The roots of electricity regulation in Hungary

Abstract

Although many regulations were published on the subject of energy law even in the early 19th century, energy law is still considered as quite a new area of law, with less extensive volume of publications than other fields of law. This article reveals the development of the Hungarian energy legislation from the very beginning, focusing on electricity from production, licensing, servicing and usage points of view. Although the first regulation in 1888 was quite a simple one, the next step, the Act XVI of 1931 was an especially modern one, with due respect for private property and also paying attention to consumer protection. The act handled prices, tariffs, the method of utility easements or even property-related issues in a truly wise and balanced way. In addition, its measures in terms of dispute settlement, where it delegated cases to an extraordinary high level, requiring serious proficiency and impartiality, are exemplary for even today’s legislators.

Introduction

Nowadays energy law is considered a new area of law (or branch of law even). There is no uniform academic literature basis, that would encompass this area. This fact is a possible contributor to the misunderstanding what energy law really is. At the same time, it is undisputed that in many countries, “energy” has been regulated in a legal form for centuries. Even in the 1800s but especially at the beginning of the 1900s many regulations emerged on the subject of energy, with special respect to regulating coal and later oil. Regulation developed – mainly after World War II – to regulating non-fossil fuels, such as nuclear energy, hydropower, wind and other renewable energy sources.

The number of publications in the area energy law has started to increase in Europe from the 1980s, in Hungary however, only a very few scientific, purely energy law related publication has been issued. Naturally several other excellent publications have been written in Hungary the subjects of which touched upon energy law. These works have primarily been created in the fields of environmental law, agricultural law or even taxation.

The beginnings of the regulation

In the legal history of Hungary, the first regulation with the – partial – subject of electricity was drawn up in 1888 already, as the first act on telegraph offices, telephones and other electronic devices. This regulation – due to the rudimentary nature of technology – categorised all devices “operating by wire” into one scope, thus telegraph just as well as electrical power lines. Interestingly, in the case of private areas (real estates) the laying of an electric line was subject to the permission of the person in possession of the property, contrary to the concept of modern law considering the laying of electric lines an easement, and the omission of such permission was even punished. Laying power lines on public places was allowed, taking care that the bundles of cables do not disturb or obstruct each other.

By comparison, in the 1930s, apparently due to the rapid development of technology an exceptionally modern energy regulation was adopted in the form of Act XVI of 1931. In addition to regulating the rules on granting licences, the act contained developed and detailed provisions on regulating pricing. It created different consumer categories, and the regulation on pricing – similar to the modern pricing regulation used nowadays – defined the factors that could be considered when setting the price.

Another interesting aspect of the regulation is the rules on enabling price increase. Increasing the established energy prices was only possible in the case of changes in the “cost of materials” and wages and a further condition was that implementing price increase was subject to a prior permission. Under material costs, the price increase of the equipment necessary for creating electricity as well as raw materials e.g. coal was possibly meant by the legislator. Act XVI of 1931 was to be considered lex specialis in comparison to “public supply” activities.

Private autonomy and state intervention

The need of the state as regulator to consider all equipment and devices linked to electricity that were not to be found “within the houses” to be “state-maintained” rights, was detectable even in the act mentioned above. Regulation did not cover the areas “inside the houses”, those were left in private autonomy, however everything outside this sphere was subject to licence.

Licencing – the beginning

The regulation introduced a dual licencing system. “In the case of those “public” telegraph offices and telephones that are planned to extend outside the territory of the Hungarian crown, or would connect cities and towns with more than ten thousand residents within its territory, which cities and towns are already equipped with state owned telegraph offices or state owned telephones licencing for other parties shall be the responsibility of the Parliament, in all other cases licencing shall be the responsibility of the minister for public works and transportation.”

The first act on electricity

In line with the era’s advanced private law legislation, Act XVI of 1931 was an exceptionally sophisticated, modern piece of legislation, that met the needs of the time period, and in which the logical elements of the current regulation can be detected. The act clearly separates the boundaries of the public and the private sphere. And while it contains detailed rules in the case of the public domain, it leaves much room for private autonomy in the case of the private sphere.

As regards such other conditions of electric energy supply, which was not contained in the licence, the agreement of the parties applied, with respect to the boundaries of the act.

The regulation separates the “public use electrical plant” from the “private use electrical plant”. And uses the term “licensee” in line with the current regulation. The regulation sets out that only those may provide or supply electricity through power lines for a fee who possess a licence for the establishment and maintenance of an electrical plant (company). Obviously, this piece of legislation does not separate the network from the service provider (free and equal access to networks only appears much later and its implementation into practice starts to be present around the 2000s) the owner of the power line was the company that supplied electricity.

For the purpose of providing services for a fee, generation and conduct could only have been done by those, who were in possession of a licence (licensee) for the establishment and maintenance of an electrical plant (company). The licence could have been granted for the generation, conduct and distribution of electricity, or either of these, or any defined two of these. Licence could have been granted by the minister for commerce by issuing a licensing document.

In line with the regulation, licence had to be requested for the so called “public use” electrical plants, which licences were valid for the determined area (similarly to the universal service licence in the case of the current regulation). Simultaneously the act ensured exclusivity to the holder of the licence, as the legal regulation set out, that during the validity of the licence other service provider may not be granted a licence for the same area. At the same time, it provided for the possibility of passing through electricity on the area, generated elsewhere (as a consequence of utility easements) and to “develop” (the word used in the period) meaning to generate electricity.

The right of exclusivity did not cover the supply of operative energy needs of public transportation railways and other transportation companies. The same rule had to be applied for the non-operative energy need that occurred on the areas used for operative purposes of said companies, provided that it was supplied by the same electrical plant, that covered the strictly meant operative energy needs. Thus, the regulation of self-consumption appeared already here, which is exempted by the current regulation in the case of certain companies, for so called “off grid” generation, generated by said companies.

Licencing electricity generation

The electrical plant that supplied energy exclusively for the use of the household of the operator himself and his employees, farm or company (electrical plant for own use) could have been established without licence, but subject to the legislative rules applicable to such facilities. (The regulation of the period compiled generating energy, power lines and network under the term “electrical plant”.)

However, if someone else’s plot was also affected by power lines passing through, or that would cross an already existing line or a new one should have been established near an already existing one, it was subject to the licence of the minister for commerce, both for the establishment and the operation (“installing”). Moreover, pursuant to the regulation, the licence for installing had to be announced, published (“promulgated”).

The rules on licencing show many similarities with the currently applicable provisions, as any electrical plant for own use with a performance of 500 – using the words of the period – “kilovolt-ampere” had to be reported to the minister for commerce before its establishment (electrical plant for own use to be reported). The reporting obligation also applied, if due to performance enhancement, the performance of the electrical plant exceeded the above threshold. The rule that the electrical plant for own use to be reported had to be – generally – established in such a way, that their connection to the electrical plants for public use was made possible, indicated a modern approach in the act. (Even if the minister for commerce was entitled to exempt the electrical plant from such obligation in justified cases.)

According to the currently applicable Hungarian rules, electricity may be generated in a powerplant with a nominal performance of 50 MW or above subject to a generator licence and in a small powerplant with a nominal performance of 0.5 MW or above, electricity generation is subject to a small powerplant single permit. Increase in the thresholds was obviously due to the development of technology.

Expropriation and utility easement

The regulation of the era rightly identifies the border between public sphere and private sphere by creating sufficiently modern rules on expropriation and property-restricting utility easements.

An expropriation set out in Act XLI of 1881 was applicable for the establishment or reorganisation of a public use electrical plant, for the purposes and within the limitations set out in the first and third paragraphs of Section 8 of Act III of 1907, moreover in the case of real estates in private ownership, for the purposes of establishing power plants, transmission and switch facilities. If the subject of the expropriation was a real estate in the ownership of a city, the relevant city had to first be heard.

No right of expropriation could be granted for churches, cemeteries, properties for religious or funerary purposes, buildings or monuments of artistic or historical value, natural relics, and those areas which were exempted from expropriation by the minister for defence due to the protection of significant defence reasons. In the case of those areas, the exceptional natural beauty of which would disappear due to the establishment of an electrical plant, the minister for commerce was entitled to reject the right of expropriation, or could make it conditional upon such terms regarding the location of the building site and the devices themselves that were appropriate to conserve the value to be protected.

If the transmission or switch device could have been placed outside the facility of the electrical plant, in the premises of a building not used for lodging purposes, and in such a way that the placement did not affect or only insignificantly affected the intended use of the building, the placement was an option instead of the expropriation by establishing an easement for the right of use. Pursuant to Section 14 of Act XLI of 1881 the establishment of an easement for the right of use could not have been regarded as a partial expropriation.

If the device mentioned above had to be established on an unbuilt area, and the area thus occupied was so insignificant that in the case of its transformation into a separate plot it could not have been used either for agricultural or for building purposes, and the lot itself on which the device was set up did not suffer a significant loss in value, the licensee could opt for the establishment of land-lease, instead of expropriation. In case of the establishment of such land-lease the owner of the real estate could not redeem the building, following the termination of the land-lease.

The easement for the right of use was subject to an annuity, the land-lease was subject to a building rental fee. The annuity for the easement for the right of use had to be established per the premises or part of the premises occupied, compared to the rental fee that could have been achieved for them at the time of the establishment of the easement, by adding any possible increase of the fire insurance fee. The fee for land lease had to be established in proportion to leasing fee applicable at the time of the establishment of the land-lease, however, the decrease in the leasing fee for the whole real estate due to the land-lease had to be taken into account. Security had to be provided for the annuity and the rental fee for the building that was not redeemed.

The rules on expropriation had to otherwise be applied mutatis mutandis to the establishment of the easement for the right of use and the land-lease. Regarding the annuity and the building rental fee, moreover their security, the rules on the indemnification in the case of expropriation were to be applied mutatis mutandis.

Rules on consumer protection

Even though the act at the time did not use the term “consumer protection”, the article on the relations between the “licensee and the consumer” made it clear, that that part of the act contained provisions that served the interests of the consumers.
The price to be paid for electricity was defined by the licencing document’s tariffing regulations (Section 11 (1) 7.) separately for each consumer group. Tariff had to be defined taking in consideration the consumers in general, but especially those consuming for producing purposes in such a way, that in comparison to the expected level of consumption, as regards the regular value of the operational, business and maintenance costs and the capital investment – taking into account the reversion – in excess of the coverage for the necessary or otherwise appropriate capital repayments and the fruit bearing of the capital investment was also ensured. The licensee was entitled to offer discounts to certain consumers taking into account the special nature of their consumption, especially for production purposes, within the tariff defined for each of the consumer groups in the licencing document. In case of the equality of the nature of consumption, its allocation in time, moreover the level of consumption, and the equality of the technical and economic conditions of access, such a discount was valid towards all consumers within the individual consumer group. A register had to be kept on the relevant discounts. This register had to be presented each year to the minister for commerce. The consent of the minister for commerce was necessary for the licensee to set out a contractual price towards the consumer with a price higher than that defined in the tariff. Any contract concluded against this limitation was considered null and void.

It was also considered advanced competition law approach to prohibit certain tools to be exclusively available for supply from the “service provider”.

The licensee could not make the supply of electricity conditional upon the consumer having had the equipment necessary for energy use installed by the licensee or a third party appointed by it, upon the consumer purchasing the devices of materials necessary from any certain person, or upon the consumer using equipment not available in general commercial circulation. Any contract concluded against this limitation was considered null and void.
At the same time, the minister for commerce was entitled to define in a decree standards and security regulations, and if the consumer’s equipment failed to meet such standards and regulations, the licensee was not allowed to provide access to its network.

Tariff regulation

The regulation also set out advances tariff mechanisms. Changes in the tariff were only possible to be requested by the parties interested, in the case of significant changes in the cost of materials and wages. If such a change occurs in the energy source used for energy generation or the method of generation energy that provides for greater gains for the company, than the increase in the levels necessary for ensuring gaining interest on and the repayment of the capital investment related to the change, then half of the surplus gains had to be expended on decreasing energy prices in general. This provision was applicable mutatis mutandis also if the method of energy transmission changed.

If the licence entitled different persons with the generation, conduct and servicing of electricity, a judicial proceeding could take place regarding the changes in energy prices, generally between the licensee generating the energy and the interested parties receiving energy directly from such licensee. If the decrease in the energy prices had to take place due to the changes made in the method of transmission, the proceeding for the price decrease could have been lodged against the licensee gaining advantage due to the changes, by the interested party receiving energy from it.

If the person entitled to enforce the claim for deceasing energy prices – as per the previous paragraph – defaulted in doing so, the proceeding could have been initiated by any other interested party. In a proceeding already pending any of the interested parties could have participated. In the proceeding for the amendment of energy prices, consumers were represented by the town or city. The minister for commerce in consensus with the minister for interior affairs could order the town or city to lodge the proceeding for the decrease of the energy prices.

For the validity of the out-of-court settlement concluded between all interested parties, for the modification of the tariff, the consent of the minister for commerce was needed. The representative powers of towns and cities mentioned in the previous paragraph included concluding such a settlement. If the licensee that gains advantage as the generator of energy or due to the changes in energy transmission was the interested town or city, the previous paragraph did not apply, and as regards changes in the energy prices for other reasons, the minister for commerce decided, in consensus with the minister for interior affairs, with the omission of the judicial proceeding.

The above rule defines such an automatism – unfortunately non-existent in our current laws – that by the decrease of the energy prices, the consumer prices must be decreased as well. The special jurisdiction court formed on the Royal Curia had the powers to decide on the amendment of the tariff if the licensee or any other interested party so requested.

Dispute settlement

The regulation identified energy law as a complete field of law, on which field serious professional knowledge was necessary to settle disputes. Thus, the act itself delegated energy related dispute settlement to an extraordinarily high level, to the Curia, a special jurisdiction court formed on the Royal Curia had the powers to decide in such cases.

The special jurisdiction court consisted of four members and the chair and proceeded as a panel. Two of the members were appointed by the chair of the Royal Curia from among the judges and patent board members of the Royal Curia, the other two members were invited by the chair from among such energy management and electricity professionals who had been previously appointed for such purposes by the minister for commerce in consensus with the minister for justice. Section 59-69 of Act I of 1911 were to be applied for the exclusion of the member of the special jurisdiction court and its keeper of the minutes. Thus, ensuring proficiency in such matters was guaranteed by law, contrary to the currently applicable procedural rules.
The rules on conflict of interest were also regulated in detail. The member of the board or member of the supervisory board of the electricity company interested in the proceeding as a party, could not participate in the proceeding and the same applied to the employees of such company. The panel of the special jurisdiction court decided on the exclusion without the participation of the member concerned. The special jurisdiction court decided following the hearing of the parties and if necessary, following the procurement of an expert opinion. The special jurisdiction court was entitled to seek the National Energy Management Council for the procurement of the expert opinion or the review thereof. The current civil procedure laws do not make it possible to seek an expert opinion ex officio, however, such a regulation would be very desirable.

Conclusion

Due to the limitations in volume, it is not possible to examine in detail in this study all provisions of the act, even though several other important concepts of law such as “revision” or the “right of redemption” would be worthy of closer look, at the same time even from the sections explored it is obvious that this piece of legislation was way ahead of its time. Due to the above reasons it would have been worthwhile to present more in detail the legal practice, but within these boundaries there was no such possibility.

However, it can be stated that even though the current rules of the Electricity Act are based on European Union harmonising obligations, those concepts of law that appeared in the electricity regulations of the 1930s in Hungary are still fully lasting, and certain provisions – naturally with different linguistics – were regulated in many aspects the same way as the current laws. Moreover, they contained such legal solutions (e.g. the compulsory expert judges) that could serve as an example even today. This piece of legislation is a very fine example of the advanced Hungarian private law before World War II., in which together with the balanced coordination of civil law, the state and public law intervention remained at the necessary, reasonable level, respecting private ownership.

References

Fazekas, Orsolya (editor) (2010): A magyar villamosenergia szektor mûködése és szabályozása I, Complex Kiadó, Budapest,
Fodor, László (2014): Klímavédelem az energiajogban – szabályozási modellek Németországból, Wolters Kluwer Kiadó, Budapest,
Heffron, RJ (2015): Energy Law: An introduction, Springer,, p. 132.
Szladits, Károly (1944): Magyar magánjog mai érvényben, Kötelmi jog III. kötet, II. kiadás, Grill Károly Könyvkiadó, Budapest, p. 31.

Dr. Róbert habil. Szuchy
associate professor Károli Gáspár University of the Reformed Church, Faculty of Law
szuchy.robert@kre.hu