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INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

In the arbitration proceeding between

NEXTERA ENERGY GLOBAL HOLDINGS B.V. AND
NEXTERA ENERGY SPAIN HOLDINGS B.V.

Claimants

and

KINGDOM OF SPAIN

Respondent

ICSID Case No. ARB/14/11

DECISION ON JURISDICTION, LIABILITY AND
QUANTUM PRINCIPLES

Members of the Tribunal
Professor Donald M. McRae, C.C., President of the Tribunal
The Honourable L. Yves Fortier, P.C., C.C., O.Q., Q.C., Arbitrator
Professor Laurence Boisson de Chazournes, Arbitrator

Secretary of the Tribunal
Ms. Luisa Fernanda Torres

Date of dispatch to the Parties: 12 March 2019

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REPRESENTATION OF THE PARTIES

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TABLE OF SELECTED ABBREVIATIONS

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I. INTRODUCTION AND PARTIES

1. This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes (“ICSID” or the “Centre"), on the basis of the Energy Charter Treaty, which entered into force on 16 April 1998 for the Netherlands and the Kingdom of Spain (the "ECT"), and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered into force on 14 October 1966 (the "ICSID Convention").

2. The Claimants are NextEra Energy Global Holdings B.V (“NextEra Global"), and NextEra Energy Spain Holdings B.V. ("NextEra Spain"), both limited liability companies incorporated under the laws of the Netherlands (besloten vennootschap met beperkte aansprakelijkheid), (together, “Claimants”).

3. The Respondent is the Kingdom of Spain (“Spain” or “Respondent").

4. Claimants and Respondent are collectively referred to as the “Parties.” The Parties' representatives and their addresses are listed above on page (i).

5. This dispute relates to measures implemented by Respondent modifying the regulatory and economic regime of renewable energy projects.

II. PROCEDURAL HISTORY

A. REGISTRATION AND CONSTITUTION OF THE TRIBUNAL

6. On 15 May 2014, ICSID received a Request for Arbitration dated 12 May 2014, accompanied by exhibits C-001 to C-012, from Claimants against Spain (the "Request for Arbitration”). On 21 May 2014, the Centre formulated a question to Claimants regarding the Request for Arbitration, and Claimants submitted a response on 22 May 2014.

7. On 23 May 2014, in accordance with Article 36(3) of the ICSID Convention, the Secretary-General of ICSID registered the Request for Arbitration, as supplemented by

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letter of 22 May 2014, and notified the Parties of the registration. In the Notice of Registration, the Secretary-General invited the Parties to proceed to constitute an arbitral tribunal as soon as possible in accordance with Rule 7(d) of ICSID's Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (the “Institution Rules").

8. In accordance with Article 37(2)(a) of the ICSID Convention, the Parties agreed to constitute the Tribunal as follows: three arbitrators, one to be appointed by each Party, and the third, presiding arbitrator to be appointed by agreement of the Parties. Pursuant to the Parties' agreed method of constitution, failing an agreement of the Parties on the presiding arbitrator, s/he would be appointed by the Chairman of the ICSID Administrative Council without limitation to the ICSID Panel of Arbitrators.

9. The Tribunal is composed of Professor Donald M. McRae, a national of Canada and New Zealand, President, appointed by agreement of the Parties; Mr. L. Yves Fortier, a national of Canada, appointed by Claimants; and Professor Laurence Boisson de Chazournes, a national of France and Switzerland, appointed by Respondent.

10. On 23 January 2015, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings (the “ICSID Arbitration Rules"), the Secretary-General of ICSID notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. Ms. Luisa Fernanda Torres, ICSID Legal Counsel, was designated to serve as the Secretary of the Tribunal.

B. THE FIRST SESSION

11. On 15 May 2015, a date agreed by the Parties, in accordance with ICSID Arbitration Rule 13(1) the Tribunal held a first session with the Parties in-person in Washington, DC.

12. On 21 May 2015, following the First Session, the Tribunal issued Procedural Order No. 1, supplemented on 3 June 2015 with its Annex A (Procedural Calendar). Procedural Order No. 1 embodied the Parties' agreements on procedural matters and the Tribunal's decisions on the disputed issues. It established, inter alia, that the applicable Arbitration Rules would be those in effect from 10 April 2006, that the procedural languages would

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be English and Spanish, that the place of proceeding would be Washington, DC, and it also set out the Procedural Calendar for this arbitration.

C. THE PARTIES' WRITTEN SUBMISSIONS AND PROCEDURAL APPLICATIONS

13. On 22 May 2015, Claimants filed their Memorial on the Merits (“Memorial on the Merits"), accompanied by exhibits C-001 to C-124; legal authorities CL-001 to CL-064; three (3) witness statements by: Mr. F. Mitchell Davidson, Mr. Miguel Ignacio Arechabala and Ms. Rebecca Kujuwa, respectively; and one (1) expert report by Dr. Manuel Abdala and Prof. Pablo Spiller of Compass Lexecon, with exhibits CLEX-001 to CLEX-106.¹

14. On 23 June 2015, pursuant to the Procedural Calendar, Respondent provided a notice of its intent to submit Objections to Jurisdiction and a Request for Bifurcation.

15. On 9 September 2015, Respondent filed a Memorial on Preliminary Objections with Request for Bifurcation (“Memorial on Jurisdiction and Request for Bifurcation"); accompanied by exhibits R-001 to R-028; and legal authorities RL-001 to RL-019.

16. On 18 September 2015, following a joint request by the Parties, the Tribunal amended the Procedural Calendar (“Procedural Calendar – Amendment No. 1").

17. On 28 September 2015, Claimants filed an application asking the Tribunal to order Respondent to produce a legal authority to the Tribunal to assess its relevance, and then to Claimants if the Tribunal found the authority relevant, namely, The PV Investors v. Kingdom of Spain, PCA Case No. 2012-14, Preliminary Award on Jurisdiction (13 October 2014) (“PV Investors Award on Jurisdiction"). On 5 October 2015, Respondent filed observations on this application, together with exhibit R-029.

¹ Exhibits C-001 to C-012 had been previously submitted with the Request for Arbitration. See supra, ¶ 6. ↩

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18. On 2 October 2015, Claimants filed their Observations on Respondent's Request for Bifurcation (“Response on Bifurcation”); accompanied by legal authorities CL-086 to CL-133.²

19. On 28 October 2015, the Tribunal issued Procedural Order No. 2, dismissing Respondent's Request for Bifurcation.

20. On 6 January 2016, the Tribunal decided not to issue the order requested in Claimants' application of 28 September 2015, but encouraged Respondent to make its best efforts to make the PV Investors Award on Jurisdiction available to the Tribunal. On 18 February 2016, Respondent submitted the PV Investors Award on Jurisdiction to the record (without a designated legal authority number), together with evidence of consent of the claimants in the PV Investors proceeding.³

21. On 4 March 2016, Respondent filed its Counter-Memorial on the Merits (“Counter-Memorial on the Merits"), accompanied by exhibits R-030 to R-231; legal authorities RL-020 to RL-098; one (1) witness statement by Mr. Carlos Montoya; and one (1) expert report by Mr. Eduard Saura, Mr. Christophe Schmit and Mr. Stéphane Perrotto of Accuracy, with exhibits ACQ-001 to ACQ-039.

22. On 22 March 2016, Claimants informed the Centre and the Tribunal that the Spanish law firm Cuatrecasas Gonçalves Pereira had been retained as co-counsel in this matter, and on 20 May 2016 provided the corresponding power of attorney.

23. On 13 May 2016, following exchanges between the Parties, the Parties submitted for decision by the Tribunal their respective Redfern Schedules including their Requests, Objections and Replies on Document Production.

24. On 3 June 2016, the Tribunal issued Procedural Order No. 4 on Document Production.

² The legal authorities were submitted electronically on 5 October 2015. ↩
³ On 8 August 2016, Claimants resubmitted a copy of this Award with their Counter-Memorial on Jurisdiction, as CL-134. ↩

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25. On 8 August 2016, Claimants filed their Counter-Memorial on Preliminary Objections (“Counter-Memorial on Jurisdiction”) accompanied by exhibits C-126 to C-167; legal authorities CL-134 to CL-144; and one (1) witness statement, by Mr. George Nicolaï.⁴

26. On 8 and 9 August 2016, the Parties informed the Tribunal of an agreed extension of the deadline for the Claimants' Reply on the Merits until 10 August 2016, Respondent's agreement being conditioned upon Claimants' submission of certain evidence of the circumstances causing the delay together with the Reply on the Merits.

27. On 11 August 2016, Claimants filed their Reply on the Merits (“Reply on the Merits") accompanied by exhibits C-168 to C-271; legal authorities CL-145 to CL-175; three (3) witness statements by: Mr. F. Mitchell Davidson, Mr. Miguel Ignacio Arechabala, and Ms. Rebecca Kujawa, respectively; two (2) expert reports: one by Dr. Manuel Abdala and Prof. Pablo Spiller of Compass Lexecon, with exhibits CLEX-107 to CLEX-282, an another by Mr. Henry Price, with exhibits SD-001 to SD-024.

28. On 11 August 2016, Claimants also filed a communication explaining the circumstances underlying the extension for the submission of the Reply on the Merits, and announcing that "[u]nless the Tribunal otherwise direct[ed], Dr Abdala and Professor Spiller w[ould] supplement their evidence with a brief further report" to take account of those circumstances, approximately within two weeks. In addition, alleging delays in Respondent's document production, Claimants requested a further opportunity to analyze the materials received during document production and to introduce them into the record at a later time, by consent or with leave from the Tribunal. On 11 August 2016, Respondent filed a response objecting to the delay in the filing of the Reply on the Merits and opposing to Claimants' requests of 11 August 2016. On 12 August 2016, Claimants submitted reply observations.

29. On 17 August 2016, the Tribunal (i) informed the Parties that the consequences of the delay in the filing of the Reply on the Merits could be considered in the determination of costs but did not affect the admissibility of the submission, and it invited Respondent to

⁴ The exhibits and legal authorities were submitted electronically on 9 August 2016. ↩

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provide comments concerning the subsequent Procedural Calendar; and (ii) indicated that it would rule on the issue of admissibility of any further reports or documents if and when an application for leave to file them was made. On 18 August 2016, Respondent filed observations on the subsequent Procedural Calendar, and Claimants filed a reply on the same day.

30. On 19 August 2016, Claimants submitted an Addendum to the Second Expert Report of Dr. Abdala and Prof. Spiller, with exhibits CLEX-283 to CLEX-286. On 22 August 2016, the Tribunal invited Respondent to make observations on the admissibility of this report, and it informed the Parties that the report would not be transmitted to the Tribunal Members until a ruling on its admissibility had been made. On 29 August 2016, Respondent filed a response, opposing the admissibility the report, and requesting an extension for the filing of its Rejoinder on the Merits. On 30 August 2016, Claimants submitted observations on the requested extension.

31. On 15 September 2016, the Tribunal (i) admitted into the record the Addendum to the Second Expert Report of Dr. Abdala and Prof. Spiller dated 19 August 2016; and (ii) granted Respondent an extension for the filing of the Rejoinder on the Merits (“Procedural Calendar – Amendment No. 2”).

32. On 14 October 2016, Respondent filed its Reply on Preliminary Objections (“Reply on Jurisdiction"), accompanied by exhibits R-232 to R-276; legal authorities RL-099 to RL-110; and one (1) expert report by Mr. Eduard Saura and Mr. Christophe Schmit of Accuracy, with exhibits ACQ-040 to ACQ-042.

33. On 20 October 2016, Respondent filed its Rejoinder on the Merits (“Rejoinder on the Merits"), accompanied by exhibits R-277 to R-424; legal authorities RL-111 to RL-120; one (1) witness statement by Mr. Carlos Montoya, with exhibits R-225_CMR to R-266_CMR; three (3) expert reports by: Mr. Eduard Saura, Mr. Christophe Schmit and Mr. Stéphane Perrotto of Accuracy with exhibits ACQ-043 to ACQ-090, Mr. Jesús Casanova

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with five unnumbered exhibits, and Prof. Jorge Servert with exhibits JSR-001 to JSR-010 and JSRC-001 to JSRC-041, respectively.⁵

34. On 27 October 2016, Respondent filed an application requesting authorization from the Tribunal to submit an additional exhibit (R-424) and certain corrected exhibits (JSR-05 and JSR-10). On the same day, Claimants consented to the request. On 28 October 2016, the Tribunal granted Respondent's application, and on 3 November 2016 the documents were submitted by Respondent.

35. On 8 November 2016, the Tribunal held a pre-hearing organizational conference with the Parties by telephone.

36. On 11 November 2016, the Tribunal issued Procedural Order No. 5 embodying the Parties' agreements on procedural matters pertaining to the organization of the Hearing and the Tribunal's decisions on the disputed issues.

37. On 7 November 2016, Claimants filed an application asking the Tribunal (i) to order Respondent to produce certain documents not produced and to provide a complete copy of an exhibit already on record (R-078); and (ii) to grant Claimants leave to introduce the materials into the record if they elected to do so upon review. On 8 November 2016, Respondent (i) filed observations on Claimants' application of 7 November 2016; (ii) filed its own application asking the Tribunal to order Claimants to produce a number of documents not produced; and (iii) communicated to the Tribunal its willingness to introduce into the record a new legal authority, namely Isolux Infrastructure Netherlands BV v. Kingdom of Spain, SCC Case V2013/153, Award (12 July 2016) (“Isolux Award") subject to a guarantee of confidentiality by the present Tribunal. On 15 November 2016, Claimants provided observations on Respondent's application of 8 November 2016.⁶

⁵ Exhibits R-424, JSR-005 and JSR-010 were submitted electronically on 3 November 2016. See infra, ¶ 34. ↩
⁶ On 21 and 22 November 2016, the Parties filed further communications relating to one of the matters at issue in Respondent's application (Respondent's Request for Document Production No. 52), further discussed infra, ¶ 42. In addition, in the communication of 22 November 2016, Respondent reiterated its request to the Tribunal to order the confidentiality of the Isolux Award, and asked for the same order with respect to another legal authority filed by Claimants, namely CSP Equity Investment S.à.r.l v. Kingdom of Spain, SCC Case 2013/094, Award on Jurisdiction (13 May 2016) (CL-176). ↩

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38. On 14 November 2016, Claimants filed their Rejoinder on Preliminary Objections ("Rejoinder on Jurisdiction”), accompanied by exhibits C-272 to C-282; legal authorities CL-176 to CL-192; and two (2) witness statements by: Mr. George Nicolaï, and Mr. Mark Sorensen, respectively.⁷

39. On 16 November 2016, Respondent filed a request for clarification of Procedural Order No. 5. The Tribunal responded on the same day.

40. On 18 November 2016, the Parties notified the witnesses and experts called for examination at the Hearing.

41. On 23 November 2016, the Tribunal issued Procedural Order No. 6 concerning the Parties' applications of 7 and 8 November 2016 (supra, ¶ 37). The Tribunal (i) ruled on the Parties' respective requests for document production, ordering production of some documents and dismissing some requests; (ii) deferred the decision relating to one of the matters at issue (Respondent's Request for Document Production No. 52); (iii) invited the Parties to liaise directly concerning another of the matters at issue (Respondent's Request for Document Production No. 55); (iv) authorized the introduction of the Isolux Award into the record granting confidentiality with respect to that award, and to “any other award provided to the Tribunal where confidentiality is required.” On 25 November 2016, following the Tribunal's authorization, Respondent submitted the Isolux Award to the record (RL-121) in Spanish.

42. From 21 November 2016 to 30 November 2016, the Parties filed a number of additional procedural applications and communications in response to them, as follows:

• On 21 November 2016: (i) Respondent submitted an application for leave from the Tribunal to add new documents to the record;⁸ (ii) Claimants filed observations concerning the production of documents relating to Respondent's Request for Document Production No. 52, and applied to introduce those documents into the record; and (iii) Claimants submitted a second application to add new documents to the record,⁹ to file a supplementary witness statement by

⁷ One of the exhibits (C-282) was submitted electronically on 15 November 2016. ↩
⁸ These documents were provisionally identified as R-425 to R-442, RL-122 to RL-123. See Respondent's communication of 25 November 2016. ↩
⁹ These documents were provisionally identified as C-283 to C-293. ↩

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• Mr. Miguel Ignacio Arechabala, and to supplement certain legal authorities already on the record.¹⁰ On 22 November 2016, Respondent filed a response to Claimants' applications of 21 November 2016, and Claimants filed a communication on this matter on the same day. On 25 November 2016, the Parties filed further submissions concerning these pending applications to add new materials to the record.
• On 24 November 2016, in connection with Procedural Order No. 6, Respondent submitted a communication regarding Respondent's Request for Document Production No. 55, asking the Tribunal to order Claimants to produce complete documents. On 25 November 2016, Claimants filed a response. On 26 November 2016, Respondent filed reply observations. On 28 November 2016, Claimants filed rejoinder observations. And, on 29 November 2016, Respondent submitted a further communication addressing inter alia Claimants' communication of 28 November 2016 in connection with this issue.
• On 24 November 2016, the Parties submitted a communication to the Tribunal, indicating that they had not been able to reach an agreement on the Hearing Agenda, highlighting two specific areas of disagreement among them.
• On 26 November 2016, Claimants submitted a request that Respondent be ordered to provide an English translation of the Isolux Award by a certain date. On 28 November 2016, Respondent submitted observations regarding this request, together with an update on the document production ordered in Procedural Order No. 6. On 28 November 2016, Claimants submitted a communication addressing, inter alia, the timing for the production of the Isolux Award and the documents ordered by Procedural Order No. 6. On 29 November 2016, Respondent made further submissions concerning these matters. On 30 November 2016, Claimants filed a response.
• On 26 November 2016, Respondent made an additional application to add further documents to the record.¹¹ On 28 November 2016, Claimants filed observations in response. On 29 November 2016, Respondent submitted a communication replying, inter alia, to Claimants' observations of 28 November 2016 relating to this application.

43. On 1 December 2016, the Tribunal issued Procedural Order No. 7, concerning the above referenced applications (supra ¶ 42) (i) authorizing the Parties to introduce into the record the documents referred to in their respective applications of 21 November 2016; (ii) authorizing the filing of the new witness statement from Mr. Arechabala and affording Respondent additional time at the Hearing (over its already allotted time) to

¹⁰ The legal authorities referred to were CLEX-006, CLEX-052, CLEX-117, CLEX-174, CL-005, RL-115. ↩
¹¹ These documents were provisionally identified as R-443 to R-446. ↩

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address this witness statement through direct examination of Prof. Servert and Mr. Montoya; (iii) inviting Claimants to use their best efforts to produce more responsive data with regard to Respondent's Request for Document Production No. 55; (iv) ruling on the Parties' disagreements concerning the Hearing Agenda; (v) asking Respondent to provide a translation of the Isolux Award; and (vi) instructing the Parties to file Skeleton Arguments by 9 December 2016.

44. On 2 December 2016, the Parties submitted a joint application to add a number of additional documents into the record,¹² observing that Respondent's exhibits referred in this application were the same at issue Respondent's application of 26 November 2016 (supra, ¶ 42, last bullet). On 2 December 2016, in light of the Parties' agreement, the Tribunal authorized the introduction of these exhibits to the record.

45. From 5 to 9 December 2016, pursuant to Procedural Order No. 7 and the Tribunal's ruling of 2 December 2016, the Parties introduced into the record the following materials:

Claimants

• On 5 December 2016, a third witness statement by Mr. Miguel Ignacio Arechabala dated 21 November 2016.
• On 6 December 2016, exhibits C-283 to C-302.
• On 9 December 2016, exhibits C-303, and legal authorities CL-193 to CL-194.

Respondent

• On 5 December 2016, exhibits R-425 to R-458,¹³ and legal authorities RL-122 to RL-123.
• On 5 December 2016, an English translation of the Isolux Award (RL-121), and an additional translation of exhibit C-027.

46. On 5 December 2016, the Parties submitted their proposed Hearing Agenda.

¹² These documents were provisionally identified as exhibits C-294 to C-299, R-443 to R-446, and supplements to CLEX-056 and CLEX-124. ↩
¹³ The number designations do not correspond to those initially proposed by Respondent in its applications of 21 and 26 November 2016, and 2 December 2016. Respondent submitted the documents related to Procedural Order No. 7 as R-425 to R-454, and those relating to the Tribunal's letter of 2 December 2016 as R-455 to R-458. ↩

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47. On 6 December 2016, Respondent filed an application requesting leave from the Tribunal to introduce additional documents to the record.¹⁴ On 7 December 2016, Claimants filed a response. On 8 December 2016, Respondent filed reply observations, and requested leave from the Tribunal to submit a supplementary report by Prof. Jorge Servert. On 8 December 2016, the Tribunal ruled on this application, authorizing the submission of Prof. Servert's supplementary report and additional exhibits. Thus, on 13 December 2016, Respondent filed a Supplementary Expert Report by Prof. Jorge Servert, accompanied by exhibits JSR-011 to JSR-018, JSR-020 to JSR-030, JSRN-002, JSRN-003, JSRN-009 to JSRN-015 and JSRN-37 to JSRN-38.

48. On 9 December 2016, the Parties submitted their respective Skeleton Arguments.

49. On 11 December 2016, Claimants submitted corrected versions of two previously filed exhibits (C-151 and C-152). On 12 December 2016, the Tribunal heard both Parties orally on this matter during Day 1 of the Hearing, and took note that Respondent did not object.¹⁵ Accordingly, the revised versions of exhibits C-151 and C-152 were admitted.

50. On 13 December 2016, during Day 2 of the Hearing, Claimants submitted a corrected version of Mr. Nicolaï Witness Statement. The Tribunal heard both Parties orally on this matter that day, and the corrections were introduced into the record.¹⁶

51. On 13 December 2016, Claimants submitted corrected versions of Mr. Arechabala's three witness statements. On 14 December 2016, the Tribunal heard both Parties orally on this matter during Day 3 of the Hearing. Respondent did not object.¹⁷

52. On 16 December 2016, Claimants filed an application to add a new document to the record (namely, a draft Renewables Energies Directive published on 30 November 2016 by the European Union). The application attached a previous exchange between the Parties on that same day, including a communication from Respondent objecting to the introduction of this document with its reasons. On 17 December 2016, the Tribunal ruled

¹⁴ These documents were provisionally identified as exhibits JSR-011 to JSR-027, and JSRN-037 to JSRN-038. ↩
¹⁵ Tr. Day 1 (ENG), 10:18–12:1 (President, Mr. Santacruz, Ms. Nairn). ↩
¹⁶ Tr. Day 2 (ENG), 425:17–427:12; 428:6–429:6 (Mr. Santacruz, President, Ms. Nairn). ↩
¹⁷ Tr. Day 3 (ENG), 488:2–490:14 (President, Ms. Nairn, Mr. Santacruz). ↩

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on the matter orally during Day 6 of the Hearing, allowing the introduction of the document into the record.¹⁸ Thus, on 17 December 2016, Claimants introduced the document as exhibit C-304.

53. On 17 December 2016, Claimants filed a communication inquiring whether the Tribunal required the production of certain invoices, in connection with a question raised by one of the arbitrators during Day 2 of the Hearing (13 December 2016). On 18 December 2016, the Tribunal responded in the affirmative, inviting Claimants to provide the documents to the Tribunal and Respondent. On 20 December 2016, Claimants submitted the invoices in question (without designated exhibit numbers). On 21 December 2016, Respondent filed observations on these documents. On 22 December 2016, Claimants filed a response.

D. THE NON-DISPUTING PARTY APPLICATION

54. On 14 November 2014, the European Commission ("EC") filed an Application for Leave to Intervene as a Non-Disputing Party dated 12 November 2014 ("EC First Application"). The EC First Application was communicated to the Parties on the same day it was received, and to the Tribunal upon its constitution on 23 January 2015.

55. Following the First Session, pursuant to ICSID Arbitration Rule 37(2) the Tribunal invited the Parties to provide comments on the EC First Application in accordance with the Procedural Calendar set forth in Procedural Order No. 1, Annex A issued on 3 June 2015 (supra, ¶ 12).

56. On 4 June 2015, the Tribunal informed the EC that: (i) it had received the EC First Application; (ii) it had invited the Parties to provide observations thereon pursuant to ICSID Arbitration Rule 37(2); and (iii) it expected to render its decision after receipt of the Parties' observations.

¹⁸ Tr. Day 6 (ENG), 1136:7–1138:15 (President). ↩

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57. On 22 September 2015, the Parties filed their respective Observations on the EC First Application. Claimants' observations were accompanied with legal authorities CL-065 to CL-085.¹⁹

58. On 2 October 2015, Respondent filed a Reply to Claimants' Observations on the EC First Application.

59. On 5 October 2015, Claimants filed a Reply to Respondent's Observations on the EC First Application, accompanied by exhibit C-125.

60. On 6 January 2016, the Tribunal issued Procedural Order No. 3 ruling on the EC First Application. The Tribunal (i) authorized the EC to file a written submission on the issue of the application of the ECT to intra-EU disputes; (ii) granted the Parties an opportunity to file observations on the EC's written submission; (iii) granted the EC access to certain portions of the Parties' written pleadings relating to the issue on which the EC would make its submission, with redactions of commercially sensitive information; (iv) denied the EC's request to attend the Hearing to present oral argument, but it invited the Parties to inform the Tribunal after receipt of the EC's written submission whether they would agree to attendance of the EC to a limited portion of the Hearing for the exclusive purpose of answering any questions that the Tribunal and/or the Parties might have concerning such written submission; and (v) rejected Claimants' request that the intervention by the EC be conditioned on an undertaking to pay Claimants' costs in dealing with the EC's intervention.

61. On 13 January 2016, the Parties communicated to the Tribunal their agreed schedule for various of the procedural steps ordered in Procedural Order No. 3. On 28 January 2016, the Tribunal approved the Parties' agreement and established additional deadlines in connection with this matter. That same day, the Tribunal communicated to the EC the calendar for its written submission and the other steps pertaining to the EC.

62. On 15 August 2016, the Parties informed the Tribunal that the relevant excerpts of the pleadings could be transmitted to the EC without redactions. In addition, on 17 August

¹⁹ The legal authorities were submitted electronically on 23 September 2015. ↩

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2016, the Parties informed the Tribunal that they would be amenable to providing to the EC copies of the legal authorities cited in their submissions, if requested.

63. On 17 August 2016, pursuant to Procedural Order No. 3, the Tribunal transmitted to the EC certain excerpts of the Parties' pleadings, directing that the EC could use them “exclusively for the purposes of preparing its written submission in this arbitration and shall not communicate them to third parties or use them outside this arbitration.”

64. Following a request by the EC dated 31 August 2016, agreed upon by the Parties, on 2 September 2016, the Tribunal transmitted to the EC three legal authorities and three exhibits filed by the Parties, under the same condition referred to supra, ¶ 63.

65. On 5 September 2016, the EC submitted its written submission accompanied by exhibits EC-001 to EC-018 (“EC Written Submission").

66. On 11 November 2016, as part of Procedural Order No. 5 and having heard the Parties' views, the Tribunal decided that the EC would not be invited to the Hearing, in light of Claimants' objection and ICSID Arbitration Rule 32(2).

Ε. THE ORAL PROCEDURE

67. The Hearing on Jurisdiction and the Merits was held in the International Dispute Resolution Centre Ltd. (IDRC), London, United Kingdom,²⁰ from 12-19 December 2016 ("the Hearing").²¹

68. The following persons were present during the Hearing:

Tribunal:

²⁰ The venue for the Hearing was established pursuant to the Parties' agreement communicated to the Tribunal on 27 August 2015. ↩
²¹ The Tribunal reserved 20 December 2016 as an additional day for deliberations. ↩

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ICSID Secretariat:

For Claimants:

For Respondent:

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Court Reporters:

Interpreters:

Mr. Jesús Getan Bornn
Mr. Mark Viscovi
Ms. Amalia Thaler de Klem

(*) not present before their testimony

69. The following persons were examined during the Hearing:

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70. Throughout the Hearing, each Party submitted various demonstrative exhibits, as follows:

• Claimants: Claimants' Opening Presentation (unnumbered); Mr. Henry Price's Hearing Presentation (unnumbered); Compass-Lexecon Hearing Presentation (unnumbered); Claimants' Closing Presentation (unnumbered).
• Respondent: Respondent's Opening Presentations I to IV (R-459 to R-462); Accuracy Hearing Presentations I and II (unnumbered); Prof. Jorge Servert's Hearing Presentation (unnumbered); and Mr. Jesús Casanova's Hearing Presentation (unnumbered); Respondent's Closing Presentation (R-463)

71. On 16 December 2016, during Day 5 of the Hearing, a list of areas of agreement and disagreement among the technical experts was distributed.²²

72. On 10, 14 and 15 February 2017, the Parties submitted their agreed corrections to the Hearing transcripts. On 14 February 2017, the Tribunal informed the Parties that the agreed revised versions would stand as the final versions of the transcript.

F. THE POST-HEARING PROCEDURE

73. On 8 February 2017, the Tribunal formulated a Post-Hearing question to the Parties.

74. Following an extension agreed by the Parties and approved by the Tribunal, on 27 February 2017, each Party submitted its Post-Hearing Submission addressing the Tribunal's question.

75. Following authorization from the Tribunal, on 7 March 2017, Claimant filed its Post-Hearing Reply, and 8 March 2017, Respondent filed its Post-Hearing Reply.²³

76. On 11 May 2017, Claimants submitted an application seeking authorization to add one additional legal authority to the record, namely: Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB 13/36, Award (4 May 2017) (“Eiser Award”) in Spanish, requesting an order to Spain to provide the

²² Tr. Day 5 (ENG), 1096:20-1098:8. ↩
²³ Following the Tribunal's instructions and Procedural Order No. 1, § 12.3, once both Parties' submissions had been received by the Secretary of the Tribunal, they were transmitted simultaneously to both Parties and the Tribunal on 8 March 2017. On 10 March 2017, the Tribunal indicated that it would respond to the requests made in these Post-Hearing submissions in due course, but in the circumstances, it decided that it was unnecessary to do so. ↩

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English version, and an opportunity to file submissions on this legal authority. On 17 and 18 May 2017, Respondent filed observations in response. On 23 May 2017, the Tribunal authorized the introduction of the Eiser Award into the record, invited Respondent to introduce the English version, and afforded the Parties an opportunity to file submissions on this legal authority. Accordingly, on 30 May 2017, Respondent introduced the Eiser Award into the record in English and Spanish (without a designated legal authority number).

77. Having considered the Parties' respective positions, on 8 June 2017, the Tribunal established a schedule for the Parties' submissions on the Eiser Award, later amended on 6 July 2017. Accordingly, the Parties filed their submissions as follows: on 22 June 2017, Claimants filed observations on the Eiser Award; on 11 July 2017, Respondent filed response observations on the Eiser Award; on 18 July 2017, Claimants filed reply observations on the Eiser Award; and on 25 July 2017, Respondent filed rejoinder observations on the Eiser Award.

78. On 18 July 2017, Claimants also filed a communication raising a procedural matter arising out of Spain's observations on the Eiser Award. Specifically, Claimants observed “[t]hat Spain has contended that a proper application of the Eiser award on liability requires a new and different approach to quantum, excluding each of the measures referred to in this case as Regulatory Framework II.” While opposing Respondent's contention as a matter of principle and substance, and raising procedural objections to the introduction of a new quantum defence at this stage of the proceeding, Claimants asserted that “should the Tribunal nonetheless wish to proceed to consider the long-term quantum impact of Regulatory Framework II, or any of its individual elements, the Claimants agree with Spain that this would require the parties to provide new expert reports addressing those calculations, following a procedure that ensures due process [...].” Following an invitation by the Tribunal, on 25 July 2017, Respondent provided observations on this matter as part of its rejoinder observations on the Eiser Award. It asserted inter alia that “the expert reports [...] do not reflect, in any way, the separate impact of the individual measures disputed by Claimants in this arbitration" and agreed with Claimants that the quantification of that impact would require new expert reports.

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79. On 25 July 2017, as part of its rejoinder observations on the Eiser Award, Respondent filed an application to introduce additional documents to the record. On 17 August 2017, Claimants submitted a response, and on 28 August 2017, Respondent submitted a reply. On 26 September 2017, the Tribunal authorized the introduction of only some of the documents to the record, namely: the Notice of Registration of Spain's annulment application of the Eiser Award, dated 28 July 2017 and its accompanying cover letter. Accordingly, on 28 September 2017, Respondent submitted those documents to the record as exhibits R-464 and R-465.

80. On 23 November 2017, Respondent filed an application to introduce an additional document to the record, namely, the EC Decision on State Aid, Case SA.40348 (2015/NN) (10 November 2017) (“the EC Decision”), and asked the Tribunal to afford the Parties an opportunity to file submissions in connection therewith. On 29 November 2017, Claimants submitted a response. On 5 December 2017, Respondent submitted a reply. On 14 December 2017, the Tribunal authorized the introduction of the EC Decision into the record, and it granted the Parties an opportunity to submit written submissions in connection therewith. Accordingly, on 15 December 2017, Respondent submitted the EC Decision, designated as RL-124.

81. On 8 January 2018, each Party filed its respective submission on the EC Decision.

82. On 5 March 2018, Claimants filed an application seeking leave to add an additional legal authority to the record, namely: Novenergía II – Energy & Environment (SCA), SICAR v. Kingdom of Spain (SCC Case No. 2015/063), Award (15 February 2018) (“Novenergía Award"). On 9 March 2018, Respondent submitted a response to Claimants' application, and in turn filed an application seeking authorization to add three additional legal authorities to the record, namely: the Ruling of the EUCJ in case C-284/16 (Achmea Case) (6 March 2018) (“Achmea Judgment”); Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, ICSID Case No. ARB/14/3, Award (27 December 2016) (“Blusun Award”), and Mr. Jürgen Wirtgen, Mr. Stefan Wirtgen, Mrs. Gisela Wirtgen and JSW Solar (swei) GmbH & Co. KG v. The Czech Republic, PCA Case No. 2014-03, Award (11 October 2017). On 15 March 2018, Claimants submitted a

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response to Respondent's application. On 21 March 2018, Respondent submitted a reply, which also added a request to introduce into the record Spain's request for clarification and supplementation of the Novenergía Award. On 26 March 2018, the Tribunal ruled on these applications, authorizing the introduction of the Novenergía Award, the Achmea Judgment and the Blusum Award into the record, and dismissing the other requests. The Tribunal also afforded the Parties an opportunity to file submissions on these new legal authorities. Accordingly, on 28 March 2018, Claimants submitted the Novenergía Award, as legal authority CL-195; and on 29 March 2018, Respondent submitted the Achmea Judgment and the Blusun Award, as legal authorities RL-125 and RL-126.

83. In its application of 9 March 2018 referred to above, Respondent “reserve[d] its right to request that new expert reports be filed by both parties to determine the real impact of each of the disputed measures.” This statement was repeated in the reply submission of 21 March 2018. In their 15 March 2018 response, Claimants observed they “consider that they have provided the expert evidence necessary to quantify their damages resulting from Spain's violations of the ECT.”²⁴ In its ruling of 26 March 2018, the Tribunal observed that “the Tribunal will deal with any such application if and when it is actually made."

84. On 9 April 2018, each Party filed its respective submission on the Novenergía Award, the Blusun Award and the Achmea Judgment.

85. On 16 April 2018, Claimants filed an application to add an additional legal authority to the record, namely: Novenergía II – Energy & Environment (SCA), SICAR v. Kingdom of Spain (SCC Arbitration 2015/063), Procedural Order No. 17 (9 April 2018) (“Novenergía PO 17”). On 19 April 2018, Respondent filed a response to Claimants' application, and in turn, it filed its own application seeking leave to (i) introduce a number of additional documents to the record; (ii) conduct a site visit to Claimants' domicile; and (iii) file a short expert report addressing the facts referred to in the

²⁴ That said, Claimants also added that “if the Tribunal requires any further assistance in quantifying damages, the appropriate mechanism for receiving any such evidence would be a request from the Tribunal itself, not a quantum report submitted as an observation on the Novenergia award.” ↩

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application.²⁵ On 23 April 2018, Claimants filed a reply. On 27 April 2018, Respondent filed a rejoinder. On 2 May 2018, Claimants filed a communication asking the Tribunal for a brief opportunity to respond to one of the assertions in Respondent's communication of 27 April 2018.

86. On 4 May 2018, the Tribunal issued Procedural Order No. 8 ruling on the above referenced applications. The Tribunal (i) authorized the introduction of the Novenergía PO17, and the Novenergía Annulment Notice of Registration into the record; and (ii) it rejected the requests to add other documents to the record, conduct a site visit and to file an additional expert report. Accordingly, on 9 May 2018, Claimants submitted the Novenergía PO 17, as legal authority CL-196; and on 6 June 2018, Respondent submitted the Novenergía Annulment Notice of Registration, as exhibit R-466.

87. On 16 May 2018, the EC submitted a communication stating that “in case the Tribunal would deem that useful for its deliberations, the Commission would be available to up-date its written observations in the light of the recent judgment of the European Court of Justice in Case C-284/16 Achmea v Slovak Republic, and in particular to set out its view on the consequences of that judgment for pending arbitration cases based on the Energy Charter Treaty” (“EC Second Application”). The communication was transmitted to the Parties and the Tribunal on 17 May 2018.

88. Following an invitation from the Tribunal, on 23 May 2018, each Party filed observations on the EC Second Application.

89. On 29 May 2018, the Tribunal ruled on the EC Second Application. Noting that “the Parties have already provided comprehensive comments on the Achmea decision including comments on the implications of the decision for arbitration cases based on the Energy Charter Treaty” (supra, ¶ 84), the Tribunal ruled that it did not need an update of the EC Written Submission, and so informed the EC and the Parties.

²⁵ That is, to demonstrate that (i) “[s]ome impairments that the Solar thermal Plants recorded initially after the measures have been, due to updated valuations, reversed” and “[...] the PTEs are not in liquidation anymore but are 'going concern”; (ii) the "[d]amages calculated by Compass Lexecon have been discredited and are speculative and therefore unproven" and (iii) the "[1]ack of economic activity of the Claimants in the Netherlands and everywhere else persists." Resp. Letter, 19 April 2018; Resp. Letter, 27 April 2018. ↩

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90. On 28 September 2018, the Parties submitted their respective Statements of Costs. On 11 October 2018, Respondent filed a request for support of certain assertions in Claimants' Statement of Costs; on 17 October 2018, Claimants provided observations in response; and on 23 October 2018, Respondent filed a reply accepting that the matter could be resolved through a letter from Claimants' counsel. On 26 October 2018, the Tribunal wrote to the Parties, noting that it understood the matter had been resolved and needed no ruling from the Tribunal. On 29 October 2018, Claimants' counsel provided the letter requested by Respondent.

91. On 25 January 2019, Respondent filed an application seeking authorization to add an additional legal authority to the record, namely, the “Declaration of the Representatives of the Government of the Member States of 15 January [2019] on the Legal Consequences of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union," and to authorize the Parties to file written submissions addressing this declaration. Following an invitation from the Tribunal, on 31 January 2019, Claimants filed a response. On 5 February 2019, the Tribunal authorized Respondent to introduce into the record the full set of declarations issued by the EU Member States in January 2019. On 20 February 2019, Respondent introduced the EU Member States Declarations into the record as legal authorities RL-127 to RL-129.

III. FACTUAL BACKGROUND

92. The section that follows provides an overview of the facts underlying this dispute. It does not purport to be an exhaustive narrative of all the facts that have been discussed in this proceeding or of all factual allegations made by the Parties. To the extent the Tribunal has deemed it appropriate, certain facts and factual allegations made by the Parties are also described and addressed in the course of the Tribunal's legal analysis of the claims at issue. This said, the Tribunal has considered the entirety of the Parties' submissions of fact in their written and oral submissions, whether or not they are expressly discussed in this section.

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A. INTRODUCTION

93. This case concerns a project for the construction of two concentrated solar power ("CSP") plants in Navalvillar de Pela (Badajoz) in the autonomous community of Extremadura in Spain by the Claimants, known as Termosol 1 and Termosol 2 (together, the "Termosol Plants").²⁶ The dispute revolves around measures implemented by Respondent modifying the regulatory and economic regime of renewable energy projects in Spain and their effect on the Claimants' investments.

94. The Claimants were incorporated in the Netherlands in 2008. NextEra Energy Global Holdings B.V. ("NextEra Global") was incorporated on 27 March 2008;²⁷ while NextEra Energy Spain Holdings B.V. (“NextEra Spain”) was incorporated on 7 May 2008.²⁸

95. NextEra Global is the 100% owner of NextEra Spain, which is the 100% owner of the Spanish company NextEra Energy España S.L.U. (“NEE España”), which in turn is the 100% owner of the Spanish companies Planta Termosolar de Extremadura, S.L.U. ("PTE"), Planta Termosolar de Extremadura 2, S.L.U. (“PTE2”), and NextEra Energy España Operating Services, S.L.U (“NEEOS”). The PTEs own and operate the Termosol Plants.²⁹

96. Since 2011, NextEra Global has been 100% owned by the Netherlands corporation NextEra Energy Global Holdings Cooperative U.A., which in turn is a subsidiary of NextEra Energy Inc., a U.S. corporation.³⁰ Throughout these proceedings, NextEra Energy Inc. has been treated as the parent company of the Claimants.

²⁶ Cl. Mem. Merits, ¶¶ 1, 15. ↩
²⁷ C-037, Certificate of Incorporation of FPLE Global Asset Holdings B.V., 8 May 2008, ¶ 1. The name of the company was changed to the current name in December 2011. C-039, Minutes of the Meeting of the Board of Managing Directors of FPLE Global Asset Holdings B.V., 1 December 2011 at p. 7. ↩
²⁸ C-038, Certificate of Incorporation of FPLE Global Asset Spain Holdings B.V., 8 May 2008, ¶ 1. The name of the company changed to the current name in December 2011. C-040, Minutes of the Meeting of the Board of Managing Directors of FPLE Global Asset Spain Holdings B.V., 1 December 2011 at p. 5. ↩
²⁹ Cl. Mem. Merits, ¶¶ 2, 223; Cl. Skeleton, ¶ 3. ↩
³⁰ Resp. Mem. Jur., ¶¶ 117-118; Cl. C-Mem. Jur., ¶¶ 52, 54; R-019, Annual Accounts of NextEra Energy Global Holdings Coöperative U.A. 2011, 2012, 2013. ↩

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97. Claimants contend that "[a]fter the Claimants' Spanish companies had irrevocably committed to constructing the Termosol Plants and had spent around 750 million euros substantially completing construction, Spain completely and retroactively altered the remuneration regime applicable to the Termosol Plants [...]."³¹

98. With this context, the Tribunal now proceeds to describe the regulatory framework for renewable energy investments in Spain, in particular for CSP investments, its evolution and the measures that have given rise to this dispute. The Tribunal will then describe the Claimants' investments in Spain.

B. THE REGULATORY FRAMEWORK FOR RENEWABLE ENERGY INVESTMENTS

99. As a preliminary matter, the Tribunal notes that the Parties agree that the Spanish system is formed by different types of instruments, namely, the Spanish Constitution, Organic Laws, Ordinary Laws, Royal Decree-Laws (“RDL”), Royal-Decrees (“RD”), Ministerial Orders and Resolutions.³² It is also agreed that an RDL has the force of a Law, it may be enacted by the Executive branch in extraordinary and urgent circumstances, and it must be ratified by the Legislative branch;³³ an RD also emanates from the Executive, and it is of lower hierarchy vis-à-vis Laws and RDLs;³⁴ and a Ministerial Order is a regulation adopted by one of the different Ministries, lower in the legislative hierarchy than RDs.³⁵ Respondent has also submitted that Resolutions are instruments which emanate from competent Government bodies, lower in the hierarchy than Ministerial Orders.³⁶

(1) The Initial Framework

100. Within the context of the 1992 United Nations Framework Convention on Climate Change ("UNFCC”), on 11 December 1997 a number of nations adopted the Kyoto Protocol, an international agreement committing its Parties by setting internationally

³¹ Cl. Skeleton, ¶ 7. ↩
³² See, Cl. Mem. Merits, n. 44; Resp. C-Mem. Merits, ¶ 35. ↩
³³ See, Cl. Mem. Merits, n. 44; Resp. C-Mem. Merits, ¶ 35. ↩
³⁴ See, Cl. Mem. Merits, n. 44; Resp. C-Mem. Merits, ¶ 35. ↩
³⁵ See, Cl. Mem. Merits, n. 44; Resp. C-Mem. Merits, ¶ 35. ↩
³⁶ Resp. C-Mem. Merits, ¶ 35. ↩

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binding greenhouse emission reduction targets.³⁷ The Protocol was signed by Spain on 29 April 1998, and ratified on 31 May 2002.³⁸ It entered into force on 16 February 2005.³⁹

101. On 14 May 1997, the European Commission issued Communication COM(97) 196, setting a target to reduce greenhouse gas emissions by 15% by year 2010, vis-à-vis the levels existing in year 1990.⁴⁰

a. The Electricity Law

102. In the above context, on 27 November 1997, Spain enacted Law 54/1997 on the Electricity Sector (“Electricity Law” or “Law 54/1997”),⁴¹ which regulated the activities for the provision of electricity in Spain.⁴² The Electricity Law distinguished between electricity generation under an “Ordinary Regime” (Title IV, Chapter I), and under a "Special Regime” (Title IV, Chapter II).

103. Pursuant to Article 27 of the Electricity Law, electricity generation activities were considered part of the Special Regime in a number of categories listed by the law, “whenever they [were] carried out from facilities having installed capacity of no more than 50 MW." The categories listed included facilities where “non-consumable renewable energies, bio-mass or biofuels of any type are used as primary energy,

³⁷ C-025, UNFCC Website, Kyoto Protocol. ↩
³⁸ United Nations Treaty Collection, Status of Treaties, Chapter XXVII, Environment, 7.a., Kyoto Protocol to the United Nations Framework Convention on Climate Change, available at https://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXVII-7-a&chapter=27&clang=_en. ↩
³⁹ C-025, UNFCC Website, Kyoto Protocol. ↩
⁴⁰ C-026, Communication from the European Commission: The Energy Dimension of Climate Change, COM(97) 196 Final, 14 May 1997. ↩
⁴¹ C-024 / R-003, Law 54/1997 on the Electric Power Sector, 27 November 1997, published on 28 November 1997 ("Electricity Law"). The English translation at R-003 does not correspond to the original version of the law enacted in 1997, but to the Electricity Law as amended up to 2008. Prior to Law 54/1997, Law 49/1984 of 26 December 1984 and Law 40/1994 of 30 December 1994 had governed the electricity system in Spain. R-038, Law 49/1984, 26 December 1984 (published 29 December 1984); R-039, Law 40/1994, 30 December 1994 (published 31 December 1994). Article 16 of Law 40/1994 established certain parameters for the establishment of the user tariffs and of the retribution of activities within the system. Respondent has argued that the system thereby reflected coincides with the current one. Resp. C-Mem. Merits, ¶ 105. ↩
⁴² C-024, Electricity Law, Art. 1. ↩

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provided their holder [did] not engage in generation activities under the ordinary regime.”⁴³

104. Article 30 of the Electricity Law established the rights and obligations of producers under the Special Regime.⁴⁴ Those obligations included, among others, “[t]o comply with technical generation standards as well as with the standards governing transport and the technical management of the system;” and “[t]o provide the Authorities with information concerning the generation, consumption and sale of energy and on any other points as determined."⁴⁵ Article 30(4) of the Electricity Law provided that:

“4. [...] the generation of electricity via renewable energy sources (other than hydroelectric), biomass and also hydroelectric power stations with capacity of equal to or less than 10 MW will receive a premium to be set by the Government, so that the price of the electricity sold by these facilities will fall within a range of between 80% and 90% of the average electricity price, to be calculated by dividing the income generated by invoicing for electricity supplied by the energy supplied.

To calculate the premiums, consideration will be given to the voltage level where the energy enters the network, to the effective contribution to environmental improvement, primary energy savings and energy efficiency, and to any investment costs that may have been incurred, in order to achieve reasonable profitability rates by reference to the cost of money in capital markets.

[...]

On an exceptional basis, for solar energy, the Government shall be able to set a premium in addition to the limits defined in this article.”⁴⁶

105. Article 31 of the Electricity Law required facilities in the Special Regime to register in an Administrative Registry for Electricity Production Facilities (“Registro Administrativo de Instalaciones de Producción de Energía Eléctrica”), in the Ministry of Industry and

⁴³ C-024, Electricity Law, Art. 27. ↩
⁴⁴ C-024, Electricity Law, Art. 30. ↩
⁴⁵ C-024, Electricity Law, Art. 30(1)(b) and (d). ↩
⁴⁶ C-024, Electricity Law, Art. 30(4). The Electricity Law has been subject of various modifications, including through RDL 7/2006, RDL 6/2009, RDL 14/2010, and RDL 9/2013. For example, Article 30(4) of the Electricity Law has been amended by RDL 7/2006 and by RDL 9/2013. See infra, ¶ 158. ↩

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Energy, specifying the remunerative regime adopted in each case.⁴⁷ That registry would also include information about the conditions and the power of the facility (“condiciones” y “potencia de la instalación").⁴⁸ Autonomous communities were authorized to create the local registries for the facilities located in their territory.⁴⁹

b. RD 2818/1998, RD 1432/2002, RD 436/2004, RDL 7/2006

106. On 23 December 1998, Spain enacted Royal Decree 2818 (“RD 2818/1998"),⁵⁰ to regulate the requirements and procedures to qualify for the Special Regime, the procedure for registration, the conditions for delivery of electricity and the applicable economic regime.⁵¹ Article 9 established the Administrative Registry for Production Facilities under the Special Regime (“Registro Administrativo de Instalaciones de Producción en Régimen Especial” or “RAIPRE”).⁵² Article 23 provided for a “premium or incentive" in addition to the market price, for facilities with power (potencia) equal to or less than 50MW that were registered in the RAIPRE.⁵³ Article 32 established that the premiums would be revised every four years.⁵⁴

107. The Electricity Law required that, “[i]n order for renewable energy sources to cover at least 12% of Spain's total energy demand by the year 2010,” a plan should be “drawn up to promote renewable energies and whose objectives shall be taken into account in the setting of premiums.”⁵⁵ Accordingly, on 30 December 1999, Spain's Council of Ministers approved the 2000-2010 Renewable Energy Plan.⁵⁶ That Plan set forth "the principal elements and guidelines [...] relevant in the articulation of a strategy [...] for

⁴⁷ C-024, Electricity Law, Art. 31. See also, id. Art. 24(4). ↩
⁴⁸ C-024, Electricity Law, Art. 24(4). ↩
⁴⁹ C-024, Electricity Law, Art. 24(4). ↩
⁵⁰ C-028 / R-058, Royal Decree 2818/1998, 23 December 1998, published on 30 December 1998 (“RD 2818/1998"). ↩
⁵¹ C-028 / R-058, RD 2818/1998, Art. 1. ↩
⁵² C-028 / R-058, RD 2818/1998, Art. 9. ↩
⁵³ C-028 / R-058, RD 2818/1998, Art. 23. ↩
⁵⁴ C-028 / R-058, RD 2818/1998, Art. 32. ↩
⁵⁵ C-024, Electricity Law, Sixteenth Transitional Provision. ↩
⁵⁶ C-020, Plan for the Development of Renewable Energy in Spain 2000-2010, December 1999 (“2000-2010 Renewable Energy Plan"). ↩

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the growth of each of the renewable energy areas, taken together, to cover at least 12% of primary energy in the year 2010.”⁵⁷

108. On 27 September 2001, the European Parliament and Council adopted Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources in the internal electricity market (“2001 Renewable Energy Directive").⁵⁸ Article 3 required Member States “to take appropriate steps to encourage greater consumption of electricity produced from renewable energy sources in conformity with the national indicative targets [...].”⁵⁹ Spain's indicative target for the contribution of electricity produced from renewable energy sources to gross electricity consumption by 2010 was set at 29.4.⁶⁰ Recital 12 noted that “[t]he need for public support in favour of renewable energy sources is recognised in the Community guidelines for State aid for environmental protection [...],” adding that “the rules of the Treaty, and in particular Articles 87 and 88 thereof, will continue to apply to such public support.”⁶¹

109. The Electricity Law also required that every year, or when required by special circumstances, the Government would approve or amend a reference or average electricity tariff through a Royal Decree.⁶² Accordingly, on 27 December 2002, Spain enacted Royal Decree 1432/2002 (“RD 1432/2002"),⁶³ which established the methodology to set the annual reference or average electricity tariff.⁶⁴

⁵⁷ C-020, 2000-2010 Renewable Energy Plan, Introduction. ↩
⁵⁸ C-029 / R-046, Directive 2001/77/EC of the European Parliament and Council, 27 September 2001 (“2001 Renewable Energy Directive"). ↩
⁵⁹ C-029 / R-046, 2001 Renewable Energy Directive, Art. 3. ↩
⁶⁰ C-029 / R-046, 2001 Renewable Energy Directive, Annex. ↩
⁶¹ C-029 / R-046, 2001 Renewable Energy Directive, Recital 12. ↩
⁶² C-024, Electricity Law, Art. 17(2). ↩
⁶³ C-030 / R-060, Royal Decree 1432/2002, 27 December 2002, published 31 December 2002 (“RD 1432/2002"). RD 1432/2002 was preceded by an opinion by the Spanish Council of State dated 19 December 2002. C-031, Opinion of the Council of State 3616/2002, 19 December 2002. ↩
⁶⁴ C-030 / R-060, RD 1432/2002, Art. 1. ↩

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110. On 12 March 2004, Spain enacted Royal Decree 436/2004 (“RD 436/2004"),⁶⁵ which derogated from RD 2818/1998.⁶⁶ RD 436/2004 established a new “methodology for the updating and systematisation of the legal and economic regime” for production of electricity under the Special Regime. Pursuant to Article 22, producers under the Special Regime would have the option to: (i) sell to a distributor under a “regulated tariff” (“feed-in-tariff” or “FiT”) or (ii) sell on the wholesale market “through the system of offers and bids managed by the market operator” at a “sale price of the electricity [...] resulting in the organised market [...] or the price freely traded by the plant operator or representative, supplemented by an incentive and, as the case may be, by a premium [...]” (“pool + premium").⁶⁷ Both options were “expressed in euro cents per kilo-watt hour;"⁶⁸ and both were established by reference to a percentage of the annual reference or average electricity tariff, and therefore subject to market fluctuations.⁶⁹ In addition, Article 40 established that:

“1. During 2006, [...] the tariffs, premiums, incentives and supplements defined in this Royal Decree shall undergo revision. [...]. Every four years, starting from 2006, a new revision shall take place.

2. The tariffs, premiums, incentives and supplements resulting from any of the revisions provided for in this section shall come into force on January 1st of the second year subsequent to the year that the revision has been carried out.

3. The tariffs, premiums, incentives and supplements resulting from any of the revisions provided for in this section shall apply solely to the plants that commence operating subsequent to the date of the entry into force referred to in the paragraph above and shall not have a backdated effect on any previous tariffs and premiums. [...].”⁷⁰

⁶⁵ C-032 / R-059, Royal Decree 436/2004, 12 March 2004, published 27 March 2004 (“RD 436/2004”). RD 436/2004 was preceded by an opinion by the Spanish Council of State dated 4 March 2004. C-033, Opinion of the Council of State 386/2004, 4 March 2004. ↩

⁶⁶ C-032 / R-059, RD 436/2004, Sole Repeal Provision. ↩

⁶⁷ C-032 / R-059, RD 436/2004, Art. 22(1). ↩

⁶⁸ C-032 / R-059, RD 436/2004, Art. 22(1). ↩

⁶⁹ C-032 / R-059, RD 436/2004, Arts. 23-24. ↩

⁷⁰ C-032 / R-059, RD 436/2004, Art. 40. ↩

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111. On 26 August 2005, Spain's Council of Ministers approved the 2005-2010 Renewable Energy Plan,⁷¹ which revised the earlier 2000-2010 Renewable Energy Plan. The revision sought to “maintain[ ] the commitment to cover at least 12% of the total energy consumption in 2010;” and it incorporated the other two objectives for 2010, namely “29.4% electricity generated using renewable energies and 5.75% biofuels in transport.”⁷²

112. In August 2005, the Ministry of Industry, Tourism and Commerce and the Institute for the Diversification and Saving of Energy also produced a summary of the 2005-2010 Renewable Energy Plan.⁷³ That summary stated that “different technical and financial hypotheses [were] considered in order to determine the profitability of typical projects” and that “[r]eturns were calculated based on an Internal Rate of Return (IRR) measured in current euros for each project type of close to 7%, financed with equity (before external finance) and after tax.”⁷⁴

113. On 15 December 2005, the Spanish Supreme Court ruled and rejected a challenge against RD 436/2004.⁷⁵ The Supreme Court held that:

"[...] There is no legal obstacle [...] to prevent the Government, in the exercise of the regulatory powers and of the broad entitlements it has in a strongly regulated issue such as electricity, from modifying a specific system of remuneration so long as this is done within the framework established by the Electricity Law. [...].”⁷⁶

114. On 23 June 2006, Spain enacted Royal Decree-Law 7/2006 (“RDL 7/2006"),⁷⁷ which adopted certain urgent measures for the energy sector. Article 1(12) afforded producers in the Special Regime “[p]riority for access to the networks for the transport and

⁷¹ C-019 / R-052 / R-296, Plan for Renewable Energy in Spain 2005-2010, August 2005 (“2005-2010 Renewable Energy Plan”). ↩

⁷² C-019, 2005-2010 Renewable Energy Plan, Introduction. ↩

⁷³ C-034, Summary of the Spanish Renewable Energy Plan (PER) 2005-2010, Ministry of Industry, Tourism and Commerce and Institute for the Diversification and Saving of Energy, August 2005 (“Summary 2005-2010 Renewable Energy Plan”). ↩

⁷⁴ C-034, Summary 2005-2010 Renewable Energy Plan, § 7.2. ↩

⁷⁵ R-147, Supreme Court, Third Chamber, Judgement, 15 December 2005; Resp. C-Mem. Merits, ¶ 191. ↩

⁷⁶ R-147, Supreme Court, Third Chamber, Judgement, 15 December 2005, Legal Grounds, EIGHT. ↩

⁷⁷ C-036 / R-041, Royal Decree-Law 7/2006, 23 June 2006, published 24 June 2006 (“RDL 7/2006”). ↩

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distribution of generated energy, always maintaining the reliability and safety of the networks.”⁷⁸

115. On 25 October 2006, the Spanish Supreme Court ruled on a challenge against some amendments to RD 436/2004.⁷⁹ The Supreme Court held:

“THREE [...] Article 30 of the Electricity Law [...] allows [...] companies to expect that the fixing of the premiums can be included as a factor relevant to their obtaining ‘reasonable rates of return with reference the cost of money in the capital market' or [...] ‘reasonable compensation for their investments.' However the payment regime under examination does not guarantee to special regime electricity producers that a certain level of profits or revenues will be unchanged relative to those obtained in previous years, or that the formulas for fixing the premiums will stay unchanged.”⁸⁰

116. On 14 February 2007, the Spanish Comisión Nacional de Energía (“CNE”) issued Report 3/2007. That report addressed a proposed Royal Decree “for the regulation of the generation of electricity under the special regime and of specific facilities using comparable technologies under the ordinary regime.”⁸¹ The report stated:

“Minimise regulatory uncertainty. The CNE understands that transparency and predictability in the future of economic incentives reduce regulatory uncertainty, which encourages investment in new capacity and minimises the cost of financing projects, reducing the final cost to the consumer. The regulation must offer sufficient guarantees to ensure that the economic incentives are stable and predictable throughout the life of the facility, setting in such case, both transparent annual update mechanisms associated with the evolution of robust indices (such as the average or reference rate, the CPI, ten-year bonds, etc.), as well as periodic reviews, for example, every four years, which only affect new installations, in terms of investment costs, and which may affect the reduction of costs operation also to existing plants.”⁸²

⁷⁸ C-036, RDL 7/2006, Art. 1(12) (amending Art. 30(2) of the Electricity Law). See also, R-041, RDL 7/2006, Art. 1(12). ↩

⁷⁹ R-057, Supreme Court, Third Chamber, Judgement, 25 October 2006, Factual Background, SECOND; Resp. C-Mem. Merits, ¶¶ 192-194. ↩

⁸⁰ R-057, Supreme Court, Third Chamber, Judgement, 25 October 2006, Legal Grounds, TWO and THREE. ↩

⁸¹ C-021 / R-298, CNE Report 3/2007 (14 February 2007) (“CNE Report 2007”); Cl. Mem. Merits, ¶ 27. ↩

⁸² C-021, CNE Report 2007, p. 16. ↩

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117. On 20 March 2007, the Spanish Supreme Court ruled on a challenge against RD 2392/2004 which had set the electricity tariff for 2005. The petitioners had asked that certain provisions of RD 2392/2004 regarding the premiums for 2005 be declared null, and that RD 2818/1998 and RD 436/2004 be applied instead.⁸³ The Supreme Court held that:

“Owners of facilities under a Special Regime are not guaranteed the intangibility of a given benefit or income regime in relation to those obtained in previous years, nor are they guaranteed the indefinite permanence of the formulas used to fix premiums.”⁸⁴

(2) Regulatory Framework I⁸⁵

a. RD 661/2007

118. On 25 May 2007, Spain enacted Royal Decree 661/2007 “regulating the activity of electricity production under the Special Regime” (“RD 661/2007”).⁸⁶ RD 661/2007 replaced RD 436/2004.⁸⁷ According to its Preamble:

“The economic framework established in the present Royal Decree develops the principles provided in Law 54/1997, of 27 November, on the Electricity Sector, guaranteeing the owners of facilities under the special regime a reasonable return on their investments, [...].”⁸⁸

119. Pursuant to Article 24(1) of RD 661/2007, producers under the Special Regime continued to have the option to (a) “[s]ell the electricity to the system through the transport or distribution grid, receiving for it a regulated tariff, which shall be the same for all

⁸³ R-062, Supreme Court, Third Chamber, Judgement, 20 March 2007, Factual Background, SECOND; Resp. C-Mem. Merits, ¶ 195. ↩

⁸⁴ R-062, Supreme Court, Third Chamber, Judgement, 20 March 2007, Legal Grounds, SECOND. On 9 October 2007, the Supreme Court ruled on another challenge, this time against RD 1454/2005, which modified certain provisions of RD 436/2004. R-063, Supreme Court, Third Chamber, Judgement, 9 October 2007; Resp. C-Mem. Merits, ¶ 195. Respondent contends that this decision confirmed the principles set forth by the earlier ones. Resp. C-Mem. Merits, ¶ 195. ↩

⁸⁵ Claimants have referred to the various instruments in the Spanish system for renewable energy as follows: (i) “Regulatory Framework I” including RD 661/2007, RDL 6/2009 and RD 1614/2010; (ii) “Regulatory Framework II” including Law 15/2012 and RDL 2/2013; and (iii) “Regulatory Framework III” including RDL 9/2013, RD 413/2014 and Ministerial Order IET/1045/2014. See, e.g., Cl. Mem. Merits, p. vii and Appendix A, and ¶ 162. For ease of reference, the Tribunal has adopted those denominations. ↩

⁸⁶ C-017 / R-042, Royal Decree 661/2007, 25 May 2007, published 26 May 2007 (“RD 661/2007”). ↩

⁸⁷ C-017 / R-042, RD 661/2007, Art. 1 and Sole Derogatory Provision. ↩

⁸⁸ C-017 / R-042, RD 661/2007, Preamble. See, e.g., Cl. Mem. Merits, ¶ 61; Resp. C-Mem. Merits, ¶ 181. ↩

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scheduling periods expressed in Euro cents per kilowatt/hour;” (“feed-in-tariff” or “FiT”) or (b) “[s]ell the electricity in the electrical energy production market” at “the price obtained in the organised market or the price freely negotiated by the proprietor or the representative of the facility, supplemented where appropriate by a premium, in Eurocents per kilowatt/hour” (“pool + premium").⁸⁹ Producers were allowed to elect either option for periods of no less than one year, and could change their selected option with notice of at least one month.⁹⁰

120. Article 2 of RD 661/2007 established categories of facilities, in relation to the primary energy used, the type of technology and the energy yield. Category b.1.2 covered “[f]acilities which use thermal processes alone for the transformation of solar energy, as the primary energy, into electricity.” Those facilities were permitted to employ equipment which used “a fuel for the maintenance of the temperature of the heat transfer fluid in order to compensate for a lack of solar irradiation which may affect the planned delivery of energy,” provided that the generation of electricity from such fuel was less than 12% of the total production of electricity, or up to 15% in certain circumstances.⁹¹

121. Article 36 of RD 661/2007 dealt with the tariffs and premiums for solar energy facilities in category b. With respect to category b.1.2, it provided that “[t]he tariffs and premiums corresponding to facilities in Category b) shall be as provided in Table 3.” Table 3 provided the following in the relevant portion:⁹²

⁸⁹ C-017 / R-042, RD 661/2007, Art. 24(1). ↩

⁹⁰ C-017 / R-042, RD 661/2007, Art. 24(4). ↩

⁹¹ C-017 / R-042, RD 661/2007, Art. 2(1)(b), Sub-group b.1.2. ↩

⁹² C-017, RD 661/2007, Art. 36. ↩

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122. According to Article 44, “[t]he values of the tariffs, premiums, supplements, and lower and upper limits to the hourly price of the market as defined in this Royal Decree, for Category b) [...] shall be updated on an annual basis using as a reference the increase in the RPI [Consumer Price Index] less the value set out in the Additional Provision One [...],” namely, 0.25% until 31 December 2012 and 0.50% thereafter.⁹³ Article 44(3) addressed the matter of reviews of tariffs, premiums, supplements and lower and upper limits in the following terms:

“During the year 2010, on sight of the results of the monitoring reports on the degree of fulfilment of the Renewable Energies Plan (PER) 2005-2010, and of the Energy Efficiency and Savings Strategy in Spain (E4), together with such new targets as may be included in the subsequent Renewable Energies Plan 2011-2020, there shall be a review of the tariffs, premiums, supplements and lower and upper limits defined in this Royal Decree with regard to the costs associated with each of these technologies, the degree of participation of the special regime in covering the demand and its impact upon the technical and economic management of the system, and a reasonable rate of profitability shall always be guaranteed with reference to the cost of money in the capital markets. Subsequently a further review shall be performed every four years, maintaining the same criteria as previously.

The revisions to the regulated tariff and the upper and lower limits indicated in this paragraph shall not affect facilities for which the deed of commissioning shall have been granted prior to 1 January of the second

⁹³ C-017 / R-042, RD 661/2007, Art. 44 and Additional Provision One. ↩

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year following the year in which the revision shall have been performed.”⁹⁴

123. For the CSP sector, the economic regime set out in RD 661/2007 would accrue to the first 500 MW of installed capacity.⁹⁵

124. Facilities for the production of energy under the Special Regime were subject to “compulsory registration” in the RAIPRE.⁹⁶ Moreover, “the final registration of the facility in the [RAIPRE]” was a “necessary requirement for the application of the economic regime regulated under [RD 661/2007] to such facility, with effect from the first day of the month following the date of the final deed of entry into service of the facility.”⁹⁷

125. In addition to the economic regime, RD 661/2007 afforded producers under the Special Regime the rights to “enjoy priority in access and connection to the electricity grid” under certain conditions set forth in Annex XI of RD 661/2007 or in subsequent regulations; and the right to sell their electricity output via distribution companies, or to “sell all or part of their net production by way of direct lines.”⁹⁸

126. On 3 and 9 December 2009, the Spanish Supreme Court ruled and rejected various claims brought by renewable energy producers against certain provisions of RD 661/2007.⁹⁹ Among others, the petitioners had argued that the first transitory provision of RD 661/2007 was in breach of Article 40(3) of RD 436/2004.¹⁰⁰

b. RDL 6/2009

127. On 23 April 2009, the European Parliament and Council adopted Directive 2009/28/EC on the promotion of the use of energy from renewable sources (“2009 Renewable

⁹⁴ C-017 / R-042, RD 661/2007, Art. 44(3). ↩

⁹⁵ C-017 / R-042, RD 661/2007, Art. 37. See also, Art. 17(c) and 22. ↩

⁹⁶ C-017 / R-042, RD 661/2007, Art. 9. ↩

⁹⁷ C-017 / R-042, RD 661/2007, Art. 14. ↩

⁹⁸ C-017 / R-042, RD 661/2007, Art. 17 (b), (d) and (e); Annex XI. ↩

⁹⁹ R-064, Supreme Court, Third Chamber, Judgement, 3 December 2009, Factual Background, FIRST; R-002, Supreme Court, Third Chamber, Judgement, 9 December 2009, Factual Background, FIRST. ↩

¹⁰⁰ R-064, Supreme Court, Third Chamber, Judgement, 3 December 2009, Legal Grounds, FOURTH. ↩

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Energy Directive”).¹⁰¹ This new directive set a “target of at least a 20 % share of energy from renewable sources in the Community's gross final consumption of energy in 2020.”¹⁰²

128. Shortly thereafter, on 30 April 2009, Spain adopted Royal Decree-Law 6/2009 (“RDL 6/2009”).¹⁰³ The Preamble of RDL 6/2009 observed that the growing tariff deficit in Spain, that is, “the difference between collections based on the regulated rates set by the Administration and paid by consumers for their regulated supplies and access rates set on the deregulated market and the actual costs associated with those rates” was affecting the electricity system, putting at risk both “the financial situation of companies in the electricity sector” and the “sustainability of the system.”¹⁰⁴

129. Referring to the growing impact of the Special Regime on the tariff deficit, one of RDL 6/2009's stated objectives was the introduction of measures to control the cost of that Special Regime and thereby the tariff deficit.¹⁰⁵ Expressing concern for the financial viability of facilities already finalized, RDL 6/2009 also indicated that it was “necessary to adopt a measure of urgency to guarantee the necessary legal security for those who ha[d] made investments.”¹⁰⁶

130. RDL 6/2009 put in place a Mechanism of Registration of Pre-assignment of Payment for the Special Regime Installations (“Mecanismo de Registro de Pre-asignación de Retribución para las Instalaciones del Régimen Especial”) (“Pre-Assignment Registry”).¹⁰⁷ Article 4(2) of RDL 6/2009 provided that enrolment in the Pre-Assignment Registry was a “necessary condition to obtain the right to the economic scheme established in [RD 661/2007] [...].”¹⁰⁸ Article 4(3) established a number of

¹⁰¹ R-009, Directive 2009/28/EC of the European Parliament and Council, 23 April 2009 (published 5 June 2009) (“2009 Renewable Energy Directive”). ↩

¹⁰² R-009, 2009 Renewable Energy Directive, Art. 3(1). ↩

¹⁰³ C-044 / R-085, Royal Decree-Law 6/2009, 30 April 2009 (published 7 May 2009) (“RDL 6/2009”). ↩

¹⁰⁴ C-044 / R-085, RDL 6/2009, Preamble, at p. 39404. ↩

¹⁰⁵ C-044 / R-085, RDL 6/2009, Preamble, at p. 39405. ↩

¹⁰⁶ C-044 / R-085, RDL 6/2009, Preamble, at p. 39405. ↩

¹⁰⁷ R-085, RDL 6/2009, Art. 4. ↩

¹⁰⁸ R-085, RDL 6/2009, Art. 4(2). ↩

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detailed requirements for registration in the Pre-Assignment Registry.¹⁰⁹ In turn, Article 4(8) provided that facilities registered in the Pre-Assignment Registry had a deadline of 36 months to be definitely registered in the RAIPRE, absent which “their economic right associated with inclusion in the [Pre-Assignment Registry] shall be revoked.”¹¹⁰

131. Pursuant to the 4^th transitory provision of RDL 6/2009, installations had a deadline of 30 days from entry into force of the RDL to submit their application for entry into the Pre-Assignment Registry (i.e. until 6 June 2009).¹¹¹ In turn, the 5^th transitory provision established that if the capacity of the projects registered in the Pre-Assignment Registry exceeded the objectives set in RD 661/2007:

“[...] the economic system established in [...] Royal Decree 661/2007 [...] will be applicable and will be exhausted through those registered installations. In this case, by means of a resolution from the Council of Ministers at the initiative of the Ministry of Industry, Tourism and Commerce, annual restrictions may be established on the commissioning and start-up of the registered facilities and their prioritization, to avoid compromising the technical and economic sustainability of the system, appropriately extending the maximum term established in Article 4.8 of this Royal Decree-Law, if applicable. [...].” ¹¹²

132. On 13 November 2009, the Spanish Council of Ministers entered into an Agreement to “establish [ ] the order of priority of the projects or plants presented to the administrative registry for pre-allocation of payment for the installations for the production of electrical energy, as established in [RDL 6/2009] [...].”(“Agreement of the Council of Ministers”).¹¹³ At the time, there had been 104 applications to the Pre-Assignment Registry for the CSP sector, for a total power capacity of 4,499 MW; which together with the capacity already installed exceeded the power targets of RD 661/2007.¹¹⁴

¹⁰⁹ C-044 / R-085, RDL 6/2009, Art. 4(3). ↩

¹¹⁰ R-085, RDL 6/2009, Art. 4(8). ↩

¹¹¹ C-044, RDL 6/2009, 4^th Transitory Provision. ↩

¹¹² C-044, RDL 6/2009, 5^th Transitory Provision. ↩

¹¹³ C-007, Agreement of the Council of Ministers of 13 November 2009 (incorporated through a Resolution of the Secretary of Energy dated 19 November 2009, and published in the Official State Bulletin on 24 November 2009) (“Agreement of the Council of Ministers”). ↩

¹¹⁴ C-007, Agreement of the Council of Ministers, § III, at p. 99849. ↩

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133. According to the Agreement of the Council of Ministers, projects and facilities that had applied to the Pre-Assignment Registry were organized starting with those whose application and registration had occurred within the deadline established in RDL 6/2009, and in chronological order according to the date of their registration.¹¹⁵ The commissioning of the facilities was staggered in various phases, which were as follows for CSP: phase 1 (up to 850 MW); phase 2 (up to 1,350 MW); phase 3 (up to 1,850 MW) and phase 4 (rest of the power registered in the Pre-Assigned Registry).¹¹⁶ Annual restrictions were established with regard to the start-up and entry into operation of the facilities registered in the Pre-Assignment Registry, such that facilities could not begin delivering energy via the distribution or transportation network before certain dates, as follows: 1 January 2011 (for phase 2), 1 January 2012 (for phase 3) and 1 January 2013 (for phase 4).¹¹⁷ In addition, such facilities were required to obtain permanent registration in the RAIPRE and to commence selling energy prior to the following dates: 1 January 2013 (for phases 2 and 3), and 1 January 2014 (for phase 4).¹¹⁸

c. RD 1614/2010

134. On 19 November 2010, Spain adopted Royal Decree 1565/2010 “regulating and modifying certain aspects in relation to the activity of electricity production under the special regime.”¹¹⁹

135. A few weeks later, on 7 December 2010, Spain enacted Royal Decree 1614/2010 (“RD 1614/2010”), which “regulates and amends given aspects relative to the production of electric energy from solar thermal electric and wind power.”¹²⁰ Article 4 of RD 1614/2010 provided that:

“For solar thermal electric technology facilities falling within [RD 661/2007] revisions of tariffs, premiums and upper and lower limits, referred to in Article 44.3 of [RD 661/2007], shall not affect those

¹¹⁵ C-007, Agreement of the Council of Ministers, § VI(1) at p. 99853. ↩

¹¹⁶ C-007, Agreement of the Council of Ministers, § VI(2), at p. 99853. ↩

¹¹⁷ C-007, Agreement of the Council of Ministers, § VI(4), at p. 99853. ↩

¹¹⁸ C-007, Agreement of the Council of Ministers, § VI(4), at p. 99854. ↩

¹¹⁹ R-065, Royal Decree 1565/2010, 19 November 2010 (published 23 November 2010). ↩

¹²⁰ C-016 / R-068, Royal Decree 1614/2010, 7 December 2010 (published 8 December 2010) (“RD 1614/2010”). ↩

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facilities definitively registered in the [RAIPRE as] of 7 May 2009, or those that shall have been registered in the [Pre-Assignment Registry] under the fourth transitional provision of [RDL 6/2009], and shall have fulfilled the obligation envisaged in Article 4.8 thereof, extended until 31 December 2013 for those facilities associated with phase 4 envisaged in the Agreement of the Council of Ministers of 13 November 2009.”¹²¹

136. Article 2 of RD 1614/2010 reduced the allowed operating hours of plants qualifying for the Special Regime. For CSP plants of 9-hour storage, those hours were set at 4,000 a year.¹²² Article 2(3) went on to provide that:

“[...] The equivalent hours of reference envisaged in the preceding table shall not be revisable during their operating life for those facilities registered definitively in the [RAIPRE as] of 7 May 2009 and for those registered in the [Pre-Assignment Registry] under the aegis of the fourth transitional provision of [RDL 6/2009], and which fulfil the obligation envisaged in Article 4.8 thereof, extended until 31 December 2013 for those facilities associated with phase 4 envisaged in the [Agreement] of the Council of Ministers of 13 November 2009 [...].”¹²³

137. In turn, Article 3 required projects to opt for the regulated “feed-in-tariff” option for the first twelve months of operation.¹²⁴

138. RD 1614/2010 also allowed, under certain conditions, Special Regime facilities registered in the Pre-Assignment Registry classified under phases 2 to 4, to begin discharging energy to the grid on a trial basis 9 months before the 1 January applicable to their respective phases.¹²⁵ In this case, the decree also established that the “calculation of the period during which the facility shall have the right to a premium or equivalent premium, shall take place as of the starting date of the collection of the premium or equivalent premium, as appropriate.”¹²⁶ RD 1614/2010 further provided that facilities registered in the Pre-Assignment Registry that had decided not to move forward with the

¹²¹ C-016, RD 1614/2010, Art. 4. ↩

¹²² C-016, RD 1614/2010, Art. 2(3). Claimants contend that the Termosol Plants were the only plants in the 9h category. Cl. Mem. Merits, ¶ 161, n. 186. ↩

¹²³ C-016, RD 1614/2010, Art. 2(3). ↩

¹²⁴ C-016, RD 1614/2010, Art. 3. ↩

¹²⁵ C-016 / R-068, RD 1614/2010, Transitory Provision 1. ↩

¹²⁶ C-016, RD 1614/2010, Transitory Provision 1. ↩

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facility, had a three-month period from the entry into force of the decree to “desist from the procedure,” to avoid enforcement of the guarantees they had provided.¹²⁷

(3) Other Developments in 2010-2012

a. RDL 14/2010

139. On 23 December 2010, Spain adopted Royal Decree-Law 14/2010 (“RDL 14/2010”), to adopt certain “urgent measures for the correction of the tariff deficit in the Electricity Sector.”¹²⁸ According to RDL 14/2010, since RDL 6/2009 there were supervening circumstances that had a direct impact on the tariff deficit exceeding the maximum deficit limits set forth in RDL 6/2009.¹²⁹ Article 1 of RDL 14/2010 (which amended Article 15 of the Electricity Law), provided that “[c]ompensation for regulated activities shall be financed through revenues collected by access fees for transmission and distribution networks, fully paid by consumers and producers.”¹³⁰

b. Law 2/2011

140. On 4 March 2011, Spain enacted Law 2/2011.¹³¹ The stated purpose of the law was to “introduc[e] in the legal order the structural reforms necessary to create conditions to favour a sustainable economic development.”¹³² Article 78 established “[a] minimum national goal of 20% [...] for the participation of renewable energies in gross energy consumption for the year 2020.”¹³³ Articles 77-79 dealt with principles of energy policy; national objectives for energy saving and efficiency and renewable energies; and aspects of indicative energy planning.¹³⁴

141. In 11 November 2011, Spain's Council of Ministers approved the 2011-2020 Renewable Energy Plan.¹³⁵ Its purpose was to “establish[ ] objectives in accordance with [the 2009

¹²⁷ C-016 / R-068, RD 1614/2010, Transitory Provision 2. ↩

¹²⁸ R-049, Royal Decree-Law 14/2010, 23 December 2010 (published 24 December 2010) (“RDL 14/2010”). ↩

¹²⁹ R-049, RDL 14/2010, Preamble, § 2. ↩

¹³⁰ R-049, RDL 14/2010, Article 1. ↩

¹³¹ R-291, Law 2/2011, 4 March 2011 (“Law 2/2011”). ↩

¹³² R-291, Law 2/2011, Art. 1 [Tribunal’s translation]. ↩

¹³³ R-291, Law 2/2011, Art. 78(1). ↩

¹³⁴ R-291, Law 2/2011, Arts. 77-79. ↩

¹³⁵ C-075 / R-052, Renewable Energy Plan 2011-2020 (“2011-2020 Renewable Energy Plan”). ↩

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Renewable Energy Directive] and, pursuant to the stipulations of [RD] 661/2007, [...] and of Law 2/2011 [...].”¹³⁶

142. On 19 December 2011, S.E. Mariano Rajoy gave an inaugural address to Congress as re-elected Prime Minister. Referring to an accumulated tariff deficit of EUR 22,000 million, and observing that “[e]lectricity tariffs for domestic consumers are the third most expensive in Europe, and the fifth highest for industrial consumers,” Prime Minister Rajoy stated that:

“[...] If reforms are not made, the imbalances will be unsustainable, and increases in prices and tariffs will place Spain at the greatest disadvantage in terms of energy costs in the entire developed world. We must therefore introduce policies based on putting a brake on and reducing the average costs of the system, take decisions without demagoguery, employ all the technologies available, without exception, and regulate with the competitiveness of our economy as our prime objective.” ¹³⁷

143. On 28 December 2011, the CNE issued a press release concerning “the review of grid access fees and certain tariffs and premiums for facilities operating under the special regime.”¹³⁸ The CNE referred to:

“[...] the need to immediately implement, amongst other measures, proposals for the regulation of activities, aimed at getting rid of the system's structural deficit and mitigating debt financing costs. Notwithstanding, to attain sufficiency it would be necessary to make larger scale additional adjustments to the costs of the activities regulated and to the tolling paid by consumers. An analysis could also be carried out of the introduction of measures to finance the costs of activities regulated externally to the access tolling.”¹³⁹

¹³⁶ C-075, 2011-2020 Renewable Energy Plan, at p. 5 (cover page). ↩

¹³⁷ R-094, S.E. Mariano Rajoy Speech to Congress during his Inauguration as President of the Government, 19 December 2011, p. 11. ↩

¹³⁸ R-095, CNE, Press Release, “The CNE Analyses the Review of Grid Access Fees and Certain Tariffs and Premiums for Facilities Operating under the Special Regime,” 28 December 2011. ↩

¹³⁹ Id. ↩

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c. RDL 1/2012

144. On 27 January 2012, Spain adopted Royal Decree-Law 1/2012 (“RDL 1/2012”), which “suspend[ed] the procedure for the pre-assignment of payment and remov[ed] the financial incentives for new electricity generating facilities generating using cogeneration, renewable energy sources and waste.”¹⁴⁰ RDL 1/2012 applied to facilities that had not been registered in the Pre-Assignment Registry by the time RDL 1/2012 entered into effect, namely, 28 January 2012.¹⁴¹

145. On that same day, the Ministry of Industry, Energy and Tourism issued a press release stating that, the decree had been adopted “to temporarily suspend” the Pre-Assignment Registry procedures and the economic incentives for new renewable energy installations, “until a reform in the electric system is implemented that avoids the tariff deficit from being generated [...].”¹⁴²

146. On 27 April 2012, Spain approved its National Reform Program for 2012, which included a section discussing “measures directed towards solving the existing imbalance between revenue and costs of the electricity system.”¹⁴³

147. In 2012, Spain undertook a series of additional reforms to the legal and economic regime for renewable energy investments.

(4) Regulatory Framework II

a. Law 15/2012

148. On 27 December 2012, Spain enacted Law 15/2012 “On Tax Measures for Energy Sustainability,” which entered into effect on 1 January 2013.¹⁴⁴ This Law adopted the following measures:

¹⁴⁰ C-088 / R-096, Royal Decree-Law 1/2012, 27 January 2012 (published 28 January 2012) (“RDL 1/2012”). ↩

¹⁴¹ C-088 / R-096, RDL 1/2012, Art. 2. ↩

¹⁴² R-097, Ministry of Industry, Energy and Tourism, The Government will Temporarily Suspend Premiums for New Special Regime Facilities, Press Release, 27 January 2012. ↩

¹⁴³ R-102, National Reform Program, Kingdom of Spain, 2012, § III(5) 71. ↩

¹⁴⁴ C-091 / R-024, Law 15/2012, 27 December 2012 (published 28 December 2012) (“Law 15/2012”), Fifth Final Provision. ↩

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149. First, it amended Article 30 of the Electricity Law, to provide that production based on natural gas would now only receive the pool price.¹⁴⁵

150. Second, it created and regulated a Tax on the Value of the Production of Electrical Energy (“TVPEE”).¹⁴⁶ It imposed a 7% rate on “the total amount that the taxpayer receives for the electric power production and its incorporation into the electricity system, measured at the power station busbars, for each installation, during the tax period.”¹⁴⁷

b. RDL 2/2013

151. On 1 February 2013, Spain enacted Royal Decree-Law 2/2013 (“RDL 2/2013”), adopting “urgent measures in the electricity system and in the financial sector.”¹⁴⁸ RDL 2/2013, adopted the following measures:

152. First, it amended the inflation index applicable under the Special Regime, from the Consumer Price Index to the “Consumer Price Index at constant rates without unprocessed food or energy products.”¹⁴⁹

153. Second, it amended Article 36 of RD 661/2007 (Table 3), such that the reference premium for renewable energy under the Special Regime was set at zero (0).¹⁵⁰

154. Third, Article 3 provided that Special Regime facilities that as of the effective date of RDL 2/2013 (i.e. 2 February 2013)¹⁵¹ had opted for the pool + premium option under Article 24(1)(b) of RD 661/2007 could not subsequently change that option.¹⁵² Further, (i) Special Regime facilities which between 1 January to 2 February 2013 had sold energy under the pool + premium option of Article 24(1)(b) of RD 661/2007 would “be paid the premium by the National Energy Commission, taking into consideration the

¹⁴⁵ C-091, Law 15/2012, First Final Provision. ↩

¹⁴⁶ C-091 / R-024, Law 15/2012, Arts. 1-11. ↩

¹⁴⁷ C-091, Law 15/2012, Arts. 6(1) and 8. ↩

¹⁴⁸ C-092 / R-125, Royal Decree-Law 2/2013, 1 February 2013 (published 2 February 2013) (“RDL 2/2013”). ↩

¹⁴⁹ C-092, RDL 2/2013, Art. 1. ↩

¹⁵⁰ C-092, RDL 2/2013, Art. 2(2). ↩

¹⁵¹ C-092, RDL 2/2013, Final Provision. ↩

¹⁵² C-092, RDL 2/2013, Art. 3. ↩

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energy produced during that period as if they had invoked [the feed-in-tariff option];” and (ii) Special Regime facilities which as of 2 February 2013 were selling under the pool + premium option of Article 24(1)(b) of RD 661/2007 would “automatically” be switched to the feed-in-tariff option in Article 24(1)(a) of RD 661/2007 “effective January 1, 2013, unless they expressly advise[d] the General Directorate of Energy and Mining policy of their desire to remain under [...] option b) [pool + premium] prior to February 15, 2013.” If they did so, however, they would have to “adhere to said option under the conditions regulated in [RDL 2/2013]” and in consequence could not change that option thereafter.¹⁵³

155. On 19 February 2015, the Spanish Constitutional Court dismissed a constitutional challenge against RDL 2/2013;¹⁵⁴ and on 26 March 2015, the Spanish Supreme Court also dismissed a petition asking it to bring a motion for unconstitutionality of RDL 2/2013 before the Constitutional Court.¹⁵⁵

(5) Regulatory Framework III

a. RDL 9/2013

156. On 12 July 2013, Spain enacted Royal Decree-Law 9/2013 (“RDL 9/2013”) on “emergency measures to guarantee the financial stability of the electrical system.”¹⁵⁶ RDL 9/2013 repealed RD 661/2007, and certain provisions of RDL 6/2009.¹⁵⁷

157. RDL 9/2013 substituted the prior remuneration regime for renewable energy facilities for a new one, applicable both to new and existing installations.

158. Under the new regime, renewable energy producers receive: (i) a payment of the wholesale market price for the electricity produced (“Market Payment”); (ii) a payment per Mwh of electricity produced to compensate operating costs not covered by the market price (“Operating Payment”); and (iii) and a payment per MWh of installed capacity on

¹⁵³ C-092, RDL 2/2013, Sole Additional Provision. ↩

¹⁵⁴ R-126, Constitutional Court, Judgement, 19 February 2015. ↩

¹⁵⁵ R-127, Supreme Court, Judgement, 26 March 2015, Factual Background, SECOND (ii). ↩

¹⁵⁶ C-093 / R-113, Royal Decree-Law 9/2013, 12 July 2013 (published 13 July 2013) (“RDL 9/2013”). ↩

¹⁵⁷ C-093 / R-113, RDL 9/2013, Sole Repeal Provision (2)(a) and (c) (repealing RD 661/2007 and Art. 4, First Add. Prov., and Fifth Trans. Provision (2) of RDL 6/2009). ↩

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the basis of the net investment costs of a “standard” reference plant, also referred to as an “installation type” (“instalación tipo”) (“Investment Payment”).¹⁵⁸ The remuneration would be calculated on the basis of standard income for the sale of electricity, standard exploitation costs and a standard value of the initial investment.¹⁵⁹ RDL 9/2013 also provided that the parameters of the regime could be revised every six years.¹⁶⁰

159. According to RDL 9/2013, the “reasonable profitability” for facilities that as of the effective date of RDL 9/2013 “had a right to a premium economic regimen [...] shall, before taxes, be in function of the mean yield on State Bonds on the secondary market for the ten years preceding the effective date of this royal decree-law plus 300 basis points” and “without prejudice to the revision provided in the last paragraph of” Article 30(4) of Law 54/1997.¹⁶¹

160. RDL 9/2013 entered into effect on 14 July 2013.¹⁶² At that time, however, neither the standard reference plant categories, nor the values of the Investment Payment and the Operating Payment for each category had been determined. As a result, the feed-in-tariff regime of RD 661/2007 (but not the pool + premium option already abolished by RDL 2/2013) continued operating until June 2014, when further regulatory measures (RD 413/2014 and Ministerial Order IET 1045/2014, discussed further below) were published. The payments received during this transitional period were made, however, as a “payment on account” of the payments that would be received under the new regime.¹⁶³

161. On 17 December 2015 and 18 February 2016, the Spanish Constitutional Court dismissed constitutional challenges against certain provisions of RDL 9/2013.¹⁶⁴

¹⁵⁸ C-093, RDL 9/2013, Art. 1 (Two) (amending Art. 30(4) of the Electricity Law); Cl. Mem. Merits, ¶ 190. ↩

¹⁵⁹ C-093, RDL 9/2013, Art. 1 (Two). ↩

¹⁶⁰ C-093, RDL 9/2013, Art. 1 (Two). ↩

¹⁶¹ C-093, RDL 9/2013, First Additional Provision. ↩

¹⁶² C-093 / R-113, RDL 9/2013, Tenth Final Provision. ↩

¹⁶³ C-093 / R-113, RDL 9/2013, Third Transitory Provision. ↩

¹⁶⁴ R-056, Constitutional Court, Judgement, 17 December 2015; R-072, Constitutional Court, Judgement, 18 February 2016; R-075, Constitutional Court, Judgement, 18 February 2016. ↩

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b. Law 24/2013

162. On 12 September 2013, the Spanish Council of State issued an opinion (Dictamen) on the draft of a new Electricity Law.¹⁶⁵

163. On 26 December 2013, Spain adopted Law 24/2013 on the Electricity Sector, which eliminated the distinction between the Ordinary and the Special Regimes.¹⁶⁶ It re-affirmed and developed the regime set forth in RDL 9/2013.

164. Article 14(4) provided that the “payment parameters” for renewable energy projects under the new regime were set for regulatory periods of six-years, which could be revised before the start of the next regulatory period. It set forth certain guidelines for the “modification of the payment parameters” applicable to renewable energy facilities, including that (i) in each regulatory period revision “modifications may be made to all payment parameters;” and between those periods “the value on which reasonable profitability will depend” can also be modified; (ii) once established, “the regulatory useful life or the standard value of the initial investment of a facility” cannot be modified; (iii) estimates of income for the sale of energy will be revised every three years, and the payment parameters adjusted in response to market price fluctuation vis-à-vis the prior three year estimate; and (iv) annual revisions of payment values for technologies whose operating costs depended on fuel prices.¹⁶⁷

165. Article 14(7) of Law 24/2013 provided for the creation of a specific remuneration regime under which remuneration would be calculated on the basis of standard income from the energy produced, standard operating costs and a standard initial investment figure, and will provide a reasonable return for the installation type in each applicable case.¹⁶⁸

166. In addition, Article 19 of Law 24/2013 established that “deviations occurring between electricity system income and costs” that are “not offset positively via the access tariffs

¹⁶⁵ R-144, Council of State, Opinion 937/2013, 12 September 2013. ↩

¹⁶⁶ C-097 / R-037, Law 24/2013, 26 December 2013 (published 27 December 2013) (“Law 24/2013”); Resp. C-Mem. Merits, ¶ 128. ↩

¹⁶⁷ C-097, Law 24/2013, Art. 14(4). ↩

¹⁶⁸ C-097, Law 24/2013, Art. 14(7). ↩

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and charges, will be financed by participants in the payment system, in direct proportion to the corresponding remuneration for their generation.”¹⁶⁹

c. RD 413/2014 and Ministerial Order IET/1045/2014

167. In 2014 Spain adopted two further implementing regulations for the new framework. On 6 June 2014, Spain adopted Royal Decree 413/2014 (“RD 413/2014”).¹⁷⁰ A few days later, on 16 June 2014, the Ministry of Industry, Energy and Tourism issued Order IET/1045/2014 (“Ministerial Order IET/1045/2014”).¹⁷¹

C. CLAIMANTS' INVESTMENT

168. The involvement of the NextEra companies with solar energy in Spain began with the agreements entered into in 2007, by a subsidiary of NextEra, relating to land easements, water rights and the development of up to four 49.9 MW CSP plants in Extremadura.¹⁷² In 2008, the Claimants were incorporated.¹⁷³ Between 2008 and 2009, the Claimants devoted their efforts to development activities.¹⁷⁴

169. On 14 May 2009, PTE applied for inscription of the first Termosol plant (“Termosol 1”) in the Pre-Assignment Registry.¹⁷⁵ On that same day, PTE2 applied for inscription of the second Termosol plant (“Termosol 2”) in the Pre-Assignment Registry.¹⁷⁶

170. On 11 December 2009, the Termosol Plants were registered in the Pre-Assignment Registry and assigned to Phase 3 of the timetable set forth in the Agreement of the Council of Ministers (supra, ¶¶ 132-133).¹⁷⁷

¹⁶⁹ C-097, Law 24/2013, Art. 19. ↩

¹⁷⁰ C-095 / R-124, Royal Decree 413/2014, 6 June 2014 (published 10 June 2014) (“RD 413/2014”). ↩

¹⁷¹ C-096 / R-122, Ministerial Order IET/1045/2014, 16 June 2014 (published 20 June 2014) (“Ministerial Order IET/1045/2014”). ↩

¹⁷² Cl. Mem. Merits, ¶¶ 30-33. ↩

¹⁷³ Supra, ¶ 94. ↩

¹⁷⁴ Cl. Mem. Merits, ¶¶ 79-80. ↩

¹⁷⁵ C-046, Letter of Application for Pre-Registration from PTE to the Directorate General for Energy Policy and Mines, Ministry of Industry, Tourism and Trade, 11 May 2009 (stamped 14 May 2009). ↩

¹⁷⁶ C-047, Letter of Application for Pre-Registration from PTE2 to the Directorate General for Energy Policy and Mines, Ministry of Industry, Tourism and Trade, 11 May 2009 (stamped 11 May 2009). ↩

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171. On 16 December 2009, each of the PTEs and Sener Ingeniería y Sistemas S.A. (“Sener”) signed Engineering, Procurement Support and Construction Support Services Agreements.¹⁷⁸

172. On 22 December 2009, each PTE and PTE2 filed an application with the Directorate General for Energy Policy and Mines to delay their construction deadlines for Termosol 1 and Termosol 2, and instead be moved to Phase 4 of the Agreement of the Council of Ministers.¹⁷⁹

173. On 18 February 2010, the Directorate General for Energy Policy and Mines issued two resolutions approving the application to move the Termosol Plants to Phase 4 of the Agreement of the Council of Ministers.¹⁸⁰ As a result, the Termosol Plants were then required to obtain permanent registration in the RAIPRE by 31 December 2013 (supra, ¶¶ 133, 135-136).

174. On 2 December 2010, PTE and PTE2 sent deeds waiving the date of entry into operation of Termosol 1 (1 January 2013) and Termosol 2 (15 March 2013) which had been set by virtue of the change to Phase 4 approved in the Resolution of the Directorate General for Energy Policy and Mines of 18 February 2010.¹⁸¹ Both deeds asked the Directorate

¹⁷⁷ C-049, Resolution of the Directorate General for Energy Policy and Mines for Inscription in the Pre-Assignment Registry of Termosol 1 owned by PTE, 11 December 2009 (“Pre-Assignment Registration Notice Termosol 1”); and C-050, Resolution of the Directorate General for Energy Policy and Mines for Inscription in the Pre-Assignment Registry of Termosol 2 owned by PTE2, 11 December 2009 (“Pre-Assignment Registration Notice Termosol 2”). ↩

¹⁷⁸ C-051, Engineering, Procurement Support and Construction Support Services Agreement between PTE and Sener Ingeniería y Sistemas, S.A., 16 December 2009; C-052, Engineering, Procurement Support and Construction Support Services Agreement between PTE2 and Sener Ingeniería y Sistemas, S.A., 16 December 2009. ↩

¹⁷⁹ C-053, Application for Change in Phase filed by Mike O’Sullivan (NextEra Energy Resources, LLC) on behalf of PTE, 22 December 2009; C-054, Application for Change in Phase filed by Mike O’Sullivan (NextEra Energy Resources, LLC) on behalf of PTE2, 22 December 2009. ↩

¹⁸⁰ C-055, Resolution of the Directorate General for Energy Policy and Mines for Termosol 1, 18 February 2010; C-056, Resolution of the Directorate General for Energy Policy and Mines for Termosol 2, 18 February 2010. ↩

¹⁸¹ C-070, Deed of Renunciation Regarding the Entry into Operation on a Particular Date, within the Phase Assigned to the Installation “Termosol 1” by a Resolution from the Directorate General of Energy Policy and Mines dated 15 February 2010, and Request for a Resolution Communicating the Conditions for Remuneration during the Operational Life of the Installation, 2 December 2009 (“Deed of Renunciation PTE”); C-071, Deed of Renunciation Regarding the Entry into Operation on a Particular Date, within the Phase Assigned to the Installation “Termosol 2” by a Resolution from the Directorate General of Energy Policy and Mines dated 15 February 2010, and Request for a Resolution Communicating the Conditions for Remuneration during the Operational Life of the Installation, 2 December 2009 (“Deed of Renunciation PTE2”). ↩

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General to “communicate the remunerative conditions for the operative life of the installation.”¹⁸²

175. On 28 December 2010, the Directorate General of Energy Policy and Mines of the Ministry of Industry, Tourism and Commerce issued documents for each of the Termosol Plants.¹⁸³ Among others, the Directorate General stated:¹⁸⁴

“Two. It communicates that, at the present time, by virtue of the provisions of paragraph 1 of the fifth transitional provision of [RDL 6/2009] the remuneration applicable to the facility consists of the tariffs, premiums, upper and lower limits and complementary provisions established in Royal Decree 661/2007, of 25 May, updated annually by Order of the Ministry of Industry, Tourism and Commerce, and the values in force as from 1 January 2011 are as follows:

Term	Regulated tariff c€/kWh	Reference premium c€/kWh	Upper limit c€/kWh	Lower Limit c€/kWh
first 25 years	29.0916	27.4312	37.1483	27.4353
Thereafter	23.2731	21.9449

Reference value of complement for reactive energy for application of bonus or penalty percentages: 8.4681 c€/kWh

176. On 28 April 2011, PTE and PTE2 entered into the loan agreements with a bank syndicate of Spanish and international lenders for a credit facility up to EUR 589,200,000 to finance construction of the Termosol Plants.¹⁸⁵

177. According to Claimants, construction of the Termosol 1 and 2 Plants proceeded in 2011-2012 without material issues.¹⁸⁶

¹⁸² C-070, Deed of Renunciation PTE, Third; C-071, Deed of Renunciation PTE2, Third. ↩

¹⁸³ C-009, Resolution of the Directorate General for Energy Policy and Mines of the Ministry of Industry, Tourism and Commerce for Termosol 1, 28 December 2010 (“2010 Resolution Termosol 1”); C-010, Resolution of the Directorate General for Energy Policy and Mines of the Ministry of Industry, Tourism and Commerce for Termosol 2, 28 December 2010 (“2010 Resolution Termosol 2”) ↩

¹⁸⁴ C-009, 2010 Resolution Termosol 1; C-010, 2010 Resolution Termosol 2. Respondent disputes certain aspects of the translation provided by Claimants. See, Resp. C-Mem. Merits, n. 233. ↩

¹⁸⁵ C-074, Credit Agreement between PTE and PTE2 (Borrowers) and Lenders, 28 April 2011. ↩

¹⁸⁶ Cl. Mem. Merits, ¶ 170. ↩

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178. On 29 May 2013, the Termosol 1 Plant obtained final registration into the RAIPRE; and on 7 June 2013, the same was granted to the Termosol 2 Plant.¹⁸⁷ The resolutions stated that: “[t]he economic regime applicable for invoicing the power and energy fed to the grid shall be the one established by Royal Decree 661/2007, of 25 May, which regulates the activity of production of electrical energy under the special regime.”¹⁸⁸

179. Claimants state that NEE España entered into liquidation in 2013, although final liquidation has been avoided. In 2015 the PTEs were placed in mandatory liquidation; in August 2016, the PTEs agreed to a debt restructuring with their lenders;¹⁸⁹ and Claimants have stated that the PTEs' liquidation has been avoided.¹⁹⁰

IV. THE PARTIES' CLAIMS AND REQUEST FOR RELIEF

180. Claimants initially asked the Tribunal to:

“[...] [R]ender an Award:

(1) Declaring that the Tribunal has jurisdiction over the claims presented in this Memorial and in the Request for Arbitration;

(2) Declaring that the Respondent has breached its obligations under Articles 10(1) and 10(7) of the Energy Charter Treaty;

(3) Determining that each such breach has caused damages to the Claimants;

(4) Ordering the Respondent to pay to the Claimants damages based on the principle of full reparation, as determined by the Tribunal based on the expert report of Dr Manuel A. Abdala and Professor Pablo T. Spiller of Compass Lexecon, estimated in their report at €393.6 million (subject to any updating in their Reply Report, at the merits hearing and in any post-hearing submissions that may be directed by the Tribunal);

¹⁸⁷ C-004, Resolution of the Government of Extremadura (Department of Agriculture, Rural Development, Environment and Energy) for Termosol 1, 29 May 2013 (“2013 RAIPRE Resolution Termosol 1”); C-005, Resolution of the Government of Extremadura (Department of Agriculture, Rural Development, Environment and Energy) for Termosol 2, 7 June 2013 (“2013 RAIPRE Resolution Termosol 2”). ↩

¹⁸⁸ Id. ↩

¹⁸⁹ Cl. Mem. Merits, ¶¶ 214-215; Cl. Reply Merits, ¶ 605. ↩

¹⁹⁰ Cl. Letter, 23 April 2018; Tr. Day 1 (ENG), 156:16-18 (Mr. Zimmerman). ↩

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(5) Ordering the Respondent to pay pre-award interest, where applicable, as well as ordering post-award interest on the all [sic] sums awarded to the Claimants at the rate of 7.62%, EURIBOR +3.5%, or such other rate as the Tribunal deems appropriate, from the date of the Award until the date of full payment;

(6) Ordering the Respondent to pay the Claimants the full costs of this arbitration, including, without limitation, arbitrators' fees, the ICSID administrative costs, attorneys' fees, expert fees, and all other costs associated with these proceedings, together with interest on all sums so awarded; and

(7) Ordering any such other relief as the Tribunal may deem appropriate.”¹⁹¹

181. In their Reply on the Merits, Claimants updated their request for relief, asking the Tribunal to:

“[...] [R]ender an Award:

(1) Dismissing the Respondent's Preliminary Objections;

(2) Dismissing the Respondent's defences to liability and declaring that the Respondent has breached its obligations under Art. 10 of the ECT;

(3) Ordering the Respondent to pay the Claimants, in full reparation, damages in an amount to be determined by the Tribunal, based on the but for scenario or alternative but-for scenarios presented in the Second Expert Report of Compass Lexecon dated 9 August 2016;

(4) Ordering the Respondent to pay post-award interest on the above sums to the Claimants at an appropriate commercial rate, 6.84%, or alternatively, EURIBOR + 3.5%;

(5) Ordering the Respondent to pay the Claimants the full costs of this arbitration, including, without limitations, arbitrator's fees, administrative costs of the Centre, counsel fees, expert fees, and all other costs associated with these proceedings, together with post-award interest on all such sums so awarded at the rates specified in sub-paragraph (4) above; and

¹⁹¹ Cl. Mem. Merits, ¶ 314. ↩

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(6) Ordering any such other relief as the Tribunal deems appropriate.”¹⁹²

182. As to jurisdiction, Claimants have asked the Tribunal to:

“[...] [D]eny each of Spain's preliminary objections; uphold its jurisdiction over the Claimants' claims; and render the relief requested in Part VII of the Claimants' Memorial and Part IX of the Reply Memorial.”¹⁹³

183. Respondent, in turn, has asked the Tribunal:

“[...] [T]o render an Award:

a) Declaring that the Tribunal lacks jurisdiction over the claims of the Claimant or, where applicable, their inadmissibility, pursuant to the provisions of the Statement of Objections to Jurisdiction of the Kingdom of Spain dated 9 September 2015;

b) Additionally, should the Arbitral Tribunal decide that it has jurisdiction to hear this dispute, dismissing all of the intentions [sic] of the Claimant insofar as the merits, as the Kingdom of Spain has in no way been in breach of the ECT, as indicated in Section III of this Memorial, referring to the Merits;

c) Additionally, dismissing all of the claims regarding reparation of damages of the Claimant, as it is not entitled to compensation, pursuant to the provisions of Section IV of this Writ; and

d) Ordering the Claimant to pay all costs and expenses arising from this arbitration, including the ISCID [sic] administrative expenses, the arbitrators' fees and the attorneys' fees of the Kingdom of Spain, its experts and advisers, as well as any other cost or expenses incurred, including a reasonable rate of interest as of the date on which said costs were incurred to the date of their effective payment.”¹⁹⁴

184. As to jurisdiction, Respondent asks that the Tribunal:

¹⁹² Cl. Reply Merits, ¶ 606. ↩

¹⁹³ Cl. C-Mem. Jur., ¶ 92; Cl. Rej. Jur., ¶ 160 (adding also a request that the Tribunal “reject the observations submitted by the Commission”). ↩

¹⁹⁴ Resp. C-Mem. Merits, ¶ 901. See also, Resp. Rej. Merits, ¶ 1240. ↩

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“[...] b) Declare that it lacks jurisdiction to hear the whole present arbitration or, in the alternative exclude from the scope of this arbitration the taxation and legislative measures to which D, E and F Objections refer to.

c) Directing the Claimants to pay all the costs and expenses incurred that arise from the present arbitration, including the administrative expenses incurred by ICSID, the fees of the Arbitrators and the fees of the legal representation of the Kingdom of Spain, as well as any other cost or expense incurred.”¹⁹⁵

185. In the Reply on Jurisdiction, Respondent formulated its request for relief in slightly different terms, asking the Tribunal to:

“a) declare its lack of jurisdiction to hear the claims of the Claimants, or if applicable their inadmissibility, in accordance with what is set forth in Section III of this Memorial, referring to Jurisdictional Objections; and

d) Sentence [sic] the Claimants to pay all costs and expenses derived from this arbitration, including ICSID administrative expenses, arbitrators' fees, and the fees of the legal representatives of the Kingdom of Spain, their experts and advisors, as well as any other cost or expense that has been incurred, all of this including a reasonable rate of interest from the date on which these costs are incurred and the date of their actual payment.”¹⁹⁶

186. The Parties' positions are summarized in the various sections below. At the outset, the Tribunal emphasizes that it has considered the entirety of the Parties' arguments in their written and oral submissions, irrespective of whether an argument is mentioned expressly in the summaries of the Parties' respective positions included in this Decision.

V. JURISDICTION

187. In the Memorial on Jurisdiction, Respondent raised six objections to jurisdiction (one of which was ultimately withdrawn). The order in which these objections were presented

¹⁹⁵ Resp. Mem. Jur., ¶ 249. ↩

¹⁹⁶ Resp. Reply Jur., ¶ 392. ↩

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was explicitly adjusted later in the Reply on Jurisdiction.¹⁹⁷ In the sequence presented in the Reply on Jurisdiction, the objections are:

• First, that the Tribunal lacks jurisdiction ratione materiae and ratione personae, because Claimants do not own or control directly or indirectly the claimed investments in this case, and therefore there is no “Investment” for purposes of Article 1(6) of the ECT; nor are Claimants “Investors” under the definition in Article 1(7) of the ECT, and in consequence, there is no “Investment” under the ECT either.¹⁹⁸
• Second, that the Tribunal lacks jurisdiction ratione voluntatis, because pursuant to Article 17 of the ECT, in the Memorial on Jurisdiction Respondent denied the application of Part III of the ECT to Claimants.¹⁹⁹
• Third, that the Tribunal lacks jurisdiction ratione personae because Claimants are not protected investors under the ECT, as the ECT is not applicable to disputes between a European Union (“EU”) Member State, and nationals of another EU Member State (“intra-EU” disputes).²⁰⁰
• Fourth, that the Tribunal lacks jurisdiction ratione voluntatis to hear Claimants' claim for breach of Article 10(1) of the ECT regarding a tax measure established in Law 15/2012, i.e., the TVPEE, because pursuant to Article 21 of the ECT, Article 10(1) does not apply to taxation measures.²⁰¹ This is a partial objection.²⁰²
• Fifth, that the Tribunal lacks jurisdiction to hear Claimants' claims for breach of Article 10(7) of the ECT regarding the TVPEE, because (i) pursuant to Article 21(3) of the ECT, Article 10(7) does not apply to this measure; and (ii) in any event, Article 10(7) cannot apply to impose most-favored-nation obligations.²⁰³ This is a partial objection.²⁰⁴

¹⁹⁷ Resp. Reply Jur., ¶ 4. ↩

¹⁹⁸ Resp. Mem. Jur., § III(C), ¶¶ 15, 141-170; Resp. Reply Jur., § IV(A). The contention that Claimants did not own the claimed investments was initially made in the Memorial on Jurisdiction, but it was later withdrawn in the Reply on Jurisdiction. Resp. Reply Jur., ¶ 55. ↩

¹⁹⁹ Resp. Mem. Jur., § III(B), ¶¶ 14, 84-140; Resp. Reply Jur., § IV(B). ↩

²⁰⁰ Resp. Mem. Jur., § III(A), ¶¶ 13, 26-83; Resp. Reply Jur., § IV(C). ↩

²⁰¹ Resp. Mem. Jur., § III(D), ¶¶ 16, 171-209; Resp. Reply Jur., § IV(D). The objection initially also encompassed claims arising out of the amendment to the Tax on Hydrocarbons, but it was later circumscribed to the claim arising out of the TVPEE, on the basis that the Tax on Hydrocarbons was not one of measures challenged by Claimants. Resp. Reply Jur., n. 124, ¶ 358. ↩

²⁰² Resp. Mem. Jur., ¶ 20. ↩

²⁰³ Resp. Mem. Jur., § III(E), ¶¶ 17, 210-221; Resp. Reply Jur., § IV(E). Respondent had also initially included a sixth objection: that the Tribunal lacked jurisdiction ratione voluntatis with respect to the disputes concerning Law 24/2013, RD 413/2014, and Ministerial Order IET/1045/2014, due to Claimants' failure to comply with the notice and cooling off period requirements in Article 26 of the ECT; or in the alternative, that these claims were inadmissible. Resp. Mem. Jur., § III(F), ¶¶ 18, 222-237. While an introductory paragraph of the Memorial appeared ↩

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A. FIRST OBJECTION: LACK OF JURISDICTION RATIONE MATERIAE AND RATIONE PERSONAE–LACK OF AN INVESTMENT AND AN INVESTOR

(1) The Parties' Positions

a. Respondent's Position

(i) Lack of an “Investment” Under Article 1(6) of the ECT

188. Respondent contends that the requirement of an “Investment” as the term is defined in Article 1(6) of the ECT is lacking in this case.²⁰⁵ Observing that according to this provision, “‘Investment' means every kind of asset, owned or controlled directly or indirectly by an Investor [...],” Spain initially argued that Claimants had neither ownership nor control over the assets claimed to constitute the investment in this case,²⁰⁶ namely: (i) a 100% of the shares of NEE España, the Spanish company that in turn owns three other Spanish companies: PTE, PTE2, and NEEOS; and (ii) a bridge loan granted to the Termosol Plants by Claimants.²⁰⁷ According to Spain, the alleged investment included the indirect participation in PTE, PTE2 and NEEOS.²⁰⁸

189. Respondent's initial position was that Claimants' connection to these assets was “indirect,”²⁰⁹ and that the notion of indirect ownership in Article 1(6) of the ECT required finding the “real and ultimate possession of the asset.”²¹⁰ That, according to Spain, corresponded to NextEra Energy Inc., Claimants' U.S. parent company.²¹¹ Therefore, neither Claimant owned the above-mentioned assets either directly or indirectly.²¹² In addition, Respondent argued, the assets were not controlled by Claimants directly or indirectly as required by Article 1(6) of the ECT and its

to extend this objection to claims arising out of Ministerial Order IET/1168/2014 and Ministerial Order IET/1182/2014, neither of these two measures were mentioned again in the sections developing the objection. Id., ¶ 18. The objection was expressly withdrawn with the Reply on Jurisdiction. Resp. Reply Jur., n. 1.

²⁰⁴ Resp. Mem. Jur., ¶ 20. ↩

²⁰⁵ Resp. Mem. Jur., ¶¶ 149, 168. ↩

²⁰⁶ Resp. Mem. Jur., ¶ 168; CL-001 / RL-055, Energy Charter Treaty (“ECT”), Art. 1(6). ↩

²⁰⁷ Resp. Mem. Jur., ¶ 147. ↩

²⁰⁸ Resp. Mem. Jur., ¶ 151. ↩

²⁰⁹ Resp. Mem. Jur., ¶ 154. ↩

²¹⁰ Resp. Mem. Jur., ¶ 145. See also, id., ¶¶ 158, 162, 165. ↩

²¹¹ Resp. Mem. Jur., ¶ 166. ↩

²¹² Resp. Mem. Jur., ¶ 148 (second bullet). ↩

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corresponding Understanding 3, because the actual control fell again on NextEra Energy Inc., the U.S. parent company.²¹³

190. Respondent's position was, however, amended in the Reply on Jurisdiction. There, Respondent asserted that it had been “able to effectively confirm that by means of certain internal asset transfer operations, the Claimants currently, formally and indirectly 'own' the shares in the Termosol Power Plants,” and stated that, as a result, Respondent was no longer “maintain[ing] that the Claimants do not ‘own' the assets.”²¹⁴

(ii) Lack of an “Investor” Under Article 1(7) of the ECT

191. This said, Respondent argues that the conceded indirect ownership is insufficient, because for there to be an “Investment” under Article 1(6) of the ECT, the asset must be owned or controlled by an “Investor” in the sense of Article 1(7).²¹⁵ Absent an “Investor,” there is no “Investment” either.²¹⁶

192. According to Spain, there is no “Investor” under Article 1(7) of the ECT, because Article 1(7)(a)(ii) refers to “a company or other organization organized in accordance with the law applicable in that Contracting Party,” and neither Claimant qualifies as a “company or other organization.”²¹⁷

193. In Spain's view, the terms “company or organization” should not be equated with “legal entity,” as confirmed by, the ordinary meaning of those words, EU Law and Netherlands Law, and a “systematic interpretation” of the ECT.²¹⁸

194. According to Respondent, in their ordinary meaning the terms company or organization refer to “associations established according to, or for the performance of, an end or purpose” that “require the disposition or order of personal and material resources in

²¹³ Resp. Mem. Jur., ¶¶ 146, 148 (first bullet). See also, id., ¶ 167. ↩

²¹⁴ Resp. Reply Jur., ¶ 55. ↩

²¹⁵ Resp. Reply Jur., ¶¶ 56, 58. ↩

²¹⁶ Resp. Reply Jur., ¶¶ 56, 103-104. ↩

²¹⁷ Resp. Mem. Jur., ¶ 150; Resp. Reply Jur., ¶ 102; CL-001 / RL-055, ECT, Art. 1(7). ↩

²¹⁸ Resp. Reply Jur., ¶ 68. ↩

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order to achieve an end.”²¹⁹ Claimants do not meet this ordinary meaning, Spain contends, because they have no workers, material or technical resources, and are pure holding companies.²²⁰

195. Respondent also observes that, pursuant to Article 1(7) of the ECT, Claimants must be a company or organization in accordance with the law applicable in the country where they are established, i.e. the Netherlands. In the Netherlands, EU Law is applicable and prevails over internal law,²²¹ or must be considered part of the national law.²²² Referring to EU notions in the fields of small and medium size enterprises, tax law, competition law, state aid law and jurisprudence of the Court of Justice of the European Union (“CJEU”) Respondent ultimately contends: “for an entity to be a company under EU Law, there must be an organisation whose purpose is to provide services or produce goods on the market. And an entity that simply has shares or stakes in other companies is not a company. EU Law does not accept that shell companies are undertakings.”²²³ Accordingly, Spain argues, Claimants are not a company or other organization established under the applicable law.²²⁴

196. Spain further maintains that the ECT distinguishes between the notions of “company” or “organization,” and those of “legal entity” or “enterprise,”²²⁵ noting that: (i) Article 17 of the ECT uses only the expression “legal entity;” and (ii) Article 26(7) of the ECT is drafted as it is to avoid the use of the expression “legal person” in Article 25(2)(b) of the ICSID Convention.²²⁶

²¹⁹ Resp. Reply Jur., ¶ 70. ↩

²²⁰ Resp. Reply Jur., ¶ 73. ↩

²²¹ Resp. Reply Jur., ¶¶ 74, 76. ↩

²²² Resp. Reply Jur., ¶ 78. ↩

²²³ Resp. Reply Jur., ¶ 87. ↩

²²⁴ Resp. Reply Jur., ¶ 87. See also, Resp. Mem. Jur., ¶ 150 (arguing that Claimants do not comply with the structure for developing a business activity demanded by EU Law, which is applicable international and domestic law). In the context of this objection, Respondent expressly relies on the arguments concerning lack of business activity developed in the context of the denial of benefits objection, and summarized infra at ¶¶ 219 et seq. Resp. Reply Jur., ¶¶ 13-14. ↩

²²⁵ Resp. Reply Jur., ¶ 88. ↩

²²⁶ Resp. Reply Jur., ¶¶ 89, 91-94. ↩

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197. Finally, the object and purpose of the ECT also support this objection, given that “the Charter and the ECT aspire to promote the investment activity of companies that are actively involved in the energy market, which cannot be achieved by means of mere holding companies.”²²⁷

b. Claimants' Position

198. Claimants contend that (i) the dispute concerns Claimants' “Investments” as defined in Article 1(6) of the ECT;²²⁸ and (ii) Claimants are qualifying “Investors” under Article 1(7) of the ECT.²²⁹ Claimants point out that Respondent conflates two separate concepts (“Investment” and “Investor”) within the overall concept of jurisdiction ratione materiae.²³⁰

(i) Claimants Have an “Investment” Under Article 1(6) of the ECT

199. Answering Respondent's initial contentions in the Memorial on Jurisdiction, Claimants argued that they do own protected “Investments” in the territory of Spain.²³¹ According to Claimants, their investments were precisely identified in their initial submissions, which referred to “Claimants' 100% equity shareholding in NEE España.” Claimants explained that “[t]o the extent that NEE España itself owns assets (such as their 100% ownership of the PTEs and NEEOS) [...] ‘these are qualifying investments under [...] the ECT [...] but they are ultimately reflected in the value of the Claimants' shareholding in NEE España and the Claimants do not seek double-recovery for those investments.”²³² In Claimants' view, that 100% equity interest in NEE España, directly owned by NextEra Spain (Claimant 2) and indirectly owned by NextEra Global (Claimant 1), unquestionably qualifies within Article 1(6)(b) of the ECT.²³³ It also settled law that an investor can “claim for harm to the value of its shareholding if the assets of the company

²²⁷ Resp. Reply Jur., ¶ 101. ↩

²²⁸ Cl. C-Mem. Jur., ¶¶ 13-15. ↩

²²⁹ Cl. C-Mem. Jur., ¶¶ 9-12. ↩

²³⁰ Cl. Bif. ¶ 84. ↩

²³¹ Cl. C-Mem. Jur., ¶ 13. ↩

²³² Cl. Bif., ¶ 86 (referring to Cl. Mem., ¶ 223). ↩

²³³ Cl. Bif., ¶ 87. ↩

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in which it owns shares suffer harm by reason of a State's unlawful conduct.”²³⁴ For Claimants, “Spain has not disputed that the Claimants directly or indirectly own 100% of the issued share capital in NEE España” the “Investment” identified since the Request for Arbitration.²³⁵

200. Claimants also opposed Respondent's interpretation of Article 1(6) of the ECT, on the ground that: (i) it was contradicted by the ordinary meaning of the text, and it would require reading into the provision a criterion of “ultimate ownership” that was not there;²³⁶ (ii) the discussion of “control” was irrelevant because the express wording of Article 1(6) refers to two deliberate alternatives (“owned or controlled”);²³⁷ (iii) Article 17 of the ECT did not assist Spain, because that provision necessarily presupposes that an investor who is not the ultimate owner is prima facie protected until a denial is validly exercised;²³⁸ and (iv) the case law invoked by Spain did not support its position, and in fact tribunals have routinely accepted claims by intermediary subsidiaries.²³⁹

201. Given Respondent's amendment of its position, in the Rejoinder on Jurisdiction Claimants merely observed that “Spain [...] admits that Claimants' indirect participation in the capital of the Termosol Plants” is an “Investment” under Article 1(6) of the ECT, and focused on the contentions relating to Article 1(7) of the ECT.²⁴⁰

(ii) Claimants Are “Investors” Under Article 1(7) of the ECT

202. Observing that Article 1(7)(a)(ii) of the ECT defines “Investor” as “a company or other organization organized in accordance with the law applicable in that Contracting Party,” Claimants argue that, by its plain terms this provision imposes no further requirements;²⁴¹ adding that ECT tribunals have consistently rejected attempts to alter the scope of this

²³⁴ Cl. Bif., ¶ 88. ↩

²³⁵ Cl. C-Mem. Jur., ¶ 14. ↩

²³⁶ Cl. Bif., ¶¶ 92-93. ↩

²³⁷ Cl. Bif., ¶ 90. ↩

²³⁸ Cl. Bif., ¶¶ 95-97 ↩

²³⁹ Cl. Bif., ¶¶ 98-106. See also, Cl. C-Mem. Jur., ¶ 15. ↩

²⁴⁰ Cl. Rej. Jur., ¶ 7. ↩

²⁴¹ Cl. C-Mem. Jur., ¶ 9; CL-001 / RL-055, ECT, Art. 1(7). ↩

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definition.²⁴² Claimants assert that the definition is satisfied here because “each of the Claimants is a company organised in accordance with the laws of the Netherlands” and the Netherlands is an ECT Contracting Party.²⁴³

203. In Claimants' view, Spain's contentions on the basis of the economic theory of organizations and concepts in EU tax, competition and state aid law and in the EU regulations for small and medium enterprises are “inapposite,” “irrelevant,” and “unconvincing,” and cannot alter the treaty text.²⁴⁴ Moreover, Claimants argue that Article 17(1) of the ECT does not assist with the interpretation of Articles 1(6) and 1(7) of the ECT; and further point out that there has been no argument of fraud or malfeasance in the ownership structure to trigger a debate over veil piercing.²⁴⁵

(2) The Tribunal's Analysis

a. Lack of an “Investment” under Article 1(6) of the ECT

204. Article 1(6) of the ECT provides that an “Investment” means “every kind of asset, owned or controlled directly or indirectly by an Investor,” including “a company or business enterprise.”²⁴⁶

205. Initially Respondent argued that in order to have an investment an investor must own the assets on which the investment was based, and it was not sufficient just to have a 100% ownership of the shares of the investment. Respondent also argued that Claimants did not control the investment. Ownership and control, in Respondent's view, rested with the American parent.²⁴⁷ Respondent ultimately accepted that Claimants owned the Spanish companies and did not pursue the argument that Claimants did not own the investment, and argued only that since Claimants are not “Investors” within the meaning of Article

²⁴² Cl. C-Mem. Jur., ¶ 10 (referring to CL-114, Yukos Universal Ltd v. Russia, UNCITRAL, PCA Case No. AA 227, Interim Award on Jurisdiction and Admissibility (30 November 2009) (hereinafter “Yukos”); RL-008, Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005) (hereinafter “Plama Jurisdiction”); and CL-125, Petrobart Limited v. The Kyrgyz Republic, SCC Arbitration No. 126/2003, Arbitral Award (29 March 2005) (hereinafter “Petrobart”). ↩

²⁴³ Cl. C-Mem. Jur., ¶ 11. See also. Cl. Bif., ¶ 91. ↩

²⁴⁴ Cl. Rej. Jur., ¶ 9. ↩

²⁴⁵ Cl. Rej. Jur., ¶ 10. ↩

²⁴⁶ CL-001 / RL-055, ECT, Art. 1(6). ↩

²⁴⁷ Resp. Mem. Jur., § III(C). ↩

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1(7) of the ECT, then they cannot have an “Investment” within the meaning of Article 1(6) of the ECT.²⁴⁸ In the light of the conclusion below relating to Article 1(7) of the ECT on the meaning of “Investor,” this argument fails.

206. Thus, the Tribunal rejects Respondent's objection that the condition of Article 1(6) of the ECT has not been met.

b. Lack of an “Investor” under Article 1(7) of the ECT

207. Article 1(7) defines an “Investor” of a Contracting Party to include: “a company or other organization organized in accordance with the law applicable within that Contracting Party.”²⁴⁹

208. It is not disputed that Claimants, NextEra Global and NextEra Spain are incorporated in accordance with the law of the Netherlands. Respondent argues, nonetheless, that the words “company” and “organization” in Article 1(7) have a meaning different from legal entity. According to Spain, a company must be understood in economic terms and this means it must be engaged in economic activity itself and not just be a shell company. Thus, pure holding companies do not meet the requirements of Article 1(7). Respondent refers to EU Law and the law of the Netherlands in support of its position on the particular meaning of “company” and “organization.”

209. However, cases involving Article 1(7) of the ECT have been fairly consistent in interpreting that provision on the basis of the ordinary meaning of the words, and treating as decisive the fact that the company is organized within the territory of a Contracting Party. This was the view adopted in Yukos²⁵⁰ and in Charanne.²⁵¹ The same view was reiterated in Saluka²⁵² in respect of a similar provision in the Netherlands-Czech Republic BIT.

²⁴⁸ Resp. Reply Jur., ¶¶ 103-104; Tr. Day 1 (ENG), 182:5 ff (Ms. Rivas). ↩

²⁴⁹ CL-001 / RL-055, ECT, Art. 1(7). ↩

²⁵⁰ CL-114, Yukos, ¶ 411 (on the basis of an opinion by James Crawford). ↩

²⁵¹ RL-088, Charanne BV and Construction Investment S.A.R.L. v. Kingdom of Spain, SCC Case No. 062/2012, Final Award (21 January 2016) (hereinafter “Charanne”), ¶ 414. ↩

²⁵² RL-098, Saluka Investments B.V. v. the Czech Republic, UNCITRAL, Partial Award (17 March 2006) (hereinafter “Saluka”), ¶ 241. ↩

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210. Moreover, in RREEF, Spain advanced similar arguments about the nature of a company in order to show that the alleged shell company in that case was not an investor within the meaning of Article 1(7) of the ECT.²⁵³ That argument was rejected.

211. The Tribunal sees no ground for concluding that Article 1(7) of the ECT must be interpreted on the basis of a particular meaning under EU or Netherlands law. The ECT is a treaty and must be interpreted in accordance with the principles of treaty interpretation set out in Article 31-33 of the Vienna Convention on the Law of Treaties (“VCLT”). Under Article 31(1) of the VCLT, treaties are to be given their ordinary meaning in their context and in light of the object and purpose of the treaty. Applying that rule, Claimants are companies that are organized under the law of the Netherlands and thus are “Investors” within the meaning of Article 1(7) of the ECT.

212. Thus, the Tribunal rejects Respondent's objection that the condition of Article 1(7) of the ECT has not been met.

B. SECOND OBJECTION: LACK OF JURISDICTION RATIONE VOLUNTATIS – DENIAL OF BENEFITS

(1) The Parties' Positions

a. Respondent's Position

213. Respondent argues that the Tribunal does not have jurisdiction ratione voluntatis as a result of Respondent's exercise in the Memorial on Jurisdiction of its right under Article 17 of the ECT to deny the benefits of Part III to Claimants.²⁵⁴ This is a matter of jurisdiction, Spain says, because the consent to arbitration given in Article 26(1) of the ECT refers to disputes that “concern an alleged breach of an obligation [...] under Part III.”²⁵⁵ In turn, the consequence of a denial of benefits under Article 17 is the “non-application of Part III,” when the conditions set for in the provision are met, as they are

²⁵³ CL-135, RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction (6 June 2016) (hereinafter “RREEF”), ¶¶ 132-134; 145-146. ↩

²⁵⁴ Resp. Mem. Jur., ¶¶ 84, 134. ↩

²⁵⁵ CL-001 / RL-055, ECT, Art. 26(1); Resp. Reply Jur., ¶¶ 108-109, 111. ↩

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here.²⁵⁶ Since there can be no obligation under Part III due to the denial of benefits, it follows that there can be no breach thereof, and consequently there is no consent to arbitration under Article 26.²⁵⁷

(i) The Requirements of Article 17 of the ECT Are Met

214. Respondent explains that the requirements of Article 17 of the ECT for exercising a denial of benefits are met because:²⁵⁸ (i) each Claimant is a legal entity incorporated in the territory of an ECT Contracting Party other than Spain;²⁵⁹ (ii) each Claimant is owned and controlled by citizens or nationals of the United States, a third State not party to the ECT;²⁶⁰ and (iii) neither Claimant performs any business activity in the Netherlands or in any other country.²⁶¹

215. Legal Entity Incorporated in the Netherlands. Respondent explains that, should the Tribunal dismiss the intra-EU objection (infra, § V.C) and instead conclude that the Netherlands and Spain are separate ECT Contracting Parties, then it should find that Claimants are legal entities incorporated in the territory of an ECT Contracting Party (the Netherlands), different from Spain.²⁶²

216. Owned and Controlled by U.S. Citizens or Nationals. Respondent argues that NextEra Spain (Claimant 2) is 100% owned by NextEra Global (Claimant 1), in turn 100% owned by NextEra Energy Global Holdings Cooperative U.A., in turn 99% owned by NextEra Energy Inc. (formerly known as FPL Group International Inc.), a U.S. company, and 1% by High Group Investments LLC, a Gibraltar company.²⁶³ Further, according to Respondent, the certificates of the Dutch Registry reflect that NextEra Energy Global Holdings Cooperative U.A. administers NextEra Global (Claimant 1); while NextEra

²⁵⁶ Resp. Mem. Jur., ¶¶ 105, 138; Resp. Reply Jur., ¶ 115. ↩

²⁵⁷ Resp. Mem. Jur., ¶¶ 84, 96, 102, 108-109, 139; Resp. Reply Jur., ¶¶ 116, 148-149. ↩

²⁵⁸ Resp. Mem. Jur., ¶¶ 111-112, 132. ↩

²⁵⁹ Resp. Mem. Jur., ¶¶ 113-114. ↩

²⁶⁰ Resp. Mem. Jur., ¶¶ 116-121. ↩

²⁶¹ Resp. Mem. Jur., ¶¶ 122-137. ↩

²⁶² Resp. Mem. Jur., ¶¶ 113, 115. ↩

²⁶³ Resp. Mem. Jur., ¶¶ 117-118. ↩

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Global (Claimant 1) administers NextEra Spain (Claimant 2).²⁶⁴ It follows, Spain says, that NextEra Energy Inc. is not only the owner, but also the controller of both Claimants.²⁶⁵ This is underscored by the fact that it was the President of NextEra Energy Inc., Mr. F. Mitchell Davidson, who handled all communications on behalf of the NextEra Group with the Spanish Government during the investment process.²⁶⁶

217. This said, in Spain's view, it is incorrect to assert that the requirements of ownership and control by nationals of a third State in Article 17 of the ECT are cumulative.²⁶⁷ It is sufficient that one of them is satisfied.²⁶⁸ Moreover, Respondent argues, when referring to “citizens or nationals of a third state,” Article 17 is looking for the “natural persons” who own or control the legal person, for the ultimate or beneficial owner.²⁶⁹ And in this case, Spain argues, the “citizens or nationals” who own and control Claimants are in the United States.²⁷⁰

218. As to the notion of “control” in Article 17 of the ECT, Spain argues that it must be interpreted in accordance with Understanding 3 relating to Article 1(6) of the ECT. Pursuant to that Understanding, “control of an Investment means control in fact, determined after an examination of the actual circumstances in each situation.”²⁷¹ Spain also maintains that the burden of proof to establish control is on Claimants;²⁷² and argues that it is incorrect to simply attribute control of NextEra Spain to NextEra Global, and control of NextEra Global to NextEra Energy Global Holdings Cooperative U.A, since the relevant test is “control in fact.”²⁷³ In any event, Spain contends that it has been established that Claimants are controlled by “American citizens,” namely NextEra Energy Inc. and the staff in the companies in the NextEra Group in the United States, in

²⁶⁴ Resp. Mem. Jur., ¶ 120. ↩

²⁶⁵ Resp. Mem. Jur., ¶ 121. See also, Resp. Reply Jur., ¶ 108. ↩

²⁶⁶ Resp. Mem. Jur., ¶ 121. ↩

²⁶⁷ Resp. Reply Jur., ¶ 166. ↩

²⁶⁸ Resp. Reply Jur., ¶ 167. ↩

²⁶⁹ Resp. Reply Jur., ¶ 168. ↩

²⁷⁰ Resp. Reply Jur., ¶ 168. ↩

²⁷¹ Resp. Reply Jur., ¶¶ 169-170; CL-001 / RL-055, ECT, Understandings, § 3. ↩

²⁷² Resp. Reply Jur., ¶ 172. ↩

²⁷³ Resp. Reply Jur., ¶ 172. ↩

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particular the U.S. citizens serving as Directors in category A of Claimants' boards of directors.²⁷⁴ This is underscored by the fact that the communications relied upon as the basis for Claimants' alleged legitimate expectations were exchanged with senior management of NextEra in the United States.²⁷⁵

219. Lack of Any Business Activity. According to Spain, Claimants do not have “any” business activity in the Netherlands or elsewhere.²⁷⁶ Pursuant to their certificates of registration they are merely “financial holding” companies, classified under a category that refers to holdings not engaged in management, strategic planning or decision making of the company they hold.²⁷⁷ Holding shares, Spain argues, is not a business activity under EU Law, which is applicable law by virtue of Article 26(6) of the ECT, and it is also part of the national law of the Netherlands and Spain.²⁷⁸

220. Moreover, Respondent argues, Claimants (i) have no employees of their own, as shown by their own Commercial Registers at the Chamber of Commerce;²⁷⁹ (ii) have a registered office that: corresponds to the address of an entity dedicated to the creation and maintenance of companies (Intertrust Group B.V.), is shared with over 1,000 other companies, and has no footprint of Claimants in it;²⁸⁰ (iii) have financial statements typical of holding companies, that are short, not audited, without management or board of directors reports, with the total assets being the holdings in the NextEra Group subsidiaries, with limited liabilities and no income or cash flow statements;²⁸¹ (iv) have two categories of directors in their boards (A and B), with only the U.S. directors (category A) having decision making power;²⁸² and (v) have no footprint online, or in the

²⁷⁴ Resp. Reply Jur., ¶¶ 173-174, 179. ↩

²⁷⁵ Resp. Reply Jur., ¶ 180. ↩

²⁷⁶ Resp. Mem. Jur., ¶¶ 123, 126; Resp. Reply Jur., ¶¶ 13, 50, 108. ↩

²⁷⁷ Resp. Reply Jur., ¶¶ 20, 23, 25. ↩

²⁷⁸ Resp. Mem. Jur., ¶ 126. ↩

²⁷⁹ Resp. Mem. Jur., ¶¶ 125, 129; Resp. Reply Jur., ¶¶ 30-34. ↩

²⁸⁰ Resp. Mem. Jur., ¶¶ 130-131; Resp. Reply Jur., ¶¶ 38-40. ↩

²⁸¹ Resp. Reply Jur., ¶ 36. ↩

²⁸² Resp. Reply Jur., ¶¶ 41-46. ↩

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NextEra Group SEC filings.²⁸³ For Spain, they are mere “shell companies” through which funds flow from the United States to Spain.²⁸⁴

221. Respondent objects to Claimants' allegation (based in Amto) that the term “substantial” in Article 17 of the ECT should be analysed from a qualitative point of view, as opposed to a quantitative one. In Respondent's view, this interpretation is in tension with the Spanish version of Article 17, which uses the term “important” (“importantes”) when referring to the activities.²⁸⁵ It is also contrary to the decision in Plama, which considered the term “substantial” as a quantitative one.²⁸⁶ In any event, Respondent says, Amto does not assist Claimants because the finding of substantial activities there was based on facts that are not met in this case, namely, the existence of two full time employees, an office permanently leased, and investments in other countries following instructions from within the country; while the holding of a bank account was not found determinative.²⁸⁷

(ii) The Denial of Benefits Was Timely and the Effects Can Be Retroactive

222. Respondent argues that its denial was timely,²⁸⁸ because (i) there are no provisions in the ECT regarding timing for the exercise of Article 17;²⁸⁹ (ii) the right can only be exercised when it is known that it is being invoked, and when Respondent is made aware of the arbitration and the exact characteristics of the alleged investor;²⁹⁰ and (iii) Spain could only verify whether the requirements of Article 17 of the ECT were met after receiving and analysing the Memorial.²⁹¹

223. It is Spain's position that the denial of benefits “may be exercised from the moment there is knowledge of the dispute being submitted, without any prior obligation to communicate

²⁸³ Resp. Reply Jur., ¶¶ 47-48. ↩

²⁸⁴ Resp. Reply Jur., ¶ 17. ↩

²⁸⁵ Resp. Reply Jur., ¶¶ 163-164. ↩

²⁸⁶ Resp. Reply Jur., ¶ 163 (referring to RL-008, Plama Jurisdiction, ¶ 169). ↩

²⁸⁷ Resp. Reply Jur., ¶ 165 (referring to CL-143, Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Award (26 March 2008) (hereinafter “Amto”)). ↩

²⁸⁸ Resp. Reply Jur., ¶ 108. ↩

²⁸⁹ Resp. Mem. Jur., ¶ 89; Resp. Reply Jur., ¶¶ 124-125. ↩

²⁹⁰ Resp. Mem. Jur., ¶ 89; Resp. Reply Jur., ¶¶ 123, 147 (a). ↩

²⁹¹ Resp. Mem. Jur., ¶ 89; Resp. Reply Jur., ¶ 147. ↩

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said denial at the beginning of the arbitration or at the time of pre-investment.”²⁹² Respondent observes that Plama relied on Article 1113 of NAFTA, which contains a requirement of prior communication and prior notification in connection with a denial of benefits, but has no equivalent in the ECT and it is thus not applicable.²⁹³ The absence of this provision in the ECT, Spain says, must mean that the intention of the ECT Contracting Parties was that the denial of benefits could be exercised at any time, given that other ECT provisions do contain express notice or consultation requirements.²⁹⁴ The position is also supported by the negotiating history of the ECT, Spain argues. According to Respondent, during the negotiations the United States had reserved the right to deny benefits at the time of the arbitration, and it was the United States' proposal that ultimately prevailed.²⁹⁵

224. Respondent argues that the dispute in this case arose in 2014, as the first trigger letter was sent in February 2014 and the Request for Arbitration was filed in May 2014.²⁹⁶ Prior to that, Spain says, the “only and first” communication sent to Spain revealing the existence of the Claimants was a letter of 15 March 2012, which for Spain only shows the “opacity in the business structure of the real investor, NextEra Energy Inc.”²⁹⁷ Respondent waited for the Request for Arbitration, it alleges, in order to have a correct picture of the structure used by NextEra Energy Inc., all in good faith and in accordance with the ICSID Arbitration Rules.²⁹⁸ And Spain did not have all the information to determine whether Article 17 of the ECT could be triggered until the Memorial was studied.²⁹⁹

²⁹² Resp. Reply Jur., ¶ 133. ↩

²⁹³ Resp. Reply Jur., ¶ 126. ↩

²⁹⁴ Resp. Reply Jur., ¶¶ 126-128. ↩

²⁹⁵ Resp. Reply Jur., ¶¶ 130-131. ↩

²⁹⁶ Resp. Reply Jur., ¶¶ 120-121. ↩

²⁹⁷ Resp. Reply Jur., ¶ 122 (referring to C-090, Letter from John Ketchum (NextEra Energy Resources, LLC) to José Maria Soria López (Minister for Industry, Tourism and Trade) and Fernando Martí Scharfhausen (Secretary of State for Energy), 15 March 2012). ↩

²⁹⁸ Resp. Reply Jur., ¶ 147(b). ↩

²⁹⁹ Resp. Reply Jur., ¶ 147. Moreover, Spain says, the Spanish assets were transferred to the Dutch companies through private documents only produced to Respondent in the document production phase of this proceeding. Resp. Reply Jur., ¶¶ 122, 147(c). ↩

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225. In Respondent's view, both Article 41(1) of the ICSID Convention and ICSID Arbitration Rule 41(1), together with arbitral case law support the proposition that the denial of benefits was validly exercised in the Memorial on Jurisdiction.³⁰⁰ That is because under ICSID Arbitration Rule 41(1), objections to jurisdiction “shall be made as early as possible [...] no later than the expiration of the time limit fixed for the filing of the counter-memorial [...].”³⁰¹

226. Spain further objects to the conclusion in Plama that a denial of benefits must be prospective. Relying on the decisions in Ulysseas and Guaracachi, Spain argues that Plama has been superseded by subsequent decisions that have allowed the exercise of the denial of benefits with retroactive effect.³⁰² For Respondent, limiting the effects of a denial of benefits to the future amounts to introducing a restriction that is not reflected in the text of Article 17 of the ECT.³⁰³

227. Finally, Spain opposes Claimants' contention that the form of the denial of benefits in this case is defective, observing that the form in which the denial was activated here (an express statement in the Memorial on Jurisdiction) was completely different from that in Plama, the case on which Claimants rely.³⁰⁴

b. Claimants' Position

228. Claimants' first argument is that the question of application of Article 17 of the ECT is not a matter of jurisdiction, but one for the merits. By its express terms, they say, the

³⁰⁰ Resp. Reply Jur., ¶¶ 135-146 (referring to RL-009, Ulysseas, Inc. v. Republic of Ecuador, UNCITRAL, Interim Award (28 September 2010) (hereinafter “Ulysseas”); RL-010, Guaracachi America Inc. & Rurelec, Plc. v. Bolivia, PCA Case No. 2011-17, Award (31 January 2014) (hereinafter “Guaracachi”); RL-104, Empresa Eléctrica del Ecuador, Inc. v. Republic of Ecuador, ICSID Case No. ARB/05/9, Award (2 June 2009); CL-120, Pac Rim Cayman LLC v. El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent's Jurisdictional Objections (1 June 2012) (hereinafter “PacRim”)). ↩

³⁰¹ Resp. Reply Jur., ¶ 137. ↩

³⁰² Resp. Mem. Jur., ¶¶ 135-137 (referring to RL-009, Ulysseas; RL-010, Guaracachi). See also, Resp. Reply Jur., ¶¶ 152-159. ↩

³⁰³ Resp. Reply Jur., ¶ 152. ↩

³⁰⁴ Resp. Reply Jur., ¶¶ 105-106, n. 38. ↩

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provision is limited to the benefits in Part III of the ECT, and has no impact on the consent in Part V.³⁰⁵

229. In addition, Claimants argue, the objection fails for various reasons: (i) Article 17 of the ECT was not timely invoked; (ii) Spain was aware of Claimants' corporate structure several years before this arbitration begun; (iii) Claimants engage in substantial business activities in the Netherlands; and (iv) Claimants are Dutch owned and controlled.³⁰⁶

(i) The Exercise of Article 17 of the ECT Is Untimely and Procedurally Improper

230. In Claimants' view, the unanimous body of ICSID awards in ECT cases prevents the State from denying the benefits of the ECT to an investor after an investment has been made and a dispute has arisen;³⁰⁷ and the non-ECT awards relied upon by Spain are inapposite.³⁰⁸ Recognizing that the Tribunal is not bound by earlier decisions, Claimants observe that stability and predictability are very important in this area.³⁰⁹ In addition, Claimants argue, their position is supported by the ordinary meaning and context of Article 17(1) of the ECT, and the object and purpose of the ECT of promoting “long term-cooperation in the energy field.”³¹⁰

231. Quoting from the decision in Khan, Claimants argue that the position adopted by the uniform body of cases makes “eminent sense,” as “[i]t is difficult to imagine that any Contracting Party [...] would refrain from exercising its right to deny the substantive protections of the ECT to an investor who has already commenced arbitration [...]" and

³⁰⁵ Cl. Bif., ¶ 56. ↩

³⁰⁶ Cl. C-Mem. Jur., ¶ 49. ↩

³⁰⁷ Cl. C-Mem. Jur., ¶ 51 (discussing CL-139, Ampal-American Israel Corporation et al. v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction (1 February 2016)); Cl. Bif., ¶¶ 57, 63 (discussing RL-008, Plama Jurisdiction; CL-114, Yukos; CL-006, Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of Award (22 June 2010) (hereinafter “Liman”); CL-113 / CL-140, Khan Resources Inc., et al. v. Government of Mongolia and MonAtom LLC, UNCITRAL, PCA Case No. 2011-09, Decision on Jurisdiction (25 July 2012) (hereinafter “Khan”); RL-013, Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v. Republic of Kazahkstan, SCC Case, Award (19 December 2013) (hereinafter “Stati”)). See also, Cl. Rej. Jur., ¶¶ 95-96. Claimants argue that Respondent’s attempt to distinguish Plama on the basis of its reference to Article 1113 of NAFTA, cannot obscure the fact that that tribunal reached its decision based on Article 17 of the ECT. Cl. Rej. Jur., ¶ 97. ↩

³⁰⁸ Cl. Bif., ¶¶ 77-78; Cl. C-Mem. Jur., ¶ 51. ↩

³⁰⁹ Cl. Bif., ¶¶ 65-67. ↩

³¹⁰ Cl. Bif., ¶¶ 59-63; Cl. Rej. Jur., ¶ 98 (citing CL-006, Liman, ¶ 225). ↩

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“[a] good faith interpretation does not permit the Tribunal to choose a construction of Article 17 that would allow host States to lure investors by ostensibly extending to them the protections of the ECT, to then deny these protections when the investor attempts to invoke them [...].”³¹¹

232. Furthermore, Claimants contend, Spain cannot argue that it only recently acquired knowledge of the relevant facts giving rise to the denial, because: (i) Spain has known “[a]t all times” that the ultimate owner of this investment was a U.S. corporation; (ii) since 2008 prior to the construction of the Termosol Plants, it has been a matter of public record that NEE España was owned by NextEra Spain (Claimant 2), a Dutch corporation; and (iii) after NextEra officials in the United States notified Spain of a potential ECT claim by the Dutch Claimants in 2012, Spain did not invoke its right under Article 17 of the ECT, and instead, continued to encourage the investments.³¹² In particular, Claimants point out that:

• Claimants never sought to conceal the link between the U.S. Group and the Spanish investments, as also shown in the initial correspondence with high Spanish Government officials in July 2009, December 2009, April 2010 and March 2012, which involved U.S. interlocutors.³¹³ Spain received these letters and responded to some in September 2009, January 2010 and April 2012.³¹⁴ NEE España’s consolidated accounts also show that its ultimate principal entity was NextEra

³¹¹ Cl. C-Mem. Jur., ¶ 51 (quoting CL-140, Khan, ¶ 429). ↩

³¹² Cl. C-Mem. Jur., ¶ 52; Cl. Bif., ¶¶ 69-70, 73-74 (referring to C-090, Letter from John Ketchum (NextEra Energy Resources, LLC) to José Maria Soria López (Minister for Industry, Tourism and Trade) and Fernando Martí Scharfhausen (Secretary of State for Energy), 15 March 2012) and ¶ 79. ↩

³¹³ Cl. C-Mem. Jur., ¶ 53 (citing C-048, Letter from Mitch Davidson (NextEra Energy Resources, LLC), to Pedro Marín (Secretary of State for Energy), 8 July 2009; C-014, Letter from Mitch Davidson (NextEra Energy Resources, LLC) to Miguel Sebastián (Minister for Industry, Tourism and Trade), 9 December 2009, C-058, Letter from Mitch Davidson (NextEra Energy Resources, LLC) to José Luis Rodriguez Zapatero (President of the Government of Spain), 22 April 2010; and C-090, Letter from John Ketchum (NextEra Energy Resources, LLC) to José Maria Soria López (Minister for Industry, Tourism and Trade) and Fernando Martí Scharfhausen (Secretary of State for Energy), 15 March 2012). ↩

³¹⁴ Cl. C-Mem. Jur., ¶ 54 (citing C-006, Letter from Pedro Marín (Secretary of State for Energy) to Mitch Davidson (NextEra Energy Resources, LLC), 3 September 2009; C-008, Letter from Pedro Marín (Secretary of State for Energy) to Mitch Davidson (NextEra Energy Resources, LLC), 11 January 2010; C-011, Letter from Ignacio Grangel Vicente (Chief of Staff to the Secretary of State for Energy) to John Ketchum (NextEra Energy Resources, LLC), 3 April 2012). ↩

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Energy Inc., as seen in the consolidated financial statements of 2008, 2009, 2010 and 2013.³¹⁵

• Spain cannot claim to have been unaware of the Dutch Claimants. A letter of 15 March 2012 to Spain explicitly invoked the Dutch ownership and the ECT.³¹⁶ In addition, NEE España notified Spanish authorities that NextEra Spain was its sole shareholder, as shown by the extracts of the Spanish Mercantile Registry since May 2008, NEE España's annual financial statements filed annually with that Registry, and notarized deeds also filed with that Registry documenting NextEra Spain's corporate actions as sole shareholder of NEE España.³¹⁷ And NextEra Global's ownership interest was publicly available to Spain in notarized deeds filed with the Spanish Mercantile Registry, and Claimants' Dutch accounts are publicly available.³¹⁸
• On 25 August 2009, the PTEs made filings with the Ministry of Industry, laying out the full structure of the investment.³¹⁹
• Claimants' registration as Dutch holding companies, in which Respondent relies now, has been a matter of public record since 2008.³²⁰

233. As a legal consequence of the foregoing: (i) Spain cannot claim that the information needed to trigger a denial of benefits is new; and (ii) Spain has “acquiesced” in the facts it now seeks to challenge, which prevents it from raising the denial ex post facto. Acquiescence, Claimants argue, is a principle of international law linked to the principle of good faith.³²¹

³¹⁵ Cl. C-Mem. Jur., ¶ 54 (citing C-124, 2013 Consolidated Financial Statements for NEE España, 22 July 2014; C-132, NEE España's 2008 Abbreviated Financial Statements, 31 March 2009; C-133, NEE España's 2009 Abbreviated Financial Statements, 31 March 2010; to C-134, NEE España's 2010 Consolidated Financial Statements, 22 July 2011). ↩

³¹⁶ Cl. C-Mem. Jur., ¶ 55 (citing C-090, Letter from John Ketchum (NextEra Energy Resources, LLC) to José Maria Soria López (Minister for Industry, Tourism and Trade) and Fernando Martí Scharfhausen (Secretary of State for Energy), 15 March 2012). ↩

³¹⁷ Cl. C-Mem. Jur., ¶ 55 (citing C-124, 2013 Consolidated Financial Statements for NEE España, 22 July 2014; C-132, NEE España's 2008 Abbreviated Financial Statements, 31 March 2009; C-133, NEE España's 2009 Abbreviated Financial Statements, 31 March 2010; to C-134, NEE España's 2010 Consolidated Financial Statements, 22 July 2011; C-083, Notarised Deed Corporate Resolutions adopted by NextEra Energy España, S.L., 9 June 2010; C-135, Notarised Deed Appointment of new Director, 9 June 2010). ↩

³¹⁸ Cl. C-Mem. Jur., ¶ 56 (citing C-080, First Notarised Deed Corporate Resolution adopted by FPLE Solar Assets, SL, 2 June 2009; and C-083, Notarised Deed Corporate Resolutions adopted by NextEra Energy España, S.L., 9 June 2010) ↩

³¹⁹ Cl. Rej. Jur., ¶¶ 99-100 (citing C-280, Annex 2 to the PTE Letter of Rectification, 25 August 2009). ↩

³²⁰ Cl. Rej. Jur., ¶¶ 101-102. ↩

³²¹ Cl. C-Mem. Jur., ¶ 58. See also, Cl. Rej. Jur., ¶ 104; Cl. Bif., ¶ 76. ↩

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234. Finally, Claimants argue, the facts of this case are distinguishable from those relied upon by Respondent (Guaracachi, Ulysseas and PacRim), where there was no evidence that the State was aware of the ownership and control before the dispute arose. Indeed, Claimants say that they are not aware of any decision upholding the validity of a denial of benefits exercised during the course of an arbitration on the basis of information made available to the State beforehand.³²²

(ii) The Form of the Denial is Deficient

235. Relying on Plama, Claimants argue that the denial ought “necessarily be associated with publicity or other notice,” either through “a general declaration in a Contracting State's official gazette [...]; or a statutory provision in a Contracting States' investment or other laws; or even an exchange of letters with a particular investor or class of investors.”³²³ Plama rejected the State's exercise of the denial via two communications to the ICSID Acting Secretary General expressly indicating the intention to exercise Article 17 of the ECT, and this is analogous to Respondent's actions in the present case. It follows that the denial here is invalid as a matter of form.³²⁴

236. In response to Respondent's contention that the text of Article 17 of the ECT does not require any prior notification, publication or consultation, Claimants contend that “[t]he text of Art[icle] 17 of the ECT presupposes that the right reserved therein be expressly and unambiguously exercised outside the context of an existing arbitration with the relevant investor, which can only be done through some form of notification, publication or communication.”³²⁵

(iii) The Conditions of Article 17 of the ECT Are Not Met

237. Claimants contend that Respondent has the burden to prove the two cumulative conditions of Article 17 of the ECT.³²⁶ Dismissing Respondent's attempt to shift the burden to Claimants, they argue that as Article 17 is being raised as an exception to the

³²² Cl. C-Mem. Jur., ¶ 59. ↩

³²³ Cl. C-Mem. Jur., ¶ 60 (quoting RL-008, Plama Jurisdiction, ¶ 157). ↩

³²⁴ Cl. C-Mem. Jur., ¶¶ 60-61; Cl. Rej. Jur., ¶ 105. ↩

³²⁵ Cl. Rej. Jur. n. 156. ↩

³²⁶ Cl. C-Mem. Jur., ¶ 62; Cl. Rej. Jur., ¶ 106. ↩

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applicability of Part III of the ECT, it falls on Respondent to establish that all of the elements of the exception are met.³²⁷ In Claimants' view, this burden has not been discharged, as in fact: (i) Claimants have substantial business activities in the Netherlands; and (ii) each Claimant is owned by another Dutch entity, and that ownership confers control in the ordinary way.³²⁸

238. Substantial Business Activities. Claimants argue that there is no check-list of mandatory factors, and the inquiry is qualitative, rather than quantitative, i.e. the decisive question is the “materiality, not the magnitude of the business activity.”³²⁹

239. Respondent's attempt to rely on the different adjectives used in the English and the Spanish version of the ECT (“substantial” and “importantes”) is irrelevant, because both are met. That said, Claimants argue that as both the English and Spanish texts are equally authentic, pursuant to Article 33(3) of the VCLT they should be presumed to have the same meaning. That meaning would be the meaning endorsed by Amto, which is the common denominator in the various other authentic languages of the ECT.³³⁰ Claimants add that, if the Tribunal is not satisfied, and considers that the authentic texts disclose a difference of meaning, pursuant to Article 33(4) of the VCLT, the Tribunal must (i) remove the difference applying Article 31 and 32 of the VCLT, or (ii) should that fail, adopt the meaning that “best reconciles the texts, having regard to the object and purpose of the treaty.”³³¹ The analysis under either of those steps, Claimants contend, also leads to the meaning adopted in Amto.³³²

240. Claimants argue that they “exceed the standard for ‘substantial business activities,”³³³ and have activities in the Netherlands that are quantitatively and qualitatively substantial.³³⁴ This, they say, is demonstrated by the witness statement of Mr. George

³²⁷ Cl. Rej. Jur., ¶ 108. ↩

³²⁸ Cl. C-Mem. Jur., ¶ 63. ↩

³²⁹ Cl. C-Mem. Jur., ¶ 64 (quoting CL-143, Amto, ¶ 69). ↩

³³⁰ Cl. Rej. Jur., ¶¶ 114-117. ↩

³³¹ Cl. Rej. Jur., ¶ 116. ↩

³³² Cl. Rej. Jur., ¶¶ 117-119. ↩

³³³ Cl. C-Mem. Jur., ¶ 67. ↩

³³⁴ Cl. Rej. Jur., ¶ 120. ↩

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Nicolai and documentary evidence, showing that Claimants: (i) are incorporated in the Netherlands; (ii) have a registered office in Amsterdam, which they have use of, and have hired a company named Intertrust to provide secretarial and communication facilities; (iii) hold the vast majority of their board meetings in the Netherlands; (iv) make decisions within the Netherlands, as the board of NextEra Energy Global Holdings Cooperative U.A. can only pass resolutions if adopted by majority of both A and B directors present, and the B directors are Dutch nationals; (v) convene annual general shareholder meetings in the Netherlands; (vi) have bank accounts in the Netherlands; (vii) are Dutch residents for tax purposes; (viii) prepare and file statutory annual accounts in the Netherlands; (ix) have adopted significant business decisions concerning the investments in Spain, including purchase of equipment, equity injections, causing NextEra Spain to subscribe the shares in NEE España, reviewing operations summaries of the Termosol Plants, appointing auditors, prosecuting claims in this arbitration by hiring counsel, overseeing, assessing and assisting with the potential sale of NEE España, reviewing debt restructurings, and dealing with the potential liquidation of NEE España.³³⁵ In addition, Claimants' administrative costs for conducting business in the Netherlands exceed approximately EUR 37,000 per year and the management and corporate secretarial costs exceed EUR 85,000 per year.³³⁶ Furthermore, NextEra Global is also the holding company for large renewable energy investments in Canada, which is part of the factual matrix for determining whether this company has substantial business activities in the Netherlands.³³⁷

241. None of the factors referred to by Spain detract from the above substantial business activities. Many of Spain's contentions have already been rejected by other arbitral tribunals.³³⁸ There is no rule in investment treaty arbitration against the bona fide use of holding companies.³³⁹ There is a distinction between holding companies – which could in principle have substantial business activities – and shell companies, and even if the

³³⁵ Cl. C-Mem. Jur., ¶ 67. See also, Cl. Rej. Jur., ¶ 123; Cl. Bif., ¶ 81. ↩

³³⁶ Cl. C-Mem. Jur., ¶ 68. ↩

³³⁷ Cl. C-Mem. Jur., ¶ 68; Cl. Rej. Jur., ¶ 123 (third bullet). ↩

³³⁸ Cl. C-Mem. Jur., ¶¶ 69-70. Claimants rely on the statements of Mr. George Nicolai and Mr. Mark Sorensen to counter assertions made in the Accuracy Report on this subject. Cl. Rej. Jur., ¶ 122. ↩

³³⁹ Cl. C-Mem. Jur., ¶ 72. ↩

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Tribunal concluded that Claimants are shell companies, there would be no basis to deprive them of protection, as held in RREEF.³⁴⁰ It is also irrelevant that Claimants' Dutch annual accounts are abbreviated, because they qualify as small companies under Dutch law and are thus not required to include cash flows or board statements or audit their accounts.³⁴¹ Respondent's reliance only on the filed accounts is misleading, as the accounts produced for the shareholders include more detailed information; and Claimants do hire Dutch auditors.³⁴² Finally, the code used in the Dutch registry has the sole purpose of describing the main object of the company at the time of registration; it has no legal consequences and does not restrict the activities of the entity.³⁴³

242. Dutch Ownership and Control. Claimants contend that Dutch ownership is demonstrated because each Claimant is owned by a Dutch national: NextEra Global (Claimant 1) owns 100% of NextEra Spain (Claimant 2); and a Dutch cooperative owns 100% of NextEra Global (Claimant 1).³⁴⁴ Dutch control is also showed by the fact that no voting arrangements prevent these owners from “exercising control over their immediate subsidiary, in the normal way.”³⁴⁵ Moreover, contrary to Spain's contentions, Claimants' board of directors is not dominated or controlled by U.S. citizens, as each director has a free vote and neither of the categories (A or B) plays a more important role.³⁴⁶

243. Claimants also observe that, by contrast with Article 1(6) of the ECT – concerning the definition of “Investment” – Article 17 does not include any reference to indirect ownership or control. Accordingly, they say, the ordinary meaning and the context of Article 17 refer to direct ownership and direct control.³⁴⁷ Spain's reliance on Understanding 3 relating to Article 1(6) of the ECT is a red herring, because, had the ECT Contracting Parties wished to include within the ambit of Article 17(1) indirect ownership or control, they could have easily transposed the language from Article 1(6),

³⁴⁰ Cl. C-Mem. Jur., ¶¶ 74-75 (referring to CL-120, PacRim; CL-135, RREEF). See also, Cl. Rej. Jur. ¶ 121. ↩

³⁴¹ Cl. C-Mem. Jur., ¶ 76. ↩

³⁴² Cl. C-Mem. Jur., ¶ 77. ↩

³⁴³ Cl. Rej. Jur., ¶ 121. ↩

³⁴⁴ Cl. C-Mem. Jur., ¶ 80; Cl. Rej. Jur., ¶ 110; Cl. Bif., ¶ 82. ↩

³⁴⁵ Cl. C-Mem. Jur., ¶ 80; Cl. Rej. Jur., ¶ 110. ↩

³⁴⁶ Cl. Rej. Jur., ¶ 112. ↩

³⁴⁷ Cl. C-Mem. Jur., ¶ 81. ↩

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and they did not.³⁴⁸ In addition, Claimants say, Spain's view is inconsistent with the functions of Article 1(6) and Article 17 of the ECT: the first one provides a broad definition of “Investment,” while the second one provides limited exceptions to the general applicability of the ECT to those “Investments.”³⁴⁹

(iv) The Denial Can Only Produce Effects to the Future

244. Finally, Claimants argue that, even if the conditions of Article 17 were met, the denial could only have effect as of 9 September 2015 (date of the Memorial on Jurisdiction), when it was raised for the first time; and all the challenged measures in this case occurred prior to that date.³⁵⁰

(2) The Tribunal's Analysis

245. Article 17 was invoked by Respondent as a preliminary objection and argued that way. The Tribunal notes Claimants' argument that this objection is not really a jurisdictional objection since it is a challenge only to the application of Part III of the ECT. However, since the matter has been argued as a preliminary objection, the Tribunal will deal with it on this basis.

246. Article 17(1) of the ECT provides:

“Each Contracting Party reserves the right to deny the advantages of this Part to:

(1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized; [...].”³⁵¹

247. Respondent argues that Claimants are owned and controlled by the American company NextEra Energy Inc. and do not have substantial business activities in the Netherlands. It

³⁴⁸ Cl. Rej. Jur., ¶ 111. ↩

³⁴⁹ Cl. Rej. Jur., ¶ 111. ↩

³⁵⁰ Cl. C-Mem. Jur., ¶ 82. ↩

³⁵¹ CL-001 / RL-055, ECT, Art. 17(1). ↩

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argues that it exercised its right under Article 17(1) to deny the benefits of Part III of the ECT to Claimants in its Memorial on Preliminary Objections.³⁵²

248. The Tribunal will deal first with the question whether Claimants are owned or controlled by the citizens or nationals of a third State, second with whether they have substantial business activities in the Netherlands, and third with whether Respondent has exercised effectively a denial of the advantages of Part III of the ECT under Article 17(1).

a. Are Claimants Owned or Controlled by the Citizens or Nationals of a Third State?

249. Claimants argue that they are 100% owned by a Dutch cooperative and control follows that ownership. The second Claimant, NextEra Spain, is registered in the Netherlands and is 100% owned by the first Claimant NextEra Global, also registered in the Netherlands, which in turn is 100% owned by NextEra Energy Global Holdings Cooperative U.A, which, too, is registered in the Netherlands. On that basis, Claimants are not controlled by the nationals of a non-ECT State. Nor, Claimants argue, do the voting arrangements prevent the Dutch owners from exercising control. In any event, Claimants argue, since there is no reference to “indirect” ownership or “indirect” control in Article 17(1) of the ECT, the word control in Article 17(1) is limited to “direct” control.

250. The Tribunal sees no basis for concluding that control in Article 17(1) of the ECT is limited to direct control. It is control in fact that counts, just as control in fact is what is meant in respect of Article 1(6) (Understanding 3). It makes no sense to say that the test for control in determining whether an investment is controlled by the nationals of another Contracting Party is different from the test for determining whether an investment is controlled by the nationals of a third State.

251. NextEra Energy, Inc., a U.S. corporation is the ultimate principal entity in the NextEra group and notwithstanding the formal provisions on voting, the reality is that the Dutch companies are controlled by the American company and the principal activities of Claimants in respect of the investments in Spain are conducted by the American

³⁵² Resp. Mem. Jur., ¶ 138. ↩

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company. It was officials of the American companies who dealt with the Spanish authorities in making the investment and, as will be discussed later, all of the representations by the Spanish authorities on which Claimants rely for their legitimate expectations claim in this case were made to those officials. In short, the reality of control is with U.S. nationals.

252. In light of this, the Tribunal concludes that Claimants are controlled by the citizens or nationals of a third State and thus the first criterion in Article 17(1) is met.

b. Do Claimants Have “Substantial Business Activities” in The Netherlands?

253. Respondent argues that Claimants do not have any business activities in the Netherlands. They are essentially holding companies whose function is to hold shares not to conduct business activities. Claimants argue that there is no barrier to holding companies meeting the test of having substantial business activities and list a variety of activities which it claims show that they meet this test, including having a bank account in the Netherlands, holding meetings there, providing annual accounts and taking decisions on such matters as equipment and funding of the Spanish subsidiaries. The question according to Claimants is the materiality of the business activities not the magnitude.

254. The question of what constitutes “substantial business activities” has been dealt with in several cases, although not all related to Article 17(1) of the ECT. In Pac-Rim,³⁵³ a case brought under the Central American Free Trade Agreement (“CAFTA”), the tribunal concluded that there were no “substantial business activities” of the claimant in the United States. It simply held the shares of other companies. Apparently, it had no board of directors and no bank account in the U.S. The tribunal did say that a “traditional holding company” could be engaged in “substantial business activities.” Such a company in its view would have “a board of directors, board minutes, a continuous physical presence and a bank account.”³⁵⁴

³⁵³ CL-120, PacRim. ↩

³⁵⁴ CL-120, PacRim, ¶ 4.72. ↩

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255. In Amto,³⁵⁵ the tribunal decided that since investment activities were conducted from premises in Latvia and the claimants had a small permanent staff, they met the test of having “substantial business activities” there.³⁵⁶ The company also had a bank account in Latvia and paid taxes.”³⁵⁷

256. In the present case, the claimed “substantial business activities” of the Claimants are more substantial than those in PacRim, where there was no board of directors and no bank accounts in the United States. The Claimants in this case would also meet the requirements set out in PacRim for a “traditional holding company” in that it had “a board of directors, board minutes, a continuous physical presence and a bank account.”³⁵⁸

257. The facts of Amto bear some similarity to the present case, but there are differences. The principal difference is that the NextEra Claimants have no permanent employees; they contract with Intertrust, which conducts Claimants' business in the Netherlands. However, this does not seem an important distinction. Whether one operates a business through permanent employees or contracts that work out to someone else is simply a business decision about how to operate. In either case, substantive work is being done for the company. The question is whether that work constitutes substantial business activities. In this regard, the Tribunal does not give any weight to the fact that the Spanish version of the treaty refers to “important” rather than “substantial” business activities. Since it is the quality and not just the quantity of the activities that is relevant, whether the term “important” or the term “substantial” is used does not make a difference.

258. Amto provides a useful test, in that it looked to see if “investment activities” were being conducted by the Latvian claimant. Applying that approach to the present case involves

³⁵⁵ CL-143, Amto. ↩

³⁵⁶ CL-143, Amto, ¶ 68. ↩

³⁵⁷ In Guaracachi, the tribunal concluded that substantial business activities had not been established although it did not set out any criteria for reaching that decision. The claimant had argued that the company had offices in the US, held shareholder’s meetings and Board of Directors meetings there, and prepared minutes of those meetings. RL-010, Guaracachi, ¶ 217. ↩

³⁵⁸ CL-120, PacRim, ¶ 4.72. ↩

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asking whether Claimants were engaged in investment activities from the Netherlands. In this regard, the meetings of the Board of Directors in the Netherlands are significant. In their Counter Memorial on Jurisdiction, Claimants argue that in fact “significant” business decisions relating to their investments were taken by Claimants, including purchasing equipment for the Termosol Plants in 2008, equity injections of EUR 209 million, appointing auditors in the Netherlands, hiring counsel for these arbitration proceedings, and hiring liquidators to oversee the liquidation of NEE España in 2013.³⁵⁹ They also refer to reviewing operation summaries of the Termosol Plants, and reviewing proposed debt restructuring.

259. In short, Claimants' argument is that they are not shell companies in the Netherlands; through their Board of Directors they play an active role in making decisions for their investments and have been engaged in reviewing the activities of their investments.

260. The Tribunal notes that although there has not been a significant jurisprudence on the question of “substantial business activities,” the tribunals that have found such activities to exist have been prepared to do so on the basis of a relatively small number of activities both in terms of quantity and quality. And that is true of the claim to having substantial business activities in the Netherlands in the present case. As pointed out earlier, the investment activities in respect of the Spanish investment are those of the U.S. parent and Claimants have a very limited role.

261. However, in view of the decision that the Tribunal reaches in respect of denial of benefits below, it does not have to decide whether Claimants' business activities in the Netherlands were substantial. Even if they were not substantial, Respondent still failed to exercise its right to deny benefits in accordance with Article 17(1) of the ECT.

c. Assuming that Respondent Had the Right to Deny Benefits Did It Exercise that Right in a Timely Fashion?

262. Article 17 of the ECT provides no guidance on the time at which the right to deny benefits must be exercised and the cases seem to be divided on this.

³⁵⁹ Cl. C-Mem. Jur., ¶ 67. ↩

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263. In the present case, the denial was asserted by Spain on 9 September 2015 in its Memorial on Jurisdiction.³⁶⁰ The question is whether that is too late. Although there has been some controversy over when the right to deny benefits must be exercised, recent cases have suggested that the right must be exercised no later than the time the benefits are claimed (Ulysseas and Guaracachi). On that basis, by denying benefits in its Memorial on Jurisdiction, Respondent was responding to the attempt by Claimants to exercise ECT rights in bringing this claim.

264. However, the filing of the claim was not the first time that Respondent was aware of a potential ECT claim by NextEra. As set out above, NextEra had engaged with the Spanish authorities on its plan to invest in the solar industry as early as July 2009, both in person and through correspondence. It was clear to the government that it was dealing with an American corporation, but it was also made clear that this investment was operated through a Dutch company.³⁶¹ The details of Claimants' ownership were available in public registers and Respondent must be taken to be aware of the status of Claimants. The contacts between the NextEra Energy group and the Spanish government both written and in person were extensive, up to and including the prime ministerial level. Encouragement and reassurances were provided to NextEra without any suggestion that Spain would invoke Article 17(1) of the ECT and deny the benefits of the treaty to Claimants.

265. More specifically, in a letter dated 15 March 2012 from John W. Ketchum, Vice President, NextEra Energy Resources LLC to the Minister for Industry, Energy and Tourism and the Secretary of State for Energy, the Spanish authorities were advised that the Dutch company which owned the NextEra investment in Spain was the “beneficiary of the protective provisions set forth in the Energy Charter Treaty” and that NextEra would defend their rights including through international arbitration.³⁶²

³⁶⁰ Resp. Mem. Jur., ¶ 138. ↩

³⁶¹ Cl. C-Mem. Jur., ¶¶ 52 et seq. ↩

³⁶² C-090, Letter from John Ketchum (NextEra Energy Resources, LLC) to José Maria Soria López (Minister for Industry, Tourism and Trade) and Fernando Martí Scharfhausen (Secretary of State for Energy), 15 March 2012. ↩

[Page 82]

266. Thus, by 15 March 2012, Respondent was aware that the NextEra Spanish investment was owned by a Dutch company, which regarded itself as having rights under the ECT, and that NextEra was willing to enforce those rights through international arbitration. The Spanish government gave no indication that it would deny those rights. Indeed, following this letter, the Spanish government made further assurances to NextEra and Claimants went ahead and completed the building of the Termosol Plants.³⁶³

267. In light of this, can Respondent then deny the benefits of Part III of the ECT once a claim has formally been made? In Khan the tribunal said:

“A good faith interpretation does not permit a tribunal to choose a construction of Article 17 to allow host states to lure investors by ostensibly extending to them the protections of the ECT, to then deny them these protections when the investor attempts to invoke them in international arbitration.”³⁶⁴

268. In the view of the Tribunal, once Spain became aware not just that it had a right to deny benefits but that Claimants were relying on Spain's statements and actions and were reserving a right to invoke the provisions of the ECT, it was put on notice of a potential exercise of ECT rights by NextEra. To delay until its Memorial on Jurisdiction on 9 September 2015, more than three years later, to exercise its right to deny benefits under Article 17(1) of the ECT is hardly a good faith exercise of its right as contemplated by the Khan tribunal. During that period Spain gave assurances about the protection the NextEra investment would receive in full knowledge that it was an investment that, in Claimants' view, was proceeding under and with the protections of the ECT. As a result, Claimants were justified in proceeding on the assumption that Spain would not exercise its right to deny benefits under Article 17 of the ECT.

269. Respondent was confronted on 15 March 2012 with a clear assertion that NextEra's international Dutch investment company had rights under the ECT and that NextEra planned to exercise such rights. Faced with such an assertion, and knowing that it had the right to deny the benefits that Claimants were asserting, Respondent could not stay silent,

³⁶³ Cl. Bif., ¶¶ 70 et seq. ↩

³⁶⁴ CL-113, Khan, ¶ 429. ↩

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but it did. Its conduct can only be viewed as acquiescence in Claimants' assertion of ECT rights precluding Respondent from later seeking to assert a right to deny benefits when it filed its Memorial on Jurisdiction on 9 September 2015.

270. In light of this, the Tribunal concludes that even if Claimants did not have “substantial business activities” in the Netherlands, Respondent failed to exercise its right to deny benefits under Article 17(1) in a timely fashion.

271. Accordingly, the Tribunal rejects the second preliminary objection.

C. THIRD OBJECTION: LACK OF JURISDICTION RATIONE PERSONAE – INTRA-EU OBJECTION

(1) The Parties' Positions

a. Respondent's Position

272. Spain objects to the Tribunal's jurisdiction arguing that Claimants are not protected investors under the ECT, because the dispute resolution mechanism set forth in Article 26 of the ECT does not apply to controversies arising between an investor of a EU Member State and a EU Member State (“intra-EU”).³⁶⁵

273. As both the Netherlands and Spain were EU Member States at the time they entered into the ECT, and the EU is a Contracting Party to the ECT, Respondent contends, Claimants are not investors of “another Contracting Party” as required by Article 26 of the ECT.³⁶⁶ The requirement of diversity in the Contracting Party “inevitably implies” the exclusion of intra-EU disputes.³⁶⁷

274. Spain has observed, however, that it does not contend that the ECT contains “an express or implied disconnection clause.”³⁶⁸ Relying on the EC's opinion, Respondent argues that the introduction of such clause was “entirely without relevance” “given that the

³⁶⁵ Resp. Mem. Jur., ¶ 13. ↩

³⁶⁶ Resp. Mem. Jur., ¶¶ 13, 27-28, 83; Resp. Reply Jur., ¶¶ 184, 240. ↩

³⁶⁷ Resp. Mem. Jur., ¶ 27. ↩

³⁶⁸ Resp. Reply Jur., ¶ 237. ↩

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agreement envisaged cover[ed] areas for which a complete harmonisation ha[d] been carried out.”³⁶⁹

(i) The Principle of Primacy of EU Law

275. In support of this objection, Respondent contends that:

• Being both EU Member States at the time of their ratification of the ECT, Spain and the Netherlands could not deviate from their obligations in the EU internal market.³⁷⁰
• The EU system already grants EU citizens an “integral” system of “specific and preferential protection” for their investments, which applies over the ECT; prohibits dispute resolution mechanisms different from those established in the EU Treaties that could interfere with the internal EU market;³⁷¹ and offers the appropriate legal resources for the protection of investors' rights before national courts.³⁷²
• Given this “integral” system of protection, within the EU, there is no distinction between investors of a EU Member State and those of another Member State, and therefore the category of foreign investor exclusively refers to investors from non-EU Member States.³⁷³
• EU Law - which is also applicable international law – prevails over the ECT in the event of conflict.³⁷⁴

276. Respondent emphasizes that underlying this objection is the essential principle of primacy of EU Law in intra-EU relations, pursuant to which EU Law must be applied over any other national or international law,³⁷⁵ regardless of whether EU Law is more favourable or not.³⁷⁶ It follows for Spain that “it is the [law] of the EU and not the ECT which must be applied to resolve this dispute.”³⁷⁷

³⁶⁹ Resp. Reply Jur., ¶ 238. ↩

³⁷⁰ Resp. Mem. Jur., ¶ 29. ↩

³⁷¹ Resp. Mem. Jur., ¶¶ 30-31, 34. ↩

³⁷² Resp. Mem. Jur., ¶ 40. ↩

³⁷³ Resp. Mem. Jur., ¶ 41. ↩

³⁷⁴ Resp. Mem. Jur., ¶ 31. ↩

³⁷⁵ Resp. Reply Jur., ¶¶ 187, 189. ↩

³⁷⁶ Resp. Reply Jur., ¶ 189. ↩

³⁷⁷ Resp. Reply Jur., ¶ 198. ↩

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277. For Spain, the preferential application of the EU system between EU Member States is recognized by the ECT's text, context and purpose.³⁷⁸

278. With respect to the text of the ECT, Respondent points out:

• First, that Article 1(2) of the ECT includes Regional Economic Integration Organizations (“REIO”), such as the EU, within the definition of a “Contracting Party,” and the definition of REIO in Article 1(3) recognizes that certain competences have been conferred to the EU by its Member States irrevocably and with binding nature, including on certain matters governed by the ECT.³⁷⁹ Moreover, the definition of “Contracting Party” in Article 1(2) recognizes that ECT Contracting Parties need to have agreed to be bound to one another, which neither Spain or the Netherlands could do, because they no longer had the competence to do so.³⁸⁰
• Second, that Article 36(7) of the ECT reaffirms the conclusions above, in providing that EU Members States and the EU cannot vote simultaneously.³⁸¹ This means, Respondent says, that the EU and each of its Member States can only vote in the areas within the scope of their competences, and it is for the CJEU – not for the Tribunal – to determine who is the competent Contracting Party in each subject matter.³⁸²
• Third, that the regulation of the relation between the ECT and other agreements (including the EU Treaties) in Article 16 of the ECT recognizes that, in intra-EU relations, the EU Treaties prevail over the ECT.³⁸³
• Fourth, that pursuant to Article 25 of the ECT, the EU integral system of promotion and protection of investments cannot be applied to other ECT Contracting Parties that are not EU Member States via the Most Favored Nation (“MFN”) clause,³⁸⁴ which is an “explicit recognition” of the principle of primacy of EU Law in intra-EU relations.³⁸⁵
• Fifth, that Article 26(1) of the ECT allows submission to arbitration of disputes only between a “Contracting Party” and “an Investor of another Contracting

³⁷⁸ Resp. Mem. Jur., ¶ 43 et seq. ↩

³⁷⁹ Resp. Mem. Jur., ¶ 45; Resp. Reply Jur., ¶¶ 228-229; CL-001 / RL-055, ECT, Art. 1(3) (“‘Regional Economic Integration Organization’ means an organization constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty, including the authority to take decisions binding on them in respect of those matters.”) ↩

³⁸⁰ Resp. Reply Jur., ¶¶ 226-227. ↩

³⁸¹ Resp. Reply Jur., ¶¶ 230-231. ↩

³⁸² Resp. Mem. Jur., ¶ 49; Resp. Reply Jur., ¶¶ 231-232; CL-001 / RL-055, ECT, Art. 36(7). ↩

³⁸³ Resp. Mem. Jur., ¶ 47; CL-001 / RL-055, ECT, Art. 16. ↩

³⁸⁴ Resp. Mem. Jur., ¶ 48; CL-001 / RL-055, ECT, Art. 25. ↩

³⁸⁵ Resp. Reply Jur., ¶¶ 190, 192 (highlighting the words “preferential treatment” in Art. 25). ↩

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Party;” and cannot give rise to obligations among EU Member States, because at the time the ECT was entered into, EU Member States had already given over their sovereignty in connection with the internal market to the EU and could not assume inter-se obligations concerning that market.³⁸⁶ As the consent in Article 26 of the ECT is limited to disputes arising out of alleged breaches of obligations of Part III, and EU Member States could not contract obligations among themselves under Part III, Article 26 cannot apply to intra-EU disputes.³⁸⁷ Further, in addition to arbitration, Article 26 provides for conciliation and recourse to national courts, without establishing an order of preference or indicating that arbitration is more favourable.³⁸⁸

• Finally, that Article 26(6) provides that the Tribunal shall decide the issues in dispute “in accordance with this Treaty and applicable rules and principles of international law,” thereby recognizing that EU Law must be applied “on an equal level [...] as applicable international law.”³⁸⁹ Accordingly, any conflict between the ECT and EU Law must be resolved pursuant to Article 25 of the ECT, which recognizes both the primacy of EU Law in intra-EU relations, and that the process of economic integration of the EU is more advanced than the ECT and therefore more favorable.³⁹⁰

279. Respondent dismisses Claimants' interpretation of the above-mentioned provisions, arguing that it is “literal and completely out of context.”³⁹¹ Instead, Respondent urges that an effective interpretation of the ECT leads to the conclusion that the ECT recognizes the primacy of EU Law in intra-EU relations and excludes arbitration.³⁹²

280. According to Respondent, the ECT's object and purpose also support its position. That is, Spain says, because admitting the intra-EU application of the ECT would dispense with the ECT's object and purpose, as (i) it would mean that the EU and its Member States promoted the ECT to cover an area (intra-EU investments) already covered by EU Law in an exhaustive and superior manner; (ii) it would take away competences from the CJEU; and (iii) it would reflect a lack of trust in the EU system.³⁹³

³⁸⁶ Resp. Mem. Jur., ¶¶ 50, 58. ↩

³⁸⁷ Resp. Reply Jur., ¶¶ 225-226. ↩

³⁸⁸ Resp. Reply Jur., ¶¶ 233-234. ↩

³⁸⁹ Resp. Mem. Jur., ¶ 50; CL-001 / RL-055, ECT, Art. 26. See also, Resp. Mem. Jur., ¶ 78. ↩

³⁹⁰ Resp. Reply Jur., ¶¶ 235-236. ↩

³⁹¹ Resp. Reply Jur., ¶ 222. ↩

³⁹² Resp. Reply Jur., ¶ 224. See also, id., ¶ 236. ↩

³⁹³ Resp. Mem. Jur., ¶ 61. ↩

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(ii) Intra-EU Arbitration Contravenes EU Law

281. It is Spain's position that Article 26(6) of the ECT prevents intra-EU disputes, because that would contravene EU Law, which is applicable international law.³⁹⁴ Article 344 of the Treaty on the Functioning of the European Union (“TFEU”) prohibits the submission of questions relating to the internal electricity market to arbitration, and in this arbitration the Tribunal is being called upon to decide on the rights of a EU investor in the internal market.³⁹⁵ That is, Spain argues, because “the EU Directives in the area of renewable energies are the framework of [the] Spanish legislation in which the Claimants allegedly rely on making an investment” and as such “the question must be resolved in light of the interpretation of the EU law.”³⁹⁶ Moreover, for Spain, the dispute affects essential elements and pillars of EU Law, namely, the notions of State Aid, competition law, free movement of capital and freedom of establishment, and as such the Tribunal does not have jurisdiction to resolve it, as this power is reserved to the EU's judicial system.³⁹⁷

282. For Respondent, it is significant that the objection is backed by the EC – “one of the most authorised voices on interpreting the ECT” and an ECT negotiator; and by legal doctrine.³⁹⁸ The EC has recognized the “incompatibility of the Investment Treaties signed between EU Member States and EU Law,” and of the arbitration provisions in the ECT and EU Law, when applied to intra-EU disputes.³⁹⁹

283. Spain also draws significant support for this objection from the CJEU judgment in Achmea, of 6 March 2018.⁴⁰⁰ Spain contends that pursuant to this judgment “an

³⁹⁴ Resp. Mem. Jur., ¶ 51. ↩

³⁹⁵ Resp. Mem. Jur., ¶¶ 52-53; RL-021 / R-004, Treaty on the Functioning of the European Union (“TFEU”), Art. 344 (“Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.”) See also, Resp. Reply Jur., ¶ 219. ↩

³⁹⁶ Resp. Mem. Jur., ¶ 77. ↩

³⁹⁷ Resp. Reply Jur., ¶ 197. See also, id., ¶¶ 193, 194, 219. In the context of this objection, in its Memorial on Jurisdiction, Respondent referred to the potential impact that a procedure initiated by the EC to evaluate the renewable energy measures in Spain captioned “SA.40348 2014/N” could have in the present arbitration. Resp. Mem. Jur., ¶ 79 et seq. Respondent's arguments on this matter are summarized infra, ¶ 510 et seq. ↩

³⁹⁸ Resp. Mem. Jur., ¶¶ 66-82. ↩

³⁹⁹ Resp. Reply Jur., ¶ 186. ↩

⁴⁰⁰ RL-125, Slovak Republic v. Achmea B.V., Preliminary Ruling of the Court of Justice of the European Union in C-284/16, 6 March 2018 (hereinafter “Achmea”). In the Reply on Jurisdiction, Respondent had anticipated that at that time there were two pending cases before the CJEU “regarding the compatibility between the BITs and EU Law,” stating that it would maintain the objection until the CJEU made a decision. Resp. Reply Jur., ¶ 186 and n. 81 ↩

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arbitration clause in an International Agreement concluded between EU Member States (intra-EU BIT) is incompatible with EU law and, in particular, the autonomy of the EU legal order.”⁴⁰¹

284. Respondent first highlights that the Achmea judgment endorses the principles that: (i) the judicial system established in the EU Treaties is intended to ensure consistency and uniformity in the interpretation of the EU Law; (ii) pursuant to Article 19 of the TFEU, it falls on national courts and tribunals and on the CJEU to ensure the application of EU Law in the EU Member States; (iii) the preliminary ruling system established in Article 267 of the TFEU is intended to ensure uniformity in the interpretation of EU Law; (iv) EU Law is both part of the law of each EU Member State and also derives from an international agreement.⁴⁰²

285. Spain then explains that the CJEU has concluded that the above principles are not fulfilled through the establishment of an investment tribunal because: (i) the tribunal might be called to interpret or apply EU Law, without being part of the EU judicial system; (ii) not being a court or tribunal of a EU Member State within the meaning of Article 267 of the TFEU, such tribunal cannot refer a matter to the CJEU; (iii) the tribunal's decision is final and judicial review limited by national law; (iv) investment arbitration involves disputes that may concern the application or interpretation of EU Law, but that system does not allow disputes to be resolved in a way that ensures the full effectiveness of EU Law.⁴⁰³

286. For Spain, the above-mentioned conclusions also apply in the context of the ECT. In that regard, Respondent observes that Achmea refers to an “international agreement,” which the ECT is, and not exclusively to bilateral investment treaties.⁴⁰⁴ Spain further contends that the Achmea judgment's reasoning is fully applicable here because: (i) under Article

(citing “Preliminary Ruling C-284/16 (Achmea Case) on the Compatibility Between the BIT Signed in 1991 by the Netherlands and Slovakia (EC-13)” and “Case T-624/15 relating to the Application for Annulment of the European Commission Decision of 30 March 2015 in Case SA 38517 (Arbitral Award of Case Micula v. Romania, 11 December 2013).”) See also, Resp. Reply Jur., ¶ 202.

⁴⁰¹ Resp. Obs. Achmea, ¶¶ 2, 3. ↩

⁴⁰² Resp. Obs. Achmea, ¶ 5. ↩

⁴⁰³ Resp. Obs. Achmea, ¶ 6. ↩

⁴⁰⁴ Resp. Obs. Achmea, ¶ 8. ↩

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26(6) of the ECT tribunals are required to interpret and apply EU Law to decide all the issues in dispute, “not only as International Law, but also as internal law and as a fact;”⁴⁰⁵ (ii) EU Law applies to this dispute because the controversy affects a key institution of EU Law: State Aid;⁴⁰⁶ (iii) an ICSID tribunal “does not form part of the judicial system of EU Law” and therefore cannot request a preliminary ruling from the CJEU under Article 267 TFEU,⁴⁰⁷ and (iv) there is no certainty that in enforcement proceedings the CJEU would have full knowledge and control over the EU Law applied by the tribunal.⁴⁰⁸

(iii) The Decisions Relied Upon by Claimants are Not Dispositive or Persuasive

287. Finally, Respondent dismisses Claimants' reliance on prior decisions of other arbitral tribunals, arguing that aside from those in cases against Spain, those decisions are not dispositive of the matters at issue in this case because they: (i) “refer to Bilateral Investment Treaties which have nothing to do with a multilateral and mixed treaty promoted and signed by the EU;” or (ii) refer to States that were not EU Member States when they entered into the ECT.⁴⁰⁹ As to the cases involving Spain, Respondent contends that the decisions did not embark in a proper analysis of the principle of primacy of EU Law;⁴¹⁰ did not consider various of the arguments made by Respondent;⁴¹¹ or incorrectly concluded that EU Law was not relevant.⁴¹²

⁴⁰⁵ Resp. Obs. Achmea, ¶¶ 10, 13. ↩

⁴⁰⁶ Resp. Obs. Achmea, ¶ 15. ↩

⁴⁰⁷ Resp. Obs. Achmea, ¶ 23. ↩

⁴⁰⁸ Resp. Obs. Achmea, ¶ 23. ↩

⁴⁰⁹ Resp. Reply Jur., ¶ 200. ↩

⁴¹⁰ Resp. Reply Jur., ¶¶ 200, 220 (referring to CL-134, The PV Investors v. Kingdom of Spain, PCA Case No. 2012-14, Preliminary Award on Jurisdiction (13 October 2014) (hereinafter “PV Investors”); RL-088, Charanne; CL-135, RREEF). ↩

⁴¹¹ Resp. Obs. Eiser, ¶ 9 (discussing Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award (4 May 2017) (hereinafter, “Eiser”), submitted to record on 30 May 2017 with no RL- designation). ↩

⁴¹² Resp. Obs. Achmea, ¶ 49 (discussing CL-195, Novenergia II – Energy & Environment (SCA), SICAR v. Kingdom of Spain, SCC Case No. 2015/063, Final Award (15 February 2018) (hereinafter “Novenergía”). ↩

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288. In any event, Respondent takes the view that the application of the principles set forth in the cases relied upon by Claimants, in particular those referring to intra-EU BITs and the decision in Electrabel,⁴¹³ supports the conclusion that EU Law must be applied.⁴¹⁴

289. In this context, Spain has argued that:

• A comparison of the object and purpose of the ECT and the EU Treaties leads to the conclusion that the latter prevail, by virtue of Articles 30 and 59 of the VCLT.⁴¹⁵ For Respondent, especially after the 2007 Treaty of Lisbon, which “expressly gathers competence in favour of the EU over foreign investment,” it is unquestionable that EU Law prevails over the ECT in application of the lex posteriori principle in Article 59 of the VCLT.⁴¹⁶
• It is “impossible” to sustain that the rights afforded to investors under Article 10(1) of the ECT are “different or superior” or “in addition” to those granted to them under EU Law.⁴¹⁷
• The contention that the ECT offers investors an additional right not afforded by EU Law, namely, arbitration of investment disputes, overlooks that Article 26 of the ECT also refers to national courts as a suitable dispute resolution mechanism and assumes without evidence that arbitration is superior. The argument, Respondent says, reflects a complete lack of confidence in the EU judicial system incompatible with EU Law.⁴¹⁸
• While the tribunal in Electrabel did not find any inconsistency between the ECT and EU Law, such inconsistency does exist if Article 26 of the ECT is extended to intra-EU disputes. This is more serious in the ICSID context, Spain argues, because an ICSID award is not subject to appeal, which prevents the CJEU from weighing in on matters that are within its strict powers.⁴¹⁹

b. Claimants' Position

290. Claimants oppose Respondent's objection.

⁴¹³ RL-001, Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 November 2012) (hereinafter “Electrabel”) ↩

⁴¹⁴ Resp. Reply Jur., ¶ 204. ↩

⁴¹⁵ Resp. Reply Jur., ¶ 214; RL-023, Vienna Convention on the Law of Treaties, 23 May 1969, published in the Official State Gazette on 17 June 1980 (hereinafter “VCLT”). ↩

⁴¹⁶ Resp. Reply Jur., ¶ 214. ↩

⁴¹⁷ Resp. Reply Jur., ¶¶ 215-216. ↩

⁴¹⁸ Resp. Reply Jur., ¶ 217. ↩

⁴¹⁹ Resp. Reply Jur., ¶ 221. ↩

[Page 91]

(i) The Text of the ECT Contradicts the Objection

291. For Claimants, the ordinary meaning of Article 26 of the ECT unambiguously demonstrates that Spain consented to arbitration of disputes with investors of all other Contracting Parties, including EU Member States.⁴²⁰ By its express terms, Claimants say, Article 26 permits arbitration of claims of an Investor of one Contracting Party (the Netherlands), against another Contracting Party (Spain).⁴²¹

292. The plain wording of the ECT contradicts the contention that the EU and its Member States are a single Contracting Party for purposes of Article 26 of the ECT.⁴²² The ECT is a “mixed agreement” that was entered into by the EU and its Member States, and it is binding on both; and when EU Member States become parties to a mixed agreement they enter into relations inter se.⁴²³ The competence of EU Member States to enter into the ECT was expressly recognized by the EU in 1997.⁴²⁴ Moreover, under EU Law, citizenship of the EU is not intended to replace national citizenship;⁴²⁵ Claimants are Dutch nationals under Dutch Law;⁴²⁶ and Claimants plainly meet the definition of “Investor” in Article 1(7)(a)(ii) of the ECT, which is deliberately different from the definition of REIO in Article 1(3).⁴²⁷

293. Each of the Netherlands and Spain is a distinct Contracting Party occupying its own area for purposes of the ECT; each is a State that executed and ratified the ECT in its own name and right; each is a separate subject of international law different from the EU; and each would continue to be an ECT Contracting Party even if it left the EU.⁴²⁸

294. The definition of “Area” in the Article 1 of the ECT is clear, and it means for each Spain and the Netherlands “the territory under its sovereignty, it being understood that territory

⁴²⁰ Cl. Rej. Jur., § III(3)(A). ↩

⁴²¹ Cl. Bif., ¶ 38. ↩

⁴²² Cl. Bif., § III(A)(1)(b). See also, Cl. C-Mem. Jur., § II(3)(A). ↩

⁴²³ Cl. Bif., ¶ 38; Cl. C-Mem. Jur., ¶ 20. ↩

⁴²⁴ Cl. C-Mem. Jur., ¶ 22. ↩

⁴²⁵ Cl. Bif., ¶ 39. ↩

⁴²⁶ Cl. Bif., ¶ 39. ↩

⁴²⁷ Cl. Bif., ¶ 40. ↩

⁴²⁸ Cl. C-Mem. Jur., ¶ 20; Cl. Rej. Jur., ¶ 20. ↩

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includes land, internal waters and the territorial sea;” and it is undisputed that the plants and measures at issue in this case are located or took place in Spain.⁴²⁹ As the decisions in PV Investors and Charanne held:

“The phrase ‘in the Areas of the former [Contracting Party]' in Article 26(1) of the ECT refers to a particular dispute initiated by the investor. If the investor commences arbitration against a member state of the EU (rather than against the EU itself) then ‘Area' means ‘with respect to a state that is a Contracting Party' the territory of that particular member state, in accordance with the first sentence of Article 1(10). In other words, the relevant area is that of the Contracting Party that is party to the dispute.”⁴³⁰

295. Therefore, Claimants argue, there is no question that the Netherlands or Spain can be conflated with the EU for Article 26(1) of the ECT purposes.⁴³¹ To the contrary, the ordinary meaning of Article 26 of the ECT leads clearly and unambiguously to the opposite conclusion.⁴³²

296. As to Respondent's attempt to rely on other provisions of the ECT to support this objection, Claimants argue that:

• The contentions based on the definitions of REIO Article 1(3) and of “Area” in Article 1(10) are a “detour.”⁴³³ Claimants submit that (i) recognizing the “Area” of the EU as a REIO does not negate the existence of the “Areas” of each of the EU Member States;⁴³⁴ (ii) Article 1(3) does not define the extent of the EU's competence;⁴³⁵ (iii) Article 1(3) in fact affirms the primacy of the ECT, as it recognizes that matters under the treaty “are governed by” the ECT;⁴³⁶ (iv) “the natural and most straightforward interpretation of Arts. 1(2), 1(3) and 1(10) of the ECT, which gives them full effet utile, is that a claim under Art. 26 of the ECT can be brought against a REIO such as the EU or the applicable Member State,

⁴²⁹ Cl. C-Mem. Jur., ¶ 20; CL-001 / RL-055, ECT, Art. 1(10). ↩

⁴³⁰ Cl. C-Mem. Jur., ¶ 23 (quoting CL-134, PV Investors, ¶ 179); Cl. C-Mem. Jur., ¶ 24 (referring to RL-088, Charanne, ¶ 431). See also, Cl. Rej. Jur., ¶ 24. ↩

⁴³¹ Cl. Bif., ¶ 40. ↩

⁴³² Cl. Rej. Jur., ¶ 32. ↩

⁴³³ Cl. Rej. Jur., ¶ 22. ↩

⁴³⁴ Cl. Rej. Jur., ¶ 23. ↩

⁴³⁵ Cl. Rej. Jur., ¶ 25. ↩

⁴³⁶ Cl. Rej. Jur., ¶ 25. ↩

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depending on the circumstances,” and it is in fact Spain's position that would render nugatory the text of Article 26(1).⁴³⁷

• Article 16 of the ECT is a conflict of laws provision that “has nothing to do with the effectiveness of the right to arbitrate under Art. 26 of the ECT,”⁴³⁸ and it is unnecessary to reach Article 16 because there is no conflict between the ECT and EU Law.⁴³⁹
• Article 25 of the ECT is a routine provision in investment treaties only intended to prevent the extension to non-EU Member States of the benefits of EU membership, and it does not concern intra-EU disputes.⁴⁴⁰
• The voting provisions established in Article 36(7) of the ECT pursuant to which each the EU and the Member States vote in accordance with their competences, are simply a reflection of the fact that the ECT is a mixed agreement, and have nothing to do with the effects of the ECT between EU Member States.⁴⁴¹ For Claimants, Article 36(7) “does no more, and no less, than regulate the Contracting Parties' voting rights under the ECT” and it “says nothing about the allocation of competences between the EC (now the EU) and its Member States.”⁴⁴²

(ii) The ECT Does Not Have a Disconnection Clause

297. In Claimants' view, there is no basis in the text of the ECT to contend that it does not apply intra-EU, because that would have required a reservation or an unequivocal disconnection clause.⁴⁴³ But the ECT contains no disconnection clause of the type Spain seeks to imply into it,⁴⁴⁴ and nothing suggests that this was inadvertent.⁴⁴⁵ The ordinary wording of the ECT should thus put an end to this argument.⁴⁴⁶

298. That said, Claimants add, the EU treaty practice, the ECT drafting history and unanimous holdings of prior ECT tribunals also contradict the theory of an implied disconnection clause.⁴⁴⁷ Claimants point out that: (i) the EU had used disconnection clauses in over 20

⁴³⁷ Cl. Rej. Jur., ¶ 26. ↩

⁴³⁸ Cl. C-Mem. Jur., ¶ 26. ↩

⁴³⁹ Cl. C-Mem. Jur., ¶¶ 26, 33. ↩

⁴⁴⁰ Cl. C-Mem. Jur., ¶ 27. ↩

⁴⁴¹ Cl. C-Mem. Jur., ¶ 28. ↩

⁴⁴² Cl. Rej. Jur., ¶ 25. ↩

⁴⁴³ Cl. Rej. Jur., § III(3)(B)(i); ¶¶ 33-34. ↩

⁴⁴⁴ Cl. Bif., § III(A)(1)(c); Cl. C-Mem. Jur., § II(3)(B); Cl. Rej. Jur., § III(3)(B)(ii). ↩

⁴⁴⁵ Cl. Bif., ¶¶ 41, 43. ↩

⁴⁴⁶ Cl. C-Mem. Jur., ¶ 29. ↩

⁴⁴⁷ Cl. C-Mem. Jur., ¶ 29. ↩

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occasions to ensure that a treaty did not apply in the intra-EU context, including in treaties signed prior to the ECT or that were being negotiated in parallel with the ECT;⁴⁴⁸ (ii) when the ECT Contracting Parties wished to restrict the effect of the ECT they did so expressly, for example in the declarations relating to the Svalbard Treaty, and in the EU statement in the context in Article 26(3)(b)(ii) restricting its consent in a “fork-in-the-road” situation when the dispute had already been submitted to the CJEU;⁴⁴⁹ (iii) the EC considered including a disconnection clause in the ECT and this proposal was ultimately not accepted;⁴⁵⁰ and (iv) the tribunals in Charanne and RREEF have rejected the existence of an implicit disconnection clause.⁴⁵¹

299. Claimants contend that the EC Written Submission in this case provides no answer on these points,⁴⁵² and argued in the Rejoinder on Jurisdiction that neither the EC, nor Spain had been able to produce any contemporaneous evidence or a subsequent agreement showing that the intent of the ECT was to exclude intra-EU disputes.⁴⁵³

300. As to Spain's assertion that its argument is not that the ECT contains a disconnection clause, because such clause was superfluous, Claimants observe that the issue remains the same whether the question is the existence of a disconnection clause, or the lack of necessity of one: had the ECT Contracting Parties sought to carve out intra-EU disputes from Article 26, they would have included express language, and they did not.⁴⁵⁴

301. Responding to the contention that a disconnection clause is only needed where the application of EU Law between EU Member States affects third parties' rights or obligations, or where derogation from a provision would be incompatible with the object and purpose of the treaty, Claimants submit that “derogating to such an enormous extent

⁴⁴⁸ Cl. Bif., ¶ 42; Cl. C-Mem. Jur., ¶ 32. ↩

⁴⁴⁹ Cl. C-Mem. Jur., ¶¶ 30-31. ↩

⁴⁵⁰ Cl. C-Mem. Jur., ¶ 35, n. 31. ↩

⁴⁵¹ Cl. C-Mem. Jur., ¶¶ 33-34 (quoting RL-088, Charanne, ¶ 437; CL-135, RREEF, ¶¶ 86-89). ↩

⁴⁵² Cl. Rej. Jur., ¶ 38. ↩

⁴⁵³ Cl. Rej. Jur., ¶ 40. ↩

⁴⁵⁴ Cl. Rej. Jur., ¶ 37. ↩

[Page 95]

from Parts III and V of the ECT would be incompatible with the ECT's object and purpose of promoting long-term cooperation in the energy field.”⁴⁵⁵

302. Claimants finally point out that none of the ECT Contracting Parties entered any reservation, and in fact Article 46 of the ECT excludes reservations to the ECT.⁴⁵⁶ As held in PV Investors, the consent by EU Member States expressed in Article 26 of the ECT is “unconditional” and subject only to two exceptions contained in Article 26(3), which are irrelevant for the issue at hand.⁴⁵⁷

(iii) Neither the Context of the ECT nor Supplementary Means of Interpretation Support the Objection

303. According to Claimants, the EC Written Submission invites the Tribunal to disregard the text of the ECT on the basis of the alleged treaty “context;” but such context cannot displace the treaty text and, in any event, it does not support the objection.⁴⁵⁸ In particular, referring to the principles in Article 31(3) of the VCLT, Claimants observed in the Rejoinder on Jurisdiction that:

• There is no subsequent agreement between the ECT Contracting Parties, or subsequent practice in the application of the ECT supporting the EC's interpretation.⁴⁵⁹
• While Article 31(3)(c) of the VCLT provides that in treaty interpretation “[t]here shall be taken into account, together with the context: [...] relevant rules of international law applicable in relations between the parties,” (i) the word “rules” suggests a certain degree of specificity not met by reliance on the “Union legal order” and “multilateral agreements to which both the Union and its Member States are a party under Union Law;”⁴⁶⁰ (ii) the rules must be “relevant,” i.e. must relate to the same subject matter of the treaty under interpretation, and also applicable in the relations between all the treaty parties;⁴⁶¹ (iii) the rules “must always be considered within the context of the terms of the treaty under interpretation,”⁴⁶² (iv) since Claimants are seeking to benefit from Article 26 of

⁴⁵⁵ Cl. Rej. Jur., ¶ 42. ↩

⁴⁵⁶ Cl. Rej. Jur., ¶ 35. ↩

⁴⁵⁷ Cl. Rej. Jur., ¶ 35. ↩

⁴⁵⁸ Cl. Rej. Jur., ¶ 43. ↩

⁴⁵⁹ Cl. Rej. Jur., ¶¶ 44-46. ↩

⁴⁶⁰ Cl. Rej. Jur., ¶ 48. ↩

⁴⁶¹ Cl. Rej. Jur., ¶ 49. ↩

⁴⁶² Cl. Rej. Jur., ¶ 50. ↩

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the ECT (Part V) and to invoke the substantive protections of Part III, which they consider more favourable to them than EU Law, pursuant to Article 16 of the ECT “nothing in EU Law ‘shall be construed to derogate from' these provisions of the ECT.”⁴⁶³

304. For Claimants, the arguments advanced by Respondent and the EC on the basis of the object and purpose of the ECT, and the circumstances of its conclusion are also unconvincing.⁴⁶⁴

305. Relying on Article 32(a) of the VCLT, Claimants first contention is that because the text of the ECT is clear, and it does not lead to manifestly absurd or unreasonable results, there is no room to resort to supplementary means of interpretation “including the preparatory work of the treaty and the circumstances of its conclusion.”⁴⁶⁵

306. As to the object and purpose, while Claimants acknowledge that Article 31(1) of the VCLT provides that the ECT must be interpreted “in the light of its object and purpose,” they argue that (i) such object and purpose must rest on more than speculation; and (ii) the VCLT makes a choice in favor of an objective and textual interpretation over a subjective one based on the intention of the parties.⁴⁶⁶ Moreover, for Claimants, nothing in Article 2 of the ECT (on the object and purpose of the treaty), suggests that the ECT provisions are waived intra-EU.⁴⁶⁷ In fact, Claimants argue, the application of the ECT intra-EU facilitated the ECT's object and purpose, as it offered companies investing in Eastern Europe continuity of protection for investments in that region, as many of those countries acceded to the EU later.⁴⁶⁸

307. Claimants also argued in the Rejoinder on Jurisdiction that there was no evidence showing that EU Member States share the position that the ECT did not produce effects intra-EU; a position that Spain adopted opportunistically in the face of numerous treaty

⁴⁶³ Cl. Rej. Jur., ¶¶ 50-52; CL-001 / RL-055, ECT, Art. 16. ↩

⁴⁶⁴ Cl. Rej. Jur., ¶ 53. ↩

⁴⁶⁵ Cl. Rej. Jur., ¶ 55. ↩

⁴⁶⁶ Cl. Rej. Jur., ¶¶ 56-57. ↩

⁴⁶⁷ Cl. Rej. Jur., ¶ 59. ↩

⁴⁶⁸ Cl. Rej. Jur., ¶ 61. ↩

[Page 97]

claims against it, and it never expressed between 1994-2014.⁴⁶⁹ And the arguments based on the historical context of the ECT's conclusion and those based on the negotiating history of the WTO should not serve as supplementary means of interpretation.⁴⁷⁰

(iv) Article 26 of the ECT is Not Affected by the Transfer of Competences to the EU

308. Claimants further oppose the contention that the provisions in Part III of the ECT and Article 26 fall within the competence of the EU, such that when entering into the ECT the EU Member States did not have competence to enter into inter-se obligations on the matter of investment protection.⁴⁷¹

309. Article 25 of the ECT lends no support to the proposition that EU Law must prevail in case of conflict between the ECT and EU Law.⁴⁷² For Claimants, this article is not a conflict rule giving primacy to EU Law over the ECT. It simply clarifies that the preferential treatment that applies inter-se among EU Member States cannot be extended to non-EU States via the MFN clause.⁴⁷³

310. Claimants equally consider “flatly irrelevant” the EC's reference to the alleged principle of international law of “liability follows competence.”⁴⁷⁴ This is a secondary rule of international law, concerning attribution for purposes of determining an international organization's responsibility for wrongful acts, and has nothing to do with the creation or extent of positive international obligations.⁴⁷⁵

311. Instead, Claimants argue that the relevant body to determine whether valid treaty obligations were entered into is the VCLT, and rely on the finding in CSP that jurisdiction “would not necessarily be affected by a finding that EU law barred the EU

⁴⁶⁹ Cl. Rej. Jur., ¶ 60. ↩

⁴⁷⁰ Cl. Rej. Jur., ¶ 62. ↩

⁴⁷¹ Cl. Rej. Jur., ¶ 63. ↩

⁴⁷² Cl. Rej. Jur., ¶¶ 64-66. ↩

⁴⁷³ Cl. Rej. Jur., ¶ 66. ↩

⁴⁷⁴ Cl. Rej. Jur., ¶ 67. ↩

⁴⁷⁵ Cl. Rej. Jur., ¶ 67. ↩

[Page 98]

and/or EU member states from entering into a treaty which provides for arbitration over intra-EU investments.”⁴⁷⁶

(v) There is No Ground to Invalidate Spain's Consent in Article 26 under the VCLT

312. Claimants contend that Spain's offer to arbitrate in Article 26 is valid and effective, and reject the view that such offer is invalid because (i) it would violate EU Law which must prevail over the ECT in the event of conflict, or (ii) it was modified or superseded pursuant to Articles 41(1)(b) or Article 30(4)(a) of the VCLT.⁴⁷⁷

313. Claimants explain that: (i) the sole grounds for invalidating a State's consent to be bound by a treaty are in the VCLT, and are not applicable in the present instance; (ii) even if EU Law were relevant to determining the validity of Spain's consent – which it is not – EU Law does not prohibit arbitration of intra-EU investor State disputes; (iii) arguments about the alleged primacy of EU Law substantive provisions over the ECT are irrelevant for the jurisdictional analysis, and implausible in light of Article 16 of the ECT; (iv) Articles 41(1)(b), 30(4)(a) or 59 of the VCLT do not apply here.⁴⁷⁸

314. Recalling that under Article 42(1) of the VCLT the validity of a treaty or the consent to be bound by it can only be impeached by application of the VCLT, Claimants conduct an analysis under Articles 46 and 45 of the VCLT.⁴⁷⁹ Claimants contend that EU Law forms part of Spain's domestic law, and therefore, in application of Article 46 of the VCLT “Spain may not invoke, in support of its plea of invalidity, the fact that its consent to be bound by a treaty was expressed in violation of a provision of EU law unless that violation was manifest and concerned a rule of EU law of fundamental importance.”⁴⁸⁰

315. As the ECT was negotiated and concluded by the EU and its Member States, it is implausible to argue that Spain was not competent under EU Law to conclude the treaty;

⁴⁷⁶ Cl. Rej. Jur., ¶ 68 (quoting CL-176, CSP Equity Investment S.à.r.l v. Kingdom of Spain, SCC Case No. 2013/094, Award on Jurisdiction (13 May 2016) (hereinafter “CSP”), ¶ 158). ↩

⁴⁷⁷ Cl. Rej. Jur., ¶ 70. ↩

⁴⁷⁸ Cl. Rej. Jur., ¶ 71. ↩

⁴⁷⁹ Cl. Rej. Jur., ¶¶ 72-74. ↩

⁴⁸⁰ Cl. Rej. Jur., ¶ 75. ↩

[Page 99]

and in any event, the alleged lack of competence would not be manifest, as shown by the lack of evidence to that effect contemporaneous with the negotiation and conclusion of the ECT.⁴⁸¹ Moreover, even if there was any ground under Article 46, it would have been waived under Article 45(b) of the VCLT because Spain never questioned the validity of its consent in Article 26 of the ECT until the recent arbitrations, and has not event sought to terminate intra-EU BITs.⁴⁸²

316. Contrary to Spain's contentions, Claimants further argue that “nothing in EU law prohibits EU Member States from consenting to arbitrate disputes with EU investors under an investment treaty,” and that is so “even where those cases involve questions of EU law.”⁴⁸³

317. Noting that Spain's argument rests on Article 344 of the TFEU, Claimants point out that prior arbitral tribunals have already concluded that “Article 344 TFEU, [...] applies only to disputes involving two or more EU member states but does not prohibit the submission of disputes between other actors to a different method of settlement not contemplated in the EU treaties;”⁴⁸⁴ “[t]he scope of Article 344 TFEU cannot be so broad as to prevent Member States from submitting any dispute concerning the interpretation of EU treaties to a dispute settlement procedure different from those provided in EU legislation;”⁴⁸⁵ “it cannot be reasonably maintained that Article 344 TFEU sets up an ‘interpretative monopoly' in favour of the CJEU;”⁴⁸⁶ there is no inconsistency between the ECT and EU Law, and the exclusive jurisdiction of the CJEU does not prevent other courts or tribunals from applying EU Law.⁴⁸⁷ These conclusions were not altered by the jurisprudence of the CJEU;⁴⁸⁸ nor can the EC's own self-serving declaration in the context of the

⁴⁸¹ Cl. Rej. Jur., ¶ 75. ↩

⁴⁸² Cl. Rej. Jur., ¶ 76. ↩

⁴⁸³ Cl. C-Mem. Jur., ¶¶ 38, 46. See also, Cl. Rej. Jur., § III(4)(B). ↩

⁴⁸⁴ Cl. C-Mem. Jur., ¶ 39 (quoting CL-134, PV Investors, ¶ 189). ↩

⁴⁸⁵ Cl. C-Mem. Jur., ¶ 40 (quoting RL-088, Charanne, ¶ 444). ↩

⁴⁸⁶ Cl. C-Mem. Jur., ¶ 41 (quoting CL-135, RREEF, ¶ 80). See also, Cl. Rej. Jur., ¶ 81 (quoting CL-176, CSP, ¶ 164). ↩

⁴⁸⁷ Cl. Bif., ¶ 26; Cl. C-Mem. Jur., ¶¶ 42-43 (referring to RL-001, Electrabel) ↩

⁴⁸⁸ Cl. Rej. Jur., ¶ 79. ↩

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International Energy Charter Treaty in May 2015 provide any evidentiary support to this objection, as it was issued 20 years after the ECT's conclusion.⁴⁸⁹

318. Moreover, Claimants point out that Spain and the EC accept that national courts and arbitral commercial tribunals apply EU Law without violating Article 344 of the TFEU, and there is no reason to treat investment treaty arbitration differently.⁴⁹⁰

319. According to Claimants, all the arguments based on the alleged primacy of EU Law over the substantive protections of the ECT are, at best, relevant to the analysis of the merits, but have no bearing on jurisdiction.⁴⁹¹ In any event, they are misplaced because there is no conflict in this regard between the ECT and EU Law, and should there be one, the ECT would prevail.⁴⁹² The conflict of law rule in Article 351 of the TFEU (former Article 307 of the TEC) does not give priority to EU Law over the ECT, because the ECT is the later in time treaty: Article 351 only concerns rights and obligations in agreements concluded prior to 1 January 1958 or for acceding States, prior to their accession to the EU, and the ECT was concluded in 1994 and in force in 1998 after Spain acceded to the EU in 1986.⁴⁹³ Instead, should the Tribunal find a conflict, it should resolve it by straight application of Article 16 of the ECT.⁴⁹⁴

320. Lastly, Claimants assert that “the ECT, and in particular its Art[icle] 26, has been neither modified nor superseded by the provisions of later EU Treaties under either of Art[icles] 41 or 30 of the VCLT; nor did the Treaty of Lisbon lead to the termination of the ECT pursuant to Art[icle] 59 of the VCLT.”⁴⁹⁵ Claimants explain that:

⁴⁸⁹ Cl. Rej. Jur., ¶ 79. ↩

⁴⁹⁰ Cl. Rej. Jur., ¶¶ 80-81. ↩

⁴⁹¹ Cl. Rej. Jur., ¶¶ 82-83. See also, Cl. Bif., ¶¶ 50-51. In their Observations on Bifurcation, Claimants also dismissed Respondent’s references to the investigation of the Spain measures by the EC under the State Aid regime and to the Micula case, arguing that the relevance of these issues to jurisdiction is at best unclear because: (i) jurisdiction does not depend on ease of enforcement of an award; and (ii) state aid issues should not be confused with intra-EU issues, so that, even if the EC were to decide that the Spain regime was unlawful under its State Aid rules, that “is not a bar to jurisdiction but an issue for the merits.” Cl. Bif., ¶ 54. ↩

⁴⁹² Cl. Rej. Jur., ¶ 84. ↩

⁴⁹³ Cl. Rej. Jur., ¶ 87. ↩

⁴⁹⁴ Cl. Rej. Jur., ¶ 87. ↩

⁴⁹⁵ Cl. Rej. Jur., ¶ 71, ↩

[Page 101]

• Article 41(1)(b) of the VCLT refers to amendment of a treaty by a later treaty, and it does not apply here as none of the Treaties of Amsterdam, Nice and Lisbon are agreements to modify the ECT between EU Member States.⁴⁹⁶ In any case, since Spain did not rely on this provision the Tribunal does not need to address it.⁴⁹⁷
• Article 30(4)(a) of the VCLT only applies to “successive treaties relating to the same subject-matter,” which the EU Treaties and Article 26 of the ECT are not, since the EU Treaties are silent on investor-State arbitration.⁴⁹⁸ Further, the principle in Article 30(3) of the VCLT, pursuant to which the later in time rule applies in the event of incompatibility, requires (i) that there is a true incompatibility between the ECT and the EU Treaties, and (ii) that the provisions of the EU Treaties deemed incompatible are in fact the latter in time, as opposed to pre-existing provisions when the ECT was concluded in 1998; and neither has been demonstrated.⁴⁹⁹
• Even if the ECT and the EU Treaties related to the same subject matter and were mutually incompatible, quad non, Article 16 of the ECT is lex specialis that should be applied. Accordingly, in the event of conflict between Part III or Part V of the ECT and an earlier or later treaty between ECT Contracting Parties, the ECT prevails to the extent more favorable to investors.⁵⁰⁰ Thus the ECT prevails over any “incompatible” provision in the EU Treaties.
• Article 59 of the VCLT (concerning termination of a treaty implied by conclusion of another treaty) does not apply, because (i) it only concerns a situation where “all the parties” to the treaty allegedly terminated conclude a later treaty, and not all the ECT Contracting Parties concluded the Treaty of Lisbon; (ii) the ECT and the EU Treaties do not relate to the same subject matter, and are not “so far incompatible” or “not capable of being applied at the same time;” and (iii) there is no evidence that all the ECT Contracting Parties intended the matter to be governed by the Treaty of Lisbon.⁵⁰¹

(vi) The Objection Has Been Rejected by Prior Tribunals and Legal Doctrine,⁵⁰² and the Achmea Judgment Does Not Apply

321. Throughout their pleadings Claimants emphasize that “[e]very tribunal to have analysed the objection has unanimously rejected it,”⁵⁰³ including in other ECT cases, in cases

⁴⁹⁶ Cl. Rej. Jur., ¶ 89. ↩

⁴⁹⁷ Cl. Rej. Jur., ¶ 89. ↩

⁴⁹⁸ Cl. Rej. Jur., ¶ 90. ↩

⁴⁹⁹ Cl. Rej. Jur., ¶ 90. ↩

⁵⁰⁰ Cl. Rej. Jur., ¶ 91. ↩

⁵⁰¹ Cl. Rej. Jur., ¶ 92. ↩

⁵⁰² Cl. Bif., § III(A)(1)(a) and (d). ↩

⁵⁰³ Cl. Bif., ¶¶ 24, 25-36; Cl. C-Mem. Jur., ¶ 46. ↩

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against Spain,⁵⁰⁴ and in cases involving intra-EU BITs.⁵⁰⁵ Claimants also rely on a number of commentators supporting the view that the ECT does apply between EU Member States.⁵⁰⁶ Lastly, Claimants observe that, despite its position in this case, the EC has not been uniform in opposing the jurisdiction of tribunals hearing intra-EU disputes.⁵⁰⁷

322. As to the Achmea judgment of 6 March 2018 relied upon by Spain,⁵⁰⁸ Claimants contend that: (i) it concerns a different treaty, a bilateral investment treaty concluded prior to the accession of one of the States to the EU and not the ECT which is a multilateral treaty to which the EU is a Contracting Party,⁵⁰⁹ and (ii) it concerns different applicable law – the host State law and other agreements between the State parties to the BIT were part of the governing law according to the underlying BIT, and the ICSID Convention did not apply.⁵¹⁰ These distinctions, Claimants say, have an important bearing on the analysis under the ECT, for various reasons:⁵¹¹

• As the ECT was concluded by the EU and the EU Member States, it was a conscious decision by them to assume binding treaty obligations, it does not undermine the EU Law principle of mutual trust, and it is binding on them as a matter of international law and EU Law.⁵¹²

⁵⁰⁴ Cl. Bif., ¶¶ 26-27; Cl. C-Mem. Jur., ¶¶ 23-25, 33-34, 38, 42-45 (referring to RL-001, Electrabel; CL-076, EDF International S.A. v. Republic of Hungary, UNCITRAL Rules (Ad-hoc), GAR Article (11 December 2014); CL-134, PV Investors; RL-088, Charanne; CL-135, RREEF); Cl. Rej. Jur., ¶ 13 (referring to CL-176, CSP; and CL-177, Électricité de France (EDF) International S.A. v. Republic of Hungary, PCA Case No. 2009-13, Award (3 December 2014)); Cl. Obs. Eiser, ¶ 2.1; Cl. Obs. Achmea, ¶¶ 1.1-1.2 (referring to CL-195, Novenergía), and ¶¶ 3.5, 3.10 (referring to RL-126, Blusun S.A Jean Pierre Lecrocier and Michael Stein v. Italian Republic, ICSID Case No. ARB/14/3, Award (27 December 2016) (hereinafter “Blusun”)). ↩

⁵⁰⁵ Cl. Bif., ¶¶ 28-35 (referring to CL-072, Eastern Sugar BV v. Czech Republic, SCC Case No. 088/2004, Partial Award (27 March 2007); CL-073, Achmea (formerly known as Eureko) v. Slovak Republic, UNCITRAL, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension (26 October 2010); CL-075, Binder v. Czech Republic, UNCITRAL, Award on Jurisdiction (6 June 2007); CL-074, European American Investment Bank AG v. Slovak Republic, PCA Case No. 2010-17, Award on Jurisdiction (22 October 2012)). ↩

⁵⁰⁶ Cl. Bif., ¶¶ 45-47. ↩

⁵⁰⁷ Cl. Bif., ¶ 44 (referring to RL-001, Electrabel; CL-084, AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010) (hereinafter “AES”). ↩

⁵⁰⁸ RL-125, Achmea. ↩

⁵⁰⁹ Cl. Obs. Achmea, ¶¶ 2.1, 2.6. ↩

⁵¹⁰ Cl. Obs. Achmea, ¶ 2.6. ↩

⁵¹¹ Cl. Obs. Achmea, ¶ 2.7. ↩

⁵¹² Cl. Obs. Achmea, ¶ 2.8. ↩

[Page 103]

• The Achmea judgment does not apply to treaties to which the EU is a Contracting Party, such as the ECT.⁵¹³
• The CJEU interpreted that the BIT at issue in Achmea required the application of the EU Treaties, because the governing law clause included “any other relevant Agreements between the Contracting Parties” and the host-State law. By contrast, Article 26(6) of the ECT expressly requires the Tribunal to resolve the dispute according to international law and the ECT; and it does not require the Tribunal to interpret the EU Treaties or EU Law.⁵¹⁴ In addition, the claims in this case concern violation of Article 10(1) of the ECT, not whether Spain violated EU Law provisions;⁵¹⁵ and the legal character of the claims is not altered even if incidental points of EU Law might arise.⁵¹⁶
• Both Spain and the Netherlands were part of the EU when they entered into the ECT. The two provisions of the EU Treaties which form the basis of the Achmea judgment (Articles 267 and 344 of the TFEU) had their origin in the 1957 Treaty of Rome, and were already binding on Spain and the Netherlands when they entered into the ECT. Neither is new, nor do they amount to a treaty subsequent to the ECT. While the Lisbon Treaty changed the title of the EU Treaty to the TFEU and amended some aspects of it, that does not make it lex posteriori to the ECT.⁵¹⁷ Thus, when entering into the ECT: the EU and its Member States did not consider themselves in contravention of now Article 344 of the TFEU; in the event of inconsistency, according to Article 16(2) of the ECT, the ECT prevails over the EU Treaties; and since Article 344 of the TFEU is not a new treaty conflicting with an earlier treaty, the ECT is the lex posteriori.⁵¹⁸

323. But, Claimants argue, even if Spain had demonstrated an inconsistency between EU Law and the ECT in light of the Achmea judgment, the ECT would prevail.⁵¹⁹ The alleged principle of primacy of EU Law is an internal EU Law principle reflecting supremacy of EU Law over the law of the EU Member States, and it does not alter the hierarchy of the ECT over EU Law established by virtue of Article 16(2) of the ECT and customary international law.⁵²⁰ If the Tribunal concludes that the ECT and the TFEU cover the same subject matter, Article 16(2) of the ECT must be applied; if the Tribunal concludes

⁵¹³ Cl. Obs. Achmea, ¶¶ 2.11-2.12. ↩

⁵¹⁴ Cl. Obs. Achmea, ¶ 2.13. Claimants argue that, in light of that express choice in Article 26(6), the Tribunal does not have to reach the second sentence of Article 42(1) of the ICSID Convention. Cl. Obs. Achmea, ¶ 2.13. ↩

⁵¹⁵ Cl. Obs. Achmea, ¶ 2.14. ↩

⁵¹⁶ Cl. Obs. Achmea, ¶ 2.15. ↩

⁵¹⁷ Cl. Obs. Achmea, ¶ 2.16. ↩

⁵¹⁸ Cl. Obs. Achmea, ¶ 2.16. ↩

⁵¹⁹ Cl. Obs. Achmea, ¶¶ 2.3, 2.17-2.23. ↩

⁵²⁰ Cl. Obs. Achmea, ¶ 2.18. ↩

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that they do not cover the same subject matter, there is no conflict and no predicate to apply Article 30 or 59 of the VCLT.⁵²¹

324. Finally, “[t]he CJEU itself recognised the EU law is not to be treated as international law, but instead as a body of law which is ‘autonomous' and ‘independent' of both international law and the national law of each Member State, and binding domestically in (and not just on) each Member State – in contrast to the plane occupied by international law.”⁵²² And it is a basic principle of international law recognized in Articles 7 and 32 of the International Law Commission Articles on State Responsibility (“ILC Articles on State Responsibility”) that “a State cannot invoke its own breach of its domestic law as an excuse for violating its international obligations,” and in Article 46 of the VCLT, which “prevents a State from pleading domestic law requirements to honour its international treaty commitments.”⁵²³

(2) The Non-Disputing Party's Written Submission

a. Spain's Offer to Arbitrate in the ECT Does Not Cover Investors from EU Member States

325. The EC takes the view that the ECT does not create inter se obligations and does not apply in the relationship between EU Member States that were EU Members when the ECT was ratified.⁵²⁴ This, it says, follows from the text of the ECT, the nature of multilateral agreements, and the object and purpose of the ECT:

• The Text. Articles 1(2), 1(3) and 36(7) of the ECT recognize that the EU Members transferred competences to the EU on matters governed by the ECT.⁵²⁵ Similarly, the definition of “Area” in Article 1(10), contains an express reference to the provisions of the EU Treaties, and recognizes that the relationships of the Members to a REIO are governed by the agreements establishing that REIO. Further, the definition of “Area” of the EU comprises all the Areas of the EU Member States, such that intra-EU there is no diversity of Area.⁵²⁶ A different

⁵²¹ Cl. Obs. Achmea, ¶ 2.18. ↩

⁵²² Cl. Obs. Achmea, ¶ 2.19 (relying on RL-125, Achmea, ¶ 33). ↩

⁵²³ Cl. Obs. Achmea, ¶ 2.20. ↩

⁵²⁴ EC Written Submission, ¶¶ 12, 52. ↩

⁵²⁵ EC Written Submission, ¶¶ 16-18. ↩

⁵²⁶ EC Written Submission, ¶ 20. ↩

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interpretation deprives Article 1(3) and 1(10) of effet utile, and encourages “respondent shopping,” prohibited by ECT.⁵²⁷

• The Nature of Multilateral Agreements. A multilateral agreement to which both the EU and its Member States are a party is EU Law, and the CJEU is in general competent to interpret it, except if the provision is exclusively within the competence of the EU Member State.⁵²⁸ In negotiating these agreements, the EU and its Member States are bound by the principle of unity of EU Law,⁵²⁹ and in the case of the ECT they acted like a single block.⁵³⁰
• The Object and Purpose. The historical process that led to the ECT makes clear that its objective was to create an international framework for cooperation in the energy sector between the EU, and Russia, the CIS and Central and Eastern Europe. Also, when created, the ECT was perceived as a part of the EU external energy policy and was never intended to influence the internal energy policy.⁵³¹ The object and purpose of the ECT reflect that all the ECT Contracting Parties understood that the EU Member States did not intend to create inter se obligations in areas for which they retained competence.⁵³²
• Disconnection clauses were used in international treaties where the EU would not become a Contracting Party, to serve as a “reminder” of its existence. But that is completely different in international treaties where EU is a party, and is explicitly recognized in its role as REIO, such as the ECT. There, all Contracting Parties were fully aware of the specificities of the EU legal order.⁵³³ Further, Claimants' argument on the disconnection clause relies on academic articles unsupported by the sources that they cite.⁵³⁴

326. But even if the ECT had created intra-EU obligations, which the EC denies, such obligations would not comprise the provisions on investment protection in Part III of the ECT or the dispute settlement provision in Article 26, because EU Member States had transferred to the EU competence on those subjects.⁵³⁵ Pursuant to Article 64 of the ILC Articles on Responsibility of International Organizations and case law, the principal law applicable for determining the extent of the international obligations and international

⁵²⁷ EC Written Submission, ¶¶ 24-25. ↩

⁵²⁸ EC Written Submission, ¶ 29. ↩

⁵²⁹ EC Written Submission, ¶ 31. ↩

⁵³⁰ EC Written Submission, ¶ 33. ↩

⁵³¹ EC Written Submission, ¶¶ 41-42. ↩

⁵³² EC Written Submission, ¶ 45. ↩

⁵³³ EC Written Submission, ¶ 50. ↩

⁵³⁴ EC Written Submission, ¶¶ 47-49. ↩

⁵³⁵ EC Written Submission, ¶¶ 13, 53. See also, id., ¶ 93. ↩

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liability of EU Member States is “liability follows competence.”⁵³⁶ For the EC, “protection and promotion of investments in other Member States, as well as energy, fall into the external competence of the Union.”⁵³⁷ Further, an inter-se investment protection treaty between EU Member States “might affect common rules or alter their scope,” that is, the EU system of investment protection.⁵³⁸ As such, pursuant to Article 3(2) of the TFEU, EU Member States did not have the external competence to conclude such type of treaty.⁵³⁹

327. EU Member States are presumed to be aware of the rules governing distribution of competences; and the ECT recognizes that the EU Member States had transferred competences to the EU on matters covered by ECT. Accordingly, all the ECT Contracting Parties were aware of the existence of the distribution of liability.⁵⁴⁰ As a result, the ECT provisions on investment promotion and protection bind the EU, but not the EU Member States inter-se.⁵⁴¹

328. Should the Tribunal consider that the ECT is ambiguous with respect to the question of intra-EU obligations, the EC argues, it should favour an interpretation that does not conflict with EU Law, namely, that the ECT does not apply between EU Member States at all, or at least that Part III and Article 26 do not apply between them.⁵⁴²

b. Spain's Offer to Arbitrate Is Not Valid

329. According to the EC, even if Spain had made an offer to arbitrate to intra-EU Investors, that offer would not be valid because: (i) it would violate EU Law, which prevails over the ECT in the event of conflict pursuant to Article 351 of the TFEU;⁵⁴³ and (ii) that offer

⁵³⁶ EC Written Submission, ¶ 58. ↩

⁵³⁷ EC Written Submission, ¶ 65. ↩

⁵³⁸ EC Written Submission, ¶ 80. ↩

⁵³⁹ EC Written Submission, ¶ 81. Awards and academic writings taking the opposite view are flawed, in that they consider that the EU Member States internal competence for the internal market is a “shared competence” with the EU. EC Written Submission, ¶ 83. ↩

⁵⁴⁰ EC Written Submission, ¶¶ 87, 89-90. ↩

⁵⁴¹ EC Written Submission, ¶ 94. ↩

⁵⁴² EC Written Submission, ¶ 95. ↩

⁵⁴³ EC Written Submission, ¶¶ 97, 98-136. ↩

[Page 107]

would have been modified or superseded pursuant to Articles 41(1)(b) or 30(4)(a) of the VCLT.⁵⁴⁴

330. According to the EC: (i) the intra-EU application of the substantive protections of the ECT would violate Article 3(2) of the TFEU, because EU Law provides a complete set of rules on investment protection, and the EU Member States did not have competence on those matters;⁵⁴⁵ and (ii) treaty-based investor-State arbitration of intra-EU disputes violates Articles 19(1) of the TEU and Articles 267 and 344 of the TFEU, and the general principles of effectiveness and unity of EU Law.⁵⁴⁶ Pursuant to those provisions, the EC argues, disputes concerning the application of the EU Treaties are to be resolved before the CJEU – for disputes involving two Member States, or the national courts – for disputes between a private party and EU Member State.⁵⁴⁷ Thus, when EU Member States create a separate body for dispute resolution that is required to apply EU Law, such as Article 26 of the ECT does, they violate Article 344 of the TFEU.⁵⁴⁸ Further, for the EC, the decisions by investment tribunals holding that Article 344 only applies to disputes between EU Member States overlook that national courts are part of the EU legal order and can therefore apply EU Law, and miss distinctions between commercial arbitration and investment arbitration.⁵⁴⁹

331. The EC goes on to add that, having identified a conflict with EU Law, the applicable conflict rule would be Article 351 of the TFEU, pursuant to which the ECT provisions incompatible with EU Law (i.e. Part III and Article 26) would become inapplicable.⁵⁵⁰ But even if the matter were to be analyzed under the general rules of conflict in the

⁵⁴⁴ EC Written Submission, ¶¶ 97, 137-145. ↩

⁵⁴⁵ EC Written Submission, ¶¶ 104-106. ↩

⁵⁴⁶ EC Written Submission, ¶¶ 107-129. ↩

⁵⁴⁷ EC Written Submission, ¶ 109. ↩

⁵⁴⁸ EC Written Submission, ¶¶ 110, 120. In the alternative, the EC urged that the Tribunal stayed this proceeding until the CJEU judgement in Achmea on this point was rendered; or in the further alternative, to refer this matter to the CJEU. EC Written Submission, ¶¶ 127, 129. Claimants opposed. Cl. Rej. Jur., ¶¶ 140-151. No stay took place. The Achmea judgement was rendered during the pendency of this proceeding. See supra, ¶ 82. ↩

⁵⁴⁹ EC Written Submission, ¶¶ 111-118. ↩

⁵⁵⁰ EC Written Submission, ¶ 135. ↩

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VCLT, intra-EU obligations were superseded by virtue of Articles 30(4)(a) and 41(1)(b) of the VCLT.⁵⁵¹ The EC argues in particular:

• Article 41(1)(b) of the VCLT on the amendment of a treaty by a later treaty would operate here because the Treaties of Amsterdam, Nice and Lisbon “re-affirmed” the EU rules on investment protection, competences and the system of judicial protection.⁵⁵² And the conditions of Article 41(1)(b) of the VCLT are met because (i) suppressing inter se obligations between EU Member States only concerns EU Member States; and (ii) suppressing the provision at issue (investor-State arbitration in Article 26) would not be incompatible with the object and purpose of the ECT as a whole.⁵⁵³
• If no amendment took place, Article 30 of the VCLT would operate as the rule to resolve a conflict between an earlier treaty and a later treaty relating to the same subject matter; pursuant to which the earlier treaty applies only if compatible with the later treaty.⁵⁵⁴ The ECT and the EU Treaties relate to the same subject matter.⁵⁵⁵ And given that in the Treaties of Amsterdam, Nice and Lisbon, EU Member States “re-affirmed” their commitment to EU Law, then the ECT (concluded in 1994) is the earlier treaty.⁵⁵⁶ As the provisions of the ECT on investment protection (Part III and Article 26) are incompatible with EU Law if applied intra-EU, they are not applicable pursuant to Article 30(4)(a) of the VCLT.⁵⁵⁷

(3) The Tribunal's Analysis

332. As a preliminary remark, the Tribunal thanks the European Commission for its assistance in the current proceedings on the matter of jurisdiction regarding intra-EU investments operations.

⁵⁵¹ EC Written Submission, ¶ 137. In its submission, the EC also observed that “Spain ha[d] notified its national support scheme for RES electricity and the subsequent adoption of various legislative and regulatory measures that affect producers of RES electricity to the Commission on the basis of Article 108(3) TFEU” on State Aid, and added that the EC decision on that matter was pending at the time. Arguing that the matter was relevant to the merits, it invited the tribunal to stay the proceeding until the EC made its ruling. EC Written Submission, ¶¶ 11, 149-150. Respondent's arguments on this matter are summarized infra ¶ 510 et seq. ↩

⁵⁵² EC Written Submission, ¶ 140. ↩

⁵⁵³ EC Written Submission, ¶ 139. ↩

⁵⁵⁴ EC Written Submission, ¶¶ 141-142. ↩

⁵⁵⁵ EC Written Submission, ¶ 143. ↩

⁵⁵⁶ EC Written Submission, ¶ 145. ↩

⁵⁵⁷ EC Written Submission, ¶ 145. ↩

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333. The Tribunal wishes to approach the issue taking into account earlier cases where tribunals have upheld jurisdiction under Article 26 of the ECT,⁵⁵⁸ as well as the Achmea judgment rendered by the CJEU,⁵⁵⁹ which marked a turning point in the on-going debate surrounding the compatibility of intra-EU investment agreements with EU Law, since it found investor-State arbitration clauses in intra-EU BITs to be incompatible with EU Law.

334. Despite the notable difference that in Achmea, the CJEU was asked to determine the lawfulness of an intra-EU bilateral investment treaty, the Tribunal is mindful that the Achmea judgment is also discussed in the context of the investor-State arbitration mechanism established under the ECT.⁵⁶⁰

335. Respondent has objected to the Tribunal’s jurisdiction on the basis that the dispute resolution mechanism set forth in Article 26 of the ECT does not apply to controversies arising between an investor of the EU and another EU Member State. These objections are in line with the observations expressed by the European Commission in its EC Written Submission, which takes the view that the ECT does not create inter se obligations among EU Members States and that a correct application of the principles of supremacy and autonomy of EU Law render Spain’s offer to arbitrate invalid.

336. From the outset, the Tribunal wishes to recall that consent to jurisdiction in international adjudication must be established. In this respect, the Tribunal does not believe that the jurisdiction of a tribunal is bounded by the way in which a claimant may decide to frame its claims. It is not because an investor has solely based its claim on the ECT that the Tribunal will retain its jurisdiction. The principle of compétence de la compétence

⁵⁵⁸ RL-088, Charanne; CL-134, PV Investors; CL-135, RREEF; Eiser (submitted to the record on 30 May 2017 with no RL- designation); CL-195, Novenergía; RL-001, Electrabel. ↩
⁵⁵⁹ RL-125, Achmea. ↩
⁵⁶⁰ RL-127, Declaration of the Representatives of the Governments of the Member States on the Legal Consequences of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union, 15 January 2019; R-128, Declaration of the Representatives of the Governments of the Member States on the Legal Consequences of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union, 16 January 2019; R-129, Declaration of the Representatives of the Government of Hungary on the Legal Consequences of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union, 16 January 2019. ↩

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requires an arbitral tribunal to establish the extent and limits of its jurisdiction objectively, on the basis of the title of jurisdiction that is conferred to the said tribunal.

337. In this case, a correct exercise of the principle of compétence de la compétence, requires the Tribunal to look into the terms of the ECT, and in particular into the terms of Article 26 setting up the dispute resolution mechanisms.

338. In light of the objections put forward by Respondent, the Tribunal finds it pertinent to address the issue of jurisdiction through the following questions: the first question is whether the ECT applies to relations inter se of EU Member States and whether the ECT Contracting Parties intended to carve out and exclude jurisdiction over intra-EU disputes (a); the second question is whether the subsequent overlap that may exist between the ECT and EU Law regarding investment operations rendered Spain’s offer to arbitrate invalid (b).

a. Whether the ECT Excludes Inter Se Obligations Among EU Member States?

339. Respondent contends that the present Tribunal lacks jurisdiction to hear intra-EU disputes because Article 26(1) of the ECT implies that the Parties must be of different nationalities and that in the present case, the diversity requirement fails since both Parties are from the European Union. Thus, Respondent objects to the Tribunal’s jurisdiction because Claimants are not from “another Contracting Party” as required by Article 26.

340. In particular, Respondent relies on Article 1(3) of the ECT defining a REIO as “an organization constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty, including the authority to take decisions binding on them in respect of those matters,” as well as Article 1(10) defining the term “Area” of a REIO as “the Areas of the member states of such Organization, under the provisions contained in the agreement establishing that Organization.”⁵⁶¹

⁵⁶¹ CL-001 / RL-055, ECT, Art. 1. ↩

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341. It is true that the very dynamic nature and rapid evolution of EU Law may complicate the interpretation of treaties such as the ECT, and that a harmonious interpretation remains the most effective tool to avoid a conflict among the two sets of norms. But, for the purpose of establishing jurisdiction, the Tribunal remains bounded by the explicit terms of the relevant Treaty (i.e. the ECT), with due regard to its object and purpose in accordance with the VCLT.

342. The Tribunal cannot infer from the terms of Articles 1(3) and (10) of the ECT that the Contracting Parties intended to exclude intra-EU investment operations from the jurisdiction of investment tribunals. The fact that the EU is a Contracting Party to the ECT did not deprive the EU Member States of their competence to enter into obligations under the ECT at the time of its conclusion. Therefore, in absence of a disconnection clause and a revision of the ECT by the Contracting Parties, the Tribunal cannot conclude that presence of the EU as REIO consenting to the provisions of the ECT would supersede the consent given by each EU Member State individually to the ECT. Rather, a good faith interpretation of the terms of the ECT leads to the conclusion that a REIΟ, such as the EU, may have standing under the ECT in arbitration proceedings. However, concluding that Contracting Parties, taken individually, lack standing when the investment operation remains in the European Area would go beyond the terms of the Treaty.

343. As explained by the tribunal in Blusun “[t]he inter se obligations in the ECT are not somehow invalid or inapplicable because of an allocation of competence that the EC says can be inferred from a set of EU laws and regulations dealing with investment. The more likely explanation, consistent with the text of the ECT, is that, at the time the ECT was signed, the competence was a shared one.”⁵⁶² The fact that it ultimately became transferred to the EU cannot be used by this Tribunal as an argument to establish or decline its jurisdiction alone. The ECT operates among Member States since it was not concluded as an agreement between the EU and its Members States but as an ordinary multilateral agreement.

⁵⁶² RL-126, Blusun, ¶ 283. ↩

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344. Therefore, the Tribunal concludes that Claimants satisfy the literal requirement as set forth in Article 1(7)(a)(ii) to be an investor of a “Contracting Party,” and the terms of the ECT do not suggest that the Contracting Parties intended to exclude inter se obligations or that an EU investor is precluded from bringing a claim against an EU Contracting Party. A follow up question is whether the overlap existing between the ECT and the EU Law has rendered Spain’s offer to arbitrate under the ECT invalid.

b. Whether the Subsequent Overlap Between the ECT and EU Law Rendered Spain’s Offer to Arbitrate Invalid?

345. Respondent and the EC argued that Article 26(6) of the ECT directs the Tribunal to apply both international and EU Law and that, in the event of conflict, Article 344 of the TFEU and EU Law should prevail. Moreover, it was argued that Article 26 of the ECT has been superseded by the provisions of later EU treaties under either Articles 41 or 30 of the VCLT.

346. Article 344 of the TFEU provides that “Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.”⁵⁶³

347. Article 26 of the ECT entitled Settlement of disputes between an Investor and a Contracting Party states in its relevant parts:

“(1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. (2) If such disputes cannot be settled according to the provisions of paragraph (1) within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: [...] (6) A tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law.”⁵⁶⁴

⁵⁶³ RL-021 / R-004, TFEU, Art. 344. ↩
⁵⁶⁴ CL-001 / RL-055, Art. 26. ↩

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348. Respondent and the EC have found Article 26 of the ECT to be in contradiction with Article 344 of the TFEU. It was argued that in Achmea, the CJEU confirmed this approach when it concluded that “Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the BIT [between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic] [...].”⁵⁶⁵ According to the CJEU, Article 267 TFEU has been breached because an arbitral tribunal is not a court which belongs to one of the court systems of the Member States, which means that the Member States have given the competence to interpret EU Law to a court other than the CJEU.

349. The present Tribunal is not empowered to decide whether a dispute submitted by a European investor against a European State under the ECT falls under Article 344 or is in breach of Article 267 of the TFEU. The task of this Tribunal is to determine whether such dispute falls under the provisions of the ECT. Likewise, it is not the task of this Tribunal to determine whether the scope of this dispute concerns the application of the TFEU, but rather whether such dispute concerns the application of the substantive provisions of the ECT.

350. If the Tribunal were to follow the approach of the EC and Respondent and treat the present dispute as an “internal dispute,” it would mean that EU Law is applicable for the purpose of jurisdiction. However, the ECT and – in particular Article 26 – is the instrument governing the present Tribunal’s jurisdiction as well as Article 25 of the ICSID Convention. Therefore, through the dispute settlement mechanism of the ECT “this Tribunal is placed in a public international law context and not a national or regional context.”⁵⁶⁶ The intra-EU nature of the parties does not by itself make the present dispute into a purely European one.

351. Although the Tribunal understands that in the present case, EU Law may find application, it cannot state that overlap between the two sets of rules strips the present dispute of its international aspects. In other words, the Tribunal cannot infer its own competence – or

⁵⁶⁵ RL-125, Achmea, ¶ 60. ↩
⁵⁶⁶ RL-001, Electrabel, ¶ 4.112. ↩

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incompetence – from the principle of primacy of EU Law over the ECT for intra-EU disputes. The fact that there may exist a partial overlap between the two set of rules on the merits (such as FET and Fundamental Freedoms), cannot, for the purpose of jurisdiction, be resolved in favour of EU Law. This is because the questions pertaining to the Tribunal jurisdiction must be answered in light of Article 26 of the ECT.

352. Respondent and the EC have further argued that intra-EU obligations were superseded in application of Articles 41(1)(b) of the VCLT on the amendment of a treaty by a later treaty, and, that if the Tribunal were to consider that no amendment took place, Article 30(4)(a) of the VCLT on “application of successive treaties relating to the same subject matter” would operate as a rule to resolve a conflict between the two treaties. The Tribunal considers that the rule relating to “treaties relating to the same subject matter” is not applicable to the present situation where treaties negotiated by a smaller number of States, i.e., the EU founding Treaties, are claimed to modify a treaty such as the ECT. These treaties do not “relate to the same subject matter” in the sense of Article 30.⁵⁶⁷ Moreover, the Tribunal has had no evidence placed before it that would demonstrate that the subsequent EU Treaties were amending the ECT for the purpose of Article 41(1)(b) of the VCLT.

353. The Tribunal notes in this regard that the CJEU in its Achmea judgment did not rely on the aforementioned articles of the VCLT to resolve the alleged conflict between the intra- EU BIT and EU Laws.

354. The Tribunal notes that the internal constitutional laws of the EU and its constant changes and interpretations by the CJEU, as the Member States seek to minimize their mutual obligations in another context, are of no relevance for the present Tribunal.

355. In the Tribunal’s view, “the ECT’s genesis generates a presumption that no contradiction exists between the ECT and EU law,”⁵⁶⁸ and as a consequence, the Tribunal cannot retroactively construe Spain’s offer to arbitrate under the ECT as invalid.

⁵⁶⁷ RL-023, VCLT, Art. 30. ↩
⁵⁶⁸ RL-001, Electrabel, ¶ 4.134. ↩

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356. Respondent – not the EC – further argued that primacy of EU Law is reflected in Article 25 of the ECT entitled “Economic Integration Agreements,” which states “[t]he provisions of this Treaty shall not be so construed as to oblige a Contracting Party which is party to an Economic Integration Agreement (hereinafter referred to as ‘EIA’) to extend, by means of most favoured nation treatment, to another Contracting Party which is not a party to that EIA, any preferential treatment applicable between the parties to that EIA as a result of their being parties thereto.”⁵⁶⁹ For the Tribunal, Article 25 specifies that the treatment that may apply inter-se among EU Member States cannot be extended to non-EU Member States via the MFN clause. This does not imply that investors from Member States of the European Union are deprived of their procedural rights as recognized by Article 26 of the ECT.

357. For the above-mentioned reasons, the Tribunal is not in a position to conclude that Spain’s consent to submit ECT disputes to arbitration excluded intra-EU investment disputes and that primacy of EU Law excludes jurisdiction of the present Tribunal established under the ECT. Therefore, this Third Objection to jurisdiction is dismissed.

D. FOURTH OBJECTION: LACK OF JURISDICTION OVER CLAIMS UNDER ARTICLE 10(1) OF THE ECT ARISING OUT OF THE TVPEE AND THE TAX ON HYDROCARBONS

(1) The Parties’ Positions

a. Respondent’s Position

358. In their Memorial on Jurisdiction, Respondent objected to the Tribunal’s jurisdiction to hear claims concerning violation of Article 10(1) of the ECT as a result of the tax measures enacted in Law 15/2012, namely, the TVPEE and the amendment to the Tax on Hydrocarbons.⁵⁷⁰ The objection was later limited to the claim arising out of the TVPEE, in view of Claimants’ statement that their damages claim did not include any damages arising out of the Tax on Hydrocarbons.⁵⁷¹

⁵⁶⁹ CL-001 / RL-055, ECT, Art. 25. ↩
⁵⁷⁰ Resp. Mem. Jur., ¶ 208. ↩
⁵⁷¹ Resp. Reply Jur., ¶ 241, n. 124, ¶ 358. See also, Cl. Bif., ¶ 107. ↩

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359. Spain contends that it has not consented to arbitration of this claim, given that Article 26 of the ECT only concerns claims for violation of Part III of the Treaty, and pursuant to Article 21 of the ECT, Article 10(1) (although located in Part III) does not give rise to obligations in connection with tax measures.⁵⁷² Respondent explains that “if no obligation derived from [P]art III of the ECT exists, there can be no alleged breach of it, and, thus, there is no consent of the Contracting Party to resort to arbitration and the Arbitral Tribunal lacks jurisdiction to hear the issue.”⁵⁷³

360. Spain explains that Article 21 of the ECT contains a general exclusion of taxation measures from the scope of the ECT (the “taxation carve-out”), with a few exceptions specifically listed in the same Article.⁵⁷⁴ None of those exceptions, Respondent says, refers to Article 10(1) of the ECT.⁵⁷⁵

361. The TVPEE is a “Taxation Measure” within the meaning of Article 21(7)(a) of the ECT, according to which the term includes: “(i) any provision relating to taxes of the domestic law of the Contracting Party or of a political subdivision thereof or a local authority therein; [...].”⁵⁷⁶ Spain notes that Law 15/2012 is a law passed by the Spanish Parliament and is thus part of its domestic law, and argues that the provisions concerning the TVPEE are “relating to taxes.”⁵⁷⁷

362. In Spain’s view, the law governing the determination of whether a provision is relating to taxes is the domestic law of the Contracting Party to the ECT.⁵⁷⁸ This is supported by (i) the wording of Article 21(7)(a)(i) of the ECT, and (ii) the Netherlands-Spain double taxation treaty, which must be taken into account pursuant to Article 31(3)(c) of the VCLT.⁵⁷⁹ That said, Respondent argues that, even if the Tribunal concluded that

⁵⁷² Resp. Mem. Jur., ¶¶ 16, 171-174, 177, 184-185, 207. ↩
⁵⁷³ Resp. Mem. Jur., ¶ 182. See also, Resp. Reply Jur., ¶ 357. ↩
⁵⁷⁴ Resp. Mem. Jur., ¶¶ 186-187. ↩
⁵⁷⁵ Resp. Mem. Jur., ¶ 194. ↩
⁵⁷⁶ Resp. Mem. Jur., ¶¶ 199-200; Resp. Reply Jur., ¶¶ 248-315; CL-001 / RL-055, ECT, Art. 21(7)(a)(i). ↩
⁵⁷⁷ Resp. Mem. Jur., ¶¶ 202-203, 206, 207(i); Resp. Reply Jur., ¶¶ 261-262. ↩
⁵⁷⁸ Resp. Reply Jur., ¶¶ 249-250, 258. ↩
⁵⁷⁹ Resp. Reply Jur., ¶¶ 251, 254-255. ↩

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international law governs this question due to Article 26(6) of the ECT, the conclusion will be the same: the TVPEE is a tax.⁵⁸⁰

363. Under domestic law, Spain maintains, there can be no doubt that the TVPEE is a tax, as ratified by the Constitutional Court itself.⁵⁸¹ It follows clearly from the text of Article 1 of Law 15/2012 that the TVPEE is a “direct tax on the performance of the activities of production and incorporation into the electrical system of electrical energy in the Spanish electrical system.”⁵⁸² This is confirmed by Article 2 of Law 58/2003 on General Taxation.⁵⁸³ The TVPEE is a tax of general application that covers both renewable and ordinary generation facilities; its tax base is the total amount received for the production of electrical energy and its introduction into the grid in the taxable period; the rate is 7%; the taxable period is generally the calendar year; and the tax is accrued on the last day of the period.⁵⁸⁴ It is also deductible from corporate tax.⁵⁸⁵

364. There can also be no doubt that the TVPEE is a tax from the perspective of international law, Spain argues.⁵⁸⁶ It fits within the concept of tax developed by arbitral decisions because: it is established by law, and it imposes an obligation on a class of people to pay money to the State for public purposes.⁵⁸⁷ In addition, the EC has confirmed both that it is a tax, and that it conforms with EU Law.⁵⁸⁸

365. Respondent takes the view that the above is sufficient to conclude that the TVPEE is a tax, without engaging in an additional analysis of its economic effects and the good faith

⁵⁸⁰ Resp. Reply Jur., ¶¶ 257-258. ↩
⁵⁸¹ Resp. Reply Jur., ¶¶ 263, 273. ↩
⁵⁸² Resp. Reply Jur., ¶ 264. ↩
⁵⁸³ Resp. Reply Jur., ¶ 265. ↩
⁵⁸⁴ Resp. Reply Jur., ¶ 266. ↩
⁵⁸⁵ Resp. Reply Jur., ¶ 270. ↩
⁵⁸⁶ Resp. Reply Jur., ¶ 278. ↩
⁵⁸⁷ Resp. Reply Jur., ¶¶ 279, 280-302. ↩
⁵⁸⁸ Resp. Reply Jur., ¶¶ 279, 303-315. ↩

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of the measure.⁵⁸⁹ In any event, Respondent contends that the TVPEE is a bona fide taxation measure, arguing that:⁵⁹⁰

• Contrary to Claimants’ contentions, the TVPEE is not discriminatory: it is of general application to both renewable and conventional producers, and grants the same treatment to both.⁵⁹¹
• There is no discrimination between conventional and renewable producers in terms of “repercussion,” that is, the possibility to transfer the amount of the tax by the payer to another person.⁵⁹² Being a direct tax, there is no “legal repercussion” in connection with the TVPEE.⁵⁹³ There is also no discrimination from the perspective of “economic repercussion,” because the costs of this tax on renewable energy producers are remunerated to them under the applicable regulatory regime, so its effect on them is neutralized.⁵⁹⁴
• The TVPEE’s objective is to raise revenue for the State for public purposes. It is an income integrated into the State’s general budget, and it is allocated to finance the costs of the electricity system.⁵⁹⁵ It does not seek to carry out a disguised tariff cut, as shown by the fact that its effects on renewable energy producers is neutralized.⁵⁹⁶

366. Respondent also points out that various tribunals have already upheld objections to jurisdiction over claims arising out of violation of Article 10(1) of the ECT resulting from the TVPEE, finding that the TVPEE is a “Taxation Measure” for purposes of the ECT.⁵⁹⁷

b. Claimants’ Position

367. Claimants contend that the objection based on the exclusion in Article 21 of the ECT is not a matter of jurisdiction.⁵⁹⁸ For Claimants, the contention that Article 21 of the ECT

⁵⁸⁹ Resp. Reply Jur., ¶¶ 317-321. ↩
⁵⁹⁰ Resp. Reply Jur., ¶¶ 245, 322-356. ↩
⁵⁹¹ Resp. Reply Jur., ¶¶ 323-326. ↩
⁵⁹² Resp. Reply Jur., ¶¶ 337-351. ↩
⁵⁹³ Resp. Reply Jur., ¶¶ 340-343. ↩
⁵⁹⁴ Resp. Reply Jur., ¶¶ 344-346. ↩
⁵⁹⁵ Resp. Reply Jur., ¶¶ 352-354. ↩
⁵⁹⁶ Resp. Reply Jur., ¶ 356. ↩
⁵⁹⁷ Resp Obs. Eiser, ¶ 7 (discussing Eiser); Resp. Obs. Achmea, ¶¶ 35-38 (discussing CL-195, Novenergía). ↩
⁵⁹⁸ Cl. C-Mem. Jur., ¶ 83. ↩

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excludes the consent in Article 26 improperly seeks to read into the later provision a specific exclusion to the ECT’s dispute settlement mechanism, which is not there.⁵⁹⁹

368. Claimants acknowledge that Article 21 of the ECT “does not directly include ‘Taxation Measures’” within the scope of Article 10(1) of the ECT, but argue that the TVPEE can be one of the Disputed Measures in this case because: (i) it is an ad valorem charge on gross revenue, and the functional equivalent a tariff cut as acknowledged by the Government, not a tax on “income or capital” within the meaning of Article 21(3) of the ECT;⁶⁰⁰ and (ii) even if the TVPEE were considered to be a tax, because it is not a tax on income or on capital, pursuant to Article 21(3) of the ECT it can be assessed under Article 10(7) of the ECT – the MFN Clause –, which applies to “Taxation Measures.”⁶⁰¹ According to Claimants, the tribunals that have addressed the issue of jurisdiction over the claims arising out of the TVPEE have not considered these same arguments.⁶⁰²

369. Although in their pleadings Claimants answered the Fourth and Fifth Objections together as a whole,⁶⁰³ the present Section addresses the objection pertaining to claims for breach of Article 10(1) of the ECT. Claimants’ arguments pertaining to Article 10(7) of the ECT are further summarized in Section E(1)b infra.

370. To support the argument that the TVPEE is just an “ad valorem levy” and not a “tax on income or capital,” Claimants point out that: (i) in October 2012, the Ministry of Industry acknowledged that Spain could have achieved the same result as the TVPEE through a direct tariff cut; (ii) Law 15/2012 does not even describe itself as deriving its validity from the Government’s taxation power in Article 66 of the Spanish Constitution, but rather from Article 45 concerning environmental protection; and (iii) the ordinary meaning of the term “taxes on income” refers to taxes on net income.⁶⁰⁴ On this basis,

⁵⁹⁹ Cl. C-Mem. Jur., n. 91. ↩
⁶⁰⁰ Cl. Mem., ¶ 278; Cl. Mem. Jur., ¶ 86; Cl. Rej. Jur., ¶ 129. ↩
⁶⁰¹ Cl. Mem., ¶ 278; Cl. Mem. Jur., ¶ 89; Cl. Rej. Jur., ¶ 130. ↩
⁶⁰² Cl. Obs. Eiser, ¶ 2.2; Cl. Reply Eiser, ¶ 2.1. ↩
⁶⁰³ Cl. C-Mem. Jur., ¶¶ 83-91; Cl. Rej. Jur., ¶¶ 126-139. ↩
⁶⁰⁴ Cl. C-Mem. Jur., ¶¶ 86-87; Cl. Rej. Jur., ¶ 129. ↩

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Claimants argue that it is “questionable whether the 7% levy is a Taxation Measure at all for ECT purposes.”⁶⁰⁵

371. Claimants also emphasize that, in any event, if the Tribunal were to find that the TVPEE is a tax caught by the exclusion in Article 21 of the ECT, this would have a minimal impact on damages of around EUR $1.1 million on historical damages.⁶⁰⁶ They go on to explain that, given that the TVPEE is an operating cost that renewable energy producers can recover under Regulatory Framework III, the losses under Regulatory Framework III do not result from the TVPEE. Thus, the TVPEE would only be relevant to a small portion of Claimants’ historical losses, i.e. those between start of commercial operation (29 May 2013 for Termosol 1, and 7 June 2012 for Termosol 2) and the date marking the beginning of the retroactive application of Regulatory Framework III (9 July 2013).⁶⁰⁷ Further, Claimants argue, if the Tribunal does not adopt the primary “but for” analysis for quantification of damages, but instead adopts the alternative damages case based on a finding that only a “reasonable return” could be expected, damages would not need to be adjusted on account of lack of jurisdiction over the TVPEE.⁶⁰⁸

(2) The Tribunal’s Analysis

372. In the view of the Tribunal, the TVPEE is a “Taxation Measure” within the meaning of Article 21(7) of the ECT, and thus falls within the exclusion of taxation measures from the application of the ECT under Article 21(1) of the ECT. The 7% levy imposed under the TVPEE is, as Respondent points out, “established by law,” and it “imposes an obligation on a class of people” to “pay[] money to the State for public purposes.”⁶⁰⁹ It does not matter that, as Claimants argue, the economic effect of the TVPEE is functionally equivalent to a tariff cut.

373. Accordingly, the Tribunal concludes that damages could not be awarded on the basis of loss resulting from the imposition of the TVPEE. However, the Tribunal also points out

⁶⁰⁵ Cl. Rej. Jur., ¶ 129. ↩
⁶⁰⁶ Cl. Mem. Jur., ¶ 85; Cl. Rej. Jur., ¶ 126; Cl. Obs. Eiser, ¶¶ 2.3, 4.8; Cl. Obs. Achmea, ¶ 1.4. ↩
⁶⁰⁷ Cl. Mem. Jur., ¶ 85; Cl. Rej. Jur., ¶ 126. ↩
⁶⁰⁸ Cl. Obs. Eiser, ¶ 4.10. ↩
⁶⁰⁹ Resp. Reply Jur., ¶¶ 289-294. See also, Eiser, ¶ 266. ↩

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that, in light of its conclusions below regarding liability and damages, the impact of the TVPEE is not relevant in the assessment of damages in any event. In short, as a result of the Tribunal’s conclusion on liability, the Fourth Objection becomes moot.

E. FIFTH OBJECTION: LACK OF JURISDICTION OVER CLAIMS UNDER ARTICLE 10(7) OF THE ECT ARISING OUT OF THE TVPEE

(1) The Parties’ Positions

a. Respondent’s Position

374. Respondent contends that the Tribunal has no jurisdiction to hear Claimants’ claim that Spain has breached Article 10(7) of the ECT through the imposition of the TVPEE.⁶¹⁰ Spain argues that, although Article 10(7) of the ECT does apply to “Taxation Measures,” pursuant to Article 21(3) of the ECT, Article 10(7) does not apply to taxes on income or on capital.⁶¹¹ Put another way, says Spain, Article 10(7) does not apply to direct taxes (i.e. those “levying direct manifestations of the economic capacity” that “cannot be legally passed-on” to another person), but only to indirect ones (i.e. those “levying indirect manifestations of the economic capacity of tax payers, such as consumption” that can “passed-on to another person”).⁶¹²

375. According to Respondent, the TVPEE is a direct tax, and specifically a tax on income: it levies income obtained for the production and incorporation into the grid of electrical energy. As such, Article 10(7) of the ECT does not apply to it.⁶¹³ It is irrelevant that the TVPEE is a tax on gross income (as opposed to net), because the definition of tax on income in Article 21(7)(b) of the ECT does not refer to net income.⁶¹⁴

376. Because Spain’s consent to arbitration in Article 26 of the ECT refers to disputes arising out of violations of Part III of the ECT, and there is no obligation under Article 10(7)

⁶¹⁰ Resp. Reply Jur., ¶¶ 359-361; Resp. Mem. Jur., ¶ 221. ↩
⁶¹¹ Resp. Reply Jur., ¶¶ 362, 367, 369; Resp. Mem. Jur., ¶¶ 211-212. ↩
⁶¹² Resp. Reply Jur., ¶¶ 371, 373. See also, id., ¶ 380; Resp. Mem. Jur., ¶ 214. ↩
⁶¹³ Resp. Reply Jur., ¶ 375; Resp. Mem. Jur., ¶¶ 214-215. ↩
⁶¹⁴ Resp. Reply Jur., ¶ 378. ↩

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with respect to the TVPEE, there can be no breach thereof, and therefore, there is no consent.⁶¹⁵

377. But even if Article 10(7) of the ECT could cover the TVPEE, Spain argues, it could not impose MFN obligations in the form intended by Claimants.⁶¹⁶ This is because pursuant to Article 21(3)(a) of the ECT, Article 10(7) “shall not apply to: (a) impose most favoured nation obligations with respect to advantages accorded by a Contracting Party pursuant to the tax provisions of any convention, agreement or arrangement described in subparagraph (7)(a)(ii) or resulting from membership of any Regional Economic Integration Organization; [...].” In turn, Article 21(7)(a)(ii) of the ECT refers to “any convention for the avoidance of double taxation or of any other international agreement or arrangement by which the Contracting Party is bound.”⁶¹⁷

378. For Spain, the Uruguay-Spain BIT that Claimants attempt to import via the MFN clause is an international agreement to which Spain is bound, within the meaning of Article 21(7)(a)(ii) of the ECT. To the extent its substantive provisions (including FET) are applied to taxes, they are “provisions relating to taxes.”⁶¹⁸ In consequence, Article 10(7) of the ECT cannot serve to import protections from the Uruguay-Spain BIT.⁶¹⁹

b. Claimants’ Position

379. As noted earlier, in their pleadings Claimants answered the Fifth Objection together with the Fourth.⁶²⁰ The present section summarizes the arguments pertaining to the applicability of Article 10(7) of the ECT, and its consequences. To recall, as mentioned in Section D(1)b supra, Claimants’ position is that, even if the TVPEE were considered a tax, because it is not a tax on income or capital, it would fall to be assessed within the

⁶¹⁵ Resp. Reply Jur., ¶¶ 363, 381. ↩
⁶¹⁶ Resp. Reply Jur., ¶¶ 384, 390; Resp. Mem. Jur., ¶¶ 211, 216, 219 ↩
⁶¹⁷ Resp. Reply Jur., ¶¶ 385-386; CL-001 / RL-055, ECT, Art. 21(3)(a) and Art. 21(7)(a)(ii) (emphasis added). ↩
⁶¹⁸ Resp. Reply Jur., ¶ 387. ↩
⁶¹⁹ Resp. Reply Jur., ¶ 388. ↩
⁶²⁰ Cl. C-Mem. Jur., ¶¶ 83-91; Cl. Rej. Jur., ¶¶ 126-139. ↩

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scope of Article 10(7) of the ECT (the MFN Clause), which does apply to “Taxation Measures” per Article 21(3) of the ECT.⁶²¹

380. By virtue of Article 10(7) of the ECT, Claimants say, Spain is prevented from applying the TVPEE in a de facto discriminatory matter; and the TVPEE indeed discriminates against renewable energy producers in favour of conventional energy producers.⁶²² Pursuant to Article 10(7) of the ECT, Spain is also required to give Dutch investors the same treatment that it gives to other foreign investors. Since in other investment treaties Spain has agreed to provide Fair and Equitable Treatment (“FET”) in connection with taxation, in particular, in the Spain-Uruguay BIT, then Claimants are entitled to the same FET, even if the TVPEE is considered a tax.⁶²³

381. Claimants dismiss Respondent’s allegation that the TVPEE is not covered by Article 10(7) of the ECT because it is a tax on income or capital. For Claimants, the view that Article 10(7) only applies to indirect taxes is not supported by Article 21(3) or Article 21(7)(b) of the ECT, which draw no distinction.⁶²⁴ It is also clear that the TVPEE is not a tax on income or capital, but rather on gross revenue for the production and transmission of electricity.⁶²⁵

382. Claimants also counter Respondent’s reliance on Articles 21(3)(a) and 21(7)(a)(ii) of the ECT to support the conclusion that Article 10(7) of the ECT cannot impose MFN obligations in relation to the TVPEE, thereby preventing importation of the Spain- Uruguay BIT.⁶²⁶ Claimants explain that the purpose of Article 21(3)(a) of the ECT is to limit the application of Article 10(7) by saying that “the advantages [...] pursuant to the tax provisions of any convention, agreement or arrangement described in subparagraph (7)(a)(ii) or resulting from membership of any Regional Economic Integration Organization” do not extend to the other ECT Contracting Parties via the MFN provision. However, the Spain-Uruguay BIT neither contains “tax provisions,” nor it is a

⁶²¹ Cl. Mem., ¶ 278; Cl. Mem. Jur., ¶ 89; Cl. Rej. Jur., ¶ 130. ↩
⁶²² Cl. Mem., ¶¶ 89-90. ↩
⁶²³ Cl. Mem., ¶ 278; Cl. Mem. Jur., ¶ 91. ↩
⁶²⁴ Cl. Rej. Jur., ¶¶ 133-134. ↩
⁶²⁵ Cl. Rej. Jur., ¶ 135. ↩
⁶²⁶ Cl. Rej. Jur., ¶¶ 136-139. ↩

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“convention, agreement or arrangement” of the types referred to in Article 21(7)(a)(ii) when defining “Taxation Measure.”⁶²⁷

(2) The Tribunal’s Analysis

383. The Tribunal is of the view that Article 21(3) of the ECT, which excludes taxation on capital and income from taxation measures otherwise covered under Article 10(7) of the ECT, prevents a claim on the basis of the TVPEE from being pursued under Article 10(7) of the ECT. The TVPEE is a tax on revenue derived from the supply of electricity into the Spanish grid. It is, therefore a tax on gross income. There is no basis for assuming that the reference to income in Article 21(3) of the ECT was a reference to net income. Thus, there is no basis for Claimants to pursue a claim under Article 10(7) of the ECT.

384. However, as pointed out in respect of the Fourth Objection, in light of the Tribunal’s conclusions below on regarding liability and damages, the impact of the TVPEE is not relevant to the assessment of damages in any event. In short, as a result of the Tribunal’s conclusion on liability the Fifth Objection becomes moot.

VI. APPLICABLE LAW

A. THE PARTIES’ POSITIONS

(1) Claimants’ Position

385. Claimants contend that the applicable procedural law is composed of the procedural provisions of the ECT and the ICSID Arbitration Rules.⁶²⁸ They argue, in turn, that the applicable substantive law pursuant to Article 26(6) of the ECT consists of (i) the ECT substantive provisions; (ii) the VCLT; and (iii) applicable rules and principles of international law.⁶²⁹ Lastly, according to Claimants, Spanish law is relevant as a fact to be taken into consideration in certain circumstances, but an ECT tribunal “can only

⁶²⁷ Cl. Rej. Jur., ¶ 138. ↩
⁶²⁸ Cl. Mem. Merits, ¶ 226. ↩
⁶²⁹ Cl. Mem. Merits, ¶ 227. ↩

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decide the issues in dispute in accordance with the applicable rules and principles of international law.”⁶³⁰

386. Claimants have also emphasized that Spain cannot invoke its own domestic law to justify breaches of international law.⁶³¹ Claimants argue that “[d]omestic Spanish law principles are not ‘applicable rules and principles of international law’ and this Tribunal is not authorised to apply them as part of the applicable law.”⁶³²

387. Claimants also submit (in the context of discussing the EC Decision of 10 November 2017 on State Aid) that the Tribunal is mandated to apply the ECT over EU Law in the event of inconsistency.⁶³³

(2) Respondent’s Position

388. Respondent also espouses the view that the substantive law to be applied, pursuant to Article 26(6) of the ECT consists of (i) the ECT substantive provisions; (ii) the VCLT; and (iii) applicable rules and principles of international law.⁶³⁴ Spain further agrees that Spanish law is relevant as a fact to be considered in certain circumstances, but it emphasizes that “Spanish law is also decisive in shaping the legitimate expectations that any investor may have at the time of investing in Spain.”⁶³⁵

389. Spain also takes the view that “European Union law constitutes applicable international law for the resolution of this dispute under Article 26(6) of the ECT.”⁶³⁶ On those bases Respondent has argued that the EC Decision of 10 November 2017 on State Aid as part

⁶³⁰ Cl. Mem. Merits, ¶ 227. ↩
⁶³¹ Cl. Reply Merits, § VII(1), ¶¶ 377-382. Claimants criticize Respondent’s reliance on a long description about the Spanish Electricity System, decisions of its Supreme Court, principles of Spanish law on administrative acts or retroactivity, allegations about the authority of a certain Government official to bind the State, noting that “Spain fails to explain why its own domestic law is relevant when the law applicable to the dispute is, according to Art. 26(6) ECT, the ECT itself and applicable rules and principles of international law.” Cl. Reply Merits, ¶ 378. ↩
⁶³² Cl. Reply Merits, ¶ 378. ↩
⁶³³ Cl. Obs. EC Decision, ¶ 1.4. See also, infra, ¶ 457. ↩
⁶³⁴ Resp. C-Mem. Merits, ¶ 599 (quoting Cl. Mem. Merits, ¶ 227). ↩
⁶³⁵ Resp. C-Mem. Merits, ¶ 599; Resp. Rej. Merits, ¶ 33. ↩
⁶³⁶ Resp. Obs. EC Decision, ¶ 4. ↩

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of EU Law is also binding on tribunals where they apply EU Law, and that as a result, this Tribunal’s decision must be compatible with that EC Decision.⁶³⁷

B. THE TRIBUNAL’S ANALYSIS

390. In the view of the Tribunal the applicable law is the ECT and any rules of international law relevant to its interpretation and application. The Tribunal will refer to provisions of Spanish law and EU Law if appropriate. Their particular weight and relevance will be assessed in this decision in the context of the issues in respect of which they have been raised.

VII. LIABILITY

391. Claimants contend that Respondent has violated Articles 10(1) and Article 10(7) of the ECT.⁶³⁸ They argue that “Spain's enactment of Law 15/2012, RDL 2/2013, RDL 9/2013, RD 413/2014, and the [Ministerial] Order [IET/1045/2014], coupled with the application of those measures to the Termosol Plants and the PTEs, gives rise to a breach of Article 10(1) of the ECT through actions which violated the FET standard and breached obligations assumed by Spain towards the Claimants' investments.”⁶³⁹ According to Claimants, “Spain breached Article 10 ECT when it overhauled the remuneration regime pursuant to which the Claimants invested and replaced it with Regulatory Framework III.”⁶⁴⁰ Spain has breached its obligations in three ways, according to Claimants: (i) by repudiating Claimants’ legitimate expectations; (ii) by breaching its duty to provide a stable, consistent and transparent framework; and (iii) by failing to adopt reasonable, proportionate and non-discriminatory measures.⁶⁴¹

⁶³⁷ Resp. Obs. EC Decision, ¶¶ 4, 33. See also, infra, ¶ 510. ↩
⁶³⁸ Cl. Mem. Merits, ¶ 314(2). ↩
⁶³⁹ Cl. Mem. Merits, ¶ 258. ↩
⁶⁴⁰ Cl. Skeleton, ¶ 33. As noted, Claimants have referred in their submissions to three different “Regulatory Frameworks,” as follows: (i) “Regulatory Framework I” including RD 661/2007, RDL 6/2009 and RD 1614/2010; (ii) “Regulatory Framework II” including Law 15/2012 and RDL 2/2013; and (iii) “Regulatory Framework III” including RDL 9/2013, RD 413/2014 and Ministerial Order IET/1045/2014. See Cl. Mem. Merits, p. vii and Appendix A. ↩
⁶⁴¹ Cl. Skeleton, ¶ 33; Cl. Reply Merits, § VII(3)(B-D). ↩

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392. In turn, Respondent denies that it has breached Article 10(1) of the ECT,⁶⁴² or Article 10(7) of the ECT.⁶⁴³ Respondent argues that (i) it has not breached Claimants’ legitimate expectations at the time of investment;⁶⁴⁴ (ii) it has not breached the commitment to provide stable conditions;⁶⁴⁵ (iii) its conduct has been transparent;⁶⁴⁶ (iv) the challenged measures are proportionate and non-discriminatory,⁶⁴⁷ were adopted for “justifiable reasons of public interest,” and are also reasonable.⁶⁴⁸

A. THE PARTIES’ POSITIONS

(1) The Standard in Article 10(1) of the ECT

a. Claimants’ Position

393. Claimants contend that the commitment to grant Fair and Equitable Treatment (“FET”) in Article 10(1) of the ECT is an “autonomous treaty standard [...] independent of the minimum standard of treatment under customary international law.”⁶⁴⁹ It is to be applied “in light of the European Energy Charter's commitment to legal stability and the environmental protection goals explicitly identified in the ECT's Preamble, Article 2 and Article 19.”⁶⁵⁰

394. According to Claimants, Article 10(1) of the ECT imposes a number of distinct, but related obligations.⁶⁵¹ The FET standard in Article 10(1) comprises requirements for the host-State to: (i) protect “an investor’s legitimate and reasonable expectations;” (ii) “maintain reasonable stability in its legal framework;” (iii) “act in good faith;” (iv) “act proportionately;” and (v) respect due process and avoid denial of justice;⁶⁵² with facets

⁶⁴² Resp. C-Mem. Merits, ¶ 642. ↩
⁶⁴³ See, e.g., Resp. Rej. Merits, ¶¶ 726-727. ↩
⁶⁴⁴ Resp. C-Mem. Merits, § III(F)(2); Resp. Rej. Merits, § III(B)(3.1). ↩
⁶⁴⁵ Resp. C-Mem. Merits, § III(F)(3); Resp. Rej. Merits, § III(B)(3.2). ↩
⁶⁴⁶ Resp. C-Mem. Merits, § III(F)(4); Resp. Rej. Merits, § III(B)(3.3). ↩
⁶⁴⁷ Resp. C-Mem. Merits, § III(F)(5); Resp. Rej. Merits, § III(B)(3.4). ↩
⁶⁴⁸ Resp. C-Mem. Merits, ¶ 642. ↩
⁶⁴⁹ Cl. Mem. Merits, ¶ 230. See also, Cl. Reply Merits, ¶¶ 416, 435; Cl. Skeleton, ¶ 29. ↩
⁶⁵⁰ Cl. Mem. Merits, ¶ 239. See also, id., ¶¶ 236-238. ↩
⁶⁵¹ Cl. Mem. Merits, ¶ 229 (quoting CL-001 / RL-055, ECT, Art. 10(1)). ↩
⁶⁵² Cl. Mem. Merits, ¶¶ 240, 242, 250; Cl. Reply Merits, ¶¶ 416, 435. ↩

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(i) and (ii) being especially relevant in this case.⁶⁵³ Article 10(1) also guarantees transparency in actions by the State; and it precludes arbitrary, unfair, unjust, idiosyncratic, and discriminatory conduct.⁶⁵⁴

395. Protection of Legitimate and Reasonable Expectations. Claimants contend that the protection of legitimate and reasonable expectations is an integral part of the autonomous FET standard,⁶⁵⁵ and the revocation of a State’s assurances giving rise to those expectations constitutes a breach of the standard.⁶⁵⁶ Relying on Plama, Claimants argue that the legitimate expectations protected under Article 10(1) “include the conditions that were specifically offered by the State to the Investor when making the Investment and that were relied upon by the Investor to make its Investment.”⁶⁵⁷ And referring to Suez, Claimants add that investors are protected when they have “derived reasonable expectations from the laws and regulations adopted by the host country, acted in reliance upon those laws and regulations and changed their economic position as a result.”⁶⁵⁸ They add, however, that the FET standard also protects against “changes in law affecting a long-term capital intensive investment (even in the absence of the specific additional assurances provided by Spain in this case).”⁶⁵⁹

396. Stability, Consistency and Transparency of the Legal Framework. Claimants also argue that FET includes legitimate expectations of a “stable and predictable investment

⁶⁵³ Cl. Mem. Merits, ¶ 241. ↩
⁶⁵⁴ Cl. Reply Merits, ¶ 416. ↩
⁶⁵⁵ Cl. Mem. Merits, ¶¶ 240-241 (citing CL-018, Técnicas Medioambientales TECMED SA v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003) (hereinafter “Tecmed”), ¶ 154; CL-013, Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award (29 July 2008), ¶ 609; CL-022, Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/02, Award (31 October 2012), ¶ 420; CL-023, Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, UNCITRAL, Final Award (23 April 2012), ¶ 221). ↩
⁶⁵⁶ Cl. Mem. Merits, ¶ 244 (citing CL-024, CMS Gas Transmission Co. v. Republic of Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005) (hereinafter “CMS”), ¶ 275; CL-025, CME Czech Republic BV v. Czech Republic, UNCITRAL, Partial Award (13 September 2001), ¶ 611). ↩
⁶⁵⁷ Cl. Mem. Merits, ¶ 246 (quoting CL-028 / RL-092, Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (27 August 2008) (hereinafter “Plama Award”), ¶ 176). ↩
⁶⁵⁸ Cl. Mem. Merits, ¶ 248 (citing CL-030, Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010), ¶ 226). ↩
⁶⁵⁹ Cl. Mem. Merits, ¶ 249 (citing CL-031, Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability (27 December 2010), ¶¶ 309(g), 333). ↩

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environment.”⁶⁶⁰ Article 10(1) of the ECT expressly requires States to “encourage and create stable, equitable, favourable and transparent conditions for Investors;”⁶⁶¹ a point also reflected in the European Energy Charter (basis for the ECT), and further confirmed by the Energy Charter Conference.⁶⁶² The importance of a stable legal and business environment has been recognized by tribunals in their analyses of the FET standard.⁶⁶³

397. In Claimants’ view, Respondent unduly restricts the scope of Article 10(1) of the ECT by arguing that it does not impose limits on a State’s regulatory power.⁶⁶⁴ Claimants explain that while they do not contend that “States should be precluded from enacting laws when the circumstances change,” such regulatory authority is not limitless, and it is also “not impervious to scrutiny under international law.”⁶⁶⁵ According to Claimants, “[b]y entering into the ECT, Spain accepted a limitation on its powers to alter the remuneration framework applicable to the Claimants’ investments.”⁶⁶⁶

398. Claimants also oppose the view that the FET standard in Article 10(1) of the ECT is limited to the Minimum Standard of Treatment under customary international law (“MST”). In their view, conflating the FET standard with MST would ignore the rules of treaty interpretation in Article 31 of the VCLT; it is not supported by the text of the ECT or by supplementary means of interpretation.⁶⁶⁷ The phrase “[i]n no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations” in Article 10(1) of the ECT does not alter the conclusion because: (i) it appears much later, after the FET obligation located in the first

⁶⁶⁰ Cl. Mem. Merits, ¶ 250. ↩
⁶⁶¹ Cl. Mem. Merits, ¶ 251; CL-001 / RL-055, ECT, Art. 10(1). ↩
⁶⁶² Cl. Mem. Merits, ¶¶ 251-252. ↩
⁶⁶³ Cl. Mem. Merits, ¶¶ 253-257 (referring to CL-035, Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability (14 January 2010) (hereinafter “Lemire”), ¶ 284; CL-011, PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret Limited Şirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Award (19 January 2007), ¶¶ 250, 254; CL-024, CMS, ¶ 275; CL-036, Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award (28 September 2007), ¶ 303; CL-027, Metalclad Corp. v. United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000), ¶ 99). See also, Cl. Skeleton, ¶ 41. ↩
⁶⁶⁴ Cl. Reply Merits, ¶¶ 436-442. ↩
⁶⁶⁵ Cl. Reply Merits, ¶ 437. See also, Cl. Skeleton, ¶ 32. ↩
⁶⁶⁶ Cl. Reply Merits, ¶ 440. ↩
⁶⁶⁷ Cl. Reply Merits, ¶¶ 417-419; Cl. Skeleton, ¶ 30. ↩

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sentence, thereby confirming that the FET standard is not equivalent to MST;⁶⁶⁸ and (ii) Article 10(1) uses different words to articulate the FET obligation and MST, thereby showing that they have a different meaning.⁶⁶⁹ The opposite interpretation would not give effect to all the terms of Article 10(1).⁶⁷⁰

399. Moreover, Claimants contend, the conclusion that the FET standard in Article 10(1) of the ECT goes beyond MST is supported by decisions in ECT cases,⁶⁷¹ and also in BIT cases referring to provisions with references to international law similar to that in Article 10(1) of the ECT.⁶⁷²

400. Claimants also take issue with Respondent’s reliance on Article 2 of the 1991 European Energy Charter, arguing that the fact that this provision sought to achieve non- discrimination and market-oriented price formation does not give license to ignore the text of Article 10(1). Both the ECT and the 1991 European Energy Charter indicate that their purpose is to promote investment and economic cooperation,⁶⁷³ and “[t]he promotion of investment and economic cooperation [...] supposes positive obligations that go beyond the [MST].”⁶⁷⁴

401. Claimants further deny that the FET standard in Article 10(1) of the ECT is limited to national treatment.⁶⁷⁵ This conclusion, Claimants argue, cannot be reconciled with (i) the text of Article 10(1) which includes a separate prohibition against discrimination in a stand-alone sentence; or (ii) the definition of “Treatment” in Article 10(3) of the ECT; or (iii) Article 10(7) of the ECT.⁶⁷⁶ If FET were limited to national treatment, these

⁶⁶⁸ Cl. Reply Merits, ¶ 420. ↩
⁶⁶⁹ Cl. Reply Merits, ¶ 421. ↩
⁶⁷⁰ Cl. Reply Merits, ¶ 422. ↩
⁶⁷¹ Cl. Reply Merits, ¶ 429 (citing CL-006, Liman, ¶ 263). ↩
⁶⁷² Cl. Reply Merits, ¶ 430 (citing CL-017, Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award (14 July 2006), ¶ 361; CL-035, Lemire, ¶ 253). ↩
⁶⁷³ Cl. Reply Merits, ¶ 426. ↩
⁶⁷⁴ Cl. Reply Merits, ¶ 427. See also, Cl. Skeleton, ¶ 30. ↩
⁶⁷⁵ Cl. Reply Merits, ¶¶ 431-435. ↩
⁶⁷⁶ Cl. Reply Merits, ¶ 431; Cl. Skeleton, ¶ 31. ↩

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provisions would have been unnecessary; and equating them renders the provisions meaningless.⁶⁷⁷

402. Lastly, Claimants take issue with what they describe as Spain’s effort to “second-guess whether or not the granting of special privileges for foreign investors is warranted.”⁶⁷⁸ In Claimants’ view, whatever policy debates might exist, “Spain made the policy decision to accord a right of FET to qualifying energy sector investors in its territory, on the basis that Spanish investors would benefit from the same rights in the Netherlands and in all other ECT Contracting States,” which was “not a one-sided policy choice” but rather “one based on reciprocity;” freely made and not open to the Tribunal to second-guess.⁶⁷⁹

b. Respondent’s Position

403. Respondent contends that the aim and purpose of the ECT is to grant foreign investors national or non-discriminatory treatment.⁶⁸⁰ Spain denies that the ECT affords higher protection than MST, or that it offers protection directly related to the support of renewable energy investments.⁶⁸¹

404. According to Spain, the ECT’s investment protection system is aimed at achieving an energy open market in Europe based on the principle of non-discrimination.⁶⁸² Thus, the ECT’s principal investment protection objective is to afford “domestic treatment” or “non-discrimination” once an investment has already been made.⁶⁸³ This objective, Spain argues, is not breached by the adoption of measures that are (i) proportionate; (ii) justified by public interest; and (iii) applied erga ommes to both foreign and domestic

⁶⁷⁷ Cl. Reply Merits, ¶ 431. ↩
⁶⁷⁸ Cl. Reply Merits, ¶ 442. ↩
⁶⁷⁹ Cl. Reply Merits, ¶ 442. ↩
⁶⁸⁰ Resp. C-Mem. Merits, § III(E)(1). See also, Resp. Rej. Merits, ¶¶ 32, 1114. ↩
⁶⁸¹ Resp. C-Mem. Merits, ¶ 603. ↩
⁶⁸² Resp. C-Mem. Merits, ¶ 607. See also, Resp. Rej. Merits, ¶ 1015. ↩
⁶⁸³ Resp. C-Mem. Merits, ¶¶ 611-612, 618. ↩

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investors.⁶⁸⁴ Subsidies that distort competition in the energy market (such as those Claimants’ seek) are incompatible with the ECT.⁶⁸⁵

405. Further, in Spain’s view, the obligation in Article 10(1) of the ECT to afford treatment “[i]n no case [...] less favourable than that required by international law, including treaty obligations” refers to MST under customary international law, with “domestic treatment” or “national treatment” being the maximum protection granted to foreign investments when more favourable.⁶⁸⁶ Put another way, as the objective of the ECT is to achieve non-discrimination, “[o]nly when the absence of discrimination does not guarantee the investors treatment in accordance with the minimum standards of International law do these standards go into effect to ensure their protection.”⁶⁸⁷

406. Respondent goes on to argue that the protection afforded by Article 10(1) of the ECT varies depending on the stage at which the investment is at. The “commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment” applies during the “making [of the] investment,” because this particular sentence of Article 10(1) refers to the preceding one dealing with “conditions [...] to make Investments in its Area.”⁶⁸⁸ But, once an investment has been made, Article 10(1) offers protection “against discriminatory and irrational measures that affect the management, maintenance, use, enjoyment, and disposal of the investment,” setting as a minimum that “[i]n no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations.”⁶⁸⁹ Further, national treatment protection contains an exception in the field of State aid, as shown in Article 10(8) of the ECT.⁶⁹⁰

⁶⁸⁴ Resp. C-Mem. Merits, ¶ 618. ↩
⁶⁸⁵ Resp. Rej. Merits, ¶ 1017. ↩
⁶⁸⁶ Resp. C-Mem. Merits, ¶¶ 613, 619. ↩
⁶⁸⁷ Resp. Rej. Merits, ¶ 1007. See also, id., ¶ 1016; Resp. Skeleton, ¶ 21. ↩
⁶⁸⁸ Resp. Rej. Merits, ¶ 1021. ↩
⁶⁸⁹ Resp. Rej. Merits, ¶ 1022. ↩
⁶⁹⁰ Resp. Rej. Merits, ¶ 1024. ↩

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407. Spain denies that its interpretation of Article 10(1) of the ECT renders Article 10(7) meaningless, observing that Article 10(7) also includes an MFN guarantee, in addition to national treatment.⁶⁹¹

408. According to Respondent the ECT does not guarantee sustainable energy development at any cost, as it has to be both economic and environmental.⁶⁹² Respondent argues that the purpose of the ECT is stated in Article 2, and that Article 19 on environmental protection is of minor importance.⁶⁹³ For Spain, while Article 19 provides that the ECT Contracting Parties shall “have particular regard to Improving Energy Efficiency” and “to developing and using renewable energy sources,” it does not mandate the granting of “petrified” public subsidies, and the ECT respects the State’s regulatory power in the area of State aid.⁶⁹⁴

409. Spain also takes the view that, while the ECT requires the creation of stable and transparent conditions for investment, it does not prevent the adoption of justified and non-discriminatory macroeconomic control measures by a State.⁶⁹⁵ The ECT does not require Contracting Parties to maintain a regulatory framework stable and predictable throughout the whole investment, as Article 10(1) refers to stable “conditions” and not to a stable “regulatory framework.”⁶⁹⁶ Further, the ECT does not “cancel or limit to the extreme” the State’s regulatory power, nor provide an insurance policy to investors against regulatory changes.⁶⁹⁷ The only limit to the State regulatory power in the ECT is MST, and an objective of non-discrimination.⁶⁹⁸

410. In Respondent’s view, the context and subject matter of the ECT support its interpretation. Because the ECT concerns investments in a highly regulated and strategic sector such as the energy sector, Spain says, “[i]t is not very realistic” to interpret it as an

⁶⁹¹ Resp. Rej. Merits, ¶ 1023. ↩
⁶⁹² Resp. C-Mem. Merits, ¶ 623. ↩
⁶⁹³ Resp. C-Mem. Merits, ¶ 624. ↩
⁶⁹⁴ Resp. C-Mem. Merits, ¶ 623. ↩
⁶⁹⁵ Resp. C-Mem. Merits, § III(E)(2), ¶ 610. See also, Resp. Rej. Merits, ¶¶ 1027, 1115; Resp. Skeleton, ¶ 21. ↩
⁶⁹⁶ Resp. C-Mem. Merits, ¶ 628; Resp. Rej. Merits, ¶¶ 1031, 1033. ↩
⁶⁹⁷ Resp. C-Mem. Merits, ¶ 610. ↩
⁶⁹⁸ Resp. C-Mem. Merits, ¶ 632; Resp. Rej. Merits, ¶ 1035. ↩

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insurance policy for foreign investors “against regulatory reforms adopted for reasons of public interest.”⁶⁹⁹ The obligations in Article 10 of the ECT must be “tempered” by the provisions in Part IV referring to sovereignty and the State’s economic regulatory power, tax veto and attribution rules.⁷⁰⁰

411. Finally, Spain also argues that arbitral awards interpreting the FET standard in the ECT support its position, in particular the notion that “in the absence of a specific commitment to stability, an Investor cannot have an expectation that a regulatory framework such as the one discussed in this arbitration will not be amended.”⁷⁰¹

(2) Article 10(1) of the ECT: Repudiation of Legitimate and Reasonable Expectations

a. Claimants’ Position

412. Claimants contend that Respondent “actively induced [them] to invest by offering a long- term and stable remuneration system, backed by repeated assurances from the most senior Spanish government officials addressed specifically to NextEra representatives.”⁷⁰²

413. According to Claimants, they held legitimate expectations that the Termosol Plants would benefit from the remuneration regime in RD 661/2007 “as stabilised in RDL 6/2009 and RD 1614/2010” (“Regulatory Framework I”⁷⁰³) for their entire useful life, and that they relied on those expectations to invest in Spain.⁷⁰⁴ For Claimants, Regulatory Framework I “guaranteed specific tariffs and premiums, operating hours, and upper and lower remuneration limits for the lifetime of their plants,”⁷⁰⁵ and Claimants “moved their

⁶⁹⁹ Resp. Rej. Merits, ¶ 1032. ↩
⁷⁰⁰ Resp. Rej. Merits, ¶ 1033 (quoting RL-056, T.W. Wälde, Arbitration in the Oil, Gas and Energy Field: Emerging Energy Charter Treaty Practice, 1 TDM (2004)). ↩
⁷⁰¹ Resp. Rej. Merits, ¶¶ 1028-1030 (referring to RL-092, Plama Award, ¶ 219; RL-024, AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010) (hereinafter “AES”), ¶ 9.3.25; RL-091, Electrabel S.A. v. Hungary, ICSID Case No. ARB/07/19, Award (25 November 2015) (hereinafter “Electrabel”), ¶¶ 165-166; RL-088, Charanne, ¶¶ 493, 510). ↩
⁷⁰² Cl. Mem. Merits, § II.3. See also, Cl. Reply Merits, ¶¶ 12-13. ↩
⁷⁰³ Cl. Mem. Merits, p. vii and Appendix A. ↩
⁷⁰⁴ Cl. Skeleton, ¶ 34; Cl. Mem. Merits, ¶¶ 259-261. ↩
⁷⁰⁵ Cl. Skeleton, ¶ 35. ↩

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investments forward only after they had clear assurances from Spain they would earn the specific revenues of Regulatory Framework I.”⁷⁰⁶ Without a framework that provided legal certainty, Claimants say, they would have never invested.⁷⁰⁷

414. Respondent breached those expectations, Claimants argue, by “dismantling Regulatory Framework I via Regulatory Framework III,”⁷⁰⁸ which is (i) fundamentally different from Regulatory Framework I; and (ii) yields a very different rate of return (from an anticipated 11.6% post-tax to a 1.9% post-tax).⁷⁰⁹

(i) Claimants’ Expectations

415. More specifically, Claimants contend that they legitimately expected that the Termosol Plants:⁷¹⁰

• Would have the option to receive either (i) the prevailing market price plus a reference premium or (ii) a regulated tariff, as defined by RD 661/2007 and adjusted annually based on the Spanish Consumer Price Index less 0.5%.⁷¹¹
• Would receive tariffs and premiums exempted from the four-year review contemplated under RD 661/2007, i.e. insulated from changes beyond annual adjustment for inflation; or put another way, that any future cuts would not apply to existing plants accepted into the Pre-Assignment Registry in accordance with RDL 6/2009 and RD 1614/2010.⁷¹²
• Were accepted by Spain as having a 9-hour storage capacity and a maximum annual qualifying production of 4,000 hours.⁷¹³
• Would have the possibility to derive a percentage of their annual qualifying electricity output from natural gas: 12% (feed-in-tariff option) or 15% (pool + premium option).⁷¹⁴

⁷⁰⁶ Cl. Skeleton, ¶ 39. ↩
⁷⁰⁷ Cl. Mem. Merits, ¶¶ 25, 124. ↩
⁷⁰⁸ Cl. Skeleton, ¶ 34. See also, id., ¶ 40. ↩
⁷⁰⁹ Cl. Skeleton, ¶ 40. ↩
⁷¹⁰ Cl. Mem. Merits, ¶ 259. ↩
⁷¹¹ Cl. Mem. Merits, ¶ 259 (citing C-017, RD 661/2007, Art. 44 and Additional Provision One). Claimants note, however, that the first year of operations was limited to the regulated tariff. Cl. Mem. Merits, n. 316. ↩
⁷¹² Cl. Mem. Merits, ¶ 259 (citing C-016, RD 1614/2010, Art. 4). ↩
⁷¹³ Cl. Mem. Merits, ¶ 259 (citing C-016, RD 1614/2010, Art. 2). Claimants assert that the they built the Termosol Plants with a 9-hour storage facility with support fuel only because under the law applicable at the time the plants were designed, the plants were allowed to generate up to 4,000 hours of annual electronical output, and were allowed to derive a % of their qualifying production from a support fuel. Cl. Mem. Merits, ¶ 21. ↩

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• Would have priority of grid access and dispatch.⁷¹⁵
• Would receive a guaranteed minimum reasonable rate of return on their investments even if Spain reneged on its commitments to specific tariffs and premiums,⁷¹⁶ ranging between 10% and 11.5% post-tax, plus approximately 300 bps for the regulated feed-in-tariff with a further margin of approximately 160 bps for the premium option.
• Once eligible, would receive the applicable tariff or premium for an initial period of 25 years, followed by a further period without any time limit for the remainder of their useful life.⁷¹⁷

(ii) Source of the Expectations

416. Those expectations were formed, Claimants say, from: (i) the terms of Regulatory Framework I; (ii) the registration of the Termosol Plants in the Pre-Assignment Registry of 11 December 2009 (iii) two Ministerial Resolutions of 28 December 2010; (iv) “uniquely explicit and specific assurances of stability concerning the Termosol Plants” by the highest levels of the Spanish Government to NextEra officials; and (v) the final registration in the RAIPRE of 29 May and 7 June 2013.⁷¹⁸ In addition, the capital- intensive nature of a CSP-investment in which the Government alone can drive success or failure also served as basis of Claimants’ expectations.⁷¹⁹

417. Claimants argue that Spain’s laws up to 2012 provided “clear commitments to maintain its production-based remuneration regime for the long term.”⁷²⁰ These laws, Claimants say, “did not envisage, or provide any warning of, the fundamental changes that Spain

⁷¹⁴ Cl. Mem. Merits, ¶ 259 (citing C-017, RD 661/2007, Arts. 24.1(a), 24.1(b), 2.1(b)). ↩
⁷¹⁵ Cl. Mem. Merits, ¶ 259 (citing C-017, RD 661/2007, Art. 17 and Annex XI). ↩
⁷¹⁶ Cl. Mem. Merits, ¶ 259 (citing C-017, RD 661/2007, Preamble). ↩
⁷¹⁷ Cl. Mem. Merits, ¶ 259 (citing C-017, RD 661/2007, Art. 36). ↩
⁷¹⁸ Cl. Mem. Merits, ¶ 259; Cl. Skeleton, ¶ 35. ↩
⁷¹⁹ Cl. Skeleton, ¶ 35. ↩
⁷²⁰ Cl. Mem. Merits, ¶ 262 (referring to C-024, Electricity Law; C-028, RD 2818/1998, Preamble; C-030, RD 1432/2002, Preamble; C-032, RD 436/2004, Preamble and Art. 1; C-017, RD 661/2007, Preamble, and Art. 36; C- 044, RDL 6/2009, General Provisions, and 5th Transitory Provision; C-016, RD 1614/2010, General Provisions, and Art. 4). ↩

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eventually passed in 2012 and 2013,”⁷²¹ and on the contrary show that when Spain preserved the ability to change the scheme, it did so expressly.⁷²²

418. More specifically, Claimants assert that “Regulatory Framework I expressly committed to provide long-term certainty around the premiums and tariffs available to CSP plants that had been admitted by Spain within its Pre-Assignment Registry,” and in particular, argue that:⁷²³

• Article 36 of RD 661/2007 expressly defined the long-term tariffs and premiums for an initial 25-year period and an indefinite period thereafter.
• Article 4(2) of RDL 6/2009 stated that plants accepted within the Pre-Assignment Registry would receive “the right to the economic regime established by Royal Decree 661/2007.”
• The Fifth Transitory Provision of RDL 6/2009 stabilized the economic regime applicable to plants that had applied for pre-assignment registration by 6 June 2009.
• Article 4 of RD 1614/2010 “made clear that the four-yearly reviews contemplated by Article 44(3) of RD 661/2007 would not apply to any of the tariffs, premiums or upper and lower limits granted to CSP plants that were approved within the Pre- Assignment Registry and completed within the timeframes set out in the Agreement of the Council of Ministers.”⁷²⁴ Claimants reject Respondent’s interpretation of Article 4 of RD 1610/2010, and deny that its sole purpose was to extend the second paragraph of Article 44(3) of RD 661/2007 to plants commissioned in 2013.⁷²⁵ Such interpretation, Claimants say, is contradicted by the plain wording, the Government’s own analysis of Article 4 and the drafting history of the provision.⁷²⁶
• Article 2(3) of RD 1614/10 barred any further cap on operating hours for those plants.

⁷²¹ Cl. Mem. Merits, ¶ 263. ↩
⁷²² Cl. Mem. Merits, ¶ 263. Claimants note, for example, that Article 44.3 of RD 661/2007 “made it clear that the values of tariffs, premiums, supplements, and upper and lower limits of the regulated tariff and premiums would be updated annually, and that there could be changes to the applicable tariffs and premiums every four years [...] for plants which it had not approved for pre-registration under the deadlines in RDL 6/2009 [...].” Id. ↩
⁷²³ Cl. Reply Merits, ¶¶ 49, 446. ↩
⁷²⁴ Cl. Reply Merits, ¶¶ 49, 58, 66-67. ↩
⁷²⁵ Cl. Reply Merits, ¶¶ 53, 56. ↩
⁷²⁶ Cl. Reply Merits, ¶¶ 54-66, 472. ↩

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419. Claimants argue that, contrary to Respondent’s allegations, the assurances in Regulatory Framework I are sufficient to ground Claimants’ expectations.⁷²⁷ According to Claimants, “[i]t is now well-established that the legal framework surrounding an investment may contribute to the creation of legitimate expectations for investors.”⁷²⁸

420. In any event, Claimants argue, their expectations were “reinforced” by specific assurances given by the Spanish Government that induced them to invest, and in particular, to proceed with construction of the Termosol Plants in December 2010.⁷²⁹ According to Claimants, those assurances were provided in:

• Meetings held in the summer of 2009 with Spanish officials.⁷³⁰
• A 3 September 2009 letter from the Secretary of State for Energy.⁷³¹
• Meetings held in November 2009 with the Minister for Industry, Tourism and Trade memorialized in a letter subsequently written by NextEra officials.⁷³²
• A 13 November 2009 Agreement of the Spain Council of Ministers.⁷³³
• The 11 December 2009 admission of the Termosol Plants in the Pre-Assignment Registry,⁷³⁴ which “gave plants the right to the RD 661/2007 economic regime if they had submitted their application for Pre-Assignment registration before a certain date [6 June 2009] and went on to complete construction and obtain final RAIPRE registration within 36 months.”⁷³⁵ According to Claimants, this is similar to a license and amounts to a stabilization guarantee.⁷³⁶

⁷²⁷ Cl. Reply Merits, ¶ 444. Claimants have argued elsewhere that Respondent has ultimately conceded that investors can derive legitimate expectations from the framework surrounding their investment. Cl. Skeleton, ¶ 36. ↩
⁷²⁸ Cl. Reply Merits, ¶ 449. Claimants distinguish the present case from Charanne arguing, inter alia, that that PV case lacked the critical stabilization commitments given to the CSP sector in RDL 6/2009 and RD 1614/2010, and go on to contend that this decision cannot stand as authority for the proposition that regulatory frameworks can never ground legitimate expectations. Cl. Reply Merits, ¶¶ 452-453. ↩
⁷²⁹ Cl. Mem. Merits, ¶ 264. See also, Cl. Reply Merits, ¶¶ 125-129, 448, 473-474. ↩
⁷³⁰ CWS-Davidson First, ¶ 15. ↩
⁷³¹ C-006, Letter from Pedro Marín (Secretary of State for Energy) to Mitch Davidson (NextEra Energy Resources, LLC), 3 September 2009. ↩
⁷³² C-014, Letter from Mitch Davidson (NextEra Energy Resources, LLC) to Miguel Sebastián (Minister for Industry, Tourism and Trade), 9 December 2009. ↩
⁷³³ C-007, Agreement of the Council of Ministers, 13 November 2009. See also, Cl. Reply Merits, ¶ 473 (3d bullet). ↩
⁷³⁴ C-049, Pre-Assignment Registration Notice Termosol 1, 11 December 2009; C-050, Pre-Assignment Registration Notice Termosol 2, 11 December 2009. ↩
⁷³⁵ Cl. Reply Merits, ¶¶ 70-77, 484. ↩
⁷³⁶ Cl. Reply Merits, ¶ 484. ↩

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• An 11 January 2010 letter from the Secretary of State for Energy.⁷³⁷
• A 4 February 2010 meeting with President Zapatero.⁷³⁸
• Meetings held in 2010 with Spanish officials, including the Minister for Industry, Tourism and Trade and the Secretary of State for Energy.⁷³⁹
• A 2 July 2010 “Agreement with the Solar Thermal Industry” sent by the Ministry of Industry, Tourism and Trade, and a 2 July 2010 Ministerial press release regarding this agreement.⁷⁴⁰
• Two 28 December 2010 Ministerial Resolutions issued to PTE and PTE2, respectively.⁷⁴¹
• A 3 April 2012 letter from the Chief of Staff to the Secretary of State for Energy.⁷⁴²

421. To the above, Claimants add that “[t]he Termosol Plants’ final registration in the RAIPRE constituted an additional assurance that the Termosol Plants would benefit from the remuneration of RD 661/2007 throughout their operational life.”⁷⁴³ For Claimants, this registration, which took place on 29 May 2013 (Termosol 1) and 7 June 2013 (Termosol 2), qualified the installations under the Special Regime and made them legally entitled to the incentives set out in RD 661/2007, as confirmed by the registration

⁷³⁷ C-008, Letter from Pedro Marín (Secretary of State for Energy) to Mitch Davidson (NextEra Energy Resources, LLC), 11 January 2010. ↩
⁷³⁸ CWS-Davidson First, ¶ 36; C-013, Letter from Mitch Davidson (NextEra Energy Resources, LLC) to Miguel Sebastián (Minister for Industry, Tourism and Trade), 21 April 2010. ↩
⁷³⁹ CWS-Arechabala First, ¶¶ 47, 53; C-057, Email from Mike Arechabala (NextEra Energy España, S.L.) to Antonio De Juan Fernandez (Pöyry Consulting), 12 May 2010. ↩
⁷⁴⁰ C-065, Agreement with the Solar Thermal Industry (Acuerdo con el Sector Termosolar), 2 July 2010; C-066, Ministry for Industry, Tourism and Trade, Press Release, Industry Ministry Reaches an Agreement with the Wind and Solar Thermal Sectors for the Revision of their Payment Framework, 2 July 2010. ↩
⁷⁴¹ C-009, 2010 Resolution Termosol 1, 28 December 2010; and C-010, 2010 Resolution Termosol 2, 28 December 2010. ↩
⁷⁴² C-011, Letter from Ignacio Grangel Vicente (Chief of Staff to the Secretary of State for Energy) to John Ketchum (NextEra Energy Resources, LLC), 3 April 2012. ↩
⁷⁴³ Cl. Reply Merits, ¶ 82. See also, Cl. Mem. Merits, ¶ 259. ↩

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resolutions.⁷⁴⁴ It is also similar to a license granted by the host-State and amounts to a stabilization guarantee.⁷⁴⁵

422. Spain’s commitments, Claimants argue, were also echoed as the Government’s policy during “roadshows” by the Ministry of Industry, Tourism and Trade and InvestInSpain.⁷⁴⁶ According to Claimants, Spain engaged in a “worldwide campaign aimed at enticing international investors” conducted by InvestInSpain, including presentations which describe the tariffs set in RD 661/2007 as “guaranteed” for the life of the asset in an initial period of 25 years and an indefinite period thereafter.⁷⁴⁷ In addition, between 2007-2010, the CNE, “consistently represented to investors that Spain was committed to providing regulatory stability, in the form of economic support mechanisms that were [...] subject of a ‘warranty by law’, and that the revisions to tariffs and premiums foreseen at four-year intervals in Art. 44 of RD 661/2007 would apply only to new plants, not to existing ones.”⁷⁴⁸

423. Claimants oppose Respondent’s analysis of these assurances arguing: first, that Spain isolates them and omits some of them, contrary to “a well-settled principle [...] that the existence of legitimate expectations must be assessed in the light of the ‘totality of the circumstances’ of a case;”⁷⁴⁹ second, that the clear text of the letters and witness evidence contradict Spain’s interpretation,⁷⁵⁰ and third, that any allegation of ambiguity in the assurances fails as a matter of law because “it is the host State, not the investor, who bears the consequences of any ambiguity in its representations to foreign investors.”⁷⁵¹

⁷⁴⁴ Cl. Reply Merits, ¶¶ 78-83 (referring to C-004, 2013 RAIPRE Resolution Termosol 1, 29 May 2013; C-005, 2013 RAIPRE Resolution Termosol 2, 7 June 2013). Claimants contend that these resolutions distinguish the present case from Charanne. Cl. Reply Merits, n. 101. ↩
⁷⁴⁵ Cl. Reply Merits, ¶ 484. ↩
⁷⁴⁶ Cl. Mem. Merits, ¶¶ 32, 265. ↩
⁷⁴⁷ Cl. Reply Merits, ¶¶ 31-33 (discussing C-023, InvestInSpain: Opportunities in Renewable Energy In Spain, Manuela García (November 2008); C-172, InvestInSpain, Presentations (January, November 2008; March 2009, April 2009). See also, Cl. Reply Merits, ¶ 473 (7th bullet). ↩
⁷⁴⁸ Cl. Reply Merits, ¶¶ 35, 46. See also, id., ¶¶ 36-45, 473 (8th bullet). ↩
⁷⁴⁹ Cl. Reply Merits, ¶ 476. ↩
⁷⁵⁰ Cl. Reply Merits, ¶ 478 (referring to CWS-Davidson Second, ¶¶ 6-18). ↩
⁷⁵¹ Cl. Reply Merits, ¶ 479. ↩

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(iii) The Timeline of the Investment and Expectations

424. Claimants have argued that the timeline of their investments is marked by three phases: (i) a first exploratory phase, “predicated on the tariffs, and premiums set in RD 661/2007 being available,” but with Claimants not going beyond the initial project outlay due to flaws in RD 661/2007; (ii) a second phase in which Claimants increased their investment “[p]ursuant to further assurances including RDL 6/2009,” which came to a halt in April 2010 amid rumours of a cut in tariffs and premiums; and (iii) a third and final phase, commencement of construction in December 2010, “marked by the conclusion of a process which culminated in the passing of RD 1614/2010.”⁷⁵²

425. Claimants contend that when approached in early 2007 by Casas de Hitos to co-develop a solar energy project, the project had an “initial interest” because at the time “Spain was [...] actively encouraging foreign investments in renewable generation through long term incentives [...].”⁷⁵³ Claimants say that, while they viewed these initial incentives as insufficient, they did engage in discussions with this company and signed an initial set of contracts in December 2007, which did not require the development of the Termosol Plants, but were “a framework for doing so if the Spanish regulatory conditions improved.”⁷⁵⁴

426. According to Claimants, prior to their decision to proceed with construction of the Termosol Plants in December 2010, Spanish law had already started offering a framework intended to provide regulatory certainty and to promote and develop renewable energy, “based around a commitment to provide a clear, transparent regime which ensured a reasonable profit for investors, through payments based on the amount of electricity produced.”⁷⁵⁵ Such framework was formed by the 1997 Electricity Law, RD 2818/1998, the 2000-2010 Renewable Energy Plan, RD 1432/2002, RD 436/2004,

⁷⁵² Cl. Reply Merits, ¶ 131. See also, Cl. Skeleton, ¶ 5 (arguing that Claimants’ “ultimate decision to proceed with building the Termosol Plants was made in December 2010 [...].”) ↩
⁷⁵³ Cl. Mem. Merits, ¶ 32. ↩
⁷⁵⁴ Cl. Mem. Merits, ¶ 33. ↩
⁷⁵⁵ Cl. Mem. Merits, ¶ 35. ↩

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the 2005-2010 Renewable Energy Plan, RDL 7/2006, and RD 661/2007.⁷⁵⁶ Claimants argue that, at the time of their initial development contracts in December 2007, the two key legal instruments were the 1997 Electricity Law and RD 661/2007.⁷⁵⁷

427. Claimants contend that RD 661/2007 was deliberately intended to stimulate investment,⁷⁵⁸ “by prescribing specific long-term premiums and tariffs that it committed to provide to developers within the Special Regime.”⁷⁵⁹ Referring to Article 36, Claimants argue that “Spain committed to deliver these tariffs and premiums throughout a plant’s operational life, with no fixed time limit.”⁷⁶⁰ In addition, Claimants argue that, while Article 44(3) contemplated a review of the tariffs in 2010, it “assure[d] investors that future cuts to the remuneration system would affect only new plants, not plants that had been constructed within the first 500 MW of CSP capacity” if they had “started operations within two years of the changes [...].” Claimants add, however, that this “did not cure the uncertainty over whether or not any given plant would be among the first 500 MW of installed capacity [...].”⁷⁶¹ Claimants also highlight that RD 667/2007 provided that tariffs and premiums would be updated for inflation annually by reference to the Consumer Price Index, less a reduction of 0.25% until 31 December 2012 and 0.5% after (Article 44 and Add. Provision 1); allowed the use of a support fuel to produce electricity not exceeding 12% of the total annual production (regulated tariff option) and 15% (pool + premium option) (Article 2); and granted priority of access and dispatch (Article 17 and Annex XI).⁷⁶²

428. According to Claimants, however, Spain’s assurances of a “reasonable return” were not sufficient to attract them, and they “proceeded with their investment” only because Spain

⁷⁵⁶ Cl. Mem. Merits, ¶¶ 34, 37-73; Cl. Reply Merits, ¶ 15. According to Claimants, the 2005-2010 Renewable Energy Plan was enacted to attract foreign investment, and it contradicts Respondent’s case in this arbitration in many respects. Cl. Reply Merits, ¶¶ 18-21 (discussing R-052, Plan for Renewable Energy in Spain 2005-2010). ↩
⁷⁵⁷ Cl. Mem. Merits, ¶ 37. ↩
⁷⁵⁸ Cl. Mem. Merits, ¶ 60. See also, Cl. Reply Merits, ¶¶ 16, 22. ↩
⁷⁵⁹ Cl. Mem. Merits, ¶ 61. See also, id. ¶ 62. ↩
⁷⁶⁰ Cl. Mem. Merits, ¶¶ 64-66. ↩
⁷⁶¹ Cl. Mem. Merits, ¶¶ 70-71. Elsewhere, Claimants state that “Art. 44(3) stated that a review of the feed-in tariffs would take place in 2010 but went on to state that adjustments to the regulated tariffs and the lower and upper thresholds would not affect pre-registered plants.” Cl. Reply Merits, ¶ 467 (5th bullet). ↩
⁷⁶² Cl. Mem. Merits, ¶¶ 67-68. ↩