Newsletter Energia - 9/2011 EN

Brief memorandum on the new Legislative Decree on the use of electrical energy generated by renewable sources plants - possible unconstitutionality of its provisions


This memorandum aims at briefly summarizing main provisions of the Legislative Decree no. 28 of 3 March 2011, implementing directive 2009/28/EC of the European Parliament and Council dated 23 April 2009, on the promotion of the use of energy generated from renewable sources, setting forth the amendment and subsequent abrogation of directives 2001/77/EC and 2003/30/EC (hereinafter, the “Decree”), published on the Official Gazette on 28 March 2011, and entered into force the day following its publication, with particular reference to the impact of this new legal framework upon the incentive systems currently provided for purposes of supporting investments in the renewable energy sector.

The Decree, in addition to introducing provisions on (a) authorization procedures for plants fuelled by renewable sources (the timeframes of which have been accelerated and simplified); (b) supporting provisions for the construction of energy networks, either from an authorization standpoint or as for returns on investments, , also introduces (c) significant reforms affecting the regime in place which currently supports the generation of electrical energy from renewable sources (Articles 23 et seq. and, from another standpoint, with reference to photovoltaic plants installed on the ground in agricultural areas, Article 10, paragraphs 4, 5 and 6), which essentially limit and block the development and eligibility for financing of projects involving the construction of photovoltaic and wind plants. With reference to incentive mechanisms, the Decree further provides for, through provisions which differ markedly from the current legal framework, the introduction of an incentive system based upon an assignment through an auction (for plants exceeding 5 MW of output capacity), which would apply to plants that will become operational after 1 January 2013, and also sets output quotas linked to incentives for plants subject to a total or a partial renovation (Article 24).

After providing an overview of the new elements introduced to the system of incentives for photovoltaic plants and wind farms, we will proceed to illustrate possible alternative routes to be considered with a view to challenging the new provisions, on the basis of procedural instruments available under the Italian laws as well as the European laws.


1.INTRODUCTION. DIRECTIVE 2009/28/EC. THE CRITERIA UNDER THE DELEGATED LAW (LEGGE DELEGA)

The Decree was enacted by the Government in order to implement law no. 96 of 4 June
2010 (EC Law for 2009, hereinafter, the “EC Law” or, as legge delega, the “Delegated Law”) which had established the guiding criteria for purposes of implementing directive 2009/28/EC (the “Directive”) in Italy.

The Directive, in setting out the objectives (as minimum thresholds) for each Member State in relation to the production of electrical energy from renewable sources (for Italy, as we all know, the objective is set at 17% by year 2020), expressly provides for supporting regime in the renewable energy sector as a means to achieve the above-mentioned national objectives and, in this context, the Directive expressly acknowledges (i) the need of each Member State to “create certainty for investors” (considerando no. 14) as well as it highlights the importance (ii) of “ensuring the proper functioning of national supporting regimes, as provided under Directive 2001/77/EC, in order to maintain trust on the part of investors” (considerando no. 25).

The proper functioning of national supporting regimes is expressly recognized as “an important tool for the achievement of the objective set out under this directive” and the national supporting regime and cross-border cooperation mechanisms are expressly incentives for photovoltaic plants and wind farms, we will proceed to illustrate possible alternative routes to be considered with a view to challenging the new provisions, on the basis of procedural instruments available under the Italian laws as well as the European laws.

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1.INTRODUCTION. DIRECTIVE 2009/28/EC. THE CRITERIA UNDER THE DELEGATED LAW (LEGGE DELEGA)

The Decree was enacted by the Government in order to implement law no. 96 of 4 June 2010 (EC Law for 2009 identified as the means to achieve the objectives (Article 3 of the Directive).

Under Article 17 of EC Law, implementing the Directive, the Italian legislator has set forth the principles and the guidelines which the Government should have followed enacting the relative Legislative Decree.

In particular, among the above mentioned guidelines, in addition to the adoption of National Action Plans for renewable energies (Article 17, paragraph I, letter b)¹ – such Article provides for the need to “adapt and re-inforce the system of the incentives for renewable sources and the efficiency of energy savings, without new or additional charges for the public funds, including by way of the total of partial abrogation of current provisions in force and the harmonization and re-organization of the provisions set forth under law no. 99 of 23 July 2009, and law no. 244 of 24 December 2007”.

It should also be noted that under the National Action Plan for Renewable Energies, with reference to the reforms to be introduced to the incentive system, the Ministry of Economic Development has stated that the general measures also included “planning for the gradual reduction incentives: prior planning of tariffs/coefficients (on a three-year basis) and the application of the new tariffs only to plants which become operational one year after their introduction”.

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On the basis of the general framework outlined above, the Decree should have increased the supporting regime of energy produced using renewable sources with a view to more effectively achieve the national production objective set out by the Directive.

However, the Decree includes a number of provisions which are not compliant with the indications provided for under the Directive and the Delegation Law, and would appear prejudicial to the rights and interests of developers of photovoltaic plants and wind farms, as well as banks involved in this sector financing for instance the construction of such plants.

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2.THE INCENTIVE SYSTEM FOR PHOTOVOLTAIC PLANTS. THE NEW PROVISIONS INTRODUCED BY THE DECREE.

Before analyzing the new provisions introduced by the Decree to the system of incentives for photovoltaic plants, it is worthwhile to recall that the incentive regime for such plants currently in place is based on Article 7 of Legislative Decree 387/2003 (Implementation of directive 2001/77/EC on the promotion of electricity produced using renewable energy sources on the internal electricity market) which delegated to subsequent Ministerial Decrees the task of identifying specific criteria for encouraging, through incentives, the production of electricity using solar energy sources.

Under Article 7, second paragraph, of the mentioned Legislative Decree, the incentive criteria, to be adopted by the Ministerial Decrees, shall establish: “(a) the requisites to be met in order to be eligible to benefit from incentives; (b) the minimum technical requisites of components and plants; (c) the conditions for the accumulation of incentives with other incentives; (d) the modalities for the determination of the amount of the incentive. For electricity produced using the photovoltaic conversion of solar energy, they provide for a specific incentive tariff in a decreasing amount, for a term which ensures a fair return on investment and operation costs; (e) the nominal output to be installed; (f) the maximum limit on cumulative electricity output for all plants eligible for incentives; the criteria adopted by the Ministry (g) may also provide for the use of green certificates assigned to the grid Operator under Article 11, paragraph 3, second sentence of Legislative Decree no. 79 of 16 March 1999”.

Pursuant to the above mentioned Article, the following Ministerial Decrees were issued: Ministerial Decree dated 28 July 2005 and Ministerial Decree dated 6 February 2006 (which, together, established the “First Energy Account”), Ministerial Decree dated 19 February 2007 (“Second Energy Account”) and, finally, Ministerial Decree dated 6 August 2010 (“Third Energy Account”).

Each energy account applies for three years (with the exception of the First Energy Account concerning plants which become operational over the two-year period 2005 – 2006), providing for incentive tariffs which gradually decrease on an annual basis. The relevant tariff was set on the basis of the date of start-up of the plant.

This criterion was subject to an exception, pursuant to Legislative Decree no. 105 of 8 July 2010 (converted into law by Law 129/2010) which, in Article 1-septies extended the applicability of the so called “2010 tariff” (i.e. the tariff applicable to plants which become operational during the last year of application of the Second Energy Account) to also cover plants completed as of 31 December 2010 and which become operational by 30 June 2011.

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In consideration of the foregoing legal framework, the Decree provides that the rate regimes for plants to be connected to the grid after 31 May 2011 shall be set forth in a specific Ministerial Decree to be issued by 30 April 2011. In this regard, and in addition to what will be illustrated below, with reference to remedies that may be activated immediately to challenge the Decree, it should be noted that such Ministerial Decree which is about to be issued, since it is a general administrative act, may be challenged by the Administrative Courts (i.e. TAR – Regional Administrative Court – and the Council of State), together with the ruling which applies/implements it (for example, the deed by which GSE will grant to the entity in charge of the photovoltaic plant the incentive tariff on the basis of the criteria to be set forth in the Ministerial Decree which is about to be issued). On that occasion, challenges may be raised based upon defects on account of the direct unconstitutionality of the Ministerial Decree and/or issues concerning constitutionality may be raised with regard to the Decree, which are illustrated below.

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With specific regard to the photovoltaic plants currently under construction (“in itinere”)² , the provisions of the Decree set forth in Article 25, paragraph 9, and Article 10, paragraphs 4, 5, and 6, which are illustrated and discussed below, will have a significant impact.

A. Article 25, paragraph 9

Article 25, paragraph 9, essentially abrogates Ministerial Decree dated 6 August 2010 (Third Energy Account), since it establishes that it shall apply solely to plants connected to the grid by 31 May 2011. For plants connected on a later date, the applicable incentive regime will be established under a Ministerial Decree which shall establish, inter alia (i) the annual limit on cumulative output of plants admitted to the incentive, (ii) modalities for the determination of the tariffs, to be based on a decrease in the costs of technologies and plant costs, and which shall also provide for (iii) differentiated tariffs depending on the area where the plants will be installed.

Therefore, the immediate consequence of this provision is the total uncertainty regarding the actual amount of the incentives to be granted to plants which will enter into operation after 31 May 2011.

B. Limits on eligibility for the incentives for plants installed in agricultural areas

Article 10, paragraphs 4, 5 and 6, introduces a limit on the eligibility fro a pv plant to the incentives in the event that plants are installed on the ground in agricultural areas, setting (a) an output limit for such plants – set at 1 MW – (b) a distance limit (2 KM) when the plants are located on areas belonging to the same owner and (c) a coverage ratio, between the area occupied by the plant and the total area within the possession of the applicant, of 10%.

This provision does not apply to plants that have already been authorized as of the date of entry into force of the Decree or with respect to which an application for the authorization has been filed to the competent entity by 1 January 2011, provided that they become operational within one year of the entry into force of the Decree.

Both the provisions set forth in paragraphs A and B above, have a retroactive effect, to the extent that they have an impact on (i) the authorization procedures which have already been initiated and have not been completed yet and, moreover, (ii) projects that have already been authorized and for which the construction phase has already been initiated, and with respect to which the related connection to the national electricity grid will be completed after the deadlines set forth under the Decree.

This is even more striking with regard to the provisions of Article 25, paragraph 9, which merely sets out a deadline for the access to the incentive system currently in place (regardless of the dates of commencement and completion of the authorization processes); the same effect is produced with reference to the provision of Article 10 of the Decree in connection with the plants installed in agricultural areas, the authorization process of which was initiated over the period from 1 January 2011 and the date of entry into force of the Decree and for those, which have already been authorized as of the date of entry into force of the Decree, for which it will not be possible to complete the connection and start-up within one year from such date.

Indeed, in both cases, the new provisions significantly transform the incentive regime for business initiatives which have already been initiated, and more importantly financed, based on a regulatory framework which was entirely different from that introduced through the Decree.

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3.INCENTIVES FOR WIND FARMS THROUGH GREEN CERTIFICATES. THE NEW PROVISIONS INTRODUCED BY THE DECREE.

With reference to the wind projects, the Decree provides for:

•a change in the incentive mechanism for such plants, with a gradual decrease in the mandatory quota of green certificates required under Article 11, paragraph 1, of Legislative Decree no. 79 of 16 March 1999;
•the application of a new incentive mechanism which is based upon the grant of a fixed tariff and no longer upon the collection of green certificates by Gestore dei Servizi Energetici S.p.A. (“GSE”);
•new methods for the calculation of the price paid for collection of green certificates by the GSE.



Transition from the incentive mechanism based upon green certificates to the incentive mechanism based upon a fixed tariff

a) Article 24, paragraphs 3 and 4, of the Decree

Based on Article 24 of the Decree, a fixed tariff will apply to the off-take of electricity generated by newly constructed wind farms, as the new incentive mechanism in lieu of the mechanism based upon green certificates, starting from 1 January 2013.
This new incentive system provides for the payment of a fixed tariff for the generation of electricity, taking into account the need to ensure a return on invested capital.
On the contrary, for plants which become operational after 1 January 2013, the fixed tariff is granted on the basis of the output of the plant, depending on whether it is greater or lower than 5 MW.
In particular, plants having output lower than 5 MW will receive the fixed tariff (granted for 20 years) that will be calculated in order to ensure an adequate return on investment.
The fixed tariff which will apply to plants having an output exceeding 5 MW (which is also granted for a term of 20 years) will be determined using a bearish bid auction (asta al ribasso), as described in the Decree.

b) Article 25, paragraph 4: collection of green certificates

As anticipated in Section 1 of this memo (Introduction), the incentive mechanism based on green certificates will apply until 2015. Under Article 25, paragraph 4, of the Decree, GSE will collect the green certificates (which have not yet been purchased by the market) issued in connection with the production of electricity from renewable sources, for years 2011-2015, at a price equal to 78% of the price indicated under Article 2, paragraph 148 of Law No. 244 of 24 December 2007³.

c) Article 24, paragraph 5

The Ministry of Economic Development (in agreement with the Ministry of the Environment and the Ministry of Agriculture, where required, after consulting the AEEG and the Unified Conference) will issue subsequent Ministerial Decrees to provide more detailed indications on the incentive mechanisms described in the Decree.
In particular, under Article 24, paragraph 5, of the Decree, the Ministry of Economic Development – within 6 months from the entry into force of the Decree – will issue a decree for the purposes of governing, inter alia, the following:
a) the transition from the prior incentive mechanism based upon green certificates to the new mechanism of bearish bid auction;
b) the amount of the incentives;
c) possible further requirements for eligibility to participate in the bearish bid auction; and
d) the regulation of the transition to the mechanism of the bearish bid auction, over the period starting on the last date by which the green certificates must be collected and 2015, ensuring access to the fixed tariff mechanism for purposes of ensuring a return on investments.

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4. EXCLUSION FROM INCENTIVES, CONTROLS AND SANCTIONS.

The Decree also includes provisions (Articles 23, paragraph 3 and 42 et seq.) which establish a system for controlling statements made by economic operators in order to gain access to the incentive systems available to plants fuelled by renewable sources, and also provides for sanctions to be applied in the event of untruthful statements.

It should also be noted that the Decree also introduces (under Article 43) a special regulation also with reference to untruthful statements (concerning the completion of the installation of the photovoltaic plant) made with reference to plants subject to the exemption regime introduced by Article 2 sexies of Legislative Decree No. 3 of 25 January 2010⁴.

a) Article 23, paragraph 3, of the Decree

Under Article 23, paragraph 3, of the Decree, the applicant will not be entitled to receive the related incentives if the authorities and the competent entities have determined that in connection with the request for qualification of plants or disbursement of the incentives, the applicant has submitted untruthful data or documents. In this case, the applicant shall return the amounts unduly received as incentive and shall no longer be entitled to receive incentives for 10 years following the discovery and determination of the mendacious act. This ruling of ineligibility will be imposed upon the individual or legal entity which provided false or untruthful information or documents, and also upon:
(a)the legal representation who executed the application;
(b)the person in charge of the plant (soggetto responsabile);
(c)the technical director;
(d)the general partner (socio accomandatario) in the case of a limited partnership (società in accomandita semplice); and
(e)the directors with powers of representation, in the case of any other type of company or consortium.

b) Article 42 of the Decree

In accordance with the provisions of the preceding paragraph, incentives will be granted only if the information provided in the application is truthful and accurate. GSE, the entities controlled by the grid operator, or competent entities are authorized to conduct verifications on the documentation submitted, as well as sample verifications on plants. If breaches are found, GSE will be in the position to deny access to the incentives and also recover amounts already disbursed.

In any case, within six months from the entry into force of the Decree, GSE will assist the Ministry of Economic Development in defining, inter alia, the following through a Ministerial Decree:
(a)the modalities through which the grid operators provide operating support to GSE for the verification of the plants and the certification of electricity amounts necessary for the grant of incentives;
(b)the procedures for GSE’s conduct of verifications on plants;
and
(c)the breaches which are material for purposes of the disbursement of the incentives, with differentiation on the basis of each source, type of plant and nominal output.

c) Article 43 of the Decree

The Decree also introduces a special sanctioning mechanism applicable to untruthful statements made in connection with applications for the incentives for photovoltaic plants falling under the field of application of Article 2 sexies of Legislative Decree No. 3 of 25 January 2010 (through which the tariff regime provided under the Second Energy Account was extended to plants the construction works of which was completed by 31 December 2010 and which will become operational by 30 June 2011).

The provision introduced by the Decree provides, in such case, that GSE must reject the request for incentives and also orders the exclusion from incentives of plants which use at other sites the components of the plant which has been considered not eligible for the incentives.

Under the same ruling, GSE orders the exclusion from the granting of the incentives provided for the production of electricity, for a period of ten years from the date of the decision, of the individual or legal entity which submitted the application, as well as the following persons:

a) the legal representative who executed the request;
b) the person in charge of the plant;
c) the technical director;
d) the partners (soci), in the case of a general partnership (società in nome collettivo);
e) the general partners (soci accomandatari), in the case of a limited partnership (società in accomandita semplice);
f) the directors with powers of representation, in the case of other kinds of companies or consortia.

In addition, in order to avoid the use in other sites of photovoltaic modules for the construction of plants with reference to which untruthful statements/representations have been made, such action will be a specific criminal offense⁵.

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5. REMEDIES

In the light of the regulatory reforms introduced by the Decree on incentives for electricity plants fuelled by renewable sources, it is worthwhile noting that if such reforms (such as in the case of the green certificates system applicable to wind farms) correspond to decisions on national energy policy, they would not be, as such, subject to critics/challenge.

Another line of analysis, however, would apply to provisions which, especially with regard to photovoltaic plants, introduce significant changes with respect to the legal framework previously in place.
In this case, the essentially retroactive effect of the provisions (which would apply to authorized plants/plants in the process of being authorized but not yet operational) calls for specific verifications on the lawfulness of these provisions, especially from constitutionality standpoint.

Indeed, although in theory it cannot be ruled out that the legislator could enact provisions having retroactive effect, under well-settled constitutional case law, the enactment of legal provisions having retroactive effect shall not conflict with the general principles of reasonability and equality and with the reasonable reliance by the citizens upon the certainty of law (see Constitutional Court no. 446 of 2002).

However, with reference to the above-mentioned principles of reasonability and reliance, the provisions in question raise several critical issues. In particular:

(1)a possible element of unreasonability could be found through a comparison between the legal treatment applicable under these provisions to investments in the photovoltaic sector with respect to the provisions of Law Decree 105/2010 (converted into law by law 129/2010), just adopted in August 2010. It is worth noting that Article 1 septies of the above-mentioned Law Decree considers as eligible for the tariff set forth under Ministerial Decree 19 February 2007 (Second Energy Account), plants completed as of 31 December 2010 and connected to the grid by 30 June 2011, expressly expanding (beyond the limits originally established) the terms of application of the tariffs provided under the Second Energy Account in order to address delays in connecting the plants to the electricity grid, attributable to the companies in charge of electricity distribution.

In clear contrast with such favorable principles, the provisions of the Decree give rise to, on a retroactive basis, a twofold restriction in the scope of temporal application of the Third Energy Account since:

- the 2011 tariff, originally meant to apply until the end of 2011, will remain in force only until 31 May 2011 (i.e. the date by which the plant must be connected to the electricity grid in order to be eligible for such tariff);
- the applicability of the Third Energy Account, originally meant to define the tariffs applicable to photovoltaic plants for the three years 2011-2013 (on the basis of tariff parameters set forth therein) will cease to apply as of 1 June 2011, establishing that for plants connected after 31 May 2011 the incentive will be established on the basis of a Ministerial Decree to be adopted by 30 April 2011.

Therefore in the case that, for example, a plant was completed in December 2010 and will be connected to the grid by 30 June 2011, it will benefit from the tariff provided under the Second Energy Account; however, in the case of a plant that has already been authorized as of the date of entry into force of the Decree in question and which will be fully constructed by 1 June 2011, it is not yet clear what incentive tariff will apply.

The legislative action would, then, appear contradictory and shows disparity in treatment, which are even more evident if we consider that (as is quite likely) the tariffs to be granted under the new Energy Account in the process of being enacted, will be significantly lower than those established under the Third Energy Account.

(2)Moreover, it is also clear that there has been a breach in legitimate reliance⁶ on the part of investors and developers, who have made substantial investments on the basis of a regulatory framework which guaranteed clear expectations of public economic support (and, therefore, also a certain margin of return on the economic initiative) for the entire three-year period 2011-2013.

However, as compared with a general legal framework (both at the European level, under Directive 2009/28/CE, and the implementing EC Law and, last but not least, the National Action Plan) which is clearly aimed at encouraging the use of renewable sources through incentives, the Government has implemented a regulatory instrument which causes all expectations to remain unfulfilled.

Indeed, as already noted, in breach of such provisions and to the detriment of the substantive legal situation:

- the Decree sets an extremely short deadline (less than three months) to substantively change the incentive tariffs;
- the Decree does not establish a transitional regime of indemnities for those plants which have been authorized prior to the entry into force of the Decree, and are constructed and connected after 31 May 2011 (with a tariff which is expected to be considerably lower), and thus give rise to a clear situation of uncertainty (in addition to the disparity in treatment mentioned above)⁷.

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In the light of the foregoing considerations, a number of different alternative instruments are available for purposes of reacting to the regulatory action taken by the Italian Government.

A) First of all, the unreasonability and disparity in the treatment of the provisions on the incentive tariffs amount to defects in the Decree which render it unconstitutional, and therefore may be raised before the Constitutional Court in order to obtain a declaration of unconstitutionality (with a retroactive effect).
Specifically, in principle, the Regions could directly take action before the Constitutional Court, if it were found that the Decree gives rise to a breach in constitutional prerogatives resting with the Regions on the matter of energy (regulatory subject matter identified under art. 117, paragraph 3, of the Constitution as “concurrent legislation”). However, it is worth recalling that, under the combined provisions of art. 29, paragraph 2, letter h) and art. 18, paragraph 1, letter n) and o) of Legislative Decree 112/1998, the “setting of objectives and national programs set forth under paragraph 1 of this Article on the matter of renewable sources and energy savings, as well as the duties and responsibilities referred to under Article 18, paragraph 1, letter n) and o), in the case of incentives/subsidies for the same purposes⁸” fall within the administrative functions reserved to the State. Therefore, it would not appear that this particular law would be unconstitutional due to a breach in the rules on the allocation of legislative powers between the State and the Regions.

As an alternative to a direct action by the Regions, the issue of constitutionality could be raised before a court in the context of a pending lawsuit in which the application of the provisions of the Decree are called into question, and such court could then submit the issue of constitutionality to the Constitutional Court.

In such case, in addition to the criteria of relevance and lack of manifest groundlessness (in such proceedings) which the issue of constitutionality must denote in order to be submitted to the attention of the Constitutional Court, it is worth noting that any proceedings which would involve a review of the application of the provisions of the Decree could be commenced and become pending only after 31 May 2011. Indeed, for example, if anybody wanted to challenge the outcome of the process of granting the incentive tariff, such legal action could be taken only for plants connected to the grid after such date, since GSE would have to apply the new incentive tariffs provided under the Ministerial Decree (to be issued by next 30 April) only to those plants. It is worth noting that the right to the incentive tariff comes into existence for the person in charge of the photovoltaic plant only once the plant becomes operational (since the application for eligibility for the incentives may be filed to the GSE within the following 90 days)⁹.

B) In addition to the above-mentioned protection instruments available under National law, the possibility of taking action directly with the bodies of the European Union may also be taken into consideration, through a criticism of the breach of both general European principles, such as legitimate reliance and the principle of non-discrimination, as well as the provisions of the Directive, which, as we have seen, sets national objectives for the production of the minimum threshold of electricity using renewable sources and expressly acknowledges the need for an incentive regime which is certain and stable in order to maintain trust on the part of investors. The regime of National support therefore represents the means established by the Directive for the achievement of objectives set forth under the Directive and, for this reason, a national mechanism which essentially eliminates (or substantially limits) the incentive effects of the support measures envisaged could be raised before the competent bodies as an erroneous implementation of the Directive.

In this regard, it should be recalled that pursuant to Article 258(1) of the Treaty on the Functioning of the European Union (“TFUE”), “the Commission, when it finds that a Member State has failed to fulfill any of the obligations imposed upon it under the treaties, issues a reasoned opinion in such regard, after giving the state the opportunity to present observations”. The failure to implement directives or the erroneous implementation of directives constitutes a classic case of breach of the treaties, to be challenged through an infraction procedure brought before the European Commission.

The infraction procedure provides for an initial pre-litigation phase, which is conducted either at the Commission’s initiative or through a third party report, in which a breach of European Law on the part of the Member State in question is reported. In this case, the claim could be based upon an erroneous implementation of the Directive as well as the breach in the principles of law mentioned above.

The Commission verifies whether or not a breach has been committed and the relevant conditions met, and sends to the Member State in question an official letter of breach, to which generally speaking the recipient State is required to reply within two months. If the Commission does not find the answers given by the Member State to be adequate, it sends to the latter, generally within one year, a reasoned opinion. In such opinion, it specifies the breaches that have been committed and the factual and legal elements supporting the complaint, as well as the deadline – usually two months – by which the Member State is required to put an end to the breach.
Upon the expiry of the deadline set in the reasoned opinion, if the Commission is not satisfied by the additional observations provided by the Member State or the measures adopted, it is entitled refer the case to the European Court of Justice.

The consequences of a possible adverse judgment by the Court of Justice are twofold. Strictly at the EU level, if the Member State fails to adapt its legislation in line with what is established by the Court of Justice by the deadline set by the court (or, where no deadline is set, within a congruous period of time), the Commission may once again submit an appeal to the European Court of Justice pursuant to Article 260 TFUE, requesting imposition of a monetary sanction in the form of a fine or a default penalty upon the state, depending upon the nature of the breach; the Court issues a judgment which either grants or rejects the Commission’s request.

At the national level, the Constitutional Court has established that the Italian court is required to conform to the interpretation of the provision provided by the European Court of Justice on the occasion of the breach procedure and, if the Member State is found in breach, the national law which conflicts with the EC provision must cease to be applied with direct effect.

Finally, it is worth noting that under Article 279 of the TFUE, pending the proceedings on the merits, the Court of Justice is also entitled, where the conditions of urgency and danger are met, to adopt precautionary measures which could, from the very outset of the procedure, give rise to a suspension in the application of the national provision being challenged.

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