State aid: Commission orders Italy to suspend payment of aid to AEM Torino until it pays back previous illegal aid

The European Commission has endorsed under EC Treaty state aid rules a €16 million subsidy Italy intends to grant to AEM Torino. The aid is intended to cover costs incurred in the liberalisation process of the electricity sector (“stranded costs”). The Commission considers that the subsidy is in line with state aid rules. However, as AEM Torino had received in the past a significant amount of illegal and incompatible aid which it has not yet been reimbursed, the Commission has ordered Italy to suspend the payment of the €16 million of new aid until AEM Torino reimburses the previous illegal aid.

EU Competition Commissioner Neelie Kroes said: “We have examined the potential distortions of competition caused by the proposed new aid in combination with the illegal aid that has still not been reimbursed and came to the conclusion that the new aid can be granted only after the reimbursement of the previous illegal aid.”

AEM Torino is a local utility company (one of the so called “municipalizzate”), that produces, distributes and sells electricity and heating. It also manages street lighting, traffic lights and the electrical and heating systems of the buildings owned by the Municipality of Turin, which has a 70% stake in the company. In 2004, the turnover of AEM Torino reached €891 million.

The aid that Italy intends to grant to AEM Torino would compensate for stranded costs in the electricity sector linked to the liberalisation process. The aid amounts to approximately €16 million. The Commission has previously approved several aids to energy companies covering stranded costs based on a methodology applied since 2001 (see IP/01/1077). In particular, on 1 December 2004, the Commission authorised compensation for stranded costs linked to the Italian electricity incumbent ENEL (see IP/04/1429). However, this decision did not concern the ‘municipalizzate’.

In March 2005, Italy notified its intention to grant aid for the stranded costs of the ‘municipalizzate’. The calculations made by the Italian authorities led to the conclusion that only one firm – AEM Torino – would be in a position to benefit from the envisaged aid.

However, on 5 June 2002, the Commission took a negative decision on fiscal aid granted by Italy to the municipalizzate (see IP/02/817). After almost four years, Italy has still not recovered the amounts granted at that time. The Commission has recently decided to refer Italy to Court for failure to act on this matter (see IP/05/76).

On 4 April 2006, the Commission opened an investigation based on Article 88.3 of the EC Treaty, to assess the combined effects of the new and the old illegal aid. Neither Italy nor AEM Torino took the opportunity to provide any comment during this investigation. Having received no new information to dispel its concerns, the Commission can only maintain its conclusion that there is a serious risk that the cumulation of the old and the new aid could distort competition to an extent that is contrary to the Community interest. It has therefore decided to approve the new aid but to order Italy to suspend its payment until Italy provides information to the Commission proving that AEM Torino has reimbursed the old illegal aid.

In accordance with the case law of the European Court of Justice, notably in the Deggendorf ruling (case C-355/95), when assessing the compatibility of new aid, the Commission also has to take into account the fact that the beneficiaries may not have complied with earlier Commission decisions ordering them to reimburse previous illegal and incompatible aid. In such cases, the Commission must verify the effects on the beneficiaries of the combination of the new aid with the old incompatible aid which has not yet been reimbursed.