Anyone who wants to operate a closed distribution system should be aware that, under the Energiewet, a factual qualification no longer suffices: formal recognition by the ACM is required. Without that recognition, the system does not fall under the special regime for closed distribution systems, and the owner runs enforcement risks. The framework is two-tiered: the ACM first recognises the system as a closed distribution system, and only afterwards, on application, appoints an operator nominated by the owner. That interplay between recognition and appointment is the legal key to the CDS regime. We outlined the broader framework earlier in our overview article on private networks and closed distribution systems.
The recognition criteria
The ACM only recognises a system if it meets a limitative set of conditions. The system must be located within a geographically bounded industrial or commercial site, or a site with shared services. The business or production process must be technically, organisationally or functionally integrated with the system, or the system must primarily distribute to the owner and related undertakings. There may be fewer than 1,000 connected parties on the system, and the system may not supply household end-users, except for incidental use by a small number of household end-users with a connection to the owner. In addition, the ACM must be satisfied that the safety and reliability of the system are adequately safeguarded, and for electricity a maximum voltage level of 220 kV applies. The applicant must also own the network or have durable power of disposal over it.
These criteria call for a file that is factually watertight: a precise delineation of the system with a map of the system boundaries and the transfer point to the public network, an overview of all connected parties and their role on the site, substantiation of the technical or functional integration, and documents demonstrating ownership of, or power of disposal over, the infrastructure. In practice, that last point deserves particular attention: ownership, registration and the actual delineation of a network do not automatically coincide with its operation, and discrepancies between the drawn boundaries and the actual situation on site are a recurring source of delay.
Procedure and timelines
The ACM handles the application under the General Administrative Law Act (Algemene wet bestuursrecht) and must, in principle, decide within six months of receipt; that period can be extended once by a maximum of six months. Submission is usually followed by a phase of questions and additions, during which the ACM may suspend the decision period for as long as the file is incomplete. The decision is published, and interested parties, including connected parties and the regional network operator, may lodge an objection against it and subsequently appeal to the Trade and Industry Appeals Tribunal (College van Beroep voor het bedrijfsleven). A recognition process, including preparation, can easily take several months to more than a year. Anyone developing a site or acquiring a network would therefore do well to factor the recognition process into their planning in good time. For more on how the ACM approaches and enforces licensing and recognition processes, see our article on ACM licences and enforcement for energy companies.
The position of connected parties after recognition
After recognition, the operator is not free to run the network purely as a matter of private contractual discretion. On request, it must make an offer for connection and for transport, and may only refuse to do so where there is reasonably insufficient transport capacity, with a proper justification. In addition, obligations apply regarding record-keeping and the provision of data, and there must be a transparent, simple and inexpensive complaints procedure for connected parties with a small connection.
Nuance is important when it comes to the legal position of connected parties. Connected parties on a closed distribution system are not automatically treated on the same footing as customers on the public network, and the Network Code does not bind them directly in their relationship with the public network operator. That does not mean they are without rights, however: obligations that the CDS operator owes to its connected parties remain fully in force, and connected parties can lodge complaints and bring disputes before the ACM. This distinction matters for contract drafting: precisely because public law does not directly regulate everything between the public network operator and the connected party, connection, transport and usage conditions within the CDS must be carefully set out contractually. Caution is also warranted on tariffs: the ACM does not set tariffs for a CDS owner, so not every tariff rule that applies to public network operators automatically applies to a CDS.
Amendment and withdrawal
Recognition is not a final destination. Changes in the factual situation can have consequences: expansion of the site, an increase in the number of connected parties, the arrival of household end-users, or transfer of the network to another party. In those cases the recognition must be amended or reapplied for; on transfer of the network, the recognition does not automatically transfer with it. The ACM can also withdraw the recognition where the recognition criteria are no longer met, where the system is not operated by the appointed operator, where the operator acts in breach of its statutory obligations, or where incorrect or incomplete information was provided with the application that would have led to a different decision. Changes in ownership, system boundaries, number of connected parties or use are therefore not merely operational matters, but can affect the very basis for the recognition.
Pitfalls from practice
A number of pitfalls recur time and again. The first is operating without recognition, in the belief that it concerns an installation or a direct line; an incorrect qualification can lead to enforcement and to disputes with connected parties years later. The second is a boundary for the system that is either too narrow or too broad, so that later expansions fall outside the recognition, or the network includes parts over which the applicant has no control. The third is being too casual about ownership of, and power of disposal over, parts of the network. The fourth is underestimating the position of connected parties: they are interested parties in the recognition decision and can, even after recognition has been granted, lodge complaints or bring disputes before the ACM. The fifth is an insufficiently developed contractual framework for connection, transport, tariffs, capacity limitations and complaint handling. For how the ACM operates in such disputes, see our article on the ACM’s role in energy law disputes.
Conclusion
CDS recognition is not a simple exemption counter for private networks, but a tightly regulated exception with its own admission criteria and ongoing maintenance obligations. A well-prepared file, clean documentation of system boundaries and ownership position, and a properly organised legal relationship with connected parties reduce not only the risk of delay at the ACM, but also of later disputes, enforcement and withdrawal. Are you preparing a recognition application, changing your site, or facing withdrawal or enforcement? Our energy law attorneys guide recognition processes from application through to any proceedings before the CBb.
