" (See ESA's decision, l72l2llCOL, University summer

courses,para4l). Translated into our case there is a strong public safety rationale

for ensuring streetlighting, there is regulatory context to streetlights establishing

among others an obligation to ensure sufficient streetlights and there is a discretion

on the local authorities when organising the ownership to and operation of the

streetlight infrastructure.

As stated in NOA, the state aid rules do not apply where the State acts"by exercising

public power" or where public entities act "in their capacity as public authorities"

(para l7). An entity may be deemed to exercise public power where the activity in

question forms part of the essential functions of the State or is connected with those

functions by its nature, its aim and the rules to which it is subject (ibid).

Securing streetlighting on public roads is in essence a public task. There are no legal

instruments or precedents to impose on any natural or legal person the costs and

work associated with owning, operating and maintaining streetlights. On the

contrary, the Planning and Building Act, the Road Act and the Road Standard make

it clear that it is a public task to secure the streetlighting on public roads, cf.

section 2.4 above. The Municipality has for its own expense and risk over time

operated and maintained streetlights along municipal roads. The Applicant contends

that the purpose, funding, establishment and future use of streetlights mean that the

ownership to and operation and maintenance of streetlights as a starting point is a

non-economic activity. Even ifthese activities were considered to be economic, they

60

2't I 49

6t

62.

cannot be separated from the exercise of public power (i.e. municipality's public

tasks of securing streetlighting), so the activities as a whole must be regarded as

being connected with the exercise of public powers (see Case C 138/17 Compass-

Datenbank;C 687/17 P TenderNel, and the Commission decision of 20 September

2079 in Case SA.34402-20I5lC (ex 20l5AtrN\- HIS Germany,para.l23 et seq.).

There is no private demand for municipal streetlights, and there is no private

willingness to pay for this service (free riding). These market failures strongly

support the finding of a non-economic activity. The decisions on how to organise

the streetlighting on municipal roads and the means to do so are non-economic, even

if - by the use of municipal powers - the streetlighting operation and maintenance

can be purchased (tendered) on a market. Even if municipalities may organize public

tenders to acquire streetlight services and thereby purchase services in a market, this

is not relevant to Eviny. Eviny, as owner of the streetlights, is not bound by the

procurement rules. In any event, Eviny remains free to perform the services in-house

without opening up a market for bidding on servicing its own infrastructure.

Turning to the transfer of the ownership and operation and maintenance tasks to

Eviny in l996,the Applicant contends that neither the nature of the tasks, the aim oi performing the tasks, nor the rules to which they are subject has changed. The

municipal streetlight infrastructure was transferred by the Municipality via BKK DA

to BKK Nett as part of a restructuring of the Municipality's activity in the municipal

unit Bergen Lysverker, in line with the regulatory requirements following the market

liberalisation. The restructuring did not affect the operations of the streetlight

infrastructure as the infrastructure was administered by the network monopoly

functionally separate from the energy production and other parts of Eviny. The

Applicant contests that this restructuring created any market. Indeed, the purpose of

the transfer, and the continued operation and maintenance, was to ensure a "long

term, stable standard on the streetlight@" (2014-Agreement, Clause 2; Purpose).

Moreover, in any case the public funding of municipal streetlights and operation and

maintenance of the infrastructure was not an economic activity in 1996 or anytime

soon thereafter. ESA fails to consider the legal and factual contextual differences in

the period 1996-2016, 2016 and 2017-2022. In cases relating to the concept of

63

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64.

65

undertaking in the aviation sector, the Commission has stipulated that the "gradual

development of market forces does not allow for a precise date to be determined,

from which the operation of an airport should without doubt be considered as an

economic activity" (see Guidelines on State aid to airports and airlines, OJ C 99,

4.4.2014, paras 28-29). CJEU has recognised the development in the nature of

airport activities on the application of state aid rules (ibid). The General Court held

that from 2000, the application of state aid rules to the financing of airport

infrastructure could no longer be excluded (see Joined Cases T-443108 and T-455i08

Leipzig-Halle airport ECR II-1311 paras 105-106). These transitional rules have

been applied by the Commission in a couple of airport cases (Commission decisions

SA.2ll2l (Franlfurt-Hahn) and 5A.22030-2007|C, 5A.29404, SA.32091

(Flughafen Dortmund)). The NOA not only explicitly confirmed the mentioned

above aviation guidelines on the applicability of state aid law to airport infrastructure

financing, but also generalises the principles in this notice and intends to apply them

beyond the aviation sector, to the construction of other (commercially used)

infrastructures that are inextricably linked to an economic activity and compete with

other infrastructures (e.g., port, broadband and energy infrastructure).

The Applicant is not aware of any specific cases by the EFTA Court or CJEU where

the public funding of municipal streetlight infrastructure and operation and

maintenance of streetlight infrastructure was held to constitute an economic activity.

The Contested Act did not consider the element of gradual development of a market,

but simply concludes that there was aid as of 1996 when the Municipality, according

to ESA, established a market. The Applicant contends that there is no fundamental

change ftom23 December 1996 when the streetlight ownership and operation was

in Bergen Lysverker, and24 December 1996 when the streetlight ownership and

operation was in Eviny, in which Bergen municipality had a majority stake due to

the sale of Bergen Lysverker.

Next,the Applicant submits that any non-economic activity within BKK Nett in the

period from 1996 to 2016 were de-minimis, purely ancillary and non-separable to

the non-economic activities connected with the exercise of public powers. It is

recalled that if an economic activity "cannot be separated from the exercise of its

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66.

67

public powers, the activities exercised by that entity as a whole remain activities

connected with exercise of those public powers" (see Case T-747117 UPF

ECLI:EU:T:2019:271 paru82).It is further recalled that there is"no threshold below

which all of an entity's activities should be regarded os non-economic activities

because of its economic activities are in minority" (ibid para 83). The other activities

in BKK Nett have been grouped into the business divisions industry (sale of

engineering and assembly services to industrial customers), energy (sale of

engineering and assembly services to other power companies), lighting (operation

and maintenance and construction and sale of road lighting systems), fibre network

(construction of broadband facilities) and residential alarms (safety services

launched in 2004) (Annex A.14). These activities only developed gradually. Any

other activity within BKK Nett than the monopoly activities relating to the network

amounted to at most around 10-16% of the total annual operating revenue in the

relevant period (except in2009 where it was above l6o/o,but below 20%).

In the alternative that the other activities are non-ancillary or separable, it is all the

same possible to separate the costs and income from Bergen municipality. The costs

and income from the activities for Bergen municipality is part of the non-economic

public activity in the separated accounts in BKK Nett, which is clearly

distinguishable from the other activities performed by BKK Nett. This means that

the classification ofthe activities for Bergen municipality in relation to the municipal

road streetlights should not be called into question as constituting an economic

activity regardless of whether these are considered purely ancillary.

Against this background, it is respectfully submitted that ESA has arrived at an

eruoneous conclusion by way of insufficient examination and understanding of the

factual and legal framework in; that in any case, the matter is such that the Authority

should have entertained doubts, leading it to investigate further; and that the findings

are borne out of an insufficient examination that translates into an absence of

appropriate reasoning.

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3.4

3.4.1

68.

69

70

7l

Second plea in law: Eviny did not receive any economic advantage through overcompensation - manifest error of assessment

Introduction - legal starting point

The application of the market economy operator principle ("MEOP") entails a

complex economic assessment comparing the behaviour of the public

authority/undertaking with that of a similar private economic operator under normal

market conditions.

In the Contested Act, ESA has relied on Chronoposr (Joined Cases C-83/01 P, C-

933101 P, C-94101 P Chronopost SA v Ufex and Others EU:C:2003:338). CJEU's

application of the MEOP in that case contrasts with the traditional approach to the

MEOP of determining normal market conditions due to the particular situation in

that case. Chronopost operated in a reserved market as the services provided by it

were inseparably linked to the unique postal network. No commercial undertaking

would establish such as network in the absence of state intervention as it was not

devised based on commercial considerations (see ibid, paras 36-37).

ln Chronopost,the Court of Justice held that there was no possibility to compare the

situation of Chronoposl with that of a private group of undertakings not operating

in a reserved sector. In that case, "normal market conditions", which are necessarily

hypothetical, must be assessed by reference to the "obiective and veriJiable

elements" which are available (ibid, para 38). "fl]in the absence of any specific and

objective references in the market, I fear that the assessment might appear to be

excessively hypothetical and abstract and might produce highly controversial, not

to say arbitrary, results" (Opinion AGTizzano in Chronopost, cited above, para 55).

ESA has the burden of proving whether or not the conditions for the application of

the MEOP have been satisfied (see Case C-244/18 P Larko v Commission

ECLI:EU:C:2020:238 para 65; Case C-300116 P Commission v Frucona Koiic,

EIJ:C:2017:706, para.24 etseq.; Case C-405 lll P, Commission/BuczekAutomotive,

EU:C:2013:186, para 33; Case C-579116 P, Commission v FIH, EU:C:2018:159,

para 47).It is certainly not up to the Member State to disprove the existence of these

conditions - no reversal of the burden of proof (see Case T-565119, Oltchim v

C o mmis s ion, ECLI: EU : T :2021 :904, paras 1 5 6, 17 9, I 89, 21 5 and 220).

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72.

73

74

ESA has to carry out an "overall assessment", taking into account all relevant

evidence in the case enabling it to determine whether the recipient undertaking

would "manifestly not have obtained comparable facilities from such a private

operator" and "in that context, the only relevant evidence is the information which

was available, and the developments which were foreseeable, at the time when the

decision to implement lhe measure at issue was taken". (see Case C-244/18 P Larko

v Commission ECLI:EU:C:2020:238, para 66). Although ESAs selection of the

appropriate benchmarking tool as a starting point is a matter for ESA, the selection

must be done within "theframework of its obligation to conduct a complete analysis

of all factors that are relevant to the transaction at issue and its context, including

the situation of the recipient undertaking and of the relevant market, to determine

whether the recipient undertaking receives an economic advantage which it would

not have obtained under normal market conditions" (see Case T-165116 Ryanair v

Commis s ion, ECLI: EU:T :2018:9 52, para I 08).

It is not sufficient to "rely on economic evaluations" made after the advantage was

conferred on retrospective findingthat the investment made by the Member State

concerned was actually profitable, or on subsequent justification of the course of

action actually chosen (see Case T-747115, ECLI:EU:T:2018:6, para 85). The Courts

must, inter alia, "establish not only whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the

relevant informationwhich must be taken into accounl in order to assess a complex

situation andwhether it is capable of substantiating the conclusions drawnfrom it"

(see Case C-300/16 P Commission v Frucona Koiice parc 64).

Even where the Member state does not fulfil its duty to cooperate and has not

provided the information ESA has requested, ESA must base its decisions on

reliable and coherent evidence which provide a sufficient basis for concluding that

an undertaking has benefited from an advantage and therefore support the

conclusions which it arrives at (see Larko, cited above,para69). The Applicant

also submits that ESA "cannot assume thot an undertaking has benefitedfrom an

advantage constituting State aid solely on the basis of a negative presumption,

based on a lack of information enabling the contrary to be found, if there is no

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other evidence capable of positively establishing the actual existence of such an

advantage " (ibid para70).

75. The Applicant submits that ESA was wrong to focus its assessment on the question

whether the (market conform) compensation mechanism laid down in the 1996 was

complied with (see the Contested Act paras 164, 176,2ll). Firstly, the distinction

between the 1996 mechanism (which indisputably does not involve aid) and its

practical implementation (which allegedly involves aid) is artificial since both are

intrinsically linked. Secondly, and in any event, ESA was wrong to exclusively base

its assessment on the question whether the (market conform) compensation

mechanism laid down in the 1996 was complied with (ibid). After ESA arrived at

the (erroneous) conclusion that this (market conform) mechanism was not

applied/monitored correctly, ESA should have assessed whether the compensation

actually paid was market conform for other reasons.

76. Against this background, and as further argued below, the Applicant contends that

the Contested Act rests on weak grounds and is wrongly decided at law and in fact.

3.4.2 Manifest error of the application of MEOP in relation to capital costs

3.4.2.1Introduction 77. In the Contested Act, ESA considers it commensurate with normal practice to

compensate the infrastructure owner for capital costs (para 193) and concludes that

the use of the NVE reference rate is commensurate with an adequate level of return

in line with Chronopost (para 205). The Authority continues to assess whether the

compensation mechanism has been followed in practice, and ultimately concludes

that "the totality of the submitted information [..J indicates that the compensation

has most likely exceeded the adequate level of return allowed by the 1996-sales

agreement".

78. The Applicant respectfully submits that the Authority has arrived at that erroneous

conclusion through an insufficient examination of the facts. The Applicant notes that

there is no appropriate application of an adequate benchmark of calculating the

market price other than the highly questionable data from the KOSTRA-database

(Annex .4,.26 Oslo Economics Report of 23 September 2022).

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81.

82.

79 In the Contested Act, para 211, ESA concludes that there is an advantage because

"the totality of the submitted information indicates that the compensation has most

Iilrely exceeded the adequate level of return allowed by the 1996 sales agreement".

However, in light of ESA's burden of proof; the mere likelihood (even if high)

should not be sufficient to establish aid.

80. ESAs conclusion is based on four strands of alleged evidence.

Firstly, ESA states that the submitted information by the State and the Municipality

has not established how the eligible capital cost have been calculated. In particular,

ESA observes that control has been made difficult by the lack of separate accounts.

The opposite is true, and ESAs account of the facts are fundamentally flawed, as

will be shown below.

Secondly, ESA refers to the fact that the NVE reference rate incorporates general

inflation, so that a capital base compensation based on a replacement cost-approach

will compensate inflation twice. In doing so, ESA misreads the 2004-disagreement

and the 1996-agreement. The 1996 compensation mechanism and the actual funds

paid do not equal the replacement cost, albeit a replacement cost approach has been

argued by Eviny, as will be explained further.

83 Thirdly, ESA refers to the disagreement between the Municipality and Eviny

concerning how to calculate the capital base as evidence for an overcompensation.

Without an accurate appreciation of the facts surrounding the disagreement, a

difference of opinion is not in itself evidence of overcompensation.

84 Fourthly, ESA refers to a split-image of the KOSTRA-database concerning the top

ten municipalities, indicating that the capital base is overcompensated. Again, the

KOSTRA-database is not intended, nor suited, for a detailed comparison and

benchmarking to market price. SSB itself has stated that there are challenges in

relation to the KOSTRA figures due to the reported data and the lacking accuracy

of the statistics, where SSB acknowledged that the definitions may be difficult to

understand and that one must be critical to the collected data represented by the

statistics, as is evident in the minutes from a working group meeting on 25 May

2022,page 2 (Annex A.26).

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85 ESA misreads the purpose, scope and context of the 1996-agreement, and therefore

also the basis for the capital cost compensation. The 1996-agreement was based on

the Municipality selling the electricity activities in Bergen Lysverker in return for

an ownership stake in Eviny (then BKK). The assets were transferred to BKK Nett,

and the parties pursued a long-term perspective. A valuation based on a historic cost

perspective would ignore this perspective and the ownership risks involved. As

stated above (3.4.1), ESA makes an artificial distinction between the 1996-

mechanism (no aid) and its practical implementation (allegedly aid) and focuses on

omissions by the parties instead of establishing (positive) aid.

3.4.2.2 Documentation - separation of accounts

86. The Applicant, firstly, observes that ESA cannot simply assume that an undertaking

has benefited from an advantage constituting State aid solely on the basis of a

negative presumption, based on a lack of information enabling the contrary to be

found, if there is no other evidence capable of positively establishing the actual

existence of such an advantage (see Case C-520107 P, Commission v MTU

FriedrichshafenE\J:C:2009:557, paras 57-58). Secondly, the Contested Act fails to

reproduce the legal starting points as concerns cross-subsidization and ignores the

actual separation of accounts in Eviny (BKK Nett in the period 1996-2016 and

subsequently in BKK Enotek/Eviny Solutions).

87 Cross-subsidization is not defined in the EEA Agreement, but was defined among

others in the 1991 Guidelines for the Telecommunications Sector as follows: "Cross

subsidization means that an undertaking allocates all or part of the costs of its

activity in one product or geographic market to another product or geographic

market". The means to avoid the risk of cross-subsidisation is accounting separation,

cf. Commission Directive 80l723lEEA of 25. June 1980 (with amendments). How

to separate accounts is not defined in the EEA Agreement itself, but several ESA

decisions have concluded the principles in the Commission Directive 2006ll1llEC

of l6 November 2006 on the transparency of financial relations between Member

States and public undertakings as well as on financial transparency within certain

undertakings (<Transparency directive>), provide guidance even if the entity in

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88

89

question is not covered by the Transparency directive (see 460/13 /COL para 66 and

l13l14|COL para 33).

The EU transparency directive requires that the method used to allocate revenues

and costs to different activities must clearly emerge (Article I (2) and 4 of the

Transparency directive. However, no specific cost-allocation method is prescribed

in the Transparency Directive (See Fehling, in chapter 7, Problems of Cross-

Subsidisation in Krajewski, Neergaard, van de Gronden o "The Changing Legal

Frameworkfor Services of General Interest in Europe - Between Competition and

Solidarity", (The Hague: T.M.C. Asser Press, 2009), page 135). The cost allocation

mechanisms should, pursuant to ESAs practice, be "objective and transparent" to

ensure that the commercial activities cover all the costs related to these operations

(including all variable costs and an appropriate share of the fixed costs) (see ESA's

decision 460113/COL para 68). The Applicant notes that the Article 8 of the

Transparency directive is relevant for the interpretation of "separate accounts" as it

is stipulated that: "annual accounts and annual report include, inter alia, the

balance sheet and profit/loss account (.../ " Thus, it is necessary that non-economic

activities have a segment of a balance sheet and profit/loss account and that the

economic activities have a segment that includes balance sheet and profit/loss

account.

BKK Nett's expansion into economic activities was based on the premise of a clear

separation between the monopoly activities and the commercial activities, and a

transparent and complete calculation of all direct and indirect costs pertaining to the

commercial areas of alarm, fibre, industry, energy and lighting (Annex A.14 Board

Matter 13/2005 of 13 May 2005). Firstly, the cost allocation methodology and

accounting principles applied by BKK Nett in relation to separating the (net)

monopoly activities from the commercial activities influences and defines also how

BKK Nett ensures income- and cost transparency within the various economic

activities. As described above, throughout the period from2007-2016 BKK Nett has

kept self-cost/full-cost calculation separating the income and direct and indirect

variable and fixed costs for each of the business areas (Annex A.17 Self-cost

calculation for 2007 / Annex A.18 Self-cost calculation for 2014). Secondly,

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91.

lighting is clearly identified as a separate business area. The income and

expenditures from the business area self-cost calculations are identifiable and

separate from the monopoly business in the segment accounts for each year (Annex

A.17 Segment Account for 2007 / Annex A.18 Segment Account for 2014). As

of 2012, BKK Nett also produced self-cost calculations clearly identifying

municipality income and costs separate from "private and commercial" lighting

income and cost and "other lighting" income and costs Annex A.16 Self-cost

calculation for 2014). Thirdly, BKK Nett annually produced a granular overview

of all the direct and indirect costs for each of the external- (commercial customers),

operation- (municipalities) and investment-projects in order to calculate appropriate

cost-plus hourly rates for work performed in relation to streetlight operation and

maintenance (and other business areas) (Annex A.12 Calculation hourly rates

2007 lAnnex A.13 Calculation hourly rates 2014). Reference is made to section

2.5.2.

Indeed, ESA has not shown that the price in competitive markets does not cover both

directly attributable costs and an appropriate share of common costs (see Fehling,

"Problems of cross-subsidisation", cited above, page 135) on the remaining

considerable discretion left to, in the present context in-house entities, in the choice

of cost-allocation methods).

Eviny submits that it is relevant evidence, in relation to exclude possible cross-

subsidising, to consider whether an "external auditor verifies annually that the

company uses the funds granted to itfor its non-economic services; and in order to

do that, a correct cost allocation methodologt has to be in place" (see ESA's

decision 84llsCOL para 63). ESA ignores the role of NVE in supervising the

separation of accounts within BKK Nett, the owner and operator of the streetlights

in the period 1996-2016. As noted by the Commission in its decision 20111839

(TV2lDanmark, OJ L 340,21.12.2011, p. 0001-0031), even a public audit having

no power to prevent overcompensation is relevant to the analysis (para 232).

Translated into the regulatory context of our case, NVE has both the authority and

mandate to prevent cross-subsidisation within BKK Nett for the relevant period up

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to2016. Although NVEs focus is the net monopoly business, the reporting to BKK

Nett also accounts for other business areas such as lighting.

92. Next, ESA should have examined BKK Nett's publicly available segment accounts

in relation to the allegation of cross-subsidisation. It may be necessary for ESA,

where appropriate, to go beyond a mere examination of the matters of fact and law

brought to its knowledge (see Case E-4121 SIW t6v ESA pa-a 63). In particular, if ESA has been made aware of potentially relevant pieces of information which call

into question the information at its disposal. The omission to investigate BKK Nett's

segment accounts calls into the question the information the Authority had at its

disposal on the alleged cross-subsidisation.

93 Consequently, the Authority has made a manifest error of assessment of not

sufficiently examine the fact that BKK Nett was the owner of the streetlights.

3.4.2.3 No double inflation compensation of capital costs

94. In the Contested Act, ESA held that the application of the NVE reference rate on a

capital base established following a replacement cost-approach would in effect

compensate for general inflation twice (see the Contested Act, para 208). Further,

ESA assesses that under the NVE regulation, the NVE reference rate is applied to

the book value of the power grid assets put into productive use, which the

compensation mechanism in the 1996 sales agreement should reflect. However, ESA

does not submit that this in itself has led to overcompensation, but only argues that

the capital base may have been established in a manner which is not commensurate

with the regulation of adequate return considering the evident disagreement in 2004.

95 Regardless of whether the NVE reference rate incorporates general inflation, the

Applicant disagrees that there has been an actual compensation for general inflation

twice. The actual payments following the 1996-agreement were never equal to the

replacement cost-approach, meaning that Eviny never were compensated for general

inflation twice.

3.4.2,4 The disagreement in2004 - no evidence for overcompensation of capital costs

96. The Applicant contends that the Contested Act,para209, misrepresents the facts and

the context of the 1996-Agreement and the disagreement in 2004, and that ESA

321 49

makes a manifest error of assessment by refening to the disagreement in support of

the conclusion that there is overcompensation.

97 Firstly, it is premature to draw conclusions from the disagreement without

considering the arguments presented by BKK Nett AS in 2004. BKK Nett argued

that it is necessary to acknowledge the actual wording of the 1996-Agreement,

Clause 7 c, when it states that the 'oBuyer shall be free to agree on market terms the

operation of streetlights, which shall entail cost-coverage + NVE interest rate for the tied-capital". Therc is no reference to book value in the 1996-Agreement, but

merely a reference to market terms and NVE-interest rate. Streetlight infrastructure

has a long lifecycle, and the capital compensation must account for depreciation and

investments needed (Annex A.20 Reply to application to the Arbitral Tribunal).

Secondly, the actual payments under the 1996-agreement were never equal to the

replacement cost-approach. Even if, therefore, BKK Nett's position in the dispute

should be capable of amounting to overcompensation and unlawful state aid, this is

not relevant for the appraisal of the actual payments made. Thirdly, and importantly,

compensating capital costs based on replacement value and not historic cost/book

value, would have been in line with the market practice as concerns long life

infrastructure such as network infrastructure. Fourthly, the Contested Act makes an

inaccurate and insufficient application MEOP when simply assuming that the

existence of the dispute is an indication of aid. It cannot be excluded that the

Municipality's decision not to pursue the case was motivated by a legal and

procedural assessment of the strength of the claim, thereby amounting to conduct

which would be normal and diligent for a market actor of a contractual disagreement

(see in comparison CaseT-46197 SIC paru99).

3.4.2.5 The KOSTRA-database - no evidence for overcompensation of capital costs

98. The Contested Act observes that the Municipality had higher costs per streetlight

compared to nine other large Norwegian cities in a period from 2015-2019, as

reported in the KOSTRA-database, and concludes that this is an indication of

overcompensation.

The Applicant contends that ESA has made a manifest error in the application of

MEOP by extracting and applying data from the KOSTRA-database when

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concluding on the existence of state aid. It should be recalled that ESA must properly

establish the relevance and verifiability of the data used (see Case T-77116, Ryanair,

ECLI:EU:T:2018:947, where the General Court upheld the applicants plea that l) the Commission has failed to properly establish the estimate passengers in their

MEOP analysis and 2) the Commission failed to adduce evidence justifying taking

into account expected additional costs.

100. The KOSTRA-database does not provide any cogent justification or positive

evidence for overcompensation and state aid. Generally, the data is incomplete,

inaccurate, and not fit for purpose to either evidence or calculate state aid.

l0l Firstly, and more specifically, ESA only focuses on the cost-input from the ten

largest cities, based on costs per light for a period of four years, ignoring the past

and the present; ignoring any other city; ignoring the quality of the cost input and

the cost per km/road and misreading what the KOSTRA-database is (and is not). It

is argued that ESA has not establish whether the KOSTRA-database relied on is

factually accurate, reliable and consistent with the other information and ESA has

not proven or concluded that the KOSTRA evidence contains all the relevant

information which must be taken into account in order to assess a "complex"

situation and whether it is capable of substantiating the conclusions drawn from it

(see Case C-300116 P Commission v Frucona Koiice parc 64).

102. Secondly, the KOSTRA-database relies on input from the municipalities, and the

input is inconsistent and inaccurate (Annex A.26 Oslo Economics Report of 23.

September 2022). By way of example, Bergen municipality included capital costs

when reporting streetlight costs. It is not clear whether the other municipalities

include capital costs.

103 Thirdly, the comparison between cities ignores a set of variables unrelated to state

aid allegations, which may influence the reported costs. By way of example, the

difference to Stavanger relates to a difference in energy prices, cf. Streetlight cost

Bergen KOSTRA from Bergen municipality. Regardless of the reasons for

differences in energy prices, this means that the KOSTRA-data from Stavanger and

Bergen municipality are not comparable. As illustrated by Oslo Economics, the data

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from Trondheim municipality illustrates the complexity. Trondheim is one of the

municipalities in the sample ofESA's benchmarking. The examination of individual

products and services in Trondheim's agreement with ON Energi AS clearly show

that it reflects municipal-specific characteristics and scope, whereas services and

products can be significantly different in Bergen compared to Trondheim.

Trondheim's total cost is affected by the municipality's choice of product/service

combination since the supplier has separate unit costs depending on product

characteristics (Annex .4,.26 Oslo Economics Report of 23. September 2022).The

costs for the same quality and quantity of services/products are not comparable and

does not make for relevant comparisons. The variability in the agreements means

that the data is not a meaningful proxy for market price. The streetlight contracts

vary significantly. Whereas some contracts are based on streetlight as-a-service

other contracts are call-offcontracts according to specific needs at specific points in

time.

104. Fourthly, the actual invoiced amount in a number of instances is different than the

reported KOSTRA-database figures for Bergen: 1) Capital cost of NOK 4,59 mill

per year (NOK 303 per streetlight) and2) operation and maintenance of NOK 9,6

million (201S) (ca. NOK 495) inflation adjusted (see the contractual commitments

and amount of streetlights in the Contested Act paras 37-40 as the basis for our

calculations). ESA should have noted the significant difference in the data, in

particular the agreements of Eviny's contractual commitments, and requested

additional explanations or information from the Norwegian authorities (see in

comparison Case T -7 7 I I 6, Ryanair, ECLI: EU :T :201 8:9 47, par a 59).

105. Fifthly, the KOSTA-database does not in any case evidence any state aid priorto

20 I 5 and after 2019 (see in comparison ibid para 61). As a result, the Authority has

in any case failed to establish the costs and alleged overcompensation of the capital

costs before 2015 andafter2019.

106. Sixthly, the Contested Act is contradictory when it puts significant emphasis on a

selection of KOSTRA-data, whilst ignoring the most verifiable and objective data

relevant to streetlight infrastructure cost in Bergen in recent times, namely the

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competitive tender prices submitted in2020.If anything, this is a much closer (yet

not sufficient) benchmark for what would be a relevant price for the services.

107 . Against this background, we respectfully plea that the Court disregard the KOSTRA-

database and conclude that ESA committed a manifest enor of assessment when

emphasising the KOSTRA-database as an indication of state aid.

3.4.2.6 Concluding remarks 108. The Applicant submits that the alleged evidence upon which the Contested Act

relies, whether assessed separately or together, does not prove any

overcompensation of capital costs to Eviny. ESA cannot simply assume that the

Eviny has benefitted on a negative presumption based on the lack of information

enabling the contrary to be found. ESA's overall assessment has not proven that the

compensation for the capital costs to the Eviny is manifestly above the market price.

The selective approach to factual circumstances upon which the Contested Act relies

is inconsistent, unreliable and not consistent with the burden of proof and the

complex economic assessment inherent in applying the MEOP.

109. In any case, it is submitted that ESA should have entertained serious doubts, leading

it to investigate further; and that the findings stem from an insufficient examination

translating into an absence of appropriate reasoning.

3.4.3 Manifest error of the application of MEOP in relation to operation and maintenance

3.4.3.1Introduction I 10. in the Contested Act, para 176, ESA concludes, again from the basis of Chronopost.

that there is an advantage because <<the submitted information indicates that the

compensation has most likely exceeded the level commensurate with the mechanism

in the 1996 sales agreement>>. However, in light of the Authority's burden of proof,

the mere likelihood should, again, not be sufficient to establish aid. The Contested

Act fails to point to any "objective and verifiable elements" which give grounds for

establishing any overcompensation (Joined Cases C-83/01, P, C-93-01 P and C-

94101P Chronopost and Others v UFEX and Others, ECR I-6993, para 38).

ESAs conclusion is based on four strands of alleged evidence. Firstly, ESA alleges

that a rational private operator would ensure control of the prices presented by the

lll

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operator (Eviny), initiate legal steps if necessary and generally invest more resources

in ensuring compliance with the 1996-agreement (see section 3.4.2.1 above).

Secondly, ESA concludes that the Municipality has entertained concerns of

overprice throughout the period. Thirdly, ESA finds that Veilys does not have

sufficient information on direct and indirect costs associated with the operation and

maintenance activities. Fourthly, ESA refers to the KOSTRA-database and

compares Bergen with nine other large municipalities in the period 2015-2019.

3.4.3.2 Alleged inactivify from Bergen municipality

ll2. As to the first strand of alleged evidence, it should be noted that the Municipality is

not a normal private operator in regard to streetlights. Bergen municipality

previously owned and operated the streetlights as a monopoly service and

reorganised the ownership of the entire streetlight infrastructure to ensure a long-

term operation and maintenance basis for a public infrastructure. The assumption,

however, that the Municipality, did not invest in compliance - and the legal

conclusions drawn from it - are effoneous at fact and in law. The Municipality has

requested, and received, comprehensive information from Eviny (then BKK Nett)

regarding the costs and risks involved in operating and maintaining the streetlight

infrastructure. The actual price paid is based on commercial negotiations and a

meeting of wills in 1996, and the subsequent honouring of that agreement is based

on the very same price as initially agreed (inflation adjusted). Also, see section

3.4.2.4 above in relation to the 2004-dispute and the relevance of legal uncertainty

of a claim in a legal dispute. The Municipality, as a nonnal and diligent market

operator, chose actively to not further litigate the 2004-dispute.

ll3. Next, it should be recalled that only an active intervention can constitute aid.

However, The Authority seems to assume that merely a failure to renegotiate or to

terminate a contract may amount to aid (see Case T-865116 Filtbol CIub Barcelona

v Commission ECLI:EU:T:2019:113,paru45;NOA para51' Article 1 of Regulation

201511589} This is not consistent with the case law. According to the MEOP, the

relevance of a "specific transaction", a "meas'ltre actually carried out" has to be

assessed under state aid law (see Case C-I24/10 P, EDF v Commission

ECLI:EU:C:2012:318, para 83) or an"intervention by the state" (see NOA para77).

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3.4.3.3

tt4. The 2004-dispute and disagreement between the municipality and Eviny As to the second strand of alleged evidence (see Contested Act paras 170-171), the

Municipality's disagreement - and doubts as regards whether the price was high or

too high - cannot in and by itself call into question the compliance with the MEOP-

test. As shown above, and in the analysis of the KOSTRA-database, there is no

coherent and plausible proof that the price is beyond and above the "market price"

for streetlights (cf. Annex A.26 Oslo Economics report). After 2004, the

Municipality has not initiated any legal action to require adjustments of the 1996-

agreement, and the unsubstantiated statements by the Municipality in the period

2017-2022 to ESA in regard to the state aid complaint process, must be seen in the

context of the allegations made and does not in and by itself constitute any coherent

evidence for overcompensation.

3.4.3.4 Accounting separation - direct and indirect costs

I15. As to the third strand of alleged evidence, the contention that Veilys does not have

a proper account of direct and indirect costs related to the operation and maintenance

is simply wrong. As a starting point, the CJEU in Chronopost I (cited above) para

40 held that "there is no question of State aid to SFMl-Chronopost if, first, it is

estoblished that the price charged properly covers all the additional, variable costs

incurred in providing the logistical and commercial assistance, an appropriate

contribution to the fixed costs arising from use of the postal network and an

adequate return on the capital investment in so for as it is used for SFMI-

Chronopost's competitive activity and if, second, there is nothing to suggest that

those elements have been underestimated or fixed in an arbitrary fashion" .

116. Turning to the facts, firstly, it must be stressed that BKK Nett, the owner and

operator of the streetlights in the period 1996-2016, has a detailed account of every

cost, whether related to manpower, equipment or other direct and indirect costs,

related to the service (see Section 2.5.2 above). Secondly, these cost data were, as

documented above, instrumental to the transfer of the streetlight infrastructure, and

internal pricing thereof, to BKK Enotek (2016) and later Veilys (2017), and

instructive also to costs of operating and maintaining the streetlights (see Section

2.7). Thirdly, Veilys as owner and purchaser of operation and maintenance services

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in regard to the streetlights, and Eviny Solutions, as operator of the streetlights, can

show to detailed cost calculations correlating to the actual prices agreed in the I 996-

agreement (Section 2.7 above).

ll7. An analysis of the actual direct and indirect costs involved in delivering the

streetlight operation and maintenance services to Bergen municipality clearly would

have revealed that there is no overcompensation. Pursuant to calculations made by

Eviny Solutions on the basis of 2021-frgures, the direct and indirect costs for the

tasks pertaining to operation and maintenance performed for Veilys for the

streetlights on municipal roads in Bergen municipality amount to NOK 697 (Annex

A.27 Calculations for operation and maintenance performed for Veilys). This

finding does not support an overprice for the NOK 490 paid by Bergen municipality

for these services.

3.4.3.5 The evidentiary value of the KOSTRA-database

118. The Applicant submits that in relation to The Authority use of the KOSTRA-

database, the KOSTRA-datathat ESA relied on, does not show any information of

the costs between 1 January 2020 and 2020 April (or anytime soon thereafter).

Reference is made to the facts and arguments set out above and in the annexed report

from Oslo Economics (Annex 4.26).

3.4.3.6 The 202O-tender

I 19. The Applicant submits that ESA commits a manifest error of assessment by ignoring

the data from the 2020-Bergen municipality streetlight tender. The tender concerns

the very same streetlights as those previously operated and maintained by Eviny

Solutions and obviously relates to the same municipality and the same roads. The

significantly higher, yet successful, tender bid price in 2020 (NOK 606/streetlight)

than the agreed compensation for streetlights under 20Il-agreement (NOK

495lstreetlight) clearly demonstrates that there is no overcompensation.

120. Whereas Bergen municipality's contract with BKK Nett, and later Eviny Solutions

and Veilys, is a streetlight-as-a-service contract with a number of additional services

included, the tendered contract in2020 is a call-off contract where the municipality

orders and pay for the various cost elements included. This means that the actual

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tender bid price likely will be higher. This again clearly demonstrates that there is

no overcompensation in the previous operation and maintenance contract.

t2t The Contested Act barely mentions the 2020-tender, and ultimately disregards the

evidentiary value of the 2020-tender by referring to the fact that it includes LED

fixtures, and therefore is not directly comparable to the 2016-2020 contract between

Bergen municipality and Eviny. This is misunderstood. The LED fixtures are new

and do in general not require any service under the agreement. In short, the inclusion

of these has no significant effect on the pricing of the contract. The market tested

bid price of NOK 600 (and effective price of NOK 1200) is a relevant benchmark

and is even higher above the NOK 490 compensation paid under the alleged

overcompensating I 996-agreement for the period 201 6-2020.

3.4.3.7 Concluding remarks 122. Again, the Applicant submits that the evidence the Authority has considered, as

outlined above, assessed separately or combination with other evidence, is not

indicative or proof of any overcompensation for operation and maintenance services

to Eviny. Again, the Authority cannot simply assume that Eviny has benefitted on a

negative presumption based on the lack of information enabling the contrary to be

found. The Authority's overall assessment has neither stipulated nor proved whether

the compensation for operation and maintenance services to Eviny is obtained

manifestly beyond and above the market price. Reference is made to the comments

above concerning factual accuracy, consistency and reliability, in particular relating

to the KOSTRA-database.

123. Against this background, it is respectfully submitted that the Authority's findings on

overcompensation are wrong in substance; that in any case, the matter is such that

the Authority should have entertained doubts, leading it to investigate further; and

that the findings are borne out of an insufficient examination that translates into an

absence of appropriate reasoning.

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3.s

t24.

Third plea in law: There is not distortion of competition in any market - manifest error of assessment

The Applicant respectfully disagrees with ESA that the condition of distortion of

competition is met in relation to the alleged aid to Eviny's activities of operation and

maintenance of Veilys' own streetlights at public roads.

125. ESA must prove the alleged state aid is liable to distort competition. In relation to

infrastructuteso'there are circumstances inwhich certain infrastructures do notface

direct competition from other infrastructures of the same kind or other

infrastructure of a different kind ofering services with a significant degree of

substitutability, or with such services directly" (see NOA parus 210-212; Joined

Cases C-l74ll9 P and C-175 ll9 P Scandlines EU:C:2021:801 paras. 94, 730, 172).

As noted in Altmark, and repeated in the NOA, the distortion must not be merely

hypothetical (see Case C-280 I 00, Al tm ark ECLI: EU: C :2003 :41 5, par a 7 9).

126. The Applicant submits that streetlights infrastructure is by its nature a natural

monopoly for which there is no demand or willingness to pay (see NOA, paru21l).

Translated into the facts of the case at hand, Veilys, as owner of the streetlights, is

not a player in any open market. Veilys does not have any direct competition from

other infrastructures of the same kind (see NOA paras 210-212), and it would be

nonsensical and uneconomic for an undertaking to replicate Veilys' infrastructure,

i.e., owning streetlights at public roads. At the same time, Veilys has no legal

obligation to tender out or outsource the activities of maintenance and operation of

Veilys' own streetlights. The logical corollary of this, that there is no direct

competition to be distorted, is not appreciated in the Contested Act, when ESA

indicates that the capital cost compensation, due to lack of benchmarking or

documentation of the capital cost base, could amount to state aid distortive of

competition.

127. Next, the Applicant respectfully submits that ESA's assessment of cross-

subsidisation is flawed, and that the Authority's examination is insufficient (cf. the

Contested Act para 222: "the Norwegian Authorities are unable to exclude that the

other economic activities have been cross-subsidised'). Firstly, ESA has not

identified the relevant and potentially affected markets. Secondly, ESAs contention

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that the Norwegian authorities are "unable to exclude that the other economic

activities have been cross-subsidised", ignores the accounting separation and

transparency within Eviny throughout the period. The Authority has not provided

any concrete evidence of cross-subsidisation from Bergen municipalities to other

municipalities (tenders), other private streetlight services or other commercial

businesses of Eviny.

128. On this basis, the Applicant finds that the alleged illegal aid to Eviny's activities of

operation and maintenance of Veilys' own streetlights at public roads is not liable

to distort competition. In addition, the Contested Act has examined the condition of

distortion of competition in an insufficient manner in relation to the different

markets and the implications of Veilys' ownership of streetlights at public roads.

3.6 Fourth plea in law: There is no cross-border effect - manifest error of assessment

129. The Applicant respectfully submits that ESA is manifestly wrong in assuming that

the effect on trade criteria is met in relation to the alleged overcompensation of

operation and maintenance of streetlights owned by Veilys at public roads.

130. The Applicant is referring to section 3.5 above in relation to distortion of competition. If there is no distortion of competition, nor is there any effect on (see

Case Scandlines cited above, para 173). Next, the Contested Act does not provide

sufficient examination of the condition on effect on trade. Firstly,the Contested Act,

para224, does not explain how the advantages conferred on Eviny may allow it to

maintain or extend its activities at the expense of these competitors. Secondly, and

in the absence of any quantification or indication of the amount, the Contested Act

fails to consider whether the aid is more than marginal and if it is possible to exclude

the foreseen effects of the alleged measures to be more than marginal (see Case T-

728/17 Marininvest v Commission,EU:T:2079:325, paras 100-106). Thirdly, ESAs

reasoning in relation the overcompensation is not based on sufficiently detailed data

and the allegation of cross-subsidisation is only stated as"likely true" reinforce such

a view (Contested Act, para224).Lastly, an effect on cross-border trade lacks when

measures to support local infrastructure are concerned (Commission, OJ 2006 L

32/82, para 59 - Gas Jilling stations in Piemont; Commission, N 860/01 - Cable

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cars in Austna; Commission N 45612002 - Conference Center Visby; Commission,

5A.37432 - Hospitals in Hradec Krelove; NOA, paras 192 and 196-197)'

3.7 Fifth plea in law: Any alleged aid would be existing aid - recovery is contrary to EEA Article 62 and Protocol3 SCA, Part II, Article 14 and the related decision 195104/COL

l3l. Article 5 of the Contested Act concludes that compensation for capital cost and

operation and maintenance services aid is unlawful insofar as the compensation and

remuneration is awarded within the limitation period of 10 years. Alleged

overcompensation for capital costs from I June 2007 is held to be subject to

recovery. For operation and maintenance services, only aid as of 1 January 2016 is

held to be subject to recovery. The apparent reason for this distinction is that the

state aid complaint relates to aid as of 2016 (Contested Act, paras 17 and242).

I32. The Applicant contends that this conclusion is based on a wrongful application of

the rules of recovery, and that any aid would be existing aid. The Contested Act

ignores the fact that any alleged aid must be based on the mechanisms and

understanding established by the 1996-sales agreement. ESAs reasoning is

contradictory when stating on the one hand that the 1996-agreement established a

market and a compensation mechanism (para 127), whilst on the other hand fully

ignoring the legal implication for the recovery period of the 1996-agreement (para

244 et seq.).

133. Accordingto Article l5(l) of Part II of Protocol 3 SCA, recovery of aid shall be

subject to a limitation period of ten years. According to Article l5(3) of Part II of

Protocol 3 SCA, any aid forwhich the limitation period has expired, shall be deemed

to be existing aid (see also Article I (b)(iv) of Part II of Protocol 3 SCA, according

to which "existing aid" is " aid which is deemed to be existing aid pursuant to Article

t 5 of this Chapter"). The limitation period begins on the day on which the unlawful

aid is awarded to the beneficiary either as individual aid or as aid under an aid

scheme (see Article l5 (2) of Part II of protocol3 SCA).

134. The starting point for the recovery limitation period should be the 1996-agreement,

as it is the agreement which enables Eviny to receive remuneration and obliges the

Municipality to pay remuneration for the capital costs and the operation and

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maintenance. As authority to this position, the Applicant refers to CJEU case-law:

'for the purpose of determining the date onwhich the limitation period starts to run,

that provision refers to the grant of the aid to the beneficiary" (see Case C-81/10 P

France Telecomv Commission, ECLI.EU:C:2011:81l, para 81). A second authority

to this position is ESA's decision in 167/}9|COL part II, section I, where ESA in a

case concerning alleged aid in the form of an (beneficial) lease agreement concluded

that the ten-year limitation period had expired as the lease contract binding was

entered into more than l0 years before ESA.

135. This position is not changed by the fact that ESA seems to consider that the

mechanism laid down in the 1996 sales agreement does not involve state aid (paras

163, 169,194), and that the alleged aid would stem from the fact that the agreed

mechanism was subsequently not correctly applied or complied with (paras 170,

205,207,21 l). Without the 1996-agreement there would not exist any compensation

at all, and the Applicant contends that ESA was wrong to distinguish between the

mechanism and its practical implementation, as both are intrinsically linked (see

section 3.3 above). Indeed, the capital costs have been paid on the basis of a legally

binding agreement entered into in 1996 between the municipality and Eviny (BKK

DA). As ESA lays out under para 125 of the contested Act: "...section 7(c) of the

sales agreement included a mechanism governing the future economic

compensation. This mechanism allowsfor a regulated level of return."

136. This is strongly supported by the fact that the capital cost has not been subject to any

adjustments or otherwise modifications of sort to the terms. There has not even been

an inflation adjustment, and the cost has remained exactly NOK 303/streetlight

throughout the 26-year period. In state aid terms this means that there is no change

which could have altered existing aid in 1996 into new aid any later. This would

only apply in case of changes that go beyond a "purely formal or administrative

nature", i.e., the change must affect its"essential character". This is the case if it is

"granted on a legal basis which differs in substance " from the original measure (see

Joined Cases T-394108, T-408/08, T-453108 and T-454/08 Sardegna,

ECLI:EU:T:2011:493, para 175) or if the "scope" changes (see Case C-6112 P Oy,

ECLI:EU:C:2013:525,para47). A substantialchange in this sense only occurs ifthe

M 149

nature, the source, the objective, the group of beneficiaries or the scope of the

beneficiaries' activities is altered (see Joined Cases T-195/01 and T-207101

ECLI:EU:T:2002:ll1 para I I l; Case C-492117, Sildwestrundfunk

ECLI:EU:C:201 8: 1019, paras 54, 66).

137. The Applicant's view is also supported by the circumstances and business rationale

of the 1996-agreement. As stated in the Contested Act paru27, the objective of the

process in 1996 was for the Municipality to sell Bergen Lysverker, including all its

assets and operations. The streetlight infrastructure was a minor element in that

transaction, but nevertheless an integrated part of the object of the transaction. This

means that the valuation of the streetlight infrastructure and the future cash flow

generated from it was an important assumption for the assessment of the net present

value ofthe future cash flow generated by the infrastructure.

138. The disagreement between the municipality and Eviny does not change the nature

of any alleged aid as being existing aid. The municipality has until this day paid

capital cost according to calculations made by Eviny in accordance with section 7c

in the 1996 sales agreement. The only rightful reason for the municipality to

continue to pay the capital costs as calculated by Eviny, after having exchanged

application and reply to the arbitration proceedings, must be that the municipality

views section 7c of the 1996 sale agreement valid and binding with a high

probability of losing a legal battle over the calculation method embedded in the

clause.

t39 The operation and maintenance compensation is no less based and awarded by the

1996-agreement. This is not called into question by the fact that the Contested Act

concerns overcompensation for operation and maintenance services from I January

2016 (Contested Act, paras 17,242).This also applies irrespective of the subsequent

agreements concerning operation and maintenance. The operation and maintenance

element of the future cash flow is variable in nature, which is the reason why the

parties subsequently entered into several more detailed agreements. These later

agreements did not in any way change the remuneration agreed. The capital cost has

remained stable at NOK 303 for each streetlight throughout the entire period.

45149

140. Against this background it is respectfully submitted that the alleged aid in relation

to capital costs and operation and maintenance is existing aid from 1996, and

therefore not subject to recovery pursuant to EEA Article 62 and Protocol 3 SCA,

Part II, Article 14 and the related ESA decision 195/04/COL.

3.8 Sixth plea in law: The Contested Act is based on insufficient examination and fails to state a proper reasoning in violation of Article 16 SCA In accordance with Article 16 SCA, ESA is obliged to state the reasons on which the

decision is based. In doing so ESA must "sef out, in a concise but clear and relevant

manner, the principal issues of lm,rt andfact upon which it is based and which are

necessary in order that the reasoning which led the Authority to its decision may be

understood" (see Case E-2194, Scottish Salmon Growers Association Ltd v ESA,

para26;Case24/62 Germany v Commission [963] ECR 63, page 69;CaseC-41/93

France v Commission 119941ECR 11829, para 34). The statement of reason must

enable the persons concerned to ascertain the reasons and be able to defend their

rights, whilst at the same time enabling the Court to exercise its powers ofjudicial

review (see e.g. Joined Cases E-4/10, E-6/10 and E-7/10, the Principality of Liechtensteinv ESA,para17l. The obligation to state reasons is a separate question

from that of the merits of those reasons (see Case T-265104, ECLI:EU:T:2009:48,

paras 99-100).

l4t

142. In the first part of the sixth plea, the Contested Act does not provide a proper

reasoning for concluding on the notion of undertaking. Reference is made to the

arguments presented under section 3.3, in particular the omission in the Contested

Act to consider the regulatory context, relevance of BKK Nett as owner and operator

of the streetlights in the period 1996-2007, the notion of purely ancillary and non-

separable as well as the market failures and factual and historical context of

streetl i ght infrastructure.

143. In the second part of the sixth plea, the Contested Act does not provide proper

reasoning for finding overcompensation. Firstly, ESA was wrong to exclusively

base its assessment on the question whether the (market conform) compensation

mechanism laid down in the 1996 was complied with (see the Contested Act paras

164,176,211). After it came to the (inconect) conclusion that this (market conform)

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mechanism was not applied/monitored correctly, if should have assessed whether

the compensation actually paid was market conform for other reasons. Instead of

identifuing potential omissions of the municipality when considering the criterion

of economic advantage (para. 180: "did not checkwhether the services could be

procured at lower costs"; para. 170:" a rational private operator would have

invested sfficient resources to ensure compliance. This would involve controls of

the basis for the prices (...)"), ESA should have positively established that there is

(positive) aid, i.e. that the compensation payments are too high, and why.

144. Secondly, in its concrete assessment ofthe alleged overcompensation ESA overlooks

material facts which should have led ESA to a different conclusion, including the

circumstances surrounding the 1996-agreement and transfer of assets and the

accounting separation of BKK Nett and Eviny Solutions (compare e.g. Commission

decision 2010/607/EU in the Belgium Ostend fish auction restructuring case, OJ L

274,19.10.2010, p. 0103-0138 cf. paras l9l and290).

145. Thirdly,there is a lack of quality in the evidence relied upon. This is particularly true

as regards the KOSTRA-database. The Contested Act does not critically review the

quality of the KOSTRA-data and bases its conclusions on a naffow selection of data

in time and scope, cf. section 3.4.2.5. ESA fails to investigate whether the

differences in costs between the municipalities may be a result of other factors other

than the presence of overcompensation. The awkwardness of applying the

KOSTRA-database is evidenced among others when the cost-data (bid-price) in the

Bergen municipality tender in2020 is outright rejected. ESA has not in fact pointed

to any circumstance that demonstrates the existence of overcompensation or the

occurrence of unlawful aid.

146. Fourthly, and consequently, the decision is ambiguous and inadequate when

considering the amount of overcompensation (see the Contested Act, para 186 and

213). Whilst ESA is not required to fix an exact amount to be recovered, a recovery

decision must include "information enabling the recipient to work out himself,

without overmuch dfficulty, that amounf" [ofovercompensation] (see Case C-69113,

Mediaset, EIJC:2014:71, para 21). At the very least, the decision must set out the

47149

method according to which the overcompensation should be calculated (Case C-

441/06 Commission v France EU:C:2007:6616, para 41).

147 . In the third part of the sixth plea, the Contested Act has insufficient examination and

fails to state a proper reasoning of existing aid and limitation. Indeed, the Contested

Act fails to consider the issue of existing aid (see e.g. Joined Cases T-265,292 and

504/04 Titenia EU:T:2009:48, paras 97-134). Reference is made to the arguments

presented under section 3.7 above.

148. Consequently, it must be concluded that ESA has failed to state the reasons that led

it to adopt the contested decision in accordance with Article 16 SCA.

4 FORM OF ORDER SOUGHT 149. For the reasons set out above, the Applicant respectfully submits that the EFTA

Court shall

- Annul Decision No.16ll2ZlCOL, of 6 luly 2022, of the EFTA Surveillance

Authority; and

- Order the EFTA Surveillance Authority to pay the costs of the proceedings

In order to enable the Court to have a full view of the matter, the Applicant shall enclose

to the present application, as Annexes, the following documents:

SCHEDULE OF ANNEXES

Annex A.1 EFTA Surveillance Authority Decision of 6 Julv 2022 Annex A.2 Complaint from NELFO to ESA of l l Mav 2017 Annex A.3 Letter from Bergen municipality to Simonsen Vogt Wiig of 15

October 2018 Annex A.4 Sales agreement of 1 November 1996 Annex A.5 Forwarding of complaint from the Authority to the Norwegian

authorities by letter dated 1. June 2017 Annex A.6 Invoice for operation and maintenance of municipal roads in

accordance with the contract for aueust2022 Annex A.7 Agreement on buildine and operation of streetliehts of 2006 Annex A.8 Agreement on buildine and operation of streetliehts of 2015

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Annex A.9 Road Standard/Vegnormalen Annex A.10 Road Lishtins Handbook/Guidelines Y 124 (extract)

Annex A.11 Local resulations for Bereen municipality Annex A.12 Calculation hourly rates 2007

Annex A.13 Calculation hourly rates 2014 Annex A.14 Board Matter 13/2005 of 13 May 2005

Annex A.15 Self-cost calculation for 2007

Annex A.16 Self-cost calculation for 2014 Annex A.17 Sesment Account for 2007 Annex A.L8 Seqment Account for 2014 Annex A.19 Subpoena for arbitration Bergen Municipality Annex A.20 Reply to application to the Arbitral Tribunal Annex A.21 Extension of 2015 asreement Annex A.22 Calculation hourly rates 2016 Annex A.23 Monthlv report 2016 Annex A.24 Accountins total2017 Annex A.25 Accountins/prosnosis 20 1 9

Annex A.26 Oslo Economics Report of 23 September 2022 Annex A.27 Calculations for operation and maintenance performed for Veilys

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Avenue des Arts 19H, 1000 Brussels, tel: +32 2 286 18 11, www.eftasurv.int

ORIGINAL

TO THE PRESIDENT AND MEMBERS OF THE EFTA COURT

DEFENCE

submitted pursuant to Article 107 of the Rules of Procedure of the EFTA Court by

THE EFTA SURVEILLANCE AUTHORITY

represented by Michael Sánchez Rydelski, Claire Simpson and Kyrre Isaksen, Members of the Legal & Executive Affairs

Department, acting as Agents in

CASE E-10/22

Eviny AS

v

EFTA Surveillance Authority

seeking the annulment of the EFTA Surveillance Authority’s Decision No. 161/22/COL of 6 July 2022 on aid in relation to the streetlight infrastructure in Bergen (Norway).

Brussels, 12 December 2022

Case No: 89388 Document No: 1322588

Registered at the EFTA Court under N°E-10/22-10 on 12 day of December 2022

Page 2

Table of Contents

1 INTRODUCTION .................................................................................................. 3

2 FACTS ................................................................................................................. 5

2.1 Background .................................................................................................... 5

2.2 The Complaint ................................................................................................ 6

2.3 Correspondence with Norway ........................................................................ 7

2.4 The formal investigation ................................................................................. 8

2.4.1 Comments submitted by the Applicant ............................................... 10

2.4.2 Comments submitted by the Norwegian authorities ........................... 11

2.5 The Decision ................................................................................................ 13

2.6 About the Applicant and newly submitted information .................................. 17

3 ADMISSIBILITY ................................................................................................. 18

4 ALLEGED ERRORS IN LAW AND PROCEDURE ............................................. 19

4.1 Introduction ................................................................................................... 19

4.2 First Plea: The compensation under the measures was provided in respect of economic activities ....................................................................................... 19

4.3 Second Plea: The Applicant received an economic advantage .................... 23

4.3.1 The Decision was based on sufficient evidence to substantiate an advantage........................................................................................... 24

4.3.2 Correct application of the MEOP ........................................................ 28

4.3.3 Applying the MEOP to the capital costs ............................................. 29

4.3.4 Applying the MEOP to operation and maintenance costs .................. 38

4.4 Third and Fourth Pleas: Distortion of competition and effect on trade .......... 47

4.5 Fifth Plea: The aid constitutes new aid ......................................................... 49

4.6 Sixth Plea: ESA provided sufficient reasoning; proper examination of the facts .................................................................................................................. 52

5 FORM OF ORDER SOUGHT BY ESA ............................................................... 53

6 SCHEDULE OF ANNEXES ................................................................................ 54

Page 3

1 INTRODUCTION

1. By letter dated 3 October 2022, the Registrar of the EFTA Court notified the EFTA

Surveillance Authority (“ESA”) of an application (“the Application”), which was lodged

with the Court on 27 September 2022 by Eviny AS (“the Applicant”). The Application

is based on Article 36(2) of the Agreement between the EFTA States on the

establishment of a Surveillance Authority and a Court of Justice (“SCA”) and seeks the

annulment of ESA’s Decision No. 161/22/COL of 6 July 2022 on aid in relation to the

streetlight infrastructure in Bergen (“the Decision”). The Court invited ESA to lodge a

Defence by 5 December 2022. On 31 October 2022, ESA requested an extension of

the deadline to submit its Defence, which the Court granted until 12 December 2022.

2. The Decision concerns the Applicant’s overcompensation for payments of (i) operation

and maintenance costs and (ii) capital costs (jointly referred to as “the measures”), in

relation to streetlight services in the Municipality of Bergen (“the Municipality”).

Concerning streetlights owned by the Applicant, overcompensation occurred in relation

to (i) operation and maintenance costs from 1 January 2016 (still ongoing), and in

relation to (ii) capital costs from 1 June 2007 (still ongoing). In respect of maintenance

and operation services of streetlights owned by the Municipality, overcompensation

occurred within the period from 1 January 2016 until 1 April 2020.

3. The Application is based on six pleas. However, the centre of gravity and focus of the

Application is on the second plea, where the Applicant argues that it was not

overcompensated for its streetlight services and that ESA allegedly made a manifest

error of assessment when concluding that the Applicant received an economic

advantage through overcompensation. In support of the second plea (and related

arguments in other pleas), the Applicant submits information and documents, which

ESA sees for the first time.1

4. ESA submits that, contrary to the claims made by the Applicant, the Decision is the

result of a proper formal investigation, involving the careful and detailed consideration

of all evidence collected. The Decision was adopted on basis of the information and

1 See on this point Section 2.6 of the Defence.

Page 4 evidence available at the time. Consequently, any newly submitted information in the

Application could not form the basis of the Decision. ESA submits that, when it is clear

from a decision to open a formal State aid investigation which information ESA is

seeking, in order to be able to assess a case, and if an interested party, in this case

the Applicant as aid recipient, does not submit this information, then this party may no

longer rely on this information once the decision is taken. The lawfulness of a decision

concerning State aid is to be assessed in the light of the information available to ESA

at the time when the decision was adopted. Similarly, the Applicant cannot complain

that ESA failed to take into account matters of fact or law which could have been

submitted to it during the administrative procedure, but which were not, as ESA is

under no obligation to consider, of its own motion and on the basis of prediction, what

information might have been submitted to it.2

5. In any event, based on the information and evidence available at the end of the formal

investigation, there were sufficient indications that the Applicant enjoyed an economic

advantage by way of overcompensation.3 The finding of overcompensation was, inter

alia, supported by statistical data on the cost levels incurred by large Norwegian

municipalities in respect of the provision of streetlighting. The cost levels registered for

the Municipality, which was procuring streetlighting services from the Applicant, were

by far higher compared to all other municipalities.

6. Finally, and in any event, even the Applicant’s newly submitted information does not

demonstrate that there was and still is no overcompensation. On the contrary, the

newly submitted information shows that the services provided by the Applicant in

respect of streetlighting, including its large customer the Municipality, is one of the

Applicant’s most profitable business areas. If all the relevant cost and control data

relating to the compensation were, as the Applicant submits, available and retrievable,

ESA questions why, even now, the Applicant has failed to provide the necessary data

to the Court (and by implication to ESA). Rather than producing such information to

make good its claim, the Applicant instead seeks to call into question and undermines

the Decision, largely on the basis that ESA did not adduce evidence, which the

Applicant did not provide to it during the formal investigation procedure and which,

2 See to that effect also Section 4.3.1 of the Defence. 3 Articles 2 and 3 in the operative part of the Decision.

Page 5 upon examination, still today is not sufficient to properly substantiate the Applicant’s

claims.

7. In the following, ESA will first under Section 2 give a brief account of the relevant facts

in relation to the Decision and the Applicant’s unsatisfactory cooperation during the

formal investigation. Section 3 then deals with the admissibility of the Application.

Section 4 addresses the Applicant’s six pleas, explaining why each is unfounded and

must therefore be rejected. Finally, the form of order sought by ESA is set out in

Section 5.

2 FACTS

2.1 Background

8. Norwegian municipalities are legally responsible for operating and maintaining

municipal roads.4 Until 1996, the streetlight infrastructure along municipal roads in

Bergen was owned by Bergen Lysverker. Bergen Lysverker was a municipal unit within

the Municipality.5

9. In 1996, Bergen Lysverker was acquired by and incorporated into BKK DA, under a

1996 sales agreement (“the Sales Agreement”).6 A mechanism regulating the

compensation for the provision of streetlighting and related services was set out in

section 7(c) of the Sales Agreement. According to this mechanism, BKK DA would be

free to operate the streetlights on market terms, which entailed cost coverage plus a

capital cost for the committed capital equal to the rate-of-return fixed by the Norwegian

Energy Regulatory Authority (“NVE”) for the regulated power grid infrastructure.7

10. BKK DA was later reorganised into BKK AS.8 Various subsidiaries of BKK AS have

since owned and operated the streetlight infrastructure along the municipal roads in

Bergen.9

4 Lov om vegar (Road Act), LOV-1963-06-21-23, Section 20. 5 Decision, para. 11. 6 Annex A.4 of the Application. 7 Decision, para. 32. 8 Decision, para. 12. 9 Decision, paras. 13 and 14. As set out in footnote 3 to the Decision, a rebranding introducing the name Eviny has recently taken place.

Page 6

11. Throughout the concerned period, the Municipality has also owned a (lower) number

of streetlights itself. Since 1996, the Municipality has acquired new streetlights by

means of financing their construction and by developers transferring newly constructed

streetlights to the Municipality.10

12. On 27 September 2016, the Municipality published a call for tender for the purchase

of approximately 12 000 LED fittings. The LED fittings were used to replace quicksilver

fittings and sodium fittings on the streetlight infrastructure owned by BKK EnoTek AS.

The replacement was financed by the Municipality, which remained the owner of the

new LED fittings.

13. The transfer of the BKK-owned streetlights to Veilys AS occurred in May 2017. Veilys

AS has neither operated nor maintained the streetlight infrastructure itself.11 These

activities were performed by another subsidiary of the Applicant12 (BKK EnoTek AS).13

The Applicant also owns streetlight infrastructure along State roads, county roads and

private roads.14

2.2 The Complaint

14. By letter of 11 May 2017, Nelfo15 complained to ESA about alleged unlawful State aid

granted by the Municipality to the Applicant by way of different measures in relation to

the streetlight infrastructure in the Municipality (“the Complaint”).16 Nelfo essentially

argued that the Municipality granted an advantage to the Applicant by: (i)

overcompensating it for the maintenance and operation of the 18 407 streetlights along

10 Application, para. 13. 11 Decision, paras. 13 and 14. 12 For the sake of simplicity, all entities which have owned, operated and/or maintained the streetlight infrastructure (since the transfer from Bergen Lysverker), will be collectively and individually referred to as “the Applicant” (which will also include other companies in its group). The Defence will refer to a specific group entity only where the context so requires. 13 Decision, para. 14; and Application, para. 5. 14 Decision, para. 13. 15 Nelfo is a sectoral federation within the confederation of Norwegian Enterprise (NHO). It comprises electro, IT, ecom, system integrators and lift companies in Norway. Information concerning Nelfo is available through the following link: https://www.nho.no/en/english/nho-sectoral-federations/ 16 Nelfo’s complaint is attached as Annex A.2 to the Application.

Page 7 municipal roads,17 for which the Municipality was responsible; and (ii) financing the 12

000 new LED fixtures on the streetlight infrastructure owned by the Applicant.18

15. The complainant argued, inter alia, that the Applicant was engaged in an economic

activity, as there were several suppliers that were willing and able to operate and

maintain the streetlights.19 Nelfo estimated the overcompensation for the service of

maintenance and operation of the streetlights at approximately NOK 12 million (around

EUR 1.12 million) per year. According to the complainant, comparable service

contracts allegedly stipulated prices of about NOK 100 per light point per year.20

2.3 Correspondence with Norway

16. By letter dated 1 June 2017, ESA forwarded the Complaint to the Norwegian authorities

and invited them to comment on it.21 Despite repeated requests, the Norwegian

authorities did not provide any evidence at all showing that the decisions to carry out

the transactions under assessment were taken on the basis of economic evaluations,

comparable to those which, in similar circumstances, a rational market economy

operator (with characteristics similar to those of the public body concerned) would have

carried out, to determine the profitability or economic advantages of the transactions.

17. The Norwegian authorities explained that the Municipality was in a ‘deadlock’ situation

in that they had no choice but to purchase the services from the Applicant. They

seemed to acknowledge in this respect that owners of this type of infrastructure could

exploit their position, potentially to raise prices, and indicated that they had not found

any suitable methods for finding and agreeing with the Applicant on “the right price”.

18. On 28 February 2019, the Norwegian authorities submitted information22 that brought

an additional measure to ESA’s attention. According to this new information, the

Municipality also compensated the Applicant for the capital costs of its owned

streetlights. The compensation covered the renewal and upgrade of streetlights,

luminaires, wires, ignition systems, etc.

17 16 058 of these are owned by BKK EnoTek AS and the rest, 2 349 are owned by the Municipality. 18 Decision, para. 16. 19 Decision, para. 18. 20 Decision, para. 20. This price was in sharp contrast to the price charged by the Applicant (see Section 2.4.2 of the Defence, para. 32). 21 Decision, paras. 3 and 4. 22 Decision, para. 5.

Page 8

2.4 The formal investigation

19. By Decision No. 027/19/COL of 16 April 2019, ESA opened the formal investigation

into this case (“the Opening Decision”).23 It informed the Norwegian authorities that

it had concerns that the measures covered by the Complaint, and the compensation

for the capital costs related to streetlight infrastructure in the Municipality, might entail

State aid pursuant to Article 61(1) EEA. In the Opening Decision, ESA also expressed

doubts as to the compatibility of the measures with the EEA Agreement.24

20. In light of the absence of any evidence supporting that the prices under the contracts

were in line with normal market conditions, ESA formed the preliminary view that the

Applicant might have received an economic advantage, within the meaning of Article

61(1) EEA.25 Based on the available information, ESA also could not exclude that the

financing of the 12 000 LED fixtures had conferred an economic advantage on the

Applicant.26

21. ESA also took the preliminary view that the Applicant was engaging in an economic

activity when selling maintenance and operation services for the streetlights to the

Municipality.27 ESA stressed that the Norwegian authorities were purchasing such

services from a commercial entity, which offered that service for remuneration. There

was a market for the maintenance and operation of streetlights, and such services

were sold to public authorities, as well as to companies and individuals that needed

lighting along private roads. The complainant represented companies selling services

in this market.28 ESA further explained that the fact that there might be no private

demand for some of these services, due to a market failure, and that a public authority

had therefore decided to purchase those services in the interest of the public good, did

not lead to the conclusion that the activity of the supplier was non-economic. If this

were to be sufficient to exclude the measure from the realm of State aid law, the

existence of the rules governing services of general economic interest, for example,

would be superfluous. In accordance with established case-law, ESA stated that the

23 The Opening Decision is attached to this Defence as Annex D.1. 24 Opening Decision (Annex D.1), paras. 1, 81 and 82. 25 Opening Decision (Annex D.1), paras. 37 to 43. 26 Opening Decision (Annex D.1), paras. 44 to 49. 27 Opening Decision (Annex D.1), paras. 52 to 65. 28 Opening Decision (Annex D.1), para. 62.

Page 9 presence of a market failure and the fact that a public authority reacted by imposing a

public service obligation on an entity, did not preclude the possibility that the supplier

of the service was pursuing an economic activity.29

22. Concerning the distortion of competition, ESA emphasised, inter alia, that in order to

exclude a potential distortion of competition, the management and operation of the

infrastructure must generally be subject to a legal monopoly and fulfil a number of other

cumulative criteria.30 In this context, the Opening Decision referred to paragraph 188

of ESA’s Guidelines on the notion of State aid (“NoA”), which stresses that “[…] if the

service provider is active in another (geographical or product) market that is open to

competition, cross-subsidisation has to be excluded. This requires that separate

accounts are used, costs and revenues are allocated in an appropriate way and public

funding provided for the service subject to the legal monopoly cannot benefit other

activities”.31 (emphasis added)

23. To the extent that the transactions between the Municipality and the Applicant were

not carried out in line with normal market conditions, ESA concluded preliminarily that

they conferred an advantage on the Applicant, which may have strengthened its

position compared to other undertakings competing with it. The measures were

therefore liable to distort competition.32 With regard to the effect on trade, ESA stated

that it lacked more detailed information about the market for the operation and

maintenance of streetlights and the presence of cross-border investment in this sector.

The complainant, however, submitted that there were EEA suppliers of operation and

maintenance services with which the Applicant competed. Moreover, the Applicant

appeared to have been involved in several other markets providing, for example,

entrepreneur services, project leadership, operation and maintenance services, as well

as security and preparedness. ESA’s preliminary conclusion was therefore that the

measures might have benefited also these activities, while ESA was not aware of

anything to suggest that these markets were not open to intra-EEA trade.33

29 Opening Decision (Annex D.1), para. 63. 30 Opening Decision (Annex D.1), para. 71. 31 NoA, para. 188(d). The Guidelines are available under this link: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:E2017C0003&from=EN Concerning the matter of separate accounting, see also para. 54 of the Opening Decision (Annex D.1). 32 Opening Decision (Annex D.1), para. 72. 33 Opening Decision (Annex D.1), para. 74.

Page 10

24. In the Opening Decision, ESA informed the Norwegian authorities that it would forward

a copy of the Opening Decision to the Applicant and inform interested parties by

publishing a meaningful summary of it in the Official Journal of the European Union.

All interested parties were invited to submit their comments within one month of the

date of publication in the Official Journal of the European Union.34

2.4.1 Comments submitted by the Applicant

25. Despite ESA’s preliminary assessment and the relevant issues identified in the

Opening Decision, the Applicant made no efforts to address these issues and

submitted very limited information and documentation. The entirety of the Applicant’s

comments was a four-page letter (and one Appendix)35 dated 5 June 2019.36 In that

letter, the Applicant only stated briefly that: (i) the alleged State aid concerned funding

of public infrastructure not intended for commercial exploitation; and (ii) no

overcompensation took place, and that if one took the view that the provision of

streetlights was a service of general economic interest, the Altmark criteria would be

fulfilled.37

26. The Applicant acknowledged in its comments that the compensation mechanism in

section 7(c) of the Sales Agreement regulated the compensation for the provision of

streetlighting. The information presented, however, did not contain any specifics

concerning the basis for the prices charged (this information was also not contained in

the Appendix).

27. In particular, as regards the compensation for maintenance and operation, the

information did not set out the direct and indirect costs associated with the operation

and maintenance of the streetlights and how these costs were established. As far as

the indirect costs were concerned, there was no information as to what cost allocation

mechanism was in place and why this was deemed appropriate. In respect of the

compensation for capital costs, the submitted information did not establish how the

eligible capital costs were calculated.

34 On 13 June 2019, the Opening Decision was published in the Official Journal of the EU (OJ C 197, 13.6.2019, page 25). 35 The Appendix contained Veilys AS’ 2018-accounts. 36 The letter of 5 June 2019 is attached to this Defence as Annex D.2. 37 Annex D.2 to this Defence, page 1.

Page 11

28. Further, there was nothing in the submitted information capable of establishing that the

Applicant operated separate accounts in the sense that the relevant income and costs

of the activities compensated by the Municipality were separated from other income

and costs, and that this was done on the basis of an appropriate allocation mechanism.

2.4.2 Comments submitted by the Norwegian authorities

29. In the same vein as the Applicant, the Norwegian authorities submitted that the

compensation mechanism in section 7(c) of the Sales Agreement governed the level

of compensation. The Norwegian authorities were however unable to provide a

definitive answer as to how the level of compensation had actually been calculated and

were consequently also unable to substantiate that section 7(c) had been adhered to

in practice. To this end, the Norwegian authorities acknowledged that the

compensation may have included an element of overcompensation and that account

separation should have been established to facilitate control with this.38

30. With respect to the compensation for capital costs, the Norwegian authorities

explained that there had been a long-standing disagreement between the Municipality

and the Applicant as regards the correct calculation. While the Municipality had

advocated the use of the assets’ book value for establishing the capital base, the

Applicant had argued in favour of utilising their replacement costs. To this day, the

compensation level has remained much higher than if it had been calculated on the

basis of the book value.39

31. In the course of the formal investigation, the Norwegian authorities also presented

figures from the KOSTRA-database40 on the costs incurred for streetlighting by large

38 Decision, paras. 32, 66, 69, 70, 85 and 86. 39 Decision, paras. 81 to 84, and 209. 40 The term KOSTRA is an abbreviation for KOmmune-STat-RApportering. The Norwegian municipalities’ obligation to report to KOSTRA is set out in Section 16-1 of the Local Government Act. In the preparatory works to the Local Government Act (Prop 46 L (2017-2018)), the Government described the background for Section 16-1 as follows (translation provided by ESA): “20.10.1.4 […] that KOSTRA (KOmmune-STat-RApportering) is a national information system that provides valuable management information on municipal activities. […] The information contributes to transparency about municipal administration and provides the opportunity for analysis and improvement processes in central parts of individual municipalities' operations. The government also uses KOSTRA data in national statistics. […] According to the ministry's assessment, KOSTRA has great legitimacy and is a very useful information system for the municipalities, the State and others.” The municipalities’ obligation to report

Page 12 Norwegian municipalities.41 The main purpose of the aggregation of data in the

KOSTRA-database was to benchmark the cost-level of various public services. The

statistics were managed by Statistics Norway (“SSB”). The figures presented showed

the total yearly costs per light point, including the electricity cost, over the period 2016

to 2019.42 The Norwegian authorities considered that the figures from the KOSTRA-

database were indicative of overcompensation.43

32. The Norwegian authorities further provided contracts regulating the supply of

streetlighting and related services along municipal roads in Bergen since 2012. The

duration of the contracts was normally for two years, with a one-year option for

prolongation, and the contracts comprised operation and maintenance service for lamp

points owned by the Applicant and owned by the Municipality.44 According to these

contracts, the price for maintenance and operation was set at NOK 465, excluding

VAT, per lamp point per year, for the period from 2012 to 2014. For the period from

2015 onwards, the price for maintenance and operation was set at NOK 495, excluding

VAT, per lamp point per year. The compensation for capital cost, for the lamp points

owned by the Applicant, was set at NOK 303, excluding VAT, per lamp point per year,

which remained the same throughout the period covered by the submitted contracts.45

33. The Norwegian authorities also stated that they were not in possession of direct

evidence that the compensation paid by the Municipality in respect of streetlighting

along municipal roads was used to cross-subsidise other economic activities.

According to the Norwegian authorities, the transfer of the streetlight infrastructure to

Veilys AS was partly made to prevent cross-subsidisation.46 However, according to the

to KOSTRA is further specified in the KOSTRA-Regulation (KOSTRA-forskriften, FOR-2019-10-18- 1412). Section 3 of the KOSTRA-Regulation concerns the quality of information in KOSTRA and sets out: “Statistics Norway can reject information that is substantially incorrect. If the information is rejected, Statistics Norway must notify the sender as soon as possible and state the reason for the rejection.” ESA notes that data from KOSTRA has been allowed as evidence both by the Norwegian Supreme Court (HR-2006-1182-U) and Appeals Courts (for example in LF-2014-105830 and LF-2004-17614). 41 Decision, para. 69 (and Table 1 showing the costs for streetlighting incurred by large Norwegian municipalities in NOK). 42 See Table 1 in the Decision. 43 Decision, paras. 69, 70 and 86. 44 Decision, paras. 34 to 46. 45 Decision, paras. 36 to 40. 46 Decision, para. 55.

Page 13 Norwegian authorities, due to a lack of documentation, cross-subsidisation could not

be excluded.47

2.5 The Decision

34. In the context of assessing whether the Applicant carried out an economic activity,

ESA explained in the Decision, inter alia, that it had not been presented with arguments

to the effect that sufficient safeguards, effectively and appropriately separating the

income and costs under the concerned contracts from other economic activities, were

in place. On the contrary, the Norwegian authorities stated that safeguards should

have been put in place, and that cross-subsidisation could not be excluded.48

35. With regard to the question whether the Applicant received an advantage, ESA found

that the totality of the information received indicated that the compensation for

maintenance and operation services most likely exceeded the level commensurate

with the mechanism in section 7(c) of the Sales Agreement. In that regard, the Decision

stated in its paras. 169 to 172:

“(169) Section 7(c) of the 1996 sales agreement entails, as set forth in section

3.1.2, that the compensation should cover BKK’s operational cost plus a

regulated return on the committed capital. Therefore, as far as the element

concerning maintenance and operation is concerned, this mechanism only

allows for cost coverage. ESA has furthermore not received any information

indicating that costs that are wrongly or arbitrarily fixed, for example as a result

of an artificially low efficiency level or an inappropriate allocation of indirect cost,

would be eligible for compensation. On this basis, ESA finds that the element in

the compensation mechanism pertaining to maintenance and operation is in

keeping with the stipulations in Chronopost.

(170) Regarding the second question of whether the compensation mechanism

in the 1996 sales agreement has been adhered to, a rational private operator

would, bearing in mind the sums involved, have invested sufficient resources to

ensure compliance. This would involve controls of the basis for the prices

47 Decision, para. 55. 48 Decision, para. 118.

Page 14

presented by the BKK-group, including of how the direct and indirect costs were

determined. ESA is furthermore convinced that a private purchaser would have

initiated legal steps if faced with a supplier unwilling to document that its prices

comply with the agreed compensation mechanism.

(171) As described in section 3.3, the Municipality has questioned what it

considers high pricing on the part of the BKK-group. The Municipality has further

admitted that it cannot rule out that the compensation levels amount to

overcompensation and that the lack of documentation on the basis for the prices

charged is problematic. Moreover, the Municipality has entertained these

concerns throughout the period covered by the formal investigation procedure.

(172) As regards the information presented by BKK Veilys, as presented in

section 4.1.3, this does not contain any specifics concerning the basis for the

prices charged. In particular, the information does not set out the direct and

indirect costs associated with the activities pertaining to operation and

maintenance, and how these have been established. As far as the indirect cost

are concerned, there is no information as to what allocation mechanism is in

place, and why this is deemed appropriate. This lack of specificity is an

indication that the compensation mechanism in the 1996 sales agreement has

not been complied with.”

36. ESA concluded that the above reflected a failure on the part of the Municipality to take

the necessary steps to ensure that this mechanism was complied with. As such, the

Municipality had not acted as a private purchaser.49

37. As concerns the compensation for services performed in respect of the Municipality’s

owned infrastructure before 1 April 2020, ESA observed that while the Municipality

perceived the price level as high, it did not check whether the services could be

procured at lower costs from another supplier. Instead, it accepted that the same price

per streetlight was applied as for the infrastructure controlled by the Applicant.

49 Decision, para. 176.

Page 15 Accordingly, ESA observed that the Municipality was not acting like a private

purchaser.50

38. The figures from the KOSTRA-database were another indication that the Applicant had

been overcompensated. However, the figures were not sufficiently detailed to conclude

to what extent the overcompensation concerned maintenance and operation services

or capital costs.51

39. Concerning the compensation for capital costs, the mechanism in section 7(c) of the

Sales Agreement did not specify the methodology to be applied for establishing the

committed capital that was the capital base. There was, however, nothing in its wording

to indicate that the Applicant was entitled to an excessive level of return in the form of

monopoly rents. On the contrary, cost-plus mechanisms, such as that included in the

Sales Agreement, were normally used in regulated sectors to ensure that the

compensation level was adequate. On this basis, ESA took it that the stipulation that

the “NVE reference rate shall be applied on the committed capital”, entailed that the

capital base was to be established in an appropriate manner, ensuring an adequate

level of return.52

40. With respect to the question of how the mechanism was applied in practice, however,

the information received by ESA did not establish how the eligible capital costs were

calculated. The Norwegian authorities were unable to provide specifics and considered

that control on their part was difficult due to the lack of separate accounts. In the same

way as for the compensation for operation and maintenance costs, this lack of

precision was in itself indicative that the compensation mechanism in section 7(c) of

the Sales Agreement was not adhered to.53

41. The Decision also referred to the use of the NVE reference rate and stated that, as the

NVE reference rate was a nominal interest rate already incorporating adjustments for

general inflation, applying it on a capital base established following a replacement cost-

approach would entail compensating for general inflation twice.54 The Decision found

50 Decision, para. 180. 51 Decision, para. 182. 52 Decision, para. 206. 53 Decision, para. 207. 54 Decision, para. 208.

Page 16 that under the rate-of-return fixed by NVE, which the compensation mechanism was

evidently reflecting, the NVE reference rate was applied to the book value of the power

grid assets put into productive use, i.e. to their historical value less depreciation.55

42. In this respect, ESA took note of the disagreement between the Municipality and the

Applicant. It appeared that while the Municipality advocated the use of the book value

for establishing the capital base, the Applicant argued in favour of using the assets’

replacement cost. Further, it appeared that this disagreement prevailed throughout the

period concerned, and that the capital base may as a result have been established in

a manner which was not commensurate with the regulation of adequate return in the

compensation mechanism of the Sales Agreement.56

43. Lastly, the figures from the KOSTRA-database showed that throughout the period from

2016 to 2019, the Municipality had the highest recorded costs for streetlighting of the

10 larger municipalities represented. While the figures were not sufficiently detailed to

conclude to what extent the recorded costs concerned maintenance and operation or

capital costs, this was an indication that the Applicant was compensated in excess of

an adequate level of return.57

44. The totality of the submitted information therefore indicated that the compensation for

capital cost most likely exceeded the adequate level of return allowed by the Sales

Agreement. In the same way as with respect to the compensation for maintenance and

operation, this reflected a failure on the part of the Municipality to take the necessary

steps to ensure that the compensation mechanism was complied with. As such, the

Municipality did not act as a private purchaser.58

45. Neither the Norwegian authorities nor the Applicant submitted that the compensated

activities took place within the remit of a lawfully established legal monopoly.

Accordingly, a distortion of competition could not be excluded on the basis of the

cumulative conditions in the NoA.59 The Decision also concluded that companies in the

Applicant’s group were additionally active on a number of other markets and that the

55 Decision, para. 208. 56 Decision, para. 209. 57 Decision, para. 210. 58 Decision, para. 211. 59 Decision, para. 220.

Page 17 Norwegian authorities were unable to exclude that the other economic activities were

cross-subsidised.60

2.6 About the Applicant and newly submitted information

46. The Applicant is a renewable energy company, producing and distributing electrical

power in Western Norway. The Applicant also provides associated services relating to

broadband, digital services, electrification, el-security, digital and electrical

infrastructure, entrepreneur services, district heating, etc.61

47. In 2020, the Municipality concluded a tender for the operation and maintenance

contract for the streetlights owned by the Municipality.62 The contract also

encompassed the 12 000 LED fittings installed on the Applicant’s network. The

contract was awarded to the Applicant at a price of NOK 10 554 689. The price of the

five other tenders ranged from NOK 11 930 826 to NOK 26 596 947.50.63

48. The Application claims that the Applicant is operating separate cost accounting.64 This

is the first time the Applicant has made such a claim: no such statements or information

were submitted by the Applicant in the course of the formal investigation. In addition,

many of the Annexes to the Application contain completely new information, which was

not submitted during the formal investigation. ESA has identified in total 17 Annexes,65

which contain completely new information, in particular, in relation to information on

revenue streams and accounting practices.

49. Despite all the new documentation that has now been submitted (and the related

claims which have been made), no concrete calculations or information underpinning

the levels that have been charged to the Municipality have been presented. In addition,

the newly submitted information still does not demonstrate that the Applicant operates

separate accounting as concerns the activities compensated under the measures

assessed in the Decision. In the face of such omissions, ESA can only conclude that

the Applicant is incapable or unwilling to present the basis for the prices charged.

60 Decision, para. 222. 61 Application, para. 3. See also para. 54 of the Contested Decision. 62 Decision, paras. 47 and 177. 63 Decision, para. 50. 64 Application, for example in paras. 4, 5, 39, 43 and 47. 65 Namely Annexes A.6 and A.7, Annexes A.11 to A.18, Annex A.20, and Annexes A.22 to A.27.

Page 18

3 ADMISSIBILITY

50. The Applicant seeks clarification from the EFTA Court on the moment from which the

two months’ deadline in Article 36(3) SCA starts to run, for purposes of the present

Application.66

51. Pursuant to Article 36(3) SCA, the proceedings provided for in Article 36 SCA shall be

instituted within two months of the publication of the measure, or of its notification to

the plaintiff, or, in the absence thereof, of the day on which it came to the knowledge

of the latter, as the case may be.

52. ESA submits that, by virtue of the wording of Article 36(3) SCA ("[…] or, in the

absence thereof, of the day on which [the measure] came to the knowledge of the

[plaintiff] […]," emphasis added), the criterion of the day on which a measure came to

the knowledge of an applicant/plaintiff is subsidiary to the criteria of publication or

notification of the measure.67 In other words, it is only relevant where a contested act

is neither published in the Official Journal nor notified to the applicant/plaintiff.68

53. ESA’s State aid decisions to close formal investigations are notified to the EFTA States

concerned (as addressees), but not to third parties (such as private parties), and are,

according to Article 26(3) in Part II of Protocol 3 SCA, published in the EEA Section of

and the EEA Supplement to the Official Journal of the European Union. Consequently,

this implies for third parties, such as the Applicant, that the moment from which the

deadline starts to run is the day of publication in the EEA Section of and the EEA

Supplement to the Official Journal of the European Union.69 This is also confirmed by

case-law of the CJEU.70

66 Application, para. 52. 67 Judgment of 17 May 2017, Portugal v Commission, C-339/16 P, EU:C:2017:384, para. 39; Judgment of 10 March 1998, Germany v Council, C-122/95, EU:C:1998:94, para. 35. 68 Similar with regard to Article 263(6) TFEU, see: Lenaerts. K., Maselis. I. and Gutman. K., EU Procedural Law, 2015, Oxford University Press, page 407. 69 To the best knowledge of ESA, on the date of the submission of the Defence, the Decision was not yet published in the Official Journal of the European Union. 70 Judgment of 15 December 2021, Oltchim SA v Commission, T-565/19, EU:T:2021:904, paras. 42 to 66; Judgment of 6 October 2021, Covestro Deutschland AG v Commission, T-745/18, EU:T:2021:644, para. 42; Judgment of 1 July 2009, ISD Polska and others v Commission, T-273/06 und T-297/06, EU:T:2009:233, para. 57; Judgment of 15 September 1998, BP Chemicals v Commission, T-11/95, EU:T:1998:199, paras. 48 to 51.

Page 19

4 ALLEGED ERRORS IN LAW AND PROCEDURE

4.1 Introduction

54. The Applicant raises six pleas: First, ESA allegedly made a manifest error of law and

assessment when applying the notion of undertaking and concluding that streetlight

ownership and operation is an economic activity. Second, ESA allegedly made a

manifest error of assessment when concluding that the Applicant received an

economic advantage through overcompensation. Third and fourth, the Applicant

contends that there was no distortion of competition or effect on trade, because, inter

alia, there was no cross-subsidisation between the streetlights owned by the Applicant

or operated for the Municipality and its other commercial activities. Fifth, the Applicant

claims that any alleged aid must be existing aid not subject to recovery, since the aid

measure related to the Sales Agreement, which entered into force in 1996 and it is not

possible to separate the agreement from its implementation. Sixth, the Applicant

contends that the Decision was based on an insufficient examination of the facts and

failed to state proper reasoning in violation of Article 16 SCA.

55. All six pleas are unfounded, as is set out below.

4.2 First Plea: The compensation under the measures was provided in respect of economic activities

56. By its first plea, the Applicant alleges that ESA made a manifest error of law and

assessment when applying the notion of undertaking and concluding that streetlight

ownership and operation is an economic activity.71 The Applicant claims that there was

and is no market for owning streetlight infrastructures, and the restructuring in 1996 of

the municipal unit Bergen Lysverker into a municipality-owned energy network

company did not in and by itself create a market. The Applicant contends that the

Decision ignored fundamental market failures (no willingness to invest and no incentive

to duplicate streetlights) and that the Decision did not consider the cost accounting and

separation performed by the Applicant’s companies throughout the relevant period.

71 Application, paras. 7, 54 to 67.

Page 20

57. At the outset, ESA would like to highlight that the Applicant states that the transfer of

the streetlight infrastructure, and the subsequent operation and maintenance of that

infrastructure, was the consequence of and “in line with the regulatory requirements

following the market liberalisation” of energy markets.72 In that context, the Applicant

also explains that, as part of the liberalisation of the energy markets back in 1991, parts

of the infrastructure, and with that also the tasks related to the streetlight infrastructure,

were transferred to the energy companies and that no monopoly regulation was

established for streetlight infrastructure.73

58. ESA submits that “market liberalisation” is typically referred to as the removal of

controls in an industry or market to encourage the entry of new suppliers with a view

to increasing the intensity of competition. Consequently, market liberalisation must be

seen as introducing market mechanisms and moving away from State monopolies.

This liberalisation took place in many sectors in the EEA, which were originally within

the monopoly of municipalities, such as providing, for instance, electricity, gas, water

or waste collection. But these sectors were in many EEA States liberalised and are

now provided by commercial companies. ESA submits that the market for operation

and maintenance services of streetlights is no different to services provided by other

utility companies.

59. Further, whether there exists a market for a given activity may vary between EEA

States depending on national conditions. The classification of a given activity can also

change over time as a result of political decisions or economic developments.74 As

regards the regulatory framework in place in Norway, the legislation and standards

simply mean that municipalities are responsible for operating municipal road

infrastructures and that requirements on the existence of streetlighting must be met, in

order for roads to meet the standards of the Norwegian Public Roads Administration.

Section 20 of the Norwegian Road Act does not require municipalities to provide

streetlighting, or to provide streetlighting at a certain level. Further, there is nothing to

prevent municipalities from contracting with commercial entities for the provision of

operation and maintenance services on municipal roads as an economic activity.

72 Application, para. 62, second sentence. 73 Application, para. 16. 74 Decision, para. 107.

Page 21

60. With respect to the specific circumstances in the Municipality, the Decision found that

the effect of including the streetlight infrastructure, when selling Bergen Lysverker, was

that the Applicant became the only available supplier along the concerned municipal

roads. Moreover, section 7(c) of the Sales Agreement included a mechanism

governing the future compensation. This mechanism allowed for a regulated level of

return.75 On that basis, the Decision found that, by means of the sale of the streetlight

infrastructure, in combination with the establishment of the compensation mechanism,

which allowed for a regulated level of return, the Municipality created a market for the

supply of the concerned services to the Municipality as an economic activity. The fact

that the infrastructure was of a unique nature, resulting in its purchaser becoming the

only available supplier, did not in itself entail that the Applicant had not delivered

services in a market. The Decision also found that the Applicant obtained its exclusive

position in competition with five other bidders.76

61. Concerning the Applicant’s claim that there was and is no market for owning streetlight

infrastructures, ESA submits that it is not the market of streetlight ownership at stake

here, but the market for operation and maintenance services of streetlights. As these

services are tendered-out, there is a market for these services. It is an undisputed fact

that some municipalities decided to organise the purchase of these services by way of

competitive tenders. The Applicant itself calls the maintenance and operation services

of streetlights a business area and a commercial activity.77

62. Further, the Applicant’s comparison78 with Joined Cases T-443/08 and T-455/08

Leipzip/Halle v Commission is not on point, because the present case is not concerned

with the funding for the construction of the infrastructure, but with the separate market

for operation and maintenance services of streetlights. ESA also disagrees with the

Applicant that the operation and maintenance services of streetlights should qualify as

an “exercise of public powers”.79 ESA submits that the exercise of public powers is

limited to activities that intrinsically form part of the prerogatives of official authority and

are performed by the State.80 In addition, like in the present case, where an EFTA State

75 Decision, para. 126. 76 Decision, para. 125. 77 Application, para. 40. 78 Application, para. 56. 79 Application, paras. 57, 58, 59 and 60. 80 NoA, para. 17. Link to NoA: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:E2017C0003&from=EN

Page 22 has decided to introduce market mechanisms, services provided by companies can no

longer qualify as an exercise of public powers.81 In this context, the Applicant admits

that the Municipality enjoyed discretion when organising the operation of streetlights.82

Consequently, liberalising the market for the operation and maintenance services of

streetlights was a legitimate option, by relying on external providers, such as the

Applicant, offering their services on an economic basis.

63. The Applicant works on the assumption that if there is no competitive market, there

can be no economic activity.83 However, a competitive market is no requirement for

there to be an economic activity. Even a monopoly situation would be sufficient, as

long as there is an offer and demand for a certain service. In the present case, the

Norwegian authorities are purchasing services from a commercial entity, which is

offering that service for remuneration.

64. There is a market for maintenance and operation services of streetlights and such

services are sold to public authorities, as well as to companies and individuals that

need lighting along private roads. The complainant Nelfo represents companies selling

services in this market. The Applicant also provides services to infrastructure which is

still owned by the Municipality and also services to streetlights owned by smaller

municipalities in the region.84 Consequently, the Applicant’s services in relation to

streetlights constitute an economic activity.

65. ESA further disagrees with the Applicant’s assumption that, in order to qualify a service

as economic in nature, the demand for that service must be “private”.85 ESA disagrees

that the presence of private demand for a good or service is necessary for a market to

exist. In principle, fierce competition on a market can exist even in markets where

public authorities are the only or the main purchaser of the service in question. This is

for example the case in the market for the construction of roads. The fact that there

may be no private demand for some of these services, due to a market failure, and a

public authority therefore decides to purchase those services in the interest of the

81 NoA, para. 17. 82 Application, para. 58, last sentence. 83 Application, para. 12. 84 Application, para. 40. 85 Application, para. 61.

Page 23 public good, does not lead to the conclusion that the activity of the supplier is non-

economic. If this were sufficient to exclude the measure from the realm of State aid

law, the existence of the rules governing services of general economic interest would

for example be superfluous. ESA submits that the presence of a market failure and the

fact that a public authority reacts by imposing a public service obligation on an entity,

does not preclude that the supplier of the service is pursuing an economic activity. In

any event, the Applicant provides similar services also to private customers.86

66. Finally, with regard to the Applicant’s allegation that the Decision did not consider the

cost accounting and separation performed by the Applicant’s companies throughout

the relevant period,87 ESA submits that this is irrelevant to the question of whether the

services compensated under the measures qualify as an economic activity. In any

event, the Applicant never submitted, in the course of the formal investigation, any

information showing that the Applicant performed separate cost accounting with

respect to those activities compensated under the measures.

67. In light of the above, ESA respectfully submits that the Court should dismiss the first

plea as unfounded.

4.3 Second Plea: The Applicant received an economic advantage

68. By its second plea, the Applicant claims that ESA committed a manifest error of

assessment by concluding that the Applicant received an economic advantage through

overcompensation.88 According to the Applicant, ESA’s decision made an artificial

distinction between the 1996 pricing mechanism and its practical implementation. The

Applicant further claims that ESA did not present any accurate and reliable evidence

to support any overcompensation. Rather, ESA allegedly relied on unsupported

assertions as to how the Municipality and the Applicant behaved and perceived the

other party and presumed the likelihood of overprice and cross-subsidisation based on

documents ESA did not see. The Applicant asserts that, in the absence of any suitable

benchmarks, ESA relied on a selective and arbitrary extract of the KOSTRA-database

devoid of any evidential value. According to the Applicant, the KOSTRA-database did

86 Application, paras. 33 and 42. 87 Application, paras. 7, last sentence, and 66. 88 Application, paras. 8, 68 to 123.

Page 24 not provide any cogent justification for overcompensation and State aid. Generally, the

Applicant alleges that the data was incomplete, inaccurate, and not fit for purpose to

either evidence or calculate State aid.

4.3.1 The Decision was based on sufficient evidence to substantiate an advantage

69. The Applicant states that ESA has the burden of proving whether or not the conditions

for the application of the market economy operator principle (“MEOP”) have been

satisfied, by reference, inter alia, to Case C-244/18 P Larko v Commission.89 However,

what the Applicant fails to explain is the follow-up to the “Larko Saga”, when the GCEU

finally clarified that:

“It is true that, according to well-established case-law, in the interests of proper

application of the fundamental provisions of the TFEU in the field of State aid,

the Commission must conduct the administrative procedure carefully and

impartially so that it has the most complete and reliable information possible

when it takes the final decision. Therefore, the Commission has to ask the

Member State concerned for all relevant information in order to be able to verify

whether the conditions for the application of the private economic operator

principle are met. Even where the Commission is faced with a Member State

which, in breach of its duty to cooperate, fails to provide the information

requested, it must base its decisions on reasonably robust and coherent

evidence which provides a reasonable basis for presuming that a companies

have received an advantage which constitutes State aid and which is therefore

capable of supporting the conclusions which it has reached. In doing so, the

Commission cannot simply proceed on the assumption that an advantage

constituting State aid has accrued to an undertaking, because it does not have

information to conclude otherwise, in the absence of other evidence to conclude

positively that such an advantage is based on a negative presumption (see, to

that effect, judgments of 26 March 2020, Larko v Commission, C‑244/18 P,

EU:C:2020:238, paragraphs 67 to 70 and the case-law cited, and of 7 May 2020,

BTB Holding Investments and Duferco Participations Holding v Commission,

C‑148/19 P, EU:C:2020:354, paragraphs 48 to 51 and the case-law cited).

89 Application, para. 71.

Page 25

Furthermore, the EU judicature must assess the lawfulness of a decision in the

field of State aid on the basis of the information available to the Commission

when adopting the decision and which could have been submitted to it during

the administrative procedure at its request (see, to that effect, judgment of 20

September 2017, Commission v Frucona Košice, C‑300/16 P, EU:C:2017:706,

paragraphs 70 and 71 and the case-law cited there).”90 (emphasis added)

70. It follows from this case-law that a reasonable basis for presuming that a company has

received an advantage is sufficient. Hence, a presumption can be made when there is

a reasonable evidential basis for that presumption, and in this case, ESA concluded

on the basis of the totality of the available information that the Applicant had most likely

been overcompensated.91 What also follows from this case-law is that ESA adopts a

decision on the basis of information available to it at the end of a formal investigation.

Concerning the facts available at the time when a decision is adopted, it is settled case-

law that if no or insufficient information is submitted in the course of the formal

investigation, ESA is empowered to terminate the procedure and make its decision on

the basis of the information available to it when the decision was adopted.92

71. Further, if an interested party fails to submit crucial information in the course of a formal

investigation, it cannot rely on this information in the subsequent litigation phase. In

that regard, the CJEU held:

“[…], according to Article 6(1) of Regulation No 659/1999, ‘the decision to initiate

the formal investigation procedure shall summarise the relevant issues of fact

and law, shall include a preliminary assessment of the Commission as to the

aid character of the proposed measure and shall set out the doubts as to its

compatibility with the common market’. That decision and the publication thereof

in the Official Journal of the European Communities inform the Member State

and other interested parties of the facts on which the Commission intends to

base its decision. It follows that, if those parties believe that some of the facts

90 Judgment of 4 May 2022, Larko v Commission, T-423/14 RENV, EU:T:2022:268, para. 57 (translation provided by ESA). 91 Decision, in particular, paras. 170 to 176 and 180 to 184, as regards the compensation for maintenance and operation, and paras. 206 to 211, as regards the compensation for capital costs. 92 Judgment of 21 March 1991, Italy v Commission, C-303/88, EU:C:1991:136, para. 47; Judgment of 14 February 1990, French Republic v Commission, C-301/87, EU:C:1990:67; para. 22; Judgment of 10 July 1986, Belgium v Commission, C-234/84, EU:C:1986:302, para. 16.

Page 26

contained in the decision to initiate the formal investigation procedure are

incorrect, they must inform the Commission thereof during the administrative

procedure or risk not being able to challenge those facts at the litigation stage.”93

(emphasis added)

72. In the same vein, the CJEU clarified:

“[…] it cannot be complained that the Commission failed to take into account

matters of fact or of law which could have been submitted to it during the

administrative procedure but which were not, since it is under no obligation to

consider, of its own motion and on the basis of prediction, what information

might have been submitted to it (see to that effect Commission v Sytraval and

Brink's France, cited in paragraph 43 above, paragraph 60).

To the extent that the applicant relies, in support of its application, on information

which was not available at the time when the Decision was adopted or was not

brought to the Commission's attention during the prelitigation procedure, it must

be recalled that in an action for annulment based on Article 230 EC, the

lawfulness of the Community measure concerned must be assessed in the light

of the matters of fact and of law existing at the time when that measure was

adopted (Joined Cases 15/76 and 16/76 France v Commission [1979] ECR 321,

paragraph 7, and Joined Cases T-371/94 and T-394/94 British Airways and

Others v Commission [1998] ECR II-2405, paragraph 81).”94 (emphasis added)

73. Consequently, the lawfulness of a decision concerning State aid is to be assessed in

the light of the information available to ESA at the time when the decision was adopted.

Similarly, it cannot be complained that ESA failed to take into account matters of fact

or law which could have been submitted to it during the administrative procedure, but

93 Judgment of 14 September 1994, Spain v Commission, C-278/92 to C-280/92, EU:C:1994:325; Judgment of 19 October 2005, Freistaat Thüringen v Commission, T-318/00, EU:T:2005:363, para. 88; Judgment of 29 March 2007, Scott SA v Commission, T-366/00, EU:T:2007:99, para.145. 94 Judgment of 14 January 2004, Fleuren Compost BV v Commission, T-109/01, EU:T:2004:4, paras. 49 and 50.

Page 27 which were not, as ESA is under no obligation to consider, of its own motion and on

the basis of prediction, what information might have been submitted to it.95

74. In light of this case-law, ESA submits that an aid recipient cannot gain an advantage

by not fully cooperating during the formal investigation by not submitting relevant

information, and thereby increasing the evidential burden on ESA. As mentioned

above,96 the Applicant’s cooperation in the course of the formal investigation can be

seen to have been unsatisfactory (it claims to have relevant information but which it

entirely failed to produce at the relevant time). Based on the information actually

submitted by the Applicant during the formal investigation, ESA was in no position to

exclude that overcompensation took place. On the contrary, the totality of the available

evidence indicated that the Applicant was most likely overcompensated.97

75. In addition, ESA had no legal means to insist upon or to request specific information

or documents from the Applicant. It is important to recall that the procedural State aid

framework in Protocol 3 SCA is still based on the old Council Regulation No

659/1999,98 which provides no legal basis for ESA to request specific information or

documents from third parties in the course of formal investigation procedures. Although

this possibility is foreseen in Council Regulation (EU) 2015/1589,99 this Regulation has

still not been made part of the EEA legal order. Consequently, ESA is solely dependent

on the information which is submitted by the EFTA State concerned and by third

parties. The information submitted by Norway and the Applicant did not demonstrate

that the compensation was at market price, so that no overcompensation took place,

or that separate accounts were operated by the Applicant.

76. By the newly submitted information in this Application, the Applicant now tries to

establish that no overcompensation took place and that it operated separate

accounting. However, this information has been submitted too late and the Applicant

95 Judgment of 16 January 2022, Iberpotash SA v Commission, T-257/18, EU:T:2020:1, para. 93. 96 Supra paras. 25 to 28 of the Defence. 97 Decision, in particular, paras. 170 to 176 and 180 to 184, as regards the compensation for maintenance and operation, and paras. 206 to 211, as regards the compensation for capital costs. 98 Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 83, 27.3.1999, page 1). 99 Article 7 of Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union (OJ L 248, 25.9.2015, page 9).

Page 28 cannot therefore complain that ESA failed to take it into account in the Decision. In

addition, despite all the new documentation that has now been submitted, as will be

demonstrated below, no concrete calculations or information underpinning the levels

which have been charged to the Municipality have been presented. The newly

submitted information further still does not demonstrate that the Applicant operates

separate cost accounting with respect to the activities compensated under the

measures. This suggests that the Applicant is incapable or unwilling to present the

basis for the prices charged.

4.3.2 Correct application of the MEOP

77. ESA is required to undertake a complex economic assessment when applying the

MEOP. This assessment must be carried out by relying on the objective and verifiable

evidence which is available.100 ESA submits that there was a sufficient evidence basis

to conclude that the Applicant received an advantage and that the Decision’s

conclusions on this were well-founded in law and fact.

78. The Applicant claims that ESA was wrong in its assessment to focus on the question

of whether the compensation mechanism in the Sales Agreement was correctly

applied.101 ESA disagrees, because the Sales Agreement serves as the legal basis

for the compensation and it was not only the deviation from the Sales Agreement which

indicated the presence of an advantage, but also additional statistical data, i.e. the

KOSTRA-database, which supported this conclusion.

79. Regarding the question of whether the compensation mechanism in the Sales

Agreement was adhered to, the Decision correctly found that a rational private operator

would, bearing in mind the sums involved, have invested sufficient resources to ensure

compliance. This would involve controls of the basis for the prices presented by the

Applicant, including of how the direct and indirect costs were determined. ESA was

furthermore convinced that a private purchaser would have initiated legal steps if faced

100 Judgment of the CJEU of 5 June 2012, Commission v Électricité de France (EDF), C-124/10 P, EU:C:2012:318, paras. 102. 101 Application, para. 75.

Page 29 with a supplier unwilling to document that its prices comply with the agreed

compensation mechanism.102

80. The Decision also correctly took into account the fact that the Municipality questioned

what it considered high pricing on the part of the Applicant. The Municipality further

admitted that it could not rule out that the compensation levels amounted to

overcompensation and that the lack of documentation on the basis for the prices

charged was problematic. Moreover, the Municipality entertained these concerns

throughout the period covered by the formal investigation procedure.103

81. As regards the information presented by the Applicant, the Decision recorded that this

did not contain any specifics concerning the basis for the prices charged. This lack of

specificity was a relevant indication that the compensation mechanism in the Sales

Agreement was not complied with.104 This reflected a failure on the part of the

Municipality to take the necessary steps to ensure that this mechanism was complied

with.

82. On the basis of, inter alia, the evidential factors above, the Decision correctly

concluded that the Municipality did not act as a private purchaser.105 While the

compensation mechanism in section 7(c) of the Sales Agreement would ensure market

level compensation if correctly applied, a precondition for this would have been that

the inputs were updated on a regular basis. This has evidently not been done.

4.3.3 Applying the MEOP to the capital costs

83. The Applicant argues that ESA made a manifest error of law and assessment when

applying the MEOP to the capital costs and arrived at an erroneous conclusion through

an insufficient examination of the facts. The Applicant states that ESA’s conclusions

were based on four strands of evidence, which the Applicant alleges were insufficient

or which ESA misinterpreted in some way.106 The allegations related to these four

points are unfounded and are addressed in turn below.

102 Decision, paras. 170 and 207. See to that effect also: Judgment of 12 October 2000, Spain v Commission, C-480/98, EU:C:2000:559, para. 19; Judgment of 10 May 2000, SIC v Commission, T- 46/97, EU:T:2000:123, paras. 98 and 99. 103 Decision, paras. 171 and 209. 104 Decision, paras. 172 and 207. 105 Decision, paras. 176, 180, 184 and 211. 106 Application, paras. 77 to 80.

Page 30

4.3.3.1 Separation of accounts

84. The Applicant contends that ESA’s account of the facts was fundamentally flawed with

regard to the Decision’s conclusions that (i) no information was submitted that

demonstrated how the eligible capital costs were calculated and (ii) that control was

made difficult by the Applicant’s failure to operate separate accounts.107

85. Concerning the separation of accounts, the Applicant argues that there has been

accounting separation between (i) the electricity distribution undertaken within the

context of the regulated monopoly controlled by the NVE, and (ii) other commercial

activities.108 In this respect, the Applicant makes reference to Annex A.14 (Board

Matters 13/2005 of 13 May 2005), Annexes A.17 and A.18 (Segment Account for 2007

and 2014), Annex A.16 (Self-cost calculation for 2014) and Annexes A.12 and A.13

(Calculation hourly rates 2007 and 2014).109

86. As a starting point, ESA would like to underline that accounting separation is not in

itself sufficient to ensure that the compensation does not confer an advantage on the

Applicant. The question of whether there is an advantage turns on the level of

compensation, not on whether there has been accounting separation. The Decision

correctly found that there would be overcompensation if the level of compensation

exceeded that allowed by the compensation mechanism in the Sales Agreement.110

87. In any event, the Annexes referred to by the Applicant do not permit the conclusion

that the revenues and costs relevant for the compensation under the measures were

appropriately separated from other revenues and costs. The Annexes also do not

demonstrate that compensation adhered to the level allowed by the compensation

mechanism in the Sales Agreement.

88. With respect to Annex A.14, it is evident from its Section 4.2.6 that the commercial

activities concerning streetlighting were not limited to those activities compensated by

107 Application, para. 81. 108 Application, paras. 86 to 93. 109 In respect of Annexes A.12, A.13, A.16, A.17 and A.18, ESA observes that no indication is given of when and by whom these documents were prepared and which cost allocation keys were used. 110 Decision, paras. 194 to 212.

Page 31 the Municipality. Further, it is noteworthy that the expressed internal strategy is to

expand the commercial operations, including within the core competence of

streetlighting.111 In spite of this, no distinction is made in Annex A.14 between those

activities that are eligible for compensation under the measures assessed in the

Decision, and other activities related to streetlighting that are performed under different

contracts. Annex A.14 consequently does not provide a basis for stating (as is indicated

in the first sentence of para. 89 of the Application) that there has been separation

between the activities assessed in the Decision and other commercial activities.

89. As regards Annexes A.17 and A.18, these only indicate that there has been separation

between the activities falling within the monopoly regulated by the NVE and other

activities. This is so because the Annexes distinguish only between “monopoly activity

and other activity”, but not between those activities falling within the “other-category”

(which includes streetlighting). Given this, there is naturally also no distinction made

between the commercial activities related to streetlighting that are performed and

compensated under different contracts. As the metrics relevant for the compensation

assessed in the Decision are not singled out, Annex A.16 similarly contains no

information substantiating that there has been accounting separation between those

activities assessed in the Decision and other economic activities, or that the level of

compensation has been in line with the compensation mechanism established in

section 7(c) of the Sales Agreement. Annex A.16 only contains aggregated figures in

respect of lighting activities.

90. Concerning the level of compensation, it should further be recalled that, due to the

inclusion of the NVE interest rate in the compensation mechanism in section 7(c) of

the Sales Agreement, capital costs calculated in accordance with this mechanism will

include a market level reasonable return on capital. Therefore, if the concerned

activities have in fact generated earnings beyond the calculated capital costs, this

income would amount to supra competitive profits exceeding the required level. While

Annex A.16 fails to isolate the figures relevant to the compensation assessed in the

Decision, it is of interest to note that the business category of activities which includes

streetlighting has seemingly been very profitable. In the years from 2011-2014, this

111 See Sections 2 and 4.1 of Annex A.14.

Page 32 category consistently had the highest “contribution margin” and “calculated earnings

contribution”.112

91. With respect to Annexes A.12 and A.13, these concern operating costs, including in

particular labour costs, which are not relevant for the calculation of the compensation

for capital costs. Further, and similarly to the Annexes addressed above, Annexes A.12

and A.13 contain general calculations, which are not limited to the compensation

assessed in the Decision. For these reasons, Annexes A.12 and A.13 are equally

incapable of establishing that there has been accounting separation or of justifying the

level of compensation for capital costs.

92. The Applicant further claims that “[…] ESA has not shown that the price in competitive

markets does not cover both directly attributable costs and an appropriate share of

common costs […]”.113 This misses the point and ESA submits that the Decision never

intended to establish that there were costs uncovered by the sums the Applicant has

charged the Municipality. Rather, the crux of the matter is that the compensation most

likely exceeded that allowed by the compensation mechanism in the Sales Agreement.

It is this overcompensation that has been identified as an economic advantage. ESA

has not concluded in the Decision on the extent to which other commercial activities

have been cross-subsidised.

93. Para. 91 of the Application alleges that the Decision ignores the role of the NVE in

supervising the separation of accounts within BKK Nett AS (1996-2014). This also

misses the point. Paras. 25 and 26 of the Decision duly present the monopoly

regulation in the area of electricity distribution and refer to the role of NVE as regulator.

However, the compensation and activities assessed in the Decision fall outside the

scope of the monopoly regulation that the NVE oversees. The role of the NVE in

overseeing accounting separation in another business area can therefore not be taken

as an indication that the compensation mechanism in section 7(c) of the Sales

Agreement has been adhered to.

94. Lastly, as regards the argument made in para. 92 of the Application that ESA should

have analysed publicly available segment accounts, ESA submits that segment

112 See Annex A.16 to the Application. 113 Application, para. 90.

Page 33 accounts are not detailed enough to distinguish between activities concerning different

individual contracts. ESA has therefore not failed to investigate any available

information that is relevant for the case at hand.

4.3.3.2 Double inflation compensation

95. Para. 208 of the Decision found that, bearing in mind that the NVE reference rate was

a nominal interest rate already incorporating general inflation, applying this interest

rate on a capital base established following a replacement cost-approach would entail

compensating for general inflation twice.114

96. Para. 95 of the Application contends that there has been no double compensation for

inflation, as the compensation has never been equal to what would follow from an

approach based on replacement costs. ESA submits that this is a mere assertion,

which must be rejected. No information is presented to substantiate or quantify the

alleged difference between the level compensated and a calculation based on

replacement costs.

4.3.3.3 The disagreement in 2004

97. The Applicant first contends that para. 209 of the Decision misrepresents the facts and

that ESA made a manifest error of assessment by referring to the disagreement with

the Municipality, about the correct way of calculating the capital costs, in support of the

conclusion that the compensation mechanism in the Sales Agreement had not been

complied with.115 The Applicant further contends, second, that the level of

compensation has never been equal to that which would follow from a replacement

cost approach, and that such an approach would in any event have been in line with

market practice.116 In terms of documentation, reference is made by the Applicant to a

draft version of an application to a tribunal in conjunction with the disagreement in

114 The NVE reference rate is applied to the book value of the power grid assets put into productive use, i.e. to their historical value less depreciation, whereas the Applicant has argued in favour of using the assets’ replacement cost (Decision, paras. 208 and 209). 115 Application, para. 96. 116 Application, para. 97.

Page 34 2004.117 However, it is not clear if this application was ever sent, as the brackets for

dating and undersigning have been left blank.

98. The first point (ability of ESA to rely on the disagreement in reaching the conclusions

about whether overcompensation took place) has been addressed at paras. 77 to 82

above. In respect of the second point (levels of compensation), ESA submits that

neither the information presented in the Application, nor that contained in Annex A.20,

show how the level of compensation for capital costs has actually been calculated.

This includes both the question of how the capital base has been established and of

what interest rate has been applied on that capital base. From the description in Annex

A.20, it appears that the level of compensation has in practice been decided through

negotiations, which were not founded in calculations that were shared with the

Municipality.

99. Accordingly, the information submitted provides no support for the Applicant’s claim

that the level of compensation has never been equal to that which would follow from a

replacement cost approach and that such an approach would have been in line with

market practice. As such, it is also incapable of refuting ESA’s observation in para. 209

of the Decision that “[…] it appears that this disagreement prevailed throughout the

concerned period, and that the capital base may as a result have been established in

a manner which is not commensurate with the regulation of adequate return in the

compensation mechanism of the 1996 sales agreement.”

4.3.3.4 The KOSTRA-database

100. In para. 175 of the Decision, ESA concluded that the figures from the KOSTRA-

database were an indication that the Applicant had been overcompensated for capital

costs. The Decision however underlined that the figures were not sufficiently detailed

to conclude to what extent the overcompensation concerned maintenance and

operation or capital costs.

101. The Applicant argues, first, that ESA did not establish whether the KOSTRA-database

was factually accurate, reliable and consistent with the other information, and did not

117 Annex A.20 (Reply to application to the Arbitral Tribunal) to the Application.

Page 35 prove or conclude that the KOSTRA evidence contained all the relevant information

which must be taken into account in order to assess a complex (economic) situation.118

Second, the Applicant contends that the input in the KOSTRA-database was

inconsistent and inaccurate.119 Third, it is alleged that the comparison in the KOSTRA-

database ignores variables that may influence the costs reported by different

municipalities. In this respect, reference is made to differences between municipalities

in terms of electricity costs and to differences in the scope of services provided. As

regards the latter, reference is made to Annex A.26 (Oslo Economics Report of 23

September 2022) to the Application. Fourth, the Applicant asserts that the amount

actually invoiced by the Applicant deviated from the figures reported in the KOSTRA-

database. It is purported that ESA should have noted these differences and requested

additional explanations from the Norwegian authorities.120 Fifth, the Applicant

underlines that the figures from the KOSTRA-database presented in the Decision were

not evidence that there has been State aid prior to 2015 and after 2019. On that basis,

it is argued that the Decision failed to establish the alleged overcompensation for the

remaining time period.121 Sixth, it is argued that the Decision is contradictory insofar

as it attached significant weight to the figures from KOSTRA, while ignoring the terms

of the tenders submitted in 2020.122

102. Given the close relationship between the first, second and third point, ESA finds it

appropriate to consider them in combination. In that regard, an important starting point

is that the Applicant has not referred to any characteristics or limitations of the

KOSTRA-database, which were not already identified in the Decision. On the contrary,

it is acknowledged in para. 174 of the Decision that differences between the figures

registered in KOSTRA for different municipalities may result from several factors. Para.

118 Application, para. 101. 119 Application, para. 102. This paragraph refers to Annex A.26 to the Application in support (Oslo Economics Report of 23 September 2022) but does not specify where in the eleven-page report the relevant supporting information or evidence can be found. ESA recalls the settled case-law according to which “Whilst the body of the application may be supported and supplemented on specific points by references to extracts from documents annexed thereto, a general reference to other documents, even those annexed to the application, cannot make up for the absence of the essential arguments in law which, in accordance with the abovementioned provisions, must appear in the application.”: see e.g. Judgment of 17 September 2007, T-201/04, Microsoft v Commission, EU:T:2007:289, para. 94. Arguments found solely in annexes are therefore inadmissible: Judgment of 5 May 2022, E-12/20 Telenor v ESA, paras. 87 and 88. 120 Application, para. 104. 121 Application, para. 105. 122 Application, para. 106.

Page 36 174 of the Decision refers back to paras. 67, 68 and 94 of the Decision. In these latter

paragraphs, it was highlighted that municipalities purchasing maintenance and

operation services in respect of streetlights that they own themselves would not be

charged capital costs from the service provider and that there were differences

between the service scope of contracts. It was further identified in para. 69 of the

Decision that the figures in KOSTRA included electricity costs.

103. At the same time, as set out in footnote 88 of the Decision, the main purpose of the

aggregation of data in KOSTRA was to benchmark the cost-level of various public

services. The KOSTRA-database therefore had evidential value for that purpose.123 To

state otherwise would be tantamount to arguing that the registration of the costs of

streetlighting in the KOSTRA-database (managed by SSB), which is a long-standing

practice, and to which the Norwegian authorities have consciously allocated resources,

is meaningless.

104. In view of these considerations, the Decision did not purport to claim that the KOSTRA-

database amounted to a comprehensive or the only appropriate tool for establishing

what the compensation for capital costs should have been in Bergen. Rather, the

observation made is that, according to the KOSTRA-figures for 2016-2019, the

Municipality had the highest costs of the 10 largest municipalities represented in this

period. In the absence of sufficient justification for the cost difference, this was indeed

an indication that the Applicant has been compensated in excess of an adequate level

of return.

105. As regards the fourth point on the alleged differences between the amount invoiced

by the Applicant and the input reflected in the KOSTRA-database, the Application fails

to specify what these alleged differences are. In any event, the KOSTRA-figures do,

as mentioned above, not only reflect the costs relating to maintenance and operation

and capital costs, but also the costs of electricity. The figures registered in KOSTRA

will therefore be different from the amounts invoiced by the Applicant with respect to

its streetlighting services. As identified in para. 72 of the Decision, electricity was not

included in the concerned contracts with the Applicant.

123 See in that regard also footnote 40 of the Defence (on the evidential value of the KOSTRA-database).

Page 37

106. Concerning the fifth point and the period covered by the KOSTRA-figures presented

in the Decision, it was consciously not stated in the Decision that the Applicant was

overcompensated in each and every year covered by the recovery order. Rather, ESA

substantiated that there had been overcompensation in the period covered by the

Decision and provided guidance as to how to calculate this overcompensation.124

Accordingly, considering how the Decision was framed, it was sufficient to rely in part

on the KOSTRA-figures for the years 2016-2019, and to leave it for the Norwegian

authorities to calculate the level of overcompensation, including to what extent there

was overcompensation in the remaining years covered by the decision.

107. As regards the sixth point on the terms of the tender in 2020, that contract exclusively

concerned services rendered in respect of infrastructure owned by the Municipality (a

number of existing streetlights and its new LED-fixtures installed onto infrastructure

owned by the Applicant). On that basis, the service provider under the tendered-out

contract would not incur any capital costs in respect of the infrastructure covered. Since

there were therefore no comparable capital costs to be covered under the contract that

was subject to tender, the terms of that contract were, as the Decision correctly

found,125 incapable of constituting a meaningful reference insofar as the level of

compensation for capital costs was concerned.

4.3.3.5 Conclusion

108. Barring the information that the level of compensation per streetlight is the same as in

1996, no concrete information is presented in the Application as to how the level of

capital costs subject to compensation has been calculated. Accordingly, there is no

information on (i) how the level of compensation for capital costs was established in

1996 or (ii) on the level that would follow if the capital base and NVE interest rate

applied on it had, as is a precondition for a meaningful application of the compensation

mechanism in the Sales Agreement, been appropriately and regularly updated.

109. The information provided in the Application is therefore incapable of substantiating that

the level of compensation for capital costs complied with the compensation mechanism

124 Articles 3 and 5 in the operative part of the Decision. 125 Decision, para. 183.

Page 38 that was found in the Decision to ensure market terms. Rather, the impression is still

that the Applicant is unable and/or unwilling to justify or explain the level of

compensation. None of the new information is therefore capable of calling into question

the Decision’s assessment, based on the totality of the available evidence at the time,

that the level of compensation most likely exceeded that allowed by the Sales

Agreement.126 This conclusion is not weakened, but rather strengthened, by the

information which is now brought forward by the Applicant, including, in particular, the

information indicating that the Applicant’s streetlighting operations have been highly

profitable and generated contributed earnings in addition to covering capital costs.

4.3.4 Applying the MEOP to operation and maintenance costs

110. The Applicant alleges that ESA made a manifest error when applying the MEOP in

relation to the operation and maintenance costs, and in particular by basing its

conclusion on overcompensation on this point on four strands of evidence:127 First, a

rational private operator would ensure control of the prices presented by the Applicant,

initiate legal steps if necessary and generally invest more resources in ensuring

compliance with the Sales Agreement. Second, the Municipality entertained concerns

of overpricing throughout the period. Third, the Applicant did not provide sufficient

information on direct and indirect costs associated with the operation and maintenance

activities. Fourth, the information contained in the KOSTRA-database and the

comparison of Bergen with nine other large municipalities in the period 2016-2019.

111. Before addressing these four points in turn, ESA would like to observe that, from the

wording of the Application, it appears that the Applicant has not understood that, with

respect to the compensation for maintenance and operation services, ESA’s Decision

was based on the premise that the mechanism in the Sales Agreement only allowed

for cost coverage and that the relevant costs must be regularly and appropriately

established, in order to comply with the compensation mechanism.128 In this respect,

it is illustrative how para. 89 of the Application refers to calculations of appropriate cost-

plus hourly rates for work performed in relation to streetlight operation and

126 Decision, para. 211. 127 Application, para. 111. 128 Decision, para. 169.

Page 39 maintenance. However, the compensation mechanism in the Sales Agreement did not

allow for coverage of cost-plus rates for man hours, but merely coverage of the

appropriately established costs of man hours.

4.3.4.1 Inactivity of the Municipality

112. The Applicant alleges that the Municipality did invest in compliance with the relevant

contractual obligations and requested and received comprehensive information

regarding the costs and risks involved in operating and maintaining the streetlights.

The Applicant again submits that the price paid per streetlight reflects the price agreed

in 1996, adjusted for inflation.129 Cross-reference is made to the arguments in the

Application under Section 3.4.2.4 concerning the disagreement in 2004 and it is

submitted that failure to litigate the 2004-dispute cannot constitute State aid, because

only active intervention can constitute State aid.130

113. The assertion that the Municipality requested and received comprehensive information

regarding the costs and risks involved in operating and maintaining the streetlights is

wholly unsupported by evidence: no examples of such information are given in (or

annexed to) the Application. ESA recalls that the Norwegian authorities were unable

to provide any detailed information on the costs during the formal investigation

procedure, which would tend to suggest they had no such information in their

possession.

114. As for the claim that the compensation level per streetlight has been arrived at simply

by adjusting the price agreed in 1996 for inflation, this does not preclude that there has

been overcompensation.

115. In respect of the disagreement with the Municipality in 2004, and the related assertion

that only active intervention can constitute State aid, ESA submits, first, that the

Applicant is wrong in law that only active interventions can constitute State aid.131

129 Application, para. 112. 130 Application, para. 113. 131 It is settled case-law that the concept of aid is wider than that of a subsidy because it embraces not only positive benefits, such as subsidies themselves, but also measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect (see for example Judgment of 17 June 1999, C-295/97, Piaggio, EU:C:1999:313, para. 34).

Page 40 Second, the assertion is irrelevant: the 2004 disagreement was limited exclusively to

the calculation of the compensation for capital costs and was therefore not referred to

in the part of the Decision addressing the compensation for maintenance and operation

costs.

4.3.4.2 The 2004 dispute and disagreement between the Municipality and the Applicant

116. The Applicant asserts that the 2004 disagreement, and subsequent doubts on the part

of the Municipality about the correctness of the level of compensation, cannot call the

compliance with the MEOP-test into question.132

117. ESA submits, first, that the 2004 disagreement concerned exclusively the

compensation for capital costs. It was therefore not referred to in the part of the

Decision on the compensation for maintenance and operation costs. Second, with

respect to the doubts entertained by the Municipality about the correctness of the level

of the compensation, ESA recalls how the analysis was actually conducted in the

Decision. The starting point of the analysis, set out in para. 170 of the Decision, was

that a private operator would enforce its contractual position. A failure to enforce an

agreed contractual position can confer advantages on the private party that has

obligations under the contract. In spite of its impression that the prices charged could

be too high, the Municipality did, as underlined in para. 171 of the Decision, not do

anything to ensure that the agreed compensation mechanism in the Sales Agreement

was complied with. In the Decision, this complete lack of control was identified as one

of several factors indicating that there had been overcompensation. The other factors

were the lack of specificity in the information presented by the Applicant,133 and the

information from the KOSTRA-database for the years 2016-2019.134 These different

factors were all elements in the overall assessment that was carried out on the basis

of the totality of the available evidence.135

132 Application, para. 114. 133 Decision, para. 172. 134 Decision, paras. 173 et seq. 135 Bearing in mind that also the Complaint contained pricing information for similar services, which was considerably below the price level charged by the Applicant to the Municipality.

Page 41 4.3.4.3 Accounting separation – direct and indirect costs

118. Section 3.4.3.4 of the Application disputes the Decision’s finding (which it refers to as

the third strand of evidence) that the Applicant did not have a proper account of direct

and indirect costs related to operation and maintenance. The Applicant makes four

arguments in this respect. The first argument concerns the owner and operator of the

streetlights in the period 1996-2016, BBK Nett AS. Para. 116 of the Application refers

back to Section 2.5.2 of the Application. It is submitted that the information presented

there establishes that BBK Nett AS had detailed accounts of every cost, be it

manpower, equipment or other direct and indirect costs, related to the service. The

information presented in Section 2.5.2 comprises the following Annexes: Annex A.12

(Calculation hourly rates 2007), Annex A.13 (Calculations hourly rates 2014), Annex

A.14 (Board Matter 13/2005 of 13 May 2005), Annex A.15 (Self-cost calculation for

2007), Annex A.16 (Self-cost calculation for 2014), Annex A.17 (Segment Account for

2007) and Annex A.18 (Segment Account for 2014).

119. Second, it is argued that these cost data were “instrumental to the transfer of the

streetlight infrastructure, and internal pricing thereof, to BKK Enotek (2016) and later

Veilys (2017), and instructive also to (the) costs of operating and maintaining the

streetlights”. In this respect, reference is made in para. 116 of the Application to the

information presented in Section 2.7 of the Application. The following Annexes were

referred to in that Section: Annex A.22 (Calculation hourly rates 2016), Annex A.23

(Monthly report 2016), Annex A.24 (Accounting total 2017) and Annex A.25

(Accounting/prognosis 2019).

120. Third, it is purported, also in para. 116 of the Application, that Veilys (AS) and Eviny

Solutions “[…] can show [sic] detailed cost calculations correlating to the actual prices

agreed in the 1996-agreement.” Reference is made again to the Annexes referred to

in Section 2.7 of the Application.136

121. Fourth, para. 117 of the Application contends that an analysis of the actual direct and

indirect costs involved in delivering the streetlight operation and maintenance services

136 Again, the following Annexes were referred to in Section 2.7: Annex A.22 (Calculation hourly rates 2016), Annex A.23 (Monthly report 2016), Annex A.24 (Accounting total 2017) and Annex A.25 (Accounting/prognosis 2019).

Page 42 to the Municipality would have revealed that there is no overcompensation. According

to calculations made by Eviny Solutions, the direct and indirect costs for the tasks

pertaining to operation and maintenance performed for Veilys for the streetlights on

municipal roads within the Municipality amount to NOK 697 (Annex A.27 Calculations

for operation and maintenance performed for Veilys).

122. ESA submits that it should be noted at the outset that it is not correct that ESA relied,

as a third strand of evidence in the assessment of the presence of an advantage,

primarily on the premise that the Applicant did not have a proper account of direct and

indirect costs related to operation and maintenance. As explained above, the

Decision’s assessment of the compensation for maintenance and operation services

involved an overall consideration of three different factors. ESA did not identify as any

of those factors that the Applicant did not have a proper account of direct and indirect

costs. Rather, para. 172 of the Decision found that the information presented by the

Applicant in the context of the formal investigation procedure did not contain any

information concerning the basis for the prices charged with respect to the

compensation. This inability to bring forward specific information was regarded as an

indication that the compensation mechanism in the Sales Agreement had not been

complied with.

123. Further, it should be underlined that accounting separation (even if correctly carried

out) would not in itself be sufficient to ensure that the compensation did not confer an

advantage on the Applicant. The question of whether an advantage is present turns on

the level of compensation.

124. In addition, as will be shown below, the newly submitted information neither indicates

nor substantiates that there was accounting separation (and with it, a proper allocation

of (in)direct costs) between the relevant activities and other commercial activities. On

any view therefore, the newly submitted information is incapable of calling into question

the Decision’s findings on the lack of information on the basis of the prices charged

and concerning the absence of accounting separation.

125. Turning to the first group of documents relied on, it should be noted that, except for

the addition of Annex A.15, the Annexes referred to are the same as those addressed

in the context of the compensation for capital costs in Section 4.3.3.1 above. As shown

Page 43 in that Section, the concerned Annexes do not provide a basis for the assertion that

there has been separation between the activities relating to the measures and other

activities. Since the data concerning the activities performed in respect of the

measures are not singled out, the Annexes are also incapable of substantiating that

the level of compensation complied with the mechanism in the Sales Agreement.

126. As regards Annex A.15, the data provided in this Annex also do not distinguish

between the lighting related activities which concern the compensation at stake, and

those activities which concern other contracts or customers. This information is

therefore equally incapable of evidencing that there was effective accounting

separation or that the level of compensation complied with the mechanism in the Sales

Agreement.

127. However, in the same way as was noted in Section 4.3.3.1 above with reference to

Annex A.16, it is certainly of interest to note that the activities falling within the category

of ‘lighting’ would seem to have been very profitable. The ‘contribution margin’,

‘calculated profit contribution’ and ‘operating profit’ are the highest recorded.

128. The second group of documents137 submitted are equally incapable of demonstrating

that the compensation mechanism in the Sales Agreement was complied with. This

results from the same deficiencies as have been pointed out with respect to the first

group of documents.

129. As regards Annex A.22, the data relating to the compensation at stake are not singled

out. Instead, a broad category comprising lighting and traffic engineering is presented.

The same is true for Annex A.23. However, as has already been observed with respect

to other newly presented documents, it is of interest to note that those activities

including streetlighting were characterised by high operating margins and profits

compared with other areas.138

130. Equally, no data meaningfully limited to the activities at stake are presented in Annex

A.24. The Annex furthermore only presents aggregate sums concerning various

contracts. There is no explanation of the basis for the sums in question. The figures

137 This concerns the documents cited in para. 131 et seq. of this Defence. 138 Sheets on pages 3 and 8 of Annex A.23.

Page 44 presented in Annex A.25 also do not separate the data which may be relevant from

those which are not. Again, it is however noteworthy that the data in Annex A.25

indicates that the activities pertaining to streetlighting were very profitable. In this

regard, it follows from the spreadsheet presented on page 5 of that annex that the

estimated contribution margins from Veilys AS and lighting and traffic engineering –

local authorities were respectively 23.1% and 27.4% for 2020. The estimated

contribution margins for the same year from the categories of activities within the areas

of electrical power and industry, telecommunications and fiber, industry and

distribution, and multivolt, ranged from 5.1% to 13.6%.

131. Given that Annexes A.22 to A.25 are also relied on in the context of the third contention

that Veilys (AS) and Eviny Solutions “can show [sic] detailed cost calculations

correlating to the actual prices agreed in the 1996-agreement,” it follows from the

above analyses of these Annexes that this claim is also wholly unfounded. More

generally, it is also unclear from the Application what is meant more precisely by the

phrase “correlating to the actual prices agreed in the 1996-agreement."

132. In respect of, fourth, Annex A.27, the Authority first observes that the figures presented

therein are unexplained and unverified. In particular, i the basis for the amounts and

unit prices presented is unsubstantiated. Annex A.27 is not therefore a reliable basis

for establishing that the relevant costs in the concerned period exceeded the

compensation for maintenance and operation. Second and in any event, it should be

observed that the figures contained therein would imply that the relevant costs have in

fact been much higher than the level of compensation for operation and maintenance

provided under the measure. This claim fundamentally undermines the claims

previously made by the Applicant that it has had effective and appropriate systems for

allocating costs and revenues pertaining to different activities, customers and

contracts. It would furthermore imply that the Applicant has unknowingly refrained from

enforcing the compensation mechanism in section 7(c) of the Sales Agreement, with

the result that it has not even received cost coverage for its maintenance and operation

services compensated under the measure.

133. In light of the information submitted in the case, it appears highly improbable that the

Applicant has unknowingly undercharged the Municipality and engaged in “loss-

Page 45 making” activity as it alleges. Rather, it follows from the internal strategy document

submitted as Annex A.14 that the Applicant’s activities pertaining to streetlighting were

already in 2004 identified as a commercial part of its business. As explained above,

several of the Annexes presented by the Applicant furthermore indicate that its

activities pertaining to streetlighting have in fact been characterised by high operating

and contribution margins compared with other business areas.139

4.3.4.4 The KOSTRA-database

134. Para. 118 of the Application states that the KOSTRA-data relied on “do not show any

information of the costs between 1 January 2020 and 2020 April (or any time

thereafter).” This is correct. However, as explained in Section Error! Reference

source not found. above, as regards the compensation for capital costs, it is

consciously not stated in the Decision that BKK Veilys has been overcompensated in

each and every year covered by the recovery order. Rather, the Decision concluded

that there has most likely been overcompensation and left it for the Norwegian

authorities to determine the amount of the overcompensation, as well as the precise

dates on which it occurred.

4.3.4.5 The 2020 tender

135. The Applicant submits that ESA committed a manifest error of assessment by ignoring

the data from the 2020 Bergen municipality streetlight tender. In this respect, it is

argued, first, that this tender concerned the very same streetlights as those previously

operated and maintained by the Applicant. It is claimed that there was a tender price

of NOK 606 per streetlight, and that this is significantly higher than the NOK 495 per

streetlight compensated for the maintenance and operation at stake.140 Second, it is

asserted that, due to differences in the service level under the contracts, the pricing of

the tendered-out contract will likely be higher. This is also taken as an indication that

there has been no overcompensation.141 Third, it is alleged that the conclusion in the

Decision that the terms of the tendered-out contract are not comparable, since the

tendered-out contract also encompassed the 12 000 LED fixtures, is unfounded. The

139 See e.g. Annex A.23, pages 3 and 8, Annex A.25, page 5. 140 Application, para. 119. 141 Application, para. 120.

Page 46 basis for this is that as the LED-fixtures are new, they generally do not require any

service.142

136. Contrary to the Applicant’s contentions, the Decision did not ignore the terms of the

tendered-out contract. Rather ESA made sure to obtain information about the tender

and presented this in Section 3.1.4 of the Decision. The assessment and conclusion

in para. 183 of the Decision, that the terms of the tendered-out contract did not amount

to a meaningful comparator, must be read against this background.

137. In response to the first argument made, it is not correct that the tender price was NOK

606 per streetlight. The contract was awarded on the basis of the total price of NOK

10 554 689 set out in para. 50 of the Decision. This price related to the infrastructure

described in para. 48 of the Decision, including 3 133 light fixtures and 12 000 LED

fixtures.

138. In respect of the second argument made, in relation to the alleged differences in the

service level, it is important to recall that, as recorded in para. 51 of the Decision, the

Norwegian authorities described the level of services under the tendered-out contract

as generally similar to that compensated under the measure. In any event, it is hard to

see these factors indicating that the pricing of the tendered-out contract should be

higher than the pricing of the services at stake, amount to a sufficient indication that

there has been no overcompensation.

139. As regards, third, the argument made in relation to the alleged absence of services

rendered with respect to the LED-fixtures, two points must be made. First, what matters

is not what service need has actually materialised, but how the inclusion of the LED-

fixtures affected the pricing at the time when the terms of the submitted tenders were

decided. Second, the lifetime of the tendered-out contract is not finished, and actual

service needs may still materialise. In relation to both these points, it can be observed

that the fact that the Municipality consciously decided to include the LED-fixtures in the

scope of the tendered-out contract is an indication that there was, and presumably still

is, an expected need for services comprising these fixtures.

142 Application, para. 121.

Page 47 4.3.4.6 Conclusion

140. Except for the claim that the level of compensation has only been subject to inflation

adjustment, no concrete information is presented in the Application as to how the level

of compensation has been calculated. Accordingly, there is no information on how the

level of compensation was established in 1996, and no information on the level that

would follow if the compensation had, as is a precondition for a meaningful application

of the compensation mechanism in the Sales Agreement, been regularly updated on

the basis of an appropriate means of establishing the eligible costs.

141. The information provided in the Application is therefore incapable of evidencing that

the level of compensation for maintenance and operation complied with the

compensation mechanism that was found in the Decision to ensure market terms.

Rather, the impression is still that the Applicant is unable and/or unwilling to justify or

explain the level of compensation. None of the new information is therefore capable of

calling into question the Decision’s assessment, based on the totality of the available

evidence at the time, that the level of compensation most likely exceeded that allowed

by the Sales Agreement. This conclusion is not weakened, but rather strengthened, by

the information which is now brought forward by the Applicant, including, in particular,

the information indicating that the Applicant’s streetlighting operations have been

characterised by high profits, operating and contribution margins.

142. Based on the above, ESA respectfully requests the Court to dismiss the second plea

as unfounded.

4.4 Third and Fourth Pleas: Distortion of competition and effect on trade

143. In the third and fourth pleas, the Applicant alleges, inter alia, that there was no

distortion of competition or effect on trade, because there was no cross-subsidisation

between streetlights owned by the Applicant or operated for the Municipality and

commercial tenders or other activities.143 The Applicant also refers again to the funding

of the infrastructure as such, i.e. the funding to the owner/developer of the

143 Application, paras. 127 and 130.

Page 48 infrastructure, when arguing that the infrastructure does not compete with other

infrastructure.144

144. ESA submits that the Applicant again fails to distinguish the funding of the

infrastructure as such from the compensation for the operation and maintenance

services of the streetlights (as well as the capital costs). Operators who make use of

the infrastructure to provide services receive an advantage if the use of the

infrastructure provides them with an economic benefit that they would not have

obtained under normal market conditions.145

145. The Applicant is dependent on selling its services to the Municipality. By doing that, it

is in competition with other service providers. It is undisputed that municipalities

decided to organise the purchase of services by way of competitive tenders. In that

regard, the Applicant is in competition with companies which offer their services for the

operation and maintenance of, for example, streetlights that are still owned by the

Municipality or other municipalities. The advantage of overcompensation will enable

the Applicant to cross-subsidise offers made when tendering for other streetlight

services.

146. In addition, the Applicant argues now that, as of 1 January 2016, the streetlight

infrastructure was transferred to a separate company together with other activities

subject to competition. In this context, the Applicant claims that ESA ignored the

Applicant’s accounting separation.146 ESA recalls that the Applicant never submitted

any information to ESA in the course of the formal investigation explaining that it

operated separate accounts, even though this issue was raised in the Opening

Decision147 and knowing that only the Applicant could provide the information on this

point. The information submitted by the Applicant at the time of the formal investigation

did not evidence that the costs and income relevant to the compensation under the

measures were separated from costs and income concerning other contracts, and that

an appropriate allocation mechanism was put in place for this purpose.

144 Application, para.125 and 126. 145 NoA, para. 223. 146 Application, paras. 4, 5, 39, 127 and 130. 147 Para. 54 of the Opening Decision (see Annex D.1).

Page 49

147. Additionally, it should be recalled that the Decision properly focused on the question

whether a risk of cross-subsidisation could be excluded.148 Cross-subsidisation could

also occur through the allocation of the profits from the overcompensation to other

commercial activities within the Applicant’s Group, including through the disbursement

of dividends and intra-group purchases of services. There were no mechanisms in

place to prevent this.

148. ESA further submits that it is too late for the Applicant to make this point and that ESA

has taken the Decision on the available information at the time, which suggested that

the Applicant did not operate separate accounts and that cross-subsidisation could not

be excluded. Further, since there is no legal monopoly and companies offering similar

services, the issue is obsolete. To this end, it should be borne in mind that the Applicant

owns a Group of undertakings active also in other sectors subject to EEA-wide

competition.

149. Consequently, ESA respectfully requests the Court to dismiss the third and fourth pleas

as unfounded.

4.5 Fifth Plea: The aid constitutes new aid

150. By its fifth plea, the Applicant claims that any aid must be existing aid not subject to

recovery, since the aid measure related to the Sales Agreement, which entered into

force in 1996, and it was not possible to separate the contractual terms of this

agreement from their practical implementation.149 According to the Applicant, the 10-

year limitation period for recovery has expired.

151. ESA recalls that, with respect to the compensation relating to the infrastructure owned

by the Applicant, a key premise of the Decision was that the aid subject to recovery

was the compensation which exceeded the compensation levels allowed by the

compensation mechanism in the Sales Agreement.150 Hence, the aid was not awarded

by means of the Sales Agreement, but rather in breach of the conditions in the Sales

Agreement.151

148 Decision, paras. 55, 117 and 118. 149 Application, paras. 10, 131 to 140. 150 See Articles 3 and 4 of the operative part of the Decision. 151 Decision, para. 229.

Page 50

152. As regards the compensation concerning the infrastructure owned by the Municipality,

this was not regulated by the Sales Agreement. As emphasised in para. 178 of the

Decision:

“[…] the Municipality was free to purchase the maintenance and operation of

the Municipality-owned infrastructure from any willing provider and was not

bound by any predefined compensation mechanism […]”.

153. Consequently, this compensation was therefore evidently not awarded by virtue of the

Sales Agreement.

154. In addition, according to Article 15(2) in Part II of Protocol 3 SCA, the limitation period

begins on the day on which the unlawful aid is awarded to the beneficiary.

Consequently, the decisive factor in determining the starting point of the limitation

period, referred to in Article 15, is when the aid was in fact granted. This implies that

each time the beneficiary receives overcompensation under the Sales Agreement aid

is awarded to the Applicant. The aid is granted on a reoccurring basis. Contrary to the

Applicant’s claims,152 it does not mean that the award is dated back until 1996, which

would effectively make any future payments “immune” from recovery.

155. The Applicant’s references to Case C-81/10 P France Telecom v Commission and

ESA’s Decision No 167/09/COL,153 are actually to the advantage of ESA. In Case C-

81/10 P France Telecom v Commission, the CJEU clarified that:

“The determination of the date on which aid was granted may vary depending

on the nature of the aid in question. Thus, in the case of a multi-annual scheme,

entailing payments or advantages granted on a periodic basis, the date on

which an act forming the legal basis of the aid is adopted and the date on which

the undertakings concerned will actually be granted the aid may be a

considerable period of time apart. In such a case, for the purpose of calculating

the limitation period, the aid must be regarded as not having been awarded to

152 Application, para. 134. 153 Application, para. 134.

Page 51

the beneficiary until the date on which it was in fact received by the

beneficiary.”154 (emphasis added)

156. The CJEU thereby confirmed the General Court’s finding that the limitation period

starts to run afresh each time an advantage is actually granted, which may be on an

annual basis, so that the calculation of the limitation period may depend on how and

when the advantage is identified.155

157. The Applicant refers to ESA’s Decision No 167/09/COL,156 but this does not advance

its case. In that decision ESA concluded that the first request for information that

addressed the issue of the potential aid measure in the form of the lease agreement

was sent on 28 March 2007. ESA considered that, on that date, the 10-year limitation

period had expired as the contract binding the parties had been entered into on 27

June 1996. No recovery would therefore be possible. Moreover, the lease agreement

itself had also already expired on that date, since the option to renew the agreement

for a further ten years was not used. The lease agreement therefore ceased to exist

on 30 June 2006 and no further effects were created as a result of that agreement. In

other words, that case concerned completely different circumstances and the key fact

was that the lease agreement itself had already expired within the 10-year limitation

period.

158. The Applicant’s attempt to extrapolate from jurisprudence on the classification of

existing aid and to apply it to the limitation period in Article 15 in Part II of Protocol 3

SCA,157 is misguided for the following two reasons: First, any aid granted within the

10-year limitation period has been considered in the Decision as existing aid. Second,

aid granted after the 10-year limitation period, is for the reasons and jurisprudence

mentioned above, to be classified as new aid.

154 Judgment of 8 December 2011, France Telecom v Commission, C-81/10 P, EU:C:2011:811, para. 82. 155 Judgment of 8 December 2011, France Telecom v Commission, C-81/10 P, EU:C:2011:811, paras. 84 and 86. 156 ESA Decision No 167/09/COL of 27 March 2009 on the lease and sale of Lista air base. The decision is available under this link: https://www.eftasurv.int/cms/sites/default/files/documents/decision-167-09-COL.pdf 157 Application, paras. 136 to 139.

Page 52

159. In light of the above, ESA respectfully requests the Court to dismiss the fifth plea as

unfounded.

4.6 Sixth Plea: ESA provided sufficient reasoning; proper examination of the

facts

160. In the sixth plea the Applicant contends that the Decision was based on an insufficient

examination of the facts and failed to state proper reasoning in breach of Article 16

SCA.158 Before considering these claims, ESA recalls that the duty to give reasons

relates solely to the matters on which the decision is based. This is to enable the Court

to review the legality of the decision and to provide the person concerned with details

sufficient to allow it to ascertain whether the decision is well-founded or whether it is

vitiated by a defect which will allow its legality to be contested. Accordingly, that

requirement is satisfied where the decision refers to the matters of fact and law on

which the legal justification for the decision is based and to the considerations which

led to its adoption.159

161. ESA rejects the claim that the Decision failed to give reasons and submits that it has,

in line with relevant case-law, in a concise and clear manner, set out all the principal

issues of law and fact upon which the reasoning was based and which led to the

adoption of the Decision. The Application is a testament to that, because the Applicant

has perfectly understood on which basis the Decision was taken and was able to

advance detailed counter-arguments.

162. The Applicant also complains that the Decision has not assessed, for example, the fact

that the Applicant operates accounting separation.160 But again, ESA can only assess

information which is submitted to it at the time of its Decision and, since the Applicant

did not provide any information related to this during the formal investigation, ESA has

no obligation to discuss in theory issues on which it has no information. ESA submits

that the Decision is the result of a proper formal investigation, involving the careful and

158 Application, paras. 11, 141 to 148. 159 Judgment of 8 November 1983, 96-102, 104, 105, 108 and 110/82, IAZ International Belgium and others v Commission, EU:C:1983:310, para. 37; Judgment of 11 July 1985, 42/84, Remia and others v Commission, EU:C:1985:327, para. 26; Judgment of 9 December 2014, T-472/09 and T-55/10, SP SpA v Commission, EU:T:2014:1040, para. 79; Judgment of 13 December 2016, T-95/15, Printeos SA and Others v Commission, EU:T:2016:722, para. 44. 160 Application, para. 144.

Page 53 detailed consideration of all the evidence collected. The Decision was adopted on

basis of the information and evidence available at the time. Consequently, any newly

submitted information in the Application could not form the basis of the Decision.

163. Finally, and contrary to para. 146 of the Application, the Decision also provides

sufficient guidance for the Norwegian authorities and the Applicant to estimate the

possible overcompensation involved, as the compensation should reflect market value

and be in line with section 7(c) of the Sales Agreement. ESA cannot and is legally not

required to fix the exact amount to be recovered. It is sufficient for ESA’s decision to

include information enabling the EFTA State concerned to determine the amount,

without too much difficulty.161

164. Consequently, ESA respectfully requests the Court to dismiss the sixth plea as

unfounded.

5 FORM OF ORDER SOUGHT BY ESA

Accordingly, ESA respectfully requests the Court to:

1. dismiss the Application as unfounded, and

2. order the Applicant to pay the costs of the proceedings.

Michael Sánchez Rydelski Claire Simpson

Kyrre Isaksen

Agents of the EFTA Surveillance Authority

161 Judgment of 12 October 2000, C-480/98, Spain v Commission, EU:C:2000:559, para. 25; Judgment of 2 February 1988, C-67/85, C-68/85 and C-70/85, Kwekerij van der Kooy BV and others v Commission, EU:C:1988:38, paras. 66 and 72.

Page 54

6 SCHEDULE OF ANNEXES

No

Description

Referred to

in this

defence at

paragraph(s)

Number

of

pages

D.1 ESA’s Decision No. 027/19/COL dated 16

April 2019 19 to 24

10

D.2 Applicant’s letter of 5 June 2019 (with

Appendix) 25

26

Dear Sir/Madam,

Please find attached copies of the application from Eviny AS dated 27 September 2022, Eviny AS EFTAinitiating proceedings before the EFTA Court in Case E 10/22 – v

Surveillance Authority , and the defence from the EFTA Surveillance Authority, dated 12 December 2022. Copies of annexes to the application and the defence can be requested by contacting the Registry.

The application was received electronically on 27 September 2022, and entered in the register of the Court (reg. No E-10/22-1) under Case No E-10/22 on that day.

The defence was received electronically on 12 December 2022 and entered in the register of the Court on that day (reg. No E-10/22-10).

In accordance with Article 20 of the Statute of the EFTA Court, the Governments of the EFTA States, the Union and the European Commission are entitled to submit statements of case or written observations, in English, to the Court within two months from the date of this notification, i.e. by Monday, 13 February 2023, cf. Article 39(2) of the Rules of Procedure.

On behalf of the Registrar.

Yours faithfully,

image1

Saatja: <[email protected]>

Saadetud: 13.12.2022 20:48

Adressaat: RAM Info <[email protected]>; Virge Aasa <[email protected]>; Merili

Kriisa <[email protected]>; Merle Järve <[email protected]>; Maie

Antsov <[email protected]>; MKM info <[email protected]>; Klen Teder

<[email protected]>

Teema: E-10/22

Manused: 01_Eviny_AS_Application_for_annulment.pdf;

10_ESA_Defence_original.pdf; CoverLetter_EM_16430.pdf

Välisministeeriumis registreeritud: 15.3-3/2022/486 Kohtuasja number:

E-10/22 Vastuse kuupäev: 27.12.2022

Staadium: Uus menetlus

Märksõnad: eeliseid andev riigiabi; majandustegevus; riigiabi

Õiguslikud vormid: EMP artikkel 61

Palun teatage 7 päeva jooksul, kas kohtuasja temaatika kuulub teie

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