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TECO v. Guatemala

TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23
Type of case:
Investor-State
Economic sector:
Electricity, gas, steam and air conditioning supply
Electricity, gas, steam and air conditioning supply
Date of introduction:
20 Oct 2010
Status of the case:
Pending (Annulment)
Claimant’s country of origin:
United States
Respondent:
Guatemala
Institution:
ICSID (International Centre for Settlement of Investment Disputes)
Rules of arbitration:
Seat of arbitration:
Washington D.C.
Applicable treaties:
CAFTA - DR - USA (2004)

Documents of the case

Rodrigo Oreamuno Appointed by the State (replaced)
Claus von Wobeser Appointed by the State
William W. Park Appointed by the investor
Alexis Mourre President
Source(s) of the individual document(s):
Reproduced with the permission of the International Centre for Settlement of Investment Disputes :
Link1 (EN) Official source ,
Link2 (ES) Official source

Lawyers, other representatives, expert(s), tribunal’s secretary

Award

LIST OF ABBREVIATIONS AND TERMS USED

Bates White: Bates White LLC

Administrative and Financial Regulations: ICSID Administrative and Financial Regulations

Arbitration Rules: ICSID Arbitration Rules

Authorization Agreements: Authorization Agreement for distribution of electricity in the departments of Guatemala, Sacatepéquez and Escuintla of May 15, 1998 and Authorization Agreement of February 2, 1999, for distribution of electricity in the departments of Chimaltenango, Santa Rosa and Jalapa.

CAFTA-DR: Free Trade Agreement between the Dominican Republic, the United States of America, and Central America

CFD: Cash flow discount (valuation method)

CNEE: Comisión Nacional de Energía Eléctrica (National Commission of Electric Energy)

Counterfactual value: Used to refer to the valuation of EEGSA, assuming that the CNEE had implemented the decisions of the Expert Commission to correct the EEGSA VAD study in 2008

CRF: Capital Recovery Factor (In original in Spanish: Factor de Recuperación de Capital "FRC").

Current value: Used to refer to the valuation of EEGSA in the actual conditions in which its shares were sold to EPM in October 2010

DCF: Discounted Cash Flow.

DECA I: Distribución Eléctrica Centro Americana S.A.

DECAII: Distribución Eléctrica Centro Americana Dos S.A.

DEOCSA: Distribuidora de Electricidad de Occidente S.A.

DEORSA: Distribuidora de Electricidad de Oriente S.A.

EDP: Electricidade de Portugal S.A.

EEGSA: Empresa Eléctrica de Guatemala S.A.

EPM: Empresas Públicas de Medellin E.S.P.

FET: Fair and Equitable Treatment.

FRC: see CRF.

Iberdrola: Iberdrola Energia S.A.

ICSID: International Centre for Settlement of Investment Disputes

ICSID Convention: Convention on the Settlement of Investment Disputes between States and Nationals of Other States

INDE: Instituto Nacional de Electrificación (National Institute for Electrification)

LGE: General Electricity Law

MEM: Ministry of Energy and Mines of Guatemala

Memorandum of Sale: Information Memorandum of Sale of EEGSA prepared by Salomon Smith Barney, 1998

Minutes of the First Session: Record of the agreements reached between the Parties and the Arbitral Tribunal during the first session of the Tribunal Arbitral, held on May 23, 2011

NAFTA: North America Free Trade Agreement

ÑERA: NERA Economic Consulting S.A.

NRV: New Replacement Value (In original in Spanish: Valor Nuevo de Reemplazo "VNR").

PA Consulting: PA Consulting Services S.A.

Parties: Together, the Claimant and the Respondent

Preliminary Memorandum: Preliminary Information Memorandum of Sale of EEGSA prepared by Salomon Smith Barney in April 1998

Purchase and Sales Agreement: Share Purchase and Sales Agreement signed between

DEC AI and the Republic of Guatemala on September 11, 1998

PW Report: The report prepared by Price Waterhouse on January 11, 1991 on the privatization of EEGSA

RLGE: Regulations of the LGE, Government Resolution No. 256-97 of March 21, 1997, with subsequent modifications

SIGLA: Association formed by the consultants Sigla S.A. and Sistemas Eléctricos y Electrónicos de Potencia, Control y Comunicaciones S.A.

TECO Energy Inc.: The parent company of the Teco group dealing with energy

Teco or the Claimant: Teco Guatemala Holdings LLC

Terms of Reference: Terms of Reference for conducting the VAD study for EEGSA in the period 2008-2013; CNEE Resolution No. 13680-2007 of April 30 as amended by Resolution No. 124-2007 of October 9, 2007 and Resolution No. 5-2008 of January, 17, 2008.

TPS: Teco Power Service Corporation de Ultramar Guatemala, S.A.

USAID: The United States Agency for International Development

VAD: Value Added for Distribution (in original in Spanish Valor Agregado de Distribución)

VNR: see NRV

I. THE PARTIES

A. The Claimant

1.
Teco Guatemala Holdings LLC, the claimant in this arbitration ("Teco" or "the Claimant"), is a limited liability company established in 2005 under the laws of the state of Delaware in the United States of America.
2.
Teco is a subsidiary entirely owned by TECO Energy Inc. ("TECO ENERGY"), a parent company established under the laws of the state of Florida, United States of America.
3.
In 1998, another subsidiary of the group TECO ENERGY established in the Cayman Islands and known as Teco Power Service Corporation de Ultramar Guatemala, S.A. ("TPS"), together with Iberdrola Energia S.A. ("Iberdrola") and Electricidade de Portugal S.A. ("EDP"), formed the Guatemalan company Distribución Eléctrica Centro-Americana S.A. ("DECA I"), and through the latter company, acquired 80 percent of the capital of Empresa Eléctrica de Guatemala S.A. ("EEGSA").
4.
EEGSA is a Guatemalan electricity company. Under Ministerial Agreement No. OM-158-98 of April 2, 1998 and the Authorization Agreement of May 15, 1998, the Ministry of Energy and Mines of Guatemala ("MEM") authorized EEGSA to distribute electricity in the departments of Guatemala, Sacatepéquez, and Escuintla for a period of 50 years. Following the privatization of EEGSA, under Ministerial Agreement No. OM-32-99 of January 11, 1999 and an Authorization Agreement of February 2, 1999, MEM also authorized EEGSA to distribute electricity in the departments of Chimaltenango, Santa Rosa and Jalapa for a period of 50 years.
5.
In August 1999, DECA I was absorbed by EEGSA and another Guatemalan company known as Distribución Eléctrica Centro-Americana 2 S.A. ("DECA II") was created, which became the owner of 80 percent of the capital of EEGSA.
6.
TPS owned 30 percent of the capital of DECA II and the remaining capital of that company was owned by Iberdrola (49 percent) and by EDP (21 percent).
7.
In 2004, the shares of TPS in DECA II were transferred within the group TECO ENERGY to another subsidiary known as TWG Non-Merchant Inc., which later changed its name to TECO Guatemala Inc. In 2005, the shares of DECA II owned by TECO Guatemala Inc. were transferred to the Claimant.
8.
In 2010, DEC A II sold its shares in EEGSA to the Colombian firm Empresas Públicas de Medellin E.S.P. ("EPM").
9.
In this procedure, Teco is represented by:

Andrea J. Menaker

Jaime M. Crowe

Petr Polásek

Kristen M. Young

White & Case LLP

701 Thirteenth Street, NW Washington, DC 20005-3807, USA.

Tel. +1 202 626 3600

Phil Barringer

Javier Cuebas

Teco Guatemala Holdings LLC

702 North Franklin Street Tampa, FL 33602, USA

B. The Respondent

10.
The Republic of Guatemala ("Guatemala" or "the Respondent") is the Respondent in this arbitration. In this procedure, Guatemala is represented by:

Dr. Vladimir Aguilar

Attorney General of the Republic of Guatemala

Procuraduría de la República de Guatemala and

Mr. Sergio de la Torre Gimeno

Ms. Maria Luisa Flores

Mr. Alexander Cutz Calderón

Mr. Romeo López Guiterrez

Ministry of Integration and Foreign Trade

Ministry of Economy

Guatemala City,

Guatemala

Alejandro Arenales

Alfredo Skinner-Klée

Rodolfo Salazar Arenales & Skinner Klée 3a calle 2-60 Zona 10, 01010 Edificio Topacio Azul, Of. 701 Guatemala City, Guatemala Tel. (+1 502) 2386-9300 Nigel Blackaby Lluis Paradell Noiana Mari go Jean Paul Deschamps Lauren Friedman Michelle Grando

Freshfields Bruckhaus Deringer LLP 701 Pennsylvania Avenue N.W.

Suite 600

Washington, DC 20004, USA Tel. (+1 202) 7774-519

11.
The Arbitral Tribunal will refer to the Claimant and the Respondent together as "the Parties"

II. CONSENT TO ARBITRATION

12.
The consent of the Republic of Guatemala to arbitration is established in Article 10.17.1 of the Free Trade Agreement between the Dominican Republic, the United States of America and Central America ("CAFTA-DR"), which provides that:

"Each Party consents to the submission of a claim to arbitration under this Section in Accordance with this Agreement."

13.
Paragraphs 2 and 3 of Article 10.16 of CAFTA-DR, entitled "Submission of a Claim to Arbitration," provides that:

"2. At least 90 days before submitting any claim to arbitration under this Section, a claimant shall deliver to the respondent a written notice of its intention to submit the claim to arbitration (‘notice of intent) [...].

3. Provided that six months have elapsed since the events giving rise to the claim, a claimant may submit a claim referred to in paragraph 1:

(a) under the ICSID Convention and the ICSID Rules of Procedure for Arbitration Proceedings, provided that both the respondent and the Party of the claimant are parties to the ICSID Convention [...]"

14.
Article 10.18 of CAFTA-DR provides that:

"Conditions and Limitations on Consent of Each Party

1. No claim may be submitted to arbitration under this Section if more than three years have elapsed from the date on which the claimant first acquired, or should have first acquired, knowledge of the breach alleged under Article 10.16.1 and knowledge that the claimant (for claims brought under Article 10.16.1(a)), or the enterprise (for claims brought under Article 10.16.1(b)) has incurred loss or damage.

2. No claim may be submitted to arbitration under this Section unless:

(a) the claimant consents in writing to arbitration in accordance with the procedures set out in this Agreement; and

(b) the notice of arbitration is accompanied,

(i) for claims submitted to arbitration under Article 10.16.1(a), by the claimant ’s written waiver, and

(ii) for claims submitted to arbitration under Article 10.16.1(b), by the claimant ’s and the enterprise ’s written waivers of any right to initiate or continue before any administrative tribunal or court under the law of any Party, or other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach referred to in Article 10.16.

3. Notwithstanding paragraph 2(b), the claimant (for claims brought under Article 10.16.1(a)) and the claimant or the enterprise (for claims brought under Article 10.16.1(b)) may initiate or continue an action that seeks interim injunctive relief and does not involve the payment of monetary damages before a judicial or administrative tribunal of the respondent, provided that the action is brought for the sole purpose of preserving the claimant ’s or the enterprise ’s rights and interests during the pendency of the arbitration."

15.
The Claimant expressly consented to arbitration by submitting its request for arbitration ("Request for Arbitration") dated October 20, 2010 and satisfied all requirements provided by the CAFTA-DR for the commencement of the arbitration.1
16.
In Accordance with Article 10.18.2(b) of CAFTA-DR, Teco also waived its right to initiate or continue before any administrative tribunal or court under the law of any of the Parties any proceeding seeking compensation for any measure alleged to constitute a breach referred to in Article 10.16 of CAFTA-DR.2
17.
It is undisputed that the Claimant met the requirement of notice of intent, that more than six months elapsed since the events giving rise to the claim, and that the requirement of written consent by the Parties to arbitration was met.

III. PROCEDURAL HISTORY

18.
On January 13, 2009, the Claimant submitted its letter of intent to Guatemala, in accordance with Article 10.16.2 of CAFTA-DR.
19.
On October 20, 2010, the Claimant submitted its Request for Arbitration to the ICSID Secretariat, in accordance with Article 36 of the ICSID Convention.
20.
On November 23, 2010, the Secretary-General registered the Claimant’s Request for Arbitration.
21.
On February 11, 2011, the Arbitral Tribunal was constituted, consisting of Professor William W. Park, appointed by the Claimant, Professor Rodrigo Oreamuno, appointed by the Respondent, and Mr. Alexis Mourre, appointed jointly by the Parties to be the President of the Arbitral Tribunal.
22.
On March 30, 2011, following a request for disqualification lodged by the Claimant, Professor Oreamuno declined to serve on the Arbitral Tribunal. On same date, the Secretary General of the ICSID notified the Parties, in accordance with rule 10(1) of the ICSID Arbitration Rules (the "Rules"), that the proceeding would remain suspended in accordance with rule 10(2).
23.
On April 5, 2011, the Respondent appointed Dr. Claus von Wobeser as arbitrator and the Claimant raised no objection to such appointment. Accordingly, on April 21, 2011 the Arbitral Tribunal was reconstituted with the following members: Professor William W. Park, Dr. Claus von Wobeser, and Mr. Alexis Mourre.
24.
On May 23, 2011, in accordance with rule 13(1), the Tribunal held its first session with the Parties by conference call. The session was recorded and the Arbitral Tribunal established minutes ("Minutes of the First Session") which were transmitted to the Parties on June 14, 2011.
25.
The Minutes of the First Session recorded the Parties’ agreement on the rules applicable to the arbitration and the provisional timetable. The Minutes of the First session also recorded that the Parties agreed that the Arbitral Tribunal had been properly constituted and that they had no objections to the appointment of its members.
26.
On September 23, 2011, the Claimant submitted its Memorial (the "Memorial") together with factual exhibits C-l to C-418, legal exhibits CL-1 to CL-56, the witness statements of Carlos Manuel Bastos (CWS-1), Sandra W. Callahan (CWS-2), Miguel Francisco Calleja Mediano (CWS-3), Leonardo Giacchino (CWS-4), Gordon L. Gillette (CWS-5) and Luis Maté (CWS-6), as well as the expert reports of Rodolfo Alegría Toruño (CER-1) and Brent C. Kaczmarek (CER-2).
27.

On October 25, 2011, the Respondent confirmed that it would object to the Arbitral Tribunal’s jurisdiction, but that it considered that it would be more effective for such objections to be considered at the same time as the merits. The Respondent therefore proposed the following schedule of proceedings, which was accepted by the Claimant and adopted by the Arbitral Tribunal:

"1. Respondent’s memorial on jurisdiction and counter-memorial on the merits to be submitted on January 24, 2012.

2. Claimant’s counter-memorial on jurisdiction and reply on the merits to be submitted on May 24, 2012.

3. Respondent’s rejoinder on the merits and jurisdiction to be submitted on September 24, 2012."3

28.
On December 16, 2011, the Arbitral Tribunal issued Procedural Order No. 1, dealing with certain requests for the production of documents made by the Respondent.
29.
On January 24, 2012, the Respondent filed its memorial on jurisdiction and admissibility and counter-memorial on the merits (the "Counter-Memorial"), together with factual exhibits R-l to R-162, legal exhibits RL-1 to RL-17, the witness statements of Carlos Eduardo Colóm Bickford (RWS-1), Enrique Moller Hernández (RWS-2), Alejandro Alberto Amau Sarmiento, Mariana Álvarez Guerrero and Edgardo Leandro Torres (Mercados Energéticos) (RWS-3), as well as the expert reports of Manuel A. Abdala and Marcelo A. Schoeters (RER-1), Mario C. Damonte (RER-2) and Juan Luis Aguilar Salguero (RER-3).
30.
On January 31, 2012, the Claimant requested the Arbitral Tribunal to exclude exhibits R-102, R-140, R-149, R-150, and R-151 and requested that the Respondent resubmit its Counter-Memorial after removing the references to such exhibits.
31.
On February 2, 2012, the Claimant requested that paragraph 10.3 of the Minutes of the First Session be amended. On February 3, 2012, the Arbitral Tribunal asked the Parties to try to reach an agreement on the matter.
32.
On February 9, 2012, the Parties agreed to amend the third paragraph of item 10 of the Minutes of the First Session concerning the obligation to translate documents by replacing "including ICSID decisions" with "apart from ICSID or other international legal decisions."
33.
On February 10, 2012, the Arbitral Tribunal issued its order on Claimant’s January 31, 2012 request to exclude documents. The Arbitral Tribunal refused to exclude exhibits R-102, R-149, R-150 and R-151 from the record for such exhibits related to individuals who had submitted witness statements in the arbitration. Regarding exhibit R-140, the Arbitral Tribunal removed it from the record but gave the Respondent the option of replacing it by a document consisting solely of extracts from the statement made by Mr. Bastos in the Iberdrola arbitration.
34.
On March 21, 2012, the Arbitral Tribunal issued its Procedural Order No. 2, dealing with Claimant’s requests for the production of documents.
35.
On March 28, 2012, the Claimant requested that the Arbitral Tribunal order the Respondent to produce a clean copy of document G3-25 produced by the Respondent in response to the Claimant’s request to produce.
36.
On March 30, 2012, the Arbitral Tribunal directed the Parties to confer and attempt to agree on the question of the time-limit for the non-disputing parties’ submissions.
37.
On April 4, 2012, the Respondent informed the Arbitral Tribunal that it agreed to produce a clean copy of document G3-25, but that such production did not amount to a waiver of the privilege of communications between the CNEE and its internal or external legal counsels.
38.
On April 9, 2012, the Parties agreed that the time-limit for the submission of nondisputing parties’ briefs would be October 8, 2012.
39.
On April 11, 2012, the Respondent confirmed that it had produced all the documents ordered by the Arbitral Tribunal in its Procedural Order No. 2.
40.
On April 12, 2012, the Arbitral Tribunal noted the Parties’ agreement on the timelimit for the submissions of the non-disputing parties. The non-disputing parties were notified by the ICSID Secretary General of such time-limit on April 18, 2012.
41.
On May 24, 2012, the Claimant filed its reply (the "Reply"), together with factual exhibits C-419 to C-594, legal exhibits CL-57 to CL-80, the additional witness statements of Carlos Manuel Bastos (CWS-7), Sandra W. Callahan (CWS-8), Miguel Francisco Calleja Mediano (CWS-9), Leonardo Giacchino (CWS-10), Gordon L. Guillette (CWS-11) and Luis Maté (CWS-12) and the additional expert reports by Rodolfo Alegría Toruño (CER-3), Fernando Barrera Rey and Carlos Fernando Barrientos (CER-4) and Brent C. Kaczmarek (CER-5).
42.
On September 24, 2012, the Respondent filed its rejoinder (the "Rejoinder"), together with factual exhibits R-l63 to R-208, legal exhibits RL-18 to RL-32, the additional witness statements of Carlos Eduardo Colom Bickford (RWS-4) and Enrique Moller Hernández (RWS-5), and expert reports by Manuel A. Abdala and Marcelo A. Schoeters (RER-4), Mario C. Damonte (RER-5) and Juan Luis Aguilar Salguero (RER-6).
43.
On September 27, 2012, the Claimant complained that the Respondent had addressed jurisdictional issues in its Rejoinder, while it had been agreed in the Minutes of the First Session that the Rejoinder would only deal with the merits. The Claimant therefore requested an opportunity to answer such jurisdictional arguments.
44.

On October 1, 2012, the Arbitral Tribunal invited the Parties to "confer and agree on the organization and agenda of the hearings" and informed them that the Arbitral Tribunal would hold "a pre-hearing conference call on Tuesday 11 December, 2012."4

45.
On the same date, the Respondent agreed that the Claimant would respond to its last jurisdictional arguments no later than November 9, 2012.
46.
On October 5, 2012, the Governments of the Dominican Republic and the Republic of El Salvador submitted a non-disputing party brief pursuant to Article 10.20.2 of CAFTA-DR. On the same day, the Arbitral Tribunal granted an extension until November 23, 2012 of the time-limit for the other non-disputing parties to submit briefs.
47.
On October 12, 2012, the Claimant requested that exhibits R-189, R-191, R-193, R-194, R-195, R-197, R-200 and R-202, as well as any reference to such exhibits in the Rejoinder or in other documents be excluded from the record.
48.
On October 19, 2012, the Respondent objected to such request.
49.

On October 235, 2012, the Arbitral Tribunal decided to remove from the record exhibits R-189, R-191, R-193, R-194, R-195, R-197, R-200 and R-202, except for the parts of document R-202 relating to the evidence of Claimant’s experts and witnesses whom the Respondent had decided to cross-examine. The Arbitral Tribunal also ordered the Respondent to remove any reference to such documents in its Rejoinder or other documents exhibited therewith.

50.
On November 2, 2012, the Parties submitted to the Arbitral Tribunal their proposals for the organization of the evidentiary hearings.
51.
On November 6, 2012, the Respondent submitted its Rejoinder without the references to the removed exhibits.
52.
On November 8, 2012, the Claimant requested that the Arbitral Tribunal exclude witness statement RWS-3 and exhibit R-103 from the record since its authors would not be available for cross-examination at the evidentiary hearings.
53.
On November 9, 2012, the Arbitral Tribunal informed the Parties of its decisions concerning the organization of the evidentiary hearings.
54.
On the same date, the Claimant filed its rejoinder on jurisdiction and admissibility ("Rejoinder on Jurisdiction").
55.
On November 15, 2012, the Republic of Honduras submitted a non-disputing party brief.
56.
On November 19, 2012, the Respondent responded to Claimant’s November 8, 2012 request for the exclusion of certain documents from the record.
57.
On November 20, 2012, the Respondent submitted the third witness statement of Carlos Eduardo Colom Bickford (RWS-6) and exhibits R-209 to R-211.
58.
On November 21, 2012, the Arbitral Tribunal decided to exclude RWS-3 from the record6 and admitted exhibit R-103 as documentary evidence.
59.
On November 23, 2012, the United States of America submitted a non-disputing party brief.
60.
On November 30, 2012, the Parties submitted the following list of witnesses and experts to be cross-examined:

Witnesses for the Claimant:

Gordon L. Gillette

Sandra W. Callahan

Miguel Francisco

Calleja Mediano

Luis Maté

Leonardo Giacchino

Carlos Manuel Bastos

Witnesses for the Respondent:

Enrique Moller Hernández

Carlos Eduardo Colóm Bickford

Experts:

Rodolfo Alegría Toruño

Juan Luis Aguilar Salguero

Femando Barrera-Rey

Mario C. Damonte

Brent C. Kaczmarek

Manuel A. Abdala

61.
On December 10, 2012, as permitted by the Arbitral Tribunal’s letter of November 9, 2012, the Parties submitted new documents to be used at the hearings. The Claimant submitted exhibits C-595 to C-620 and the Respondent submitted exhibits R-212 to R-226
62.
On December 11, 2012, a pre-hearing conference call was held between the Arbitral Tribunal and the Parties.
63.
On December 21, 2012, the Parties submitted new additional documents in accordance with the Arbitral Tribunal’s order of November 9, 2012. The Claimant submitted exhibits C-621 to C-625 and the Respondent submitted exhibits R-227 to R-233
64.
The evidentiary hearing took place on January 21 and 22, 2013 in New York, and the following witnesses called by the Claimant were examined and cross-examined: Gordon L. Gillette, Sandra W. Callahan and Miguel Francisco Calleja.
65.
On March 1, 2013, Carlos Manuel Bastos, a witness presented by the Claimant, was examined and cross-examined via videoconference.
66.
On March 8 and 9, 2013, the hearing continued at ICSID in Washington, D.C. The following witnesses called by the Parties were examined: Leonardo Giacchino, Enrique Moller and Carlos Colóm Bickford, as well as the following experts: Rodolfo Alegría Toruño, Juan Luis Aguilar Salguero, Fernando Barrera Rey, Mario C. Damonte, Brent C. Kaczmarek and Manuel A. Abdala.
67.
At the end of the hearing, the Arbitral Tribunal asked the Parties to consult and agree on the schedule and format of their post-hearing briefs and asked them whether they had any complaints about the way in which the proceedings had been conducted. Both Parties replied that they had no complaints in this respect.
68.
On March 18, 2013, the Parties informed the Arbitral Tribunal that they had been unable to reach an agreement on the schedule and format of their post-hearing briefs.
69.

On March 22, 2013, the Arbitral Tribunal decided that the Parties would submit two simultaneous rounds of post-hearing briefs. The Arbitral Tribunal did not impose page limitations but invited the Parties "to make their best efforts to contain the volume of their briefs, which should not be duplicative of the Parties’ existing memorials."7

70.
In the same communication, the Arbitral Tribunal also gave the Parties until July 5, 2013 to simultaneously submit their claims for costs and until July 19, 2013 to submit any rejoinders to the other party’s claims for costs.
71.
On June 10, 2013, each party submitted its post-hearing brief ("PHB"). Claimant also submitted exhibits C-626 to C-629.
72.
On June 18, 2013, the Claimant requested the Arbitral Tribunal to exclude certain information related to the Iberdrola arbitration from Respondent’s PHB. On June 26, 2013, the Respondent objected to such request
73.
On June 25, 2013, the Parties requested the Arbitral Tribunal to modify the schedule for the remaining filings as follows: Reply PHB on July 8, 2013; submissions on costs on July 24, 2013, and reply submissions on costs on August 7, 2013. The same date, the Arbitral Tribunal accepted the Parties’ request.
74.
On June 27, 2013, the Arbitral Tribunal decided that paragraphs 10, 152 and 155 as well as footnote 18 of Respondent’s PHB would be disregarded. However, for practical purposes, the Arbitral Tribunal did not request that the Respondent resubmit its PHB. The Arbitral Tribunal also reminded the Parties "that it will resolve this case on the basis of the direct oral and written evidence produced in this case, and that no consideration will be given to either the parties pleadings or the transcripts in the Iberdrola arbitration, save of course to the limited extent identified in the Tribunal’s letters of 10 February and 15 October 2012."
75.
On July 8, 2013, each party submitted its second PHB.
76.
On July 24, 2013 the Parties simultaneously submitted their claims for expenses and arbitration costs.
77.
On August 7, 2013, the Parties simultaneously submitted their replies on costs. The Respondent submitted an updated claim for expenses on November 18, 2013, to take into account the payment of the third advance of fees and costs requested by ICSID in its letter of 7 August 2013.
78.
On November 12, 2013, the Arbitral Tribunal declared the proceeding closed in accordance with Article 38 of the Rules.

IV. SUMMARY OF THE FACTS

79.
This dispute arose from the alleged violation by the Comisión Nacional de Energía Eléctrica (National Commission of Electric Energy) ("CNEE") of the Guatemalan regulatory framework for setting tariffs for distribution of energy by EEGSA, the electricity company in which the Claimant had an indirect share.

A. Background of the electricity distribution system in Guatemala

80.
At the end of the 1980s, Guatemala’s public electricity sector was facing a series of difficulties due to insufficient generating capacity.8
81.
At that time, electricity generation in Guatemala was controlled by the Instituto Nacional de Electrificación ("INDE"), a State-owned body established by decree in 1959 to plan, design, construct, and finance works and facilities and to meet the electricity needs of the nation,9 while distribution was the responsibility of the Empresa Eléctrica de Guatemala S.A. ("EEGSA"),10Distribuidora Eléctrica de Occidente S.A. ("DEOCSA"), and Distribuidora Eléctrica de Oriente ("DEORSA"),11 all public corporations. EEGSA, although originally a private electricity-generating company, became in 1977 part of the government electricity system under the control of the Ministry of Energy and Mines ("MEM").12 In 1983, MEM transferred its share in EEGSA to INDE.13
82.
The difficulties facing the sector were due, on the one hand, to the fact that INDE played a dual role of regulator and operator with little or no incentive to operate efficiently and, on the other, to external factors such as unfavorable climate conditions, the oil crisis of the 1970s, the depreciation of the Guatemalan currency, and the country’s debt crisis, which made it difficult for INDE to invest the necessary funds.14
83.
Because of this situation, Guatemala considered the possibility of privatizing certain activities in the sector and in 1990 the President of Guatemala, Jorge Serrano, commissioned through the United States Agency for International Development ("USAID") a study of possible options for the privatization of EEGSA.15 On January 11, 1991, Guatemala received a report that had been prepared by Price Waterhouse between September and November 1990 (the "PW Report").16
84.
The PW Report concluded that the time was not yet ripe for privatization of EEGSA, for four main reasons:

• "Basic subsidy problem is not addressed - Subsidy problems in the power sector, although large, do not seem critical enough to rush a sale of EEGSA. This is particularly true because EEGSA is a relatively efficient operator compared to INDE, and privatizing EEGSA does not address the basic subsidy problem that would still be present in INDE’s electricity rates.

• Regulatory mechanisms are not established. - The lack of appropriate regulatory mechanisms could lead to monopoly pricing and sharp tariff increases if EEGSA were privatized at the present time.

• Expected revenue from sale of EEGSA is low - the current economic situation, with high inflation, high interest rates, and exchange rate problems makes it a poor time to privatize due to the very low values that EEGSA is likely to command under such conditions. The limited interest of foreign investors and the lack of a local equity market are also issues that reduce the value of EEGSA to investors.

• EEGSA and INDE are currently too interdependent - EEGSA’s close relationship and interdependency with INDE would have to be restructured to eliminate most subsidies and to establish power purchase contracts before any privatization. Further analysis would be required to examine the future of the entire Guatemalan electricity system, including INDE and the other electric distribution companies."17

85.
The PW Report also estimated the book value of EEGSA’s shares at the time at US$59.6 million, and its value based on expected cash flows at approximately US$13.9 million.18
86.
Between 1991 and 1993, Guatemala increased its electricity tariffs in order to reduce the need for State subsidies19 and in 1992 it started to reorganize INDE and to reduce its role in electricity generation, allowing private players to become involved in electricity generation.20
87.
In 1993, the Government of Guatemala, through USAID, commissioned the Chilean firm Synex Ingenieros Consultores Ltda. ("Synex") to prepare a report describing the legal and regulatory framework needed to attain the goals of de-monopolizing and decentralizing the electricity sector in Guatemala and opening it to private participation.
88.
Synex submitted its report ("Synex Report") in June 1993.
89.
The authors of the report, Juan Sebastián Bernstein and Jean Jacques Descazeaux, mentioned "the need to have clear rules of the game for the operation and development of the sector [...], particularly as regards generating, transmitting, and distributing companies, [which] implies defining the rights, obligations and limitations of the actors participating in the industry, including the government itself. The need for a general body of laws regulating the functioning of the electric sector seems to be an absolute need, even more so if the declared objectives are the disappearance of the directing and normative role of INDE, the entrepreneurial decentralization of the sector, and the free access of investors to production, transport and distribution of electricity. Experience shows that, paradoxically, the functioning of decentralized and competitive schemes requires precise definitions of each party’s obligations and rights if chaotic conditions are to be avoided in the industry’s operation and development.
The existing Guatemalan legislation is [... ] absolutely insufficient: it will obstruct the participation of private external investors in competitive generation and distribution."21
90.
In addition, since there was an apparent consensus among industry players that the regulatory bodies in the electricity industry were not functioning properly, Guatemala needed "objective rules that define the parties’ obligations and rights, thus preventing the arbitrary intervention of regulatory entities"22 The authors stated that "it would be possible to minimize the intervention of a regulatory organism in those matters most sensitive to regulation, such as price regulation in the segments with characteristics of a natural monopoly: transmission and distribution" and suggested for that purpose "a specific intervention [...] every five or 10 years, by a high-level ad-hoc Government entity, for example a Committee formed by the Ministers of Finance and of Energy and Mines to supervise a tariff outside study commissioned by the concession holders from a prestigious consulting agency. The permanent regulatory function would be limited to overseeing compliance with the law in matters such as safety of facilities [...], even if the arbitration of conflicting aspects might be given to arbitrating courts appointed by the parties''23
91.
On December 7, 1994, the Congress of the Republic of Guatemala adopted Decree 64-94, repealing the Law establishing INDE and approving changes designed to demonopolize electricity generation and partially deregulate the electricity sector.24 Article 50 of the Organic Law on INDE specified that a comprehensive proposal for the reform of the sector would be submitted to Congress within six months.
92.
Messrs. Bernstein and Descazeaux then drafted the new General Electricity Law and Regulations (the "Draft LGE"), the final version of which was submitted on April 4, 1995.25
93.
In their preamble to the Draft LGE, the authors stated that the text must "adhere to the objectives of de-concentration and de-monopolization defined by the Government and by a large number of social and political classes of the country, and create the conditions to attract private investment in generation, transmission, and distribution of electricity" and stated that, in developing the project, special emphasis had been placed on "the need to establish transparent and objective regulations for those activities with the characteristics of a natural monopoly, such as transmission and distribution"26
94.
On September 19, 1996, the Congressional Commission on Energy and Mines issued a report recommending that Congress should adopt the Draft LGE. In its report, the Commission indicated that the objectives of the LGE were "the establishment of a legal framework of general application that provides legal certainty to public and private investment in the subsector, as a basic condition for the securing of financing from international credit entities and from national capitals, which seek to invest in conditions of equality and competitiveness, so as to be able to ensure maximum benefits of quality and price for electricity services to users and the urgency of taking the service to the majority of the population—approximately 70 percent—that today lacks such service..." It also included as the objectives of the LGE "the de-monopolization and de-politicization of the activities of the subsector, by creating entities and authorities that regulate and avoid the political interference that has caused, and can cause, so much distortion and damage, unless clear legal provisions of general application are established, which is precisely the intent of this law, seeking, above all, the common good"27

B. The new regulatory framework

95.
On October 16, 1996, by Decree 93-96, the Congress of Guatemala adopted the General Electricity Law ("LGE"), which entered into force on November 15, 1996.28

1. The General Electricity Law

a) Creation of the CNEE

96.
The LGE created the CNEE, a technical organ with its own functions and budget for the discharge of its responsibilities and duties.29 The CNEE would be composed of three members appointed by the Executive Branch every five years, one from each of three slates proposed by the rectors of universities in Guatemala, the MEM, and wholesale agents.30
97.
The functions of the CNEE, as established in the LGE, are as follows:

"a) Complying with and enforcing this law and its regulations on matters within its scope of responsibility and imposing penalties on violators.

b) Watching over and ensuring performance of the obligations of the awardees and holders of concessions, protecting the rights of users and preventing conduct that is against free competition, as well as abusive or discriminatory practices.

c) Defining the transmission and distribution rates subject to regulation in accordance with this law, as well as the methodology for calculation of the same.

d) Settling disputes that arise among agents of the electrical subsector, acting as arbitrator among the parties when the latter do not reach agreement.

e) Issuing technical regulations relative to the electrical subsector and overseeing compliance with them consistent with accepted international practices.

f) Issuing provisions and regulations to ensure free access to and use of the transmission lines and distribution networks in accordance with the provisions of this Law and its regulations.''31

b) Basis for calculating the tariffs

98.
Section IV of the LGE concerns price regulation and Chapter III of that Section deals with the tariffs applicable to end consumers for final distribution.
99.
Article 71 of the LGE provides that:

"The rates to end consumers for the final distribution service, in their components of power and energy, shall be calculated by [the CNEE] as the sum of the weighted price of all the distributor purchases referenced to the inlet to the distribution network and the Value Added of Distribution (Valor Agregado de Distribución - VAD) [...].
The VAD is the average cost of capital and operation of a distribution network of a benchmark-efficient company operating in a given density area."32

100.
Article 71 of the LGE follows the "model enterprise" system, whereby VAD does not reimburse the distributor for its real costs but pays it on the basis of the costs that a hypothetical efficient company would have incurred.33
101.
According to Article 72 of the LGE, the VAD "shall take into account at least the following basic components:

a) Costs associated with the user, regardless of its demandfor power and energy.

b) Average distribution losses, broken down into their power and energy components.

c) Costs of capital, operation, and maintenance associated with distribution, stated by unit of power supplied."

102.
Article 73 provides that "the cost of capital per unit of power shall be calculated as the constant annuity of cost of capital corresponding to the New Replacement Value ("NRV" or in Spanish original: Valor Nuevo de Reemplazo "VNR") of an economically sized distribution network. The annuity will be calculated with the typical useful life for distribution facilities and the discount rate that is used in calculation of the rates. The operation and maintenance cost will be that corresponding to efficient management of the benchmark distribution network. "
103.
In this connection, Article 67 of the LGE provides that "the investment annuity shall be calculated based on the New Replacement Value of the optimally designed facilities, using the discount rate that is used in the calculation of the rates and a useful life of thirty (30) years. The New Replacement Value is the cost involved in building the works and physical assets of the authorization with the technology available on the market to provide the same service. The concept of economically adapted installation involves recognizing in the New Replacement Value only those facilities or parts of facilities that are economically justified to provide the required service."34
104.
Article 76 of the LGE specifies that the "rates shall strictly reflect the economic cost of acquiring and distributing the electric energy. "35
105.
Article 79 refers to the applicable discount rate and states: "the discount rate to be used in this Law to determine the rates shall be equal to the rate of cost of capital determined by [the CNEE] through studies commissioned with private entities that specialize in the matter, and it must reflect the rate of cost of capital for activities of similar risk in the country. Cost of capital rates different from those for the activities of transmission and distribution may be used. In any event, if the discount rate should be less than an annual real rate of seven percent or greater than an annual real rate of thirteen percent, the latter values, respectively, will be used''

c) Procedure for calculating the tariffs

106.
Regarding the procedure for calculating tariffs, the regulatory framework establishes that the VAD used to calculate tariffs will be determined on the basis of a study conducted by a consultant commissioned by each distributor.
107.
For this purpose, Article 74 of the LGE provides that "each distributor shall calculate the VAD components through a study entrusted to an engineering firm prequalified by the Commission [the CNEE]."
108.
These engineering firms were to work under terms of reference drawn up by the CNEE, which would have the right to monitor the progress of such studies.36
109.
Once completed, the VAD studies would be reviewed by the CNEE, which would be able to comment on them.37
110.
In case of written objections, Article 75 of the LGE provides that "[the CNEE] and the distributors shall agree on the appointment of an expert commission (the "Expert Commission") made of three members, one appointed by each party and the third by mutual agreement '' In this case, "The Expert Commission shall pronounce itself on the differences in a period of 60 days counted from its appointment "38
111.
The LGE specifies that the time-limits for the preparation of such studies, the review, submission of comments and the appointment of the Expert Commission, would be set in the Regulation.39
112.
Article 77 of the LGE states that "the methodology for determination of the rates shall be reviewed by [the CNEE] every five (5) years during the first half of January of the year in question"

2. The RLGE

113.
On March 21, 1997, pursuant to the transitory provisions of the LGE, the President of Guatemala and the MEM issued Government Resolution No. 256-97 containing the LGE Regulation (the "RLGE").40 The RLGE was amended successively in 2003,41 2007,42 and 2008.43
114.
The RLGE, in particular, establishes the parameters for the establishment by the CNEE of the terms of reference for the studies that distributors were to commission to consulting firms,44 as well as the deadlines for performing the necessary actions in the tariff review process.
115.
Regarding the time-limits, the RLGE specifies that the CNEE would deliver the terms of reference to each distributor every five years, eleven months before the initial effective date of the tariffs.45
116.
Once the terms of reference had been provided, each distributor would have three months to submit its tariff study to the CNEE. The study would include the resulting tariff schedules, the adjustment formulas and a backup report.46
117.
Thereafter, the CNEE would have one month to approve or reject the studies submitted by distributors, "making the observations it deems pertinent"47.
118.
Once the CNEE had submitted observations, the RLGE provides that:

"The Distributor, through the consultant company, shall analyze the observations, perform the corrections to the studies, and shall deliver them to [the CNEE] within the term of fifteen days after receiving the observations. If discrepancies between [the CNEE] and the Distributor persist, the procedure stipulated in Article 75 of the Law shall be followed."48

119.
As noted above, Article 75 of the LGE provides that, in such a case:

"[The CNEE] and the distributors shall agree on the appointment of an Expert Commission made of three members, one appointed by each party and the third by mutual agreement " and the Expert Commission "shall rule on the differences in a period of 60 days counted from its appointment.''49

120.
The last paragraph of Article 98 of the RLGE established that:

"So long as the Distributor does not deliver the tariff studies or does not perform the corrections to same, according to what is stipulated in the previous paragraphs, it may not modify its tariffs and the tariffs in effect at the time of the termination of the effective term of such tariffs shall continue to apply.''50

121.
However, Article 98 of the RLGE was amended in 2007. On March 2, 2007, the MEM issued Government Resolution No. 68-2007. Article 98 of the RLGE, as amended by that Government Resolution, reads as follows:

"In case of the Distributor’s failure to deliver the studies or the corrections to same, the Commission shall be empowered to issue and publish the corresponding tariff schedule, based on the tariff study the Commission performs independently or performing the corrections to the studies begun by the distributor."51

122.
In 2003, the second paragraph of Article 99 of the RLGE was also amended. Article 99 in its 1998 version provided that:

"Once the tariff study referred to in the previous Articles has been approved, [the CNEE] shall set the definitive tariff studies [sic] within a term not greater than one month as of the date on which the definitive study was approved, and shall publish them no later than April 30, in the Official Gazette. If [the CNEE] has not published the new tariffs, same may be adjusted by the distributors based on the effective adjustment formulas, save for what is set forth in the last paragraph of the previous Article. The tariffs shall apply as of May 1, immediately following the date of approval by [the CNEE]."52

123.
In its amended 2003 version, Article 99 provides that:

"If the Commission has not published the new tariffs, the tariffs of the previous tariff schedule shall continue to be applied, with their adjustment formulas \...}In no case shall the Final Distribution activity of the electric service be carried out without an effective tariff schedule. Given the circumstance in which a Distributor does not have a tariff schedule, the National Electric Energy Commission shall be responsible for immediately issuing and making effective a tariff schedule so as to comply with such stated principle."53

C. The privatization of EEGSA

124.
On February 13, 1997, the Government of Guatemala announced its intention to privatize EEGSA and, on December 17 of that same year, President Alvaro Arzu issued Government Resolution No. 865-97, authorizing the privatization by public offering and national and international auction, in accordance with the Law on Government Procurement, of 96 percent of the EEGSA’s share capital owned by the State.54
125.
According to Government Resolution No. 865-97, EEGSA was responsible for organizing the public offering55, for which purpose it established a High-Level Committee and enlisted the services of Salomon Smith Barney Holdings Inc. ("Salomon Smith Barney") as financial consultant.
126.
In April 1998, Salomon Smith Barney prepared a preliminary information memorandum (the "Preliminary Memorandum"), which was sent to potential investors, including TECO ENERGY.56
127.
The Preliminary Memorandum established the goal of selling all EEGSA’s shares as follows: 80 percent would be offered to strategic investors by national and international public bidding and the remaining 16.1 percent owned by the State would be sold to "priority investors" (EEGSA employees, users, and the general public). The 3.9 percent of shares that Guatemala did not control and that belonged to private investors would remain under the control of those investors.
128.
The Preliminary Memorandum referred to the regulatory framework as follows:

"Pursuant to the provisions of the Law and the Regulations, tariffs for regulated customers [...] are set by adding (i) the average cost of energy purchased by the distribution company [...] and (ii) the valor agregado de distribución (the Value Addedfor Distribution, or ‘VAD).
Costs of energy purchased that are used to calculate tariffs for regulated consumers shall be calculated every five years and are based on a model efficient distribution company. [...] It is the duty q/'[the CNEE] to ensure that tariffs are set on a pass-through basis. "57

129.
After describing the concept of VAD in the LGE and the RLGE, the Preliminary Memorandum notes that:

"VADs must be calculated by distributors using a study commissioned from an engineering firm [...]. [The CNEE] will review those studies and may make observations, but in the event of discrepancy, a Commission of three experts will be convened to resolve the differences.''58

130.
A few paragraphs later, the Memorandum states that EEGSA had in the past "subsidized the market, which seriously undermined the company’s financial health. However, the new Law tackles this problem directly by allowing the companies (INDE and EEGSA) to set tariffs on the basis of market prices''59
131.
In May 1998, EEGSA opened a data room and issued the terms of reference for the public offering,60 as well as a memorandum of sale (the "Memorandum of Sale")61 and a draft share sale contract. A presentation was also prepared for a road show ("Road Show") to take place from May 11 to May 21, 1998.62
132.
The Memorandum of Sale refers to the VAD calculation and to the system envisaged in the LGE in case of a difference between the CNEE and the distributor:

"VADs must be calculated by distributors by means of a study commissionedfrom an engineering firm, but the Commission may dictate that the studies be grouped by density. [The CNEE] will review those studies and can make observations, but in the event of discrepancy, a Commission of three experts will be convened to resolve the differences. The Law states that for the purposes of the tariffs to be first set in May 1998, [the CNEE] may rely on VADs taken from other countries applying a similar methodology (such as Chile, Peru, and El Salvador, for example)."63

133.
In July 1998, the Board of Directors of TECO ENERGY recommended to proceed with the investment.64
134.
On July 9, 1998, during an internal presentation on the privatization of EEGSA, the management of TECO ENERGY expressed the view that the contemplated investment would create opportunities for synergies as well as additional protection for the group’s existing investments in Guatemala.65
135.
TECO ENERGY decided to participate in the share offering through its entirely owned subsidiary Teco Power Service Corporation de Ultramar Guatemala, S.A. (TPS). In order to prepare its bid, TPS formed a consortium (the "Consortium") with Iberdrola and EDP.66
136.
On July 15, 1998, the Board of Directors of TECO ENERGY authorized TPS to participate in the offer.67
137.
As required by Article 3.2 of the terms of reference for the public offering, the Consortium formed a Guatemalan investment company known as Distribución Eléctrica Centro Americana, S.A. (DECA I) to acquire EEGSA’s shares.68 The participation of the Consortium members in DECA I was as follows: 49 percent for Iberdrola, 30 percent for TPS and 21 percent for EDP.69
138.
On July 30, 1998, after being pre-qualified, the Consortium made an offer of US$520 million for 80 percent of the shares of EEGSA, and was declared the successful bidder.70
139.
The closing took place on September 11, 1998.71
140.
In 1999, DECA I merged with EEGSA, and Iberdrola, TPS and EDP formed a new Guatemalan company known as Distribución Eléctrica Centro Americana Dos, S.A. (DECA II) to be the holding for their participation.72

D. The 1999-2003 tariffs

141.
In accordance with the transitory provision 2 of the LGE, the VAD calculation procedure specified in chapter III of the LGE was not applied to the setting of tariffs for the initial period following privatization. Instead, the VAD for such initial period was established on the basis of the values used in other countries following a similar methodology. In particular, the CNEE used the values applied in El Salvador in the first quarter of 1996, adjusted to reflect Guatemala’s electricity system and economic situation.73
142.
On July 17, 1998, the CNEE adopted Resolution No. 15-1998, setting EEGSA tariffs for the period between July 1, 1998 and June 30, 2003.74
143.
According to the Claimant, during the first five-year tariff period, EEGSA was very successful, increasing its client base and energy consumption and reducing energy losses and operating costs.75 The Consortium also invested almost US$100 million in additional capital in EEGSA in order to maintain, modernize, and expand its network,76 and Teco lent EEGSA over US$11 million.77

E. Tariff review for the period 2003-2008

144.
For the setting of tariffs in the next period, on October 9, 2002, the CNEE pre-qualified six consultants to undertake the distributor’s VAD study.78 EEGSA selected NERA Economic Consulting S.A. ("NERA"), headed by Mr. Leonardo Giacchino. On its side, the CNEE engaged PA Consulting Services S.A. ("PA Consulting") to advise it.79
145.
On October 23, 2002, the CNEE issued the terms of reference for the 2003-2008 tariff review.80 In particular, the terms of reference specified that the consultant should base the calculations on the actual network and make the necessary adjustments to optimize it and bring it closer to the model of an efficient distributor (top-down approach).81
146.
EEGSA submitted the NERA final revised study on July 30, 2003.82
147.
The CNEE accepted the corrected study and on July 31, 2003 it issued the Resolutions No. 66-200383 and 67-200384 setting EEGSA tariffs for the 2003-2008 period.
148.
The revision resulted in an increase in EEGSA’s VAD of 12.83 percent (low voltage) and 70.78 percent (medium voltage).85
149.
During the second tariff period, the annual return of EEGSA on capital invested was between 7 and 10 percent.86

F. Restructuring of the TECO ENERGY group

150.
Between 1998 and 2005, the TECO ENERGY group was restructured.
151.
On May 4, 2004, an intermediary company was established between TECO ENERGY and TPS, known as TWG Non-Merchant Inc.87 (subsequently known as Teco Guatemala Inc.88), to which TPS’s shares in DECA II were transferred.89
152.
Teco Guatemala Holdings LLC, the Claimant in this arbitration, was constituted on April 26, 2005 and TPS’s shares in DECA II were transferred to it.90

G. Tariff review for 2008-2013

1. The impugned April 2007 Terms of Reference

153.
On April 30, 2007, the CNEE transmitted to EEGSA the terms of reference for the tariff review for the period 2008-2013 ("Terms of Reference").91
154.
In May 2007, the term of office of the former Board of Directors of the CNEE expired and the new Board was appointed in the manner specified in the LGE and the RLGE.92 The new Board of Directors of the CNEE was composed of Enrique Moller, Carlos Colom Bickford and César Augusto Férnandez.93
155.
On May 8, 2007, EEGSA made an administrative recourse to the CNEE asking for the revocation of the Terms of Reference.94 In particular, EEGSA complained that the Terms of Reference had laid down methodological and procedural guidelines that pre-determined the consultant’s VAD study.95 In addition, according to EEGSA, the Terms of Reference granted the CNEE powers and created obligations for EEGSA and its consultant that were not provided by the LGE, such as the obligation for the CNEE to approve each stage of the study before the study could continue and the possibility that the CNEE could consider the study as undelivered in certain circumstances for the purposes of Article 98 of the RLGE.96
156.
On May 11, 2007, EEGSA submitted to the CNEE its detailed comments on the Terms of Reference.97 In particular, EEGSA proposed the addition of an article clarifying that the Terms of Reference were guidelines subject to the LGE or the RLGE, and that the consultant could depart from the Terms of Reference if it could justify doing so.98
157.
On May 15, 2007, the CNEE rejected EEGSA’s application for the revocation of the Terms of Reference.99 On May 29, 2007, EEGSA brought an action in court for protection of its constitutional rights (amparo), requesting that the Terms of Reference be declared inapplicable (with the exception of items 1.1 and the first paragraph of item 1.4) because they empowered the CNEE to calculate the components of the VAD, which was not allowed by the LGE.100
158.
EEGSA’s claim of amparo submitted that: "in the procedure of the Law, if the Commission does not agree with the study prepared by the Consultant, the differences are submitted to the decision of an Expert Commission, which has the final word. In the procedure of the Impugned Act, if the CNEE does not like the study, it considers it not delivered and issues its own VAD without any study"101
159.
On June 4, 2007, the sixth Court of first instance in civil proceedings granted EEGSA’s provisional protection of its constitutional rights (amparoprovisional) and temporarily suspended the application of the Terms of Reference.102 This protection was provisionally confirmed by the same court on June 11, 2007,103 pending a decision on the merits of the case. As will be seen below, the parties subsequently reached an agreement on the disputed issue and no decision was ultimately made on the merits.
160.
On June 21, 2007, the CNEE issued Resolution No. 55-2007, pre-qualifying as consultants to prepare the tariff study the firms PA Consulting, Quantum S.A., Mercados Energéticos S.A. ("Mercados Energéticos"), Synex, Bates White LLC ("Bates White") and the consortium Sigla S.A./Electrotek ("Sigla").104
161.
The CNEE also engaged Alejandro Arnau and Jean Riubrugent, from Mercados Energéticos, to advise it on the review of the Terms of Reference, in light of the amendments requested by EEGSA.
162.
On July 27, 2007, the CNEE issued a public bid in view of hiring a consultant that would assist it during the tariff review.105
163.
On August 1, 2007, EEGSA engaged Bates White as its VAD consultant. The project director within Bates White was Mr. Giacchino, who had performed the same function for NERA in the 2003 tariff review process.106
164.
On October 26, 2007, the CNEE decided to select Sigla as its own consultant.107 The CNEE also received advice from Alejandro Arnau and Jean Riubrugent from Mercados Energéticos, who had assisted them in reviewing the Terms of Reference.108

2. The Terms of Reference

165.
In the second half of 2007, meetings were held between EEGSA and the CNEE to discuss the Terms of Reference, during which the CNEE agreed to replace Articles 1.7.4 and 1.9 of the Terms of Reference by new Articles 1.6.4 and 1.8.109
166.
The new Article 1.6.4 eliminated the possibility that the CNEE could interrupt the consultant’s study if it considered that the stage report did not comply with the Terms of Reference.
167.
The new Article 1.8 eliminated the possibility that the CNEE could consider the study as not delivered under Article 98 of the RLGE if it determined that information was missing or if it did not agree with the result. Article 1.8 was worded as follows:

"As prescribed in Section 98 of the Rules, the CNEE shall have a period of two (2) months to evaluate the Study’s Final Report submitted by the Distributor. As a result of the evaluation, the CNEE shall make such observations as it may deem necessary. The Distributor shall analyze said observations, make any corrections it deems appropriate and send the corrected final report of the study to the CNEE within fifteen (15) days of receiving the observations.''110

168.
The CNEE also agreed to eliminate a public consultation stage originally included in the April 2007 Terms of Reference.111
169.
EEGSA and the CNEE also agreed to include a new Article 1.10 in the Terms of Reference, entitled "Scope of the Terms of Reference". Article 1.10 was worded as follows:

"These terms of reference set forth the guidelines to follow in preparation of the Study, and for each one of its Stages and/or described and defined studies. If there are changes in the methodologies set forth in the Study Reports, which must be fully justified, the CNEE shall make such observations regarding the changes as it deems necessary, confirming that they are consistent with the guidelines for the Study.
These terms of reference do not constitute a legal or regulatory modification, and therefore, in case of a controversy between one of the provisions of these terms of reference and the Law or the Regulations, the provisions of the latter shall prevail, in all cases applying the principle of legal hierarchy. In addition, any omission of these terms of reference, relative to aspects defined in the Law and the Regulations for tariff matters, shall be understood to be incorporated into the terms ofreference."112

170.
On August 6, 2007, EEGSA withdrew its request for protection of constitutional rights113(amparo) and on October 9, 2007, the CNEE issued Resolution 124-2007, containing an addendum to the April 2007 Terms of Reference.114

3. The Bates White VAD study

171.
On October 29, 2007, Bates White submitted its Stage A report to EEGSA and the CNEE.115
172.
On November 12, 2007, the CNEE contracted Sigla as its consultant to assist it in the tariff review process.116
173.
On the same date, the CNEE asked EEGSA and Bates White to prepare a presentation on their Stage A report for a technical meeting to be held on November 20, 2007.117
174.
On November 20, 2007, Bates White presented its Stage A report via video conference to the representatives of EEGSA and the CNEE, and to the CNEE’s consultants, Mercados Energéticos and Sigla, who met for that purpose in the offices of EEGSA.
175.
After the meeting, Bates White started to prepare its Stages B and C reports.118
176.
On December 17, 2007, the CNEE sent a note to EEGSA stating that the Stage A report had not been properly submitted. The basis for that statement was that the formalities for the appointment of EEGSA’s consultant had not been observed and that the CNEE had not been provided with all the information that EEGSA had given to Bates White.119
177.
On January 17, 2008, the CNEE issued resolutions No. 04-2008 and 05-2008.120 In the former, the CNEE set at 7 percent the real annual discount rate to be used to calculate distribution tariffs.121 The latter included an addendum containing amendments to the Terms of Reference.122 These amendments contained new provisions relating to the capital recovery formula, including a 50 percent depreciation factor.123
178.
The January 2008 addendum to the Terms of Reference also included new delivery dates for each stage report, including the Stage A report.
179.
On January 25, 2008, in accordance with the schedule established in the January 2008 addendum, Bates White submitted a new Stage A report,124 as well as its Stage B report125 and a copy of its contract with EEGSA.126
180.
On January 30, 2008, the CNEE sent a note to EEGSA stating that, before the reports could be considered as properly submitted, EEGSA had to provide additional documentation.127
181.
On January 31, 2008, EEGSA sent to the CNEE the requested additional documents.128
182.
On February 12, 2008, the CNEE stated that Bates White’s Stage A report did not comply with the Terms of Reference and could therefore not be used as a basis for subsequent reports.129
183.
Bates White corrected its report to reflect some of the comments made by the CNEE and rejected others, which it considered to be unfounded.130
184.
EEGSA submitted to the CNEE Bates White’s subsequent stage reports, and the CNEE commented on them.131
185.
On March 31, 2008, EEGSA submitted the Bates White’s final study to the CNEE, together with final versions of each of the stage reports.132 The VNR resulting from the final study was US$1,695 million, almost three times the value of US$583.68 million calculated in 2003.133
186.
On April 11, 2008, the CNEE issued Resolution No. 63-2008, rejecting the study and directing EEGSA to "perform the corrections to the studies and [...] deliver them to the Commission within the term of 15 days after receiving the observations"134
187.
On April 22, 2008, a meeting was held between the directors of the CNEE and the chairman of the Board of EEGSA, Mr. Gonzalo Pérez. At the meeting, Mr. Pérez gave a presentation on the possibility of increasing the VAD but reducing the tariff component of energy costs, so that the VAD increase would not affect tariffs. In the presentation, EEGSA proposed a VAD increase of 10 percent, rather than the increase of 100 percent that would result from its consultant’s study as corrected on the basis of the CNEE comments.135 The CNEE did not respond to such proposal.136
188.
EEGSA submitted the corrected Bates White study on May 5, 2008, in which the consultant accepted some observations made by the CNEE and incorporated the relevant amendments, but rejected others.137 On the same day, Mr. Giacchino of Bates White responded to the observations made by the CNEE on the March 31, 2008 study.138
189.
The VNR resulting from the corrected May 5, 2008 study was US$1.3 billion.139

4. Establishment of the Expert Commission and discussion of the Operating Rules

190.
On May 13, 2008, the CNEE informed EEGSA that it would be necessary to establish an Expert Commission and invited it to a meeting the next day to discuss its constitution and working methods.140
191.
On May 14, 2008, representatives of EEGSA and the CNEE met again to discuss the establishment of the Expert Commission and the CNEE then proposed to EEGSA a general operating framework.141 EEGSA rejected the proposals and suggested that specific rules of procedure should be set, to which the CNEE agreed in principle.142
192.
On May 16, 2008, the CNEE transmitted to EEGSA its Resolution No. 96-2008 of May 15, 2008, stating in the last paragraph of the preamble that EEGSA had ignored "all the observations performed by the Commission through said Resolution CNEE-63-2008, incorporating in the Distribution Value Added Study unsolicited changes and additional modifications, which consequently altered other elements of the study; as such, pursuant to current legislation, [the CNEE] is charged with establishing the discrepancies with the Distribution Value Added Study to then establish the Expert Commission."143
193.
The CNEE consequently decided in Resolution No. 96-2008 "to establish the Expert Commission referred to in Article 75 of the General Law of Electricity, which must pronounce itself on the discrepancies in the Study of Empresa Eléctrica de Guatemala, Sociedad Anónima, Usted below, verifying the correct application of the Terms of Reference (ToR) of the Distribution Value Added Study approved by [the CNEE]."144 The CNEE listed nine categories of discrepancies to be considered by the Expert Commission.145
194.
As regards the membership of the Expert Commission, EEGSA decided to appoint Mr. Leonardo Giacchino, the Bates White project director,146 while the CNEE appointed Mr. Jean Riubrugent, consultant from Mercados Energéticos.147
195.
On May 19, 2008, Government Resolution No. 145-2008 added an Article 98 bis to the RLGE, entitled "Procedure and terms to constitute the Expert Commission/' establishing that the CNEE and the distributor had three days to form the Expert Commission, consisting of one expert appointed by each party and a third appointed by mutual agreement. If no agreement could be reached on the third member of the Expert Commission, that member would be appointed by the MEM from amongst the candidates proposed by the parties.148
196.
This Government Resolution was published on May 26, 2008 and came into force on May 27, 2008, so that it was not applicable to the current tariff review process for 2008-2013.149
197.
Also on May 19, 2008, EEGSA transmitted to the CNEE draft operating rules ("Operating Rules") for the Expert Commission.150
198.

Although EEGSA agreed that Bates White would have to correct the study in order to reflect the Expert Commission’s pronouncements151, there was no agreement as to who would then assess whether such corrections properly reflected the Expert Commission’s views. The CNEE proposed that it would have to make such determination itself,152 while EEGSA considered that the Expert Commission would have to ascertain whether the corrections correctly reflected its views.153

199.
On May 21, 2008, following a meeting with EEGSA, the CNEE proposed new draft Operating Rules, providing that the CNEE would review and approve the corrections in the light of the opinions of the Expert Commission.154
200.
On May 23, 2008, EEGSA complained that the Resolution No. 96-2008 had unilaterally and arbitrarily established the discrepancies to be resolved by the Expert Commission, including items to which the CNEE had not previously objected.155 According to EEGSA, the Resolution constituted "a violation of the guarantees of National Treatment and Minimum Treatment Level, as well as a constructive expropriation attempt of [EEGSA], according to what is stipulated in several international treaties to which Guatemala is a party"156
201.
On May 23, 2008, Mr. Quijivix, of the CNEE, circulated a new version of the Operating Rules, highlighting rules 8, 9, and 12 which had not yet been agreed.157
202.
A further version of the draft Operating Rules was circulated by Mr. Quijivix on May 28, 2008.158 The Claimant submits that this version of the rules was accepted by the CNEE.159 The Respondent maintains that no agreement was reached on that draft.160
203.
On May 28, 2008, the President of the CNEE, Carlos Colom, proposed that Carlos Bastos should be appointed to chair the Expert Commission. EEGSA agreed, after informing the CNEE that Mr. Bastos had in the past participated in a small project for EEGSA on the wholesale electricity market.161
204.
On June 2, 2008, Mr. Calleja of EEGSA forwarded to Mr. Bastos the e-mail from Mr. Quijivix dated May 28, 2008, with the last draft of the proposed Operating Rules.162 The Claimant submits that Mr. Calleja informed Mr. Quijivix that he had done so,163 but the Respondent denies having been informed of this.164
205.
A few days later, the CNEE, EEGSA, and Mr. Bastos discussed certain administrative matters relating to the proceedings to be followed before the Expert Commission.165
206.
On June 6, 2008, the CNEE and EEGSA signed the deed of appointment of the Expert Commission. On June 12, 2008, the experts informed both parties that they were assuming their functions and described their understanding of their mission.166
207.
On June 26, 2008, the chairman of the Expert Commission, Mr. Carlos Bastos, signed separate service contracts with the CNEE167 and with EEGSA.168

5. The Expert Commission’s report and its dissolution

208.
On July 23 and 24, 2008, certain Guatemalan newspapers published articles reproducing statements made by the President of the CNEE, Mr. Colom, according to which the Expert Commission’s report would not be binding and would only be considered as recommendations that the CNEE could elect to implement.169
209.
On July 25, 2008, the Expert Commission delivered its report to the CNEE and to EEGSA.170 On the same date, the CNEE adopted its Resolution No. 3121, dissolving the Expert Commission.
210.
In its report, the Expert Commission summarized its findings as follows:

"The issue is to discern whether the Consultant’s Tariff Study, considering the ToR as guidelines, has performed a task that is in accordance with the requirements of the Law and the Regulations, or otherwise determine if given the justifications of the deviations, the CNEE maintained and certifies that the requirements of the ToR better reflect the requirements of the Law."171

211.
On July 28, 2008, Mr. Giacchino of Bates White sent a letter to the Expert Commission, with a copy to the CNEE and EEGSA, stating that the Bates White study has been modified "taking into account the decisions of the Expert Commission [...] for your verification that the changes made do faithfully reflect the decision of the Expert Commission."172
212.
EEGSA also sent to the CNEE, along with a copy of Bates White’s letter mentioned above, copies of the revised stage reports and a CD with the supporting files.173 The final revised Bates White study calculated an VNR of US$1,053 million.174
213.
On even date, the CNEE notified EEGSA of its Resolution No. 3121 dissolving the Expert Commission.175
214.
On the same day, the CNEE wrote to Mr. Bastos acknowledging receipt of the Expert Commission’s report, and informing him that "the activities corresponding to the execution of [his] contract ended July 25, with the delivery of the referenced report."176

6. Calculation of tariffs for the 2008-2013 period and actions brought by EEGSA

215.
On July 29, 2008, EEGSA brought an action for the protection of its constitutional rights (amparo), requesting that CNEE’s Resolution No. 3121 be reversed and that the CNEE be ordered to comply with the Expert Commission’s report.177 EEGSA informed the members of the Expert Commission that its recourse had the effect of suspending the CNEE’s Resolution and that the Expert Commission should therefore proceed to review whether the Bates White study reflected its opinions.178
216.
On the same date, Mr. Bastos sent a letter to the other members of the Expert Commission inviting them to a meeting to analyze the last version of the Bates White’s study.179 Mr. Riubrugent, the member of the Expert Commission appointed by the CNEE, confirmed on July 30 that he would participate by conference call.180
217.
On July 30, 2008, the Court of first instance of Guatemala admitted EEGSA’s recourse of amparo and provisionally ordered the CNEE to "comply in full with the decision of the Expert Commission, allowing it to conclude its work, especially the final review of the changes presented to the Expert Commission by the firm Bates White", and to "abstain from using mechanisms tending to manipulate, change or unilaterally interpret those changes already approved,"181
218.
However, on the same day, the Court suspended the amparo proceedings on the grounds that EEGSA had not exhausted the available administrative remedies.182
219.
On July 31, 2008, Mr. Riubrugent informed Mr. Giacchino and Mr. Bastos that, in view of the situation and of instructions given to him by the CNEE regarding the end of his obligations and the fact that he might be overstepping his authority, he would not participate in the conference call scheduled for July 31.183
220.
The experts Bastos and Giacchino nonetheless met at Bates White’s offices in Washington D.C.
221.
On the following day, both experts sent a letter to the CNEE and EEGSA announcing that they had reviewed all the documents concerning the tariff calculation and verified that all the Expert Commission’s pronouncements had been implemented in Bates White’s July 28, 2008 revised study.184
222.
On even date, the CNEE issued Resolutions No. 144-2008, 145-2008, and 146-2008.
223.
In Resolution No. 144-2008, dated July 29, 2008, the CNEE stated that the Expert Commission’s report had confirmed that Bates White’s May 2008 study had failed "to correct all of the observations made... through said Resolution CNEE-63-2008." Consequently, in accordance with Articles 98 and 99 of the RLGE, the CNEE was empowered to set the tariffs on the basis of its own VAD study.185
224.
In Resolutions No. 145-2008 and 146-2008, the CNEE set the tariffs and periodic adjustment formulas for EEGSA clients, effective August 1, 2008 and July 31, 2013,186 on the basis of the Sigla study.187
225.
The Sigla study adopted the Capital Recovery Factor ("CRF" or in its Spanish original: Factor de Recuperación de Capital "FRC") set forth in the Terms of Reference and consequently depreciated the VNR by 50 percent.188 In addition the Sigla study used 2006 prices for its calculation instead of the prices available in 2007,189 and applied a different method for determining the density of demand in the EEGSA distribution area.190
226.
The Sigla study concluded to an VNR of US$465.3 million (implying a VAD of US$85 million). Such VNR was lower than the VNR that had been calculated for the 2003-2008 tariff period, which was US$583.7 million.191
227.
On August 1, 2008, EEGSA initiated administrative recourses against Resolutions No. 144-2008, 145-2008 and 146-2008.192 On August 12, it filed an action of amparo requesting protection against the CNEE Resolution No. 3121.193
228.
In August 2008, EEGSA unsuccessfully met with the CNEE and with Guatemalan government officials in an attempt to reach an agreement on the applicable tariffs.194
229.
On August 20, 2008, the MEM rejected the administrative recourse against Resolutions No. 144-2008, 145-2008 and 146-2008.195 The basis for the MEM’s decision was that these resolutions were not directed to individuals but were rather texts of a general nature applying to all consumers of EEGSA’s electricity distribution service.196
230.
EEGSA started to invoice using the new tariffs on August 21, 2008.197
231.
On August 26, 2008, EEGSA brought a second action for constitutional protection against Resolution No. 144-2008.
232.
On May 15, 2009, the second Civil Court of first instance granted EEGSA protection against Resolution No. 144-2008,198 and on August 31, 2009 the eighth Civil Court of first instance granted protection against CNEE Ruling 3121 and ordered the CNEE to issue a new resolution guaranteeing the right of defense and the principles of due process and legality, "allowing the Expert Commission to fulfill the purpose for which it was created in the first place''199
233.
The CNEE subsequently appealed against these judicial decisions and, in a majority decision dated November 18, 2009, the Constitutional Court reversed the judgment of the second civil court of first instance, thus putting an end to the judicial proceedings against Resolution No. 144-2008.200
234.
Such decision reads in its relevant parts as follows:

"Expecting the Expert Commission to decide a conflict and empowering it to issue a binding decision breaches the principle of legality of the Rule of Law, and this is because even if persons can do anything [that is] not forbidden by the law (Section 5 of the Constitution), authorities can only do what the law allows them to do (Section 154 ibidem); therefore, if we only consider the General Electricity Law, the power to approve tariff schemes is vested in the National Electricity Commission and in no way, whether directly or indirectly, in an expert commission, the nature of which has been considered.
[...]
Understanding that the members in charge of the experts’ study have a further role or that their report is binding breaches Section 154, paragraph three, of the Constitution, which forbids the delegation of duties, unless authorized by law, which is not the case under the General Electricity Law, which does not contain any provisions transferring the power to set forth or issue the tariff scheme for the five-year period to the Expert Commission.
It is evident that the National Electricity Commission, not having the obligation to be bound by the opinion issued by the Expert Commission, caused no damage to its counterparty by deciding to dissolve the Expert Commission, taking into consideration that its purpose had been fulfilled and, therefore, the right to due process invoked in the amparo action herein has been observed in all its phases. The role of the National Electricity Commission of fixing the tariff schemes is a legitimate power granted by the General Electricity Law whereby it represents the State, and regulated in Sections 60, 61, 7.1 and 73 of the mentioned law, which must restrict any discretional excess, since it refers to verifiable concepts stating that those tariffs ‘must be compatible with standard distribution costs of efficient companies, ’ structured ‘to promote equal treatment of consumers and the sector’s economic efficiency, ’ that ‘the Distribution Added Value shall be related to the average capital and operations costs of a distribution network of an efficient company of reference, ’ and, likewise that the ‘cost of operation and maintenance shall correspond to an efficient management of the reference distribution network. ’ It is estimated that tariffs fixed, when the report by the Expert Commission has not been accepted as valid to guide this policy, cannot be, within its discretion, harmful or unreasonably arbitrary, in view of the indicators of efficient operators as a reference, as the one conditioned in temporary Section 2 of the related Law, which made reference to the ‘values used in other countries applying a similar methodology. ’ However, the rationality of the tariff schemes approved was not reported as damage or as evidence in this amparo action, and the only damage reported focused on the concept of legal due process, which was already analyzed (paragraph a) of section VI of the conclusions)."201

235.
In a second judgment, dated February 24, 2010, the Constitutional Court reversed the judgment of the eighth civil court of first instance and considered that the dissolution of the Expert Commission could not be damaging to EEGSA, since the Commission’s report was not binding on the CNEE. The judgment reads as follows:

"... it should be noted that Sections 75 and 77 of the General Electricity Law and the third paragraph of Section 98 and Section 98 bis of its Rules set forth the procedure to create the Expert Commission and the time frame for the Commission to meet and to issue an opinion on the matters submitted thereto: the discrepancies arising from the tariff study based on the terms of reference. In the case at hand, the Expert Commission was created in compliance with the relevant Law and its Rules and, within the statutory period, issued its opinion on the discrepancies found by the National Electricity Commission between the tariff study submitted by the petitioner and the terms of reference previously set by the respondent authority. It should be pointed out that the Law and its Rules—the only Guatemalan legal rules applicable in the case—empower the Expert Commission only to issue its opinion on the above-mentioned discrepancies. In submitting its opinion, the Expert Commission performed the duty imposed thereon by the Law and its Rules. Therefore, given that it had already fulfilled its legal purpose, that it was a temporary rather than a permanent commission empowered to issue an opinion enabling the competent authority to set the tariffs, and that it had to meet no other duty in the proceedings, the dissolution of the commission could by no means cause damage to the petitioner because the respondent authority merely followed the procedure established by the Law and its Rules."
[...]
As ruled on this issue by the Court [...], in relation to the nature of the experts’ opinion discussed herein, it is worthy of note that Expertise understood as wisdom, practice, experience, or skill in a science and art, has traditionally been used as an aid to which authorities resort when they need to make a decision regarding a certain subject. An expert is an assistant who provides an opinion on the best decision, although, pursuant to common legislation and Guatemalan legal practice, it is understood that scientific and technical knowledge do not constitute a judgment, but rather elements to guide the decision to be made by the authorities. Therefore, the authority making the decision has no obligation to base such decision on the experts’ opinions... ’ Additionally, in reference to the scope of opinions like this, this Court has held that: Regarding its scope, the opinion is not binding upon the body seeking the advice whenever books of authority classify it as optional—advice that the Administration is not obliged to require—or compulsory—advice that is expressly necessary pursuant to the law—unless the opinion is expressly binding, as required by law and as a basis for the administrative decision. ’[...]
Based on the above remarks, requiring the Expert Commission to solve the dispute between the petitioner and the respondent authority; granting it jurisdiction to issue a binding decision; and even empowering it to approve the tariff studies, as the Court held, would violate the well-developed legality principle of the Rule of Law and would infringe the principle of public office subject to the law, because the General Electricity Law [...] entitle[s] the National Electricity Commission, as the only responsible agency, to set distribution tariffs and to approve tariff studies [...], which constitutes a public duty that, in keeping with Section 154 of the Guatemalan Constitution, may not be delegated.
[...]
... in the Guatemalan legal system, the National Electricity Commission shall review the studies conducted by the distributor and, in the event of discrepancies, shall appoint an Expert Commission, which shall issue an opinion on the discrepancies within 60 days following its creation. The Rules provide that, if the Distributor fails to send the studies or corrections to those studies, the National Electricity Commission (governmental agency of public law) may issue and publish the related tariff scheme based on the tariff study prepared independently by the commission or making the necessary corrections to the studies prepared by the distributor. [...] In view of the above, the National Electricity Commission caused no damage to the petitioner when it dissolved the Expert Commission and when it followed the procedure to devise the tariff schemes, given that such task— a state duty, as has been pointed out—is a lawful power granted by Sections 60, 61, 71 and 73 of the General Electricity Law."202

7. Sale of Teco’s shares in EEGSA

236.
In mid-2010, the Colombian firm EPM informed Iberdrola that it was interested in purchasing EEGSA. Teco and its partners started negotiations to sell DECA II to EPM and, after a few weeks of negotiations, on October 6, 2010, EPM made the Consortium a firm offer to purchase DECA II for US$605 million.203 Teco’s share of the price for its 30 percent ownership of DECA II was US$181.5 million.204
237.
On October 21, 2010, the Consortium and EPM closed the sale of DECA II for the amount specified in EPM’s offer of October 6, 2010.205

V. POSITION OF THE PARTIES ON JURISDICTION

A. Summary of Respondent’s position

238.
The Respondent contends that: (1) the case stated by the Claimant is nothing more than a regulatory disagreement on the interpretation of Guatemalan domestic law, the interpretation of which is not a matter for this Arbitral Tribunal but for the Guatemalan courts, which have already decided the issue. According to the Respondent (2) the Claimant cannot use an international mechanism to file an appeal against the decisions of the Supreme Court of Guatemala and could only have challenged those decisions under international law by presenting a denial of justice claim. This has not been done, however, and there has been no allegation by the Claimant in this regard. Finally, (3) the Respondent cites the decision of the Arbitral Tribunal in the Iberdrola case.

1. Teco’s claim is a mere regulatory disagreement

239.
Guatemala contends that the Claimant’s claim is essentially based on its disagreement with the way the Guatemalan regulator interpreted and applied the regulatory framework in the tariff review process for 2008-2013.206
240.
Although the Claimant refers to the amendments to Article 98 RLGE in 2007 and 2008, such is not the basis for its claim. What Claimant submits is that such provision, as amended in 2007, was incorrectly applied by the CNEE. In addition, Teco never complained about the 2007 amendment before this arbitration, and such a claim would now be time-barred. With respect to the 2008 amendment, Claimant admits that it was not applied, and therefore could not have caused Teco any harm.207
241.
The Claimant’s claim is therefore limited to the CNEE’s interpretation of the Guatemalan regulatory framework concerning the role of the Expert Commission and the regulator’s power to approve the VAD and EEGSA’s rate of return based on a tariff study prepared by its own consultant rather than by the distributor’s consultant.208
242.
Respondent argues that such regulatory disagreements cannot give rise to claims under the Treaty because the CNEE has the right and duty to interpret the law and take positions on issues that are within its jurisdiction. The General Electricity Law (LGE) itself and its regulations provide that the CNEE is the party responsible for complying with and enforcing these laws,209 and in particular they provide that the CNEE has the responsibility to "define the transmission and distribution tariffs [...] as well as the methodology for calculation of the same" and to conduct the tariff review process.210
243.
Even if the regulator was mistaken in its interpretation of the regulatory framework, this cannot result in a violation of an international treaty, particularly when local courts have already decided on the matter.211
244.
The Claimant itself realized that their differences in respect to the regulatory framework should be brought before the courts of Guatemala. The Claimant and EEGSA challenged the April 2008 Terms of Reference before the Guatemalan courts and obtained a temporary protection measure. The Claimant also raised their differences regarding the procedure for fixing the tariffs before the courts of Guatemala, and in particular the interpretation of the role of the Expert Commission; these appeals were admitted and processed by the courts of Guatemala, but ultimately the Constitutional Court decided in favor of the CNEE.
245.
On November 18, 2009, the Constitutional Court decided whether the ruling of the Expert Commission was binding, as well as on the disputed extent of the regulator’s power to set the tariff based on its own consultant’s VAD study. The Respondent summarizes as follows what is in its view the content of the court’s decisions in this respect: "a) The CNEE is the only entity empowered to approve the tariffs and is not authorized to delegate this function; (b) The Expert Commission has the sole function of issuing a pronouncement on discrepancies between the VAD study submitted by the distributor and the Terms of Reference issued by the CNEE; (c) The regulatory framework does not establish any additional function for the Expert Commission after it has issued its pronouncement; (d) Because of the advisory nature of expert reports under Guatemalan law and the responsibility of the CNEE to approve the tariffs, the pronouncement of the Expert Commission cannot be binding; and (e) Finally, the Court affirmed the regulatory nature of the CNEE’s function to approve the tariffs, which must reflect legal criteria, in particular the costs, including the cost of capital."212
246.
The Respondent further asserts that, in its decision of February 24, 2010, the Constitutional Court found that: "(a) the relevant legislation does not grant the Expert Commission any function other than to issue a pronouncement on the discrepancies between the CNEE and the distributor; (b) the dissolution of the Expert Commission once its pronouncement had already been issued could not have caused harm to EEGSA; and (c) given the advisory nature of expert pronouncements under Guatemalan law and the non-delegable nature of the CNEE’s duties and responsibilities regarding adoption of the tariffs, according to the principles of legality and organization of the public administration, the pronouncement of the Expert Commission cannot be binding."213

2. The Claimant cannot file an appeal before the Arbitral Tribunal against the decisions of the Guatemalan courts, it can only file a claim for denial of justice but it has not done so

247.

According to Guatemala, the Claimant is now asking the Arbitral Tribunal to act as an appellate court on these issues, which, is not possible, as has been established by many investment arbitration tribunals.214 The Claimant could only have submitted an international claim if it had claimed and proved that there was a denial of justice, which it has not alleged.215

248.
When disagreements between a regulator and the regulated entities arise, what the State must ensure is that its courts are available to provide due process and do not issue arbitrary decisions. A State is internationally responsible only when this process fails, as Guatemala’s conduct is not limited to the performance of the CNEE but also includes the actions of its courts.216
249.
In this regard, the Respondent contends that the Claimant only alleges that the decisions of the Constitutional Court were wrong or incorrect and that they appear to have been "influenced by political considerations," but does not provide any substantiation, foundation, or evidence whatsoever for such contentions.217
250.
To the contrary, the Guatemala’s Constitutional Court granted the Claimant a full opportunity to expound its arguments and issued reasoned and informed decisions. Moreover, the Constitutional Court has repeatedly demonstrated its independence from political power.218

3. The Iberdrola decision

251.
The Respondent asserts that its position on the lack of jurisdiction of the Arbitral Tribunal is supported by the decision of the tribunal in the Iberdrola case.219
252.
The Iberdrola case is identical to the present case as to the facts. On the same facts, the Arbitral Tribunal decided that it was dealing with a claim under Guatemalan law and not international law, and that in order to deal with such claims it "would have to act as regulatory authority, as administrative entity and as trial court" As a consequence, after dismissing the denial of justice claim, the Iberdrola tribunal concluded that it did not have jurisdiction to decide the case.220
253.
Respondent also notes that the Iberdrola case was based on the BIT between Spain and Guatemala, under which the autonomous standard of treatment is more demanding than the international minimum standard applicable to this case. Even so, the tribunal found that the claims were not justiciable under international law.221

B. Summary of Claimant’s position

254.
According to Teco: (1) the claim concerns a violation of the Treaty and is not merely a regulatory disagreement. In any case (2) the Claimant argues that the basis for its claims is something that should be decided on the merits. Teco also argues that (3) it is not limited to bringing a claim for denial of justice, and that (4) the decision in Iberdrola is not relevant to the jurisdiction of this Arbitral Tribunal.

1. Teco’s claim relates to a violation of the Treaty and is not a mere regulatory disagreement

255.
Respondent’s jurisdictional objections are unfounded and should be rejected because the Claimant is not pleading a mere regulatory disagreement. Nor is it asking the Arbitral Tribunal to act as an extraordinary court of appeal. What Claimant is asking for is a review of Guatemala’s actions during the 2008-2013 tariff review process, in light of Respondent’s obligation under Article 10.5 of the Treaty to accord Teco’s investment fair and equitable treatment.222
256.
The Claimant does not require the Arbitral Tribunal to act as a regulatory body or as an extraordinary court of appeal. Teco is in fact not asking the Arbitral Tribunal to decide whether the decisions of the Expert Commission were correct. Nor is it asking that it conducts a new tariff review for the 2008-2013 period or that it reviews Guatemalan court decisions. The point Teco is raising in this arbitration is that Guatemala was under an international obligation to comply with the Expert Commission’s decisions, regardless of whether such decisions were correct as a technical matter under Guatemalan law. What the Arbitral Tribunal must decide is whether Guatemala acted contrary to its previous actions, in violation of the Claimant’s legitimate expectations, or arbitrarily and in bad faith in re-calculating EEGSA’s VAD for the 2008-2013 period. The Arbitral Tribunal is also called to decide whether there was a fundamental change to the legal and regulatory framework and therefore a violation of the Respondent’s obligations under the Treaty.223

2. Teco’s claims are to be decided in the merits

257.

According to the Claimant, in assessing its jurisdiction, the Arbitral Tribunal needs not establish that the claims are correct in substance. It is sufficient that it establishes that the facts alleged by the Claimant, if proved, would be likely to fall within the Treaty provisions.224 This approach is supported by a long line of consistent arbitral decisions.225 The Claimant avers that its claim and the underlying facts comply with the above requirement because, if proven, they would constitute a breach of the Treaty.226

258.
Although the Respondent cited several decisions to support its allegations of lack of jurisdiction.227 it failed to cite a single decision in which a tribunal declined jurisdiction in the circumstances of the present case.228 This shows that the decision on whether this claim turns on a mere difference of opinion over regulatory interpretation or on a violation of the Treaty is a matter to be decided in the merits and cannot form the basis for a jurisdictional objection.229

3. The Claimant is not limited to arguing denial of justice

259.
Contrary to Respondent’s contentions, the decisions made by the Constitutional Court of Guatemala do not deprive the Arbitration Tribunal of its jurisdiction, nor do they limit the Claimant to making a claim for denial of justice.230
260.
As a matter of fact, such decisions have no res judicata effect with respect to the Claimant, as the causes of action in the present proceedings are different from those present in the Iberdrola arbitration. The parties involved are also different. Moreover, the fact that a domestic court has found the CNEE’s actions to be lawful does not preclude international liability, as it is well established that a State may not rely upon the provisions of its own internal law to avoid its international obligations.231

4. The arbitral tribunal’s decision in Iberdrola is not relevant to reviewing the Arbitral Tribunal’s jurisdiction in this case

261.
The Claimant also avers that the decision in Iberdrola232 is not relevant because of the different way in which that case was presented.233
262.

In addition, the Claimant alleges that the Iberdrola tribunal erred to the extent that it concluded it did not have jurisdiction to consider issues of domestic law in a regulatory context, as investment tribunals frequently rule on issues of domestic law in determining whether there has been a breach of an investment treaty.234

263.
Finally, Teco submits that, in the Iberdrola case, the Arbitral Tribunal failed to analyze or even consider the claims relating to the legitimate expectations. In the present case it cannot be said that Teco’s legitimate expectations arguments concern a mere regulatory disagreement under Guatemalan law. In fact, according to the Claimant, this is an aspect that does not depend at all upon the correct interpretation of Guatemalan law.235

VI. POSITION OF THE PARTIES ON THE MERITS

A. Claimant’s Position

264.
According to the Claimant: (1) Guatemala breached Article 10.5 of the Treaty by failing to give fair and equitable treatment to Teco’s investment, with the aim of imposing an unreasonably low VAD on EEGSA, and in doing so (2) it caused the Claimant to suffer damages for which compensation has to be paid.

1. Guatemala violated its obligation under Article 10.5 of the Treaty

265.
The Claimant argues that Guatemala violated its obligation of fair and equitable treatment, first (a) when it modified fundamentally the legal and regulatory framework, contrary to its representations, thus frustrating Teco’s legitimate expectations and, second, (b) when it engaged in unfair and arbitrary actions during the 2008-2013 tariff review process, with the intent of controlling the process and its outcome. According to Teco, (c) Respondent’s actions constitute breaches of Article 10.5 of the Treaty.

a) The fundamental modification of the regulatory framework and the violation of Claimant’s legitimate expectations

266.
Teco argues that Guatemala made representations to the Claimant that were designed to induce it to invest in the country’s electricity sector, and that after having obtained the benefit of a high price for EEGSA’s shares, the Respondent frustrated Teco’s legitimate expectations.
267.
Contrary to the submissions of the Respondent, States are liable for failing to respect the investor’s legitimate expectations.236 and the protection of legitimate expectations is a fundamental aspect of the obligation to accord fair and equitable treatment under the customary international law minimum standard of treatment237
268.
In respect of Guatemala’s argument that Teco did not exist at the time of EEGSA’s privatization, the Claimant asserts that Teco is part of the same group of companies that originally acquired EEGSA, and that the acquisition in 2005 was merely an internal corporate transfer within the group. Moreover, according to Teco, the companies involved shared virtually all the same officers and directors.238 Accordingly, the Claimant argues that Teco shared the expectations of the other companies of the same group.239
269.
Regarding the violation of its legitimate expectations, Teco avers that Guatemala -by virtue of the specific provisions of the LGE and the RLGE,240 as well as the statements it made during the road show241 and in the Memorandum of Sale242 to promote the sale of EEGSA’s shares - made the following representations, which it immediately thereafter betrayed: (i) that the VAD would be calculated based on a study commissioned by the distributor; (ii) that the VAD would be calculated on the basis of the VNR of a distribution network of a model efficient company; and (iii) that, in case of discrepancies between EEGSA and the CNEE on the VAD study, the discrepancies would be resolved by an independent Expert Commission.

i. The VAD would be calculated based on the study submitted by the distributor

270.
The Respondent made representations on several occasions according to which VADs must be calculated by a consultant chosen by the distributor.243
271.
Article 74 of the LGE provides specifically that the VAD components should be calculated by the distributor through a study conducted by one of the firms prequalified by the CNEE.
272.
The Memorandum of Sale also stated that the VAD was to be calculated by distributors by means of a study commissioned from an engineering firm.244
273.

Teco avers that such representations implied an essential guarantee for the investor, assuring the latter that it would play an important role in the setting of the VAD. This was an essential part of the balancing that the LGE struck between the distributor and the regulator in the tariff review process.245

274.
The Respondent nonetheless amended Article 98 of the LGE in 2007 to give the CNEE an option, in certain cases, to set the VAD on the basis of a study prepared by its own consultant rather than by the distributor’s.246
275.
According to the Claimant, such an amendment was contrary to Guatemala’s representation that the VAD would be established based on a study provided by the distributor, which involved a system of checks and balances between the regulatory authority and the distributors so that the tariffs would be set on the basis of objective and impartial criteria.247 Teco states that the amendment was also unconstitutional, as it modified a statutory provision by regulation.248
276.
Teco argues that, despite the illegality of said amendment, it decided not to challenge it in 2007, first because it considered that the new provision would not be applicable to it because EEGSA planned on submitting its consultant’s studies to the CNEE in a timely and complete manner, and second because it did not want to strain its relationship with the CNEE at a time when the 2008 tariff review process was about to begin.249
277.

This amendment provided support to the November 18, 2009 decision of the Constitutional Court of Guatemala, in which the court approved the CNEE’s decision to apply its own tariff.250 As a matter of fact, without such an amendment, there would have been no basis in the LGE or the RLGE for the CNEE to rely upon its own VAD study to calculate EEGSA’s VAD for the 2008-2013 tariff period.251

278.
The Claimant therefore argues that this amendment of the LGE and the way in which it was interpreted by Guatemala was a fundamental departure from the regulatory framework upon which Teco had relied when making its investment.252
279.
Finally, contrary to the Respondent’s contention, its allegations regarding the 2007 amendment to Article 98 of the RLGE are not time-barred under the Treaty, because according to Article 10.16(2)(b-c) of the Treaty, the investor is not required to identify every measure about which it complains in its notice of intent. In any event, the Claimant did indeed identify this amendment in its Request for Arbitration.253

ii. The LGE established that the VAD would be calculated on the basis of the VNR of a distribution network of a model efficient company

280.
Article 73 of the LGE provides that the distributor’s return should be calculated based on the VNR of a model efficient company, and Article 79 of the LGE states that the rate of return should correspond to a rate of between 7 percent and 13 percent of the VNR.254
281.
The VNR, which is the basis for calculating the distributor’s VAD, can therefore not be reduced by depreciation, since the concept of new replacement value is inconsistent with a depreciated value.255
282.
The Claimant avers that Guatemala introduced the model company concept in the LGE in order to increase EEGSA’s privatization value.256 which explains why the consortium paid US$520 million for EEGSA despite the valuation, made some years before in the PW Report, of only US$13.9 million.257
283.
Teco, having paid a value higher than the actual value for EEGSA’s assets, needed to recover its investment base through higher electricity tariffs guaranteed by the LGE.258
284.
This expectation was frustrated by Resolution No. 05-2008, which amended the FRC initially contained in the Terms of Reference and thereby cut by half the VNR of the model company. According to Teco, the exchanges between the CNEE and its consultant show that the unlawful calculation of the FRC was designed with the specific purpose of significantly reducing EEGSA’s VAD.259
285.
According to Teco, this provision violated the LGE as it depreciated by half the value of a fictitious company that should by law have been considered as new.
286.
The Expert Commission confirmed that the FRC imposed by the CNEE in the Terms of Reference was contrary to the express provisions of the LGE. The CNEE misinterpreted the concept of the VNR as established in the law, and this had the effect of halving the return that had been promised to EEGSA.260
287.
Teco also argues that, because of other irregularities committed by the CNEE, the latter imposed tariffs upon EEGSA based on a VAD that did not meet the expected rate of return.261

iii. Discrepancies between the distributor and the CNEE on the VAD study would be resolved by an independent Expert Commission

288.
Article 75 of the LGE provides that, in case of discrepancies between the distributor and the CNEE on the VAD study, an Expert Commission shall pronounce itself on such discrepancies.
289.
Furthermore, when promoting the privatization of EEGSA, Guatemala reported in the Memorandum of Sale to potential investors that "in the event of discrepancy, a Commission of three experts will be convened to resolve the differences."262
290.
Indeed, the terms of reference for the 2003 tariff review provided that any discrepancies would be "reconciled" by the Expert Commission.263
291.
The CNEE also stated in November 2003, during judicial proceedings unrelated to this arbitration, that "[i]n the event of discrepancies, pursuant to Article 98 [of the RLGE] and [Article] 75 of the [LGE], an Expert Commission shall be constituted, which shall resolve [the discrepancies] in a term of 60 days."264
292.
In Teco’s submission, the Respondent’s argument that the Expert Commission’s decisions were merely advisory and non-binding is disproved by Guatemala’s own behavior. In fact, had it been so, Guatemala would not have attempted to interfere with the appointment of the chairman of the Expert Commission and to influence Mr. Jean Riubrugent.265 Respondent’s position that the CNEE had the power to unilaterally calculate the VAD irrespective of the Expert Commission’s determinations would also be inconsistent with its own argument that Article 98 bis, which provided for the possibility that the Government could appoint the chairman of the Expert Commission, was necessary in order to prevent indefinite delays in the calculation of the VAD.266
293.
Guatemala’s arguments that the mission of the Expert Commission was limited to noting the existence of discrepancies, or that the use of the verb "pronounce" in the LGE implied that the Expert Commission could only express a non-binding opinion, are opportunistic. Guatemala only adopted such positions once it found that the decision of the Expert Commission implied an increase in EEGSA’s VAD.
294.
Both the specific meaning of the term "pronounce" in a legal context267 and the logical meaning of said provision in the LGE as well as the other representations made by Guatemala indicate that the Expert Commission had the authority to resolve disputes between the distributor and the CNEE in a binding manner.
295.
The representations made in this respect were relevant to the investor, as the powers granted to the Expert Commission ensured a fair, depoliticized and efficient method of resolving disputes between the CNEE and the distributor268
296.

In breach of the many representations made by Guatemala and the CNEE, the CNEE decided to ignore the Expert Commission’s report and to instead impose a VAD based on a study prepared by its own consultant Sigla, which neither EEGSA nor its consultant knew about and in preparation of which they had no input.269

297.
In Teco’s submission, it is only after having learnt of the Expert Commission’s adverse rulings that the CNEE came up with the argument that the Expert Commission’s role was limited to recording the differences between the CNEE and the distributor. It did so in order to justify its decision to dissolve the Expert Commission, disregard its report and impose a VAD based on the Sigla report.270
298.
The Claimant also alleges that, in its decisions of November 18, 2009 and February 24, 2010, the Guatemalan Constitutional Court misinterpreted the applicable regulatory framework. According to Teco, those decisions are so devoid of reasons and so contrary to the law that it can only be concluded that they were motivated by political interest to prevent any increase in electricity rates, as shown in the statement of the President of Guatemala and uncle of the CNEE’s chairman, Mr. Alvarez Colom, in which he stated that reducing tariffs had been an achievement of his administration.271

b) Guatemala carried out the 2008 tariff review in bad faith and in an openly arbitrary manner

299.
Teco’s claim is also based on the fact that the Respondent conducted the tariff review for the 2008-2013 period in an unjust and arbitrary manner, intending to manipulate the process and control the outcome of the tariff review.
300.
The Claimant’s arguments in this respect relate to: (/) the issuance of the Terms of Reference which included illegal provisions; (ii) the unjustified rejection of the Bates White study; (iii) the attempts to tamper with the functioning of the Expert Commission; (iv) the unilateral dissolution of the Expert Commission before it had completed its work; and (r) the harassment of EEGSA’s executives.

i. The issuance of the Terms of Reference for the 2008 review

301.
The Claimant contends that the CNEE drafted the Terms of Reference for the 2008-2013 period so as to require a reduction in the VAD while granting itself the right to interfere in and even stop the studies if it disagreed with their content, all this being contrary to the relevant provisions of the LGE and the RLGE.272
302.
Article 1.9 of the Terms of Reference was particularly controversial, as it gave the CNEE discretion to deem the distributor’s study "not received’ within the meaning of the recently amended Article 98 of the RLGE if any section of the study was lacking or even if, in its own judgment, this study did not conform to the Terms of Reference or was incomplete. According to the Claimant, this provision would allow the CNEE to position itself to ignore the distributor’s study and replace it with its own study whenever it did not like the study presented by the distributor.273
303.
Teco challenged these Terms of Reference and only withdrew its appeal after the CNEE agreed to modify them and include two key provisions: Article 1.8, according to which the distributor only needed to make the corrections to the study that it deemed appropriate; and Article 1.10, stating that the Terms of Reference were only guidelines subject to the LGE and its regulations and that the distributor could deviate from the Terms of Reference if it considered that they contravened the LGE.274

ii. The unjustified rejection of the Bates White study

304.
The Claimant alleges that the CNEE, for trivial reasons, refused to accept several stages of the Bates White study, thus hindering and delaying the normal procedure.
305.

Guatemala used frivolous excuses for not accepting the Bates White stage reports, such as the lack of signature from an EEGSA-authorized representative on the letter accompanying the stage reports of the study or the lack of a deed appointing the EEGSA consultant.275

306.
Finally, after putting up several obstacles to the admission of the stage reports and having made several corrections to them, the CNEE decided that there were still discrepancies in the May 5, 2008 version of the Bates White VAD study and called for the formation of an Expert Commission, setting forth the discrepancies to be resolved. However, when dealing with this in its Resolution No. 96-2008, the CNEE distorted the presentation of the discrepancies to include aspects of the Bates White study to which it had not previously objected and which Bates White could not therefore have been able to either correct or answer.

iii. Attempts to manipulate the functioning of the Expert Commission by the CNEE

307.
The Respondent attempted to manipulate the functioning of the Expert Commission in various ways: through the adoption of Article 98 bis RLGE; by trying to establish that it would be the CNEE that would ultimately verify whether the consultant complied with the Expert Commission’s rulings; and by maintaining improper contacts with the member of the Expert Commission appointed by the CNEE, Mr. Jean Riubrugent.

• The adoption of Article 98 bis RLGE

308.
After convening the Expert Commission, Guatemala added Article 98 bis to the RLGE, allowing it to appoint the third member of the Expert Commission, in contradiction with Article 75 LGE.
309.
According to the Claimant, although this provision was not enforced by the CNEE because EEGSA would have challenged its retroactivity, its adoption demonstrates the CNEE’s attempts to improperly, arbitrarily, and unfairly control the tariff review process in violation of Teco’s legitimate expectation that the tariff review would be performed in a fair and depoliticized manner.276

• The attempt to have the CNEE decide on the incorporation of the rulings of the Expert Commission in the consultant’s study

310.
During the negotiations to establish the Operating Rules of the Expert Commission, the CNEE sought to reserve for itself the last word on whether the Bates White study had implemented the Expert Commission’s rulings, thereby allowing it to manipulate the outcome of the process.277
311.
An agreement was reached in this respect between EEGSA and the CNEE to include Article 12 of the Operating Rules. According to Article 12, the Expert Commission would be entrusted to review whether the VAD study had complied with the Expert Commission’s decisions. The Operating Rules were communicated to the chairman of the Expert Commission.278

• Improper communications with the expert appointed by the CNEE

312.
The Claimant argues that, contrary to the provisions of the LGE, according to which the experts should be impartial and independent, and contrary to the Operating Rules, according to which any ex parte contact with the members of the Expert Commission was prohibited, the CNEE remained in contact throughout the process with its expert, who was instructed to take decisions that suited them.279
313.

In particular, Teco argues that the emails exchanged between the CNEE and Mr. Riubrugent show that the CNEE had devised an unlawful FRC calculation with its consultant for the specific purpose of reducing the VAD, and then provided its own appointee expert, Mr. Riubrugent, with materials to support the CNEE’s position within the Expert Commission.280

iv. The dissolution of the Expert Commission

314.
Once the Expert Commission had issued its report and the CNEE had realized that such report would imply an increase in the VAD, the CNEE dissolved the Expert Commission without allowing it to review and approve the corrections made in the Bates White study. The CNEE thus disregarded Article 12 of the Operating Rules to which the parties had agreed. In addition, the CNEE threatened its expert, Mr. Riubrugent, in order to dissuade him from participating in the review of the corrected Bates White study.281
315.
Finally, the CNEE ignored the report of the Expert Commission, as well as the statements of engineers Bastos and Giacchino according to which Bates White had corrected its study in compliance with the report, and it instead imposed a VAD based on a study prepared by its own consultant, Sigla, which neither EEGSA nor its consultant knew about and in which they had had no input.282
316.
As a consequence, unreasonably low tariff rates were set for the 2008-2013 period. Such tariffs were set arbitrarily, entirely at the discretion of the CNEE, in violation of the provisions of the LGE and contrary to Teco’s legitimate expectations.283
317.
The tariffs set by the CNEE were economically unviable for Teco, which was forced to sell its shares in EEGSA for a price significantly lower than their value and at a substantial loss.284

v. Harassment of EEGSA executives

318.
The Claimant alleges that, after having carried out the 2008 tariff review, the Respondent took actions to harass EEGSA executives, ultimately forcing them to leave Guatemala.285
319.
In particular, on August 26, 2008, the Guatemalan Public Prosecutor’s Office petitioned the Criminal Court to issue arrest warrants against two of EEGSA’s senior managers, including Mr. Maté, on patently baseless charges. The warrants were issued by the Court on August 29, 2008. Although a provisional recourse of amparo suspending the arrest warrant was issued by the Criminal Court a few days later, Mr. Maté, who was out of the country at the time, decided not to return to Guatemala.286
320.
Teco also notes that on September 1, 2008, while Mr. Calleja was on a radio program discussing the CNEE’s unlawful actions and the severe economic consequences for EEGSA, his car was broken into and his laptop stolen. After this incident, Mr. Calleja also decided to leave Guatemala with his family.287

c) Guatemala’s actions violated its obligation to accord fair and equitable treatment to Teco

321.
Teco states that Guatemala violated its obligation to accord its investment fair and equitable treatment when it (i) substantially altered the regulatory framework, frustrating the legitimate expectations of the Claimant, and (ii) acted arbitrarily, illegally, and in bad faith during the 2008 tariff review process.

i. Substantial modification of the regulatory framework and frustration of the legitimate expectations of the Claimant

322.
The Claimant alleges that, just as in the case of actions of the Media Council in CME v. Czech Republic, the actions of the CNEE cannot be considered as part of the normal exercise of regulatory authority in compliance and enforcement of the law. To the contrary, the CNEE substantially changed the regulatory framework that had been established to attract investors and upon which Teco had relied to make its investment.288
323.
A breach by the State of specific representations made to foster investment is a violation of the minimum standard of treatment.289 Contrary to Guatemala’s contention, and as established by all tribunals constituted under NAFTA or other investment treaties having addressed the issue, the investor’s legitimate expectations are protected.290
324.
Teco accepts that the protection of legitimate expectations does not refer to mere subjective expectations and that expectations should be analyzed objectively, checking whether the State made specific representations on which a reasonable investor would have relied to make their investment.291
325.
Such representations can be made through laws, regulations or policies declared by the State. They can also emanate from prospectuses or offering circulars in the case of a privatization even if such documents have not been prepared by the State when they are issued on its behalf.292
326.
As stated by the ICSID Secretary General, "[ t] he weight of authority suggests that an undertaking or promise need not be directed specifically to the investor and that reliance on publicly announced representations or well-known market conditions is a sufficient foundation for investor expectations."293
327.
As a consequence, if the State fundamentally changes its regulations or policies, whether through amendments to the existing regulation or by issuing a new and different interpretation of the same, this would defeat the legitimate expectations of the investor and would violate the obligation of fair and equitable treatment. The Claimant argues, relying on the Total decision,294 that although the obligation of fair and equitable treatment does not operate as a stability clause or prevent the State from changing its laws, in the case of long-term investments, regulations should provide a clear framework for future operations. The concept of regulatory fairness or regulatory certainty applies, and the State cannot therefore change its regulatory regime so as to prevent the investor from recouping its investment and making reasonable profits.295
328.
The Claimant alleges that Guatemala failed to ensure a stable and predictable legal and business environment; it disregarded the system of checks and balances established under the LGE and the RLGE by ignoring the Expert Commission’s Report and Bates White’s revised study, and it fundamentally altered the legal and business environment under which Teco had invested in EEGSA.296

ii. Prohibition of arbitrary, illegal, and grossly unfair actions

329.
The Claimant contends that the obligation to accord fair and equitable treatment, as it has been understood in virtually all NAFTA arbitration decisions or under the Treaty, prohibits conduct that is arbitrary, grossly irregular, unjust, or idiosyncratic and behaviors that exhibit a complete lack of transparency and candor in an administrative proceeding.
330.

Several tribunals have established that, although it is not necessary to prove bad faith in order to establish a violation of the minimum standard of treatment, if it is proved that the State acted in bad faith this establishes a violation of the standard.297

331.
Guatemala’s actions infringed "a sense of fairness, equity and reasonableness", in violation of the standard set forth by the NAFTA tribunal in Merrill v. Ring298 and as such they "constitute an unexpected and shocking repudiation of [the LGE’s] policy’s very purpose and goals or otherwise subvert a domestic law or policy for an ulterior motive."299
332.
According to Teco, as in Biwater Gauff v. Tanzania, Guatemala’s "failure to put in place an independent, impartial regulator, insulated from political influence, constitutes a breach of the fair and equitable treatment standard, in that it represents a departure from [the investor’s] legitimate expectation."300

2. Damages

333.

Teco argues that the fact that the CNEE has fixed the VAD too low for the 2008-2013 period has caused it considerable loss and, in particular, it claims compensation for (a) lost cash flow that its investment would have earned had EEGSA been able to collect the VAD to which it was entitled between August 1, 2008, the date the CNEE imposed its tariffs, and October 21, 2010 when Teco sold its investment in EEGSA, plus (b) the difference between the actual market value of Teco’s EEGSA shares in October 2010 with the VAD approved by the CNEE and the amount that its shares would have been worth had Guatemala not breached its Treaty obligations. In addition, Teco is also claiming (c) pre- and post-award compounded interest at a rate of 8.8 percent.301

334.
According to the Claimant, the compensation awarded by the Arbitral Tribunal must be complete, that is, it must compensate for the injuries caused by the internationally unlawful act and re-establish the status quo that would have existed but for the wrongful act.302

a) Profits lost between August 2008 and October 2010

335.
Regarding Teco’s lost profits between August 1, 2008 and October 21, 2010, the Claimant asserts that they constitute the difference between the actual historical results and the cash flow projection made by Mr. Kaczmarek if the Bates White corrected final report had been applied.303
336.
Mr. Kaczmarek used EEGSA’s current and projected financial statements to calculate the loss of free cash flow of the firm,304 and estimated EEGSA’s cash flows loss between August 1, 2008 and October 21, 2010 at US$87 million.305 As a consequence, Teco’s loss, given its 24.3 percent stake in the company, was US$21,100,552.306

b) The loss in value of EEGSA’s shares as a result of Guatemala’s actions

337.
To determine the loss in value of EEGSA’s shares, Mr. Kaczmarek calculated the value of the company in the current scenario, i.e. with tariffs set according to the values established in the Sigla study ("actual value") and compared it with the value that the company would have had if the tariffs had been fixed according to the corrected Bates White final study ("but-for value").307
338.
Mr. Kaczmarek calculated both values by three different methods: the discounted cash flow ("DCF") method, the comparable publicly-traded companies method, and the comparable transactions method. Then the expert assigned to each specific valuation method a certain weighting, depending on the level of confidence that he thought they deserved. Thus, he assigned a value of 60 percent to the DCF Approach, 30 percent to the comparable publicly-traded company approach, and 10 percent to the comparable transaction approach.308
339.
Based on these calculations, the Claimant’s expert concluded that EEGSA’s actual value was US$562.4 million and its but-for value US$1,479.3 million.309
340.
Mr. Kaczmarek then subtracted US$87.6 million from EEGSA’s net debt as of October 21, 2010 and concluded that the capital investment of the Claimant, considering its percentage of 24.26 percent equity interest in the company, amounted to US$115,198,529 and US$337,683,311 in the actual and "but-for" scenarios respectively. Therefore, Teco’s loss as a result of the decrease in fair market value of its shares in EEGSA is US$222,484,783.310

c) Response to criticisms of the Respondent’s expert

341.
Teco submits that the arguments used by Respondent’s expert to criticize the reference made by Mr. Kaczmarek to comparable311 companies and the use of the comparable transactions method are incorrect.312
342.
The sample employed by Kaczmarek in fact included twelve businesses and nine transactions while, according to most leading practitioners, significant confidence can be derived from a sample of four to seven companies.313
343.
Moreover, Teco rejects Guatemala’s claim that the weighting of the various methods was arbitrary and results-oriented.314 and argues that the procedure to assign the weights was based on objective criteria. Mr. Kaczmarek had legitimate reasons to assign greater weight to businesses or operations that were the most similar to EEGSA.315
344.
Regarding the criticisms according to which the Claimant’s expert underestimated the capital costs, the Claimant states that when calculating EEGSA’s value, its expert properly projected EEGSA’s actual capital expenditures316 rather than those of a model company, which is what the capital costs figures in the Bates White Study represent.317
345.
Teco also avers that Guatemala’s expert miscalculated the amount of capital expenditures in the Bates White study by adding together the capital expenditures and the return of the capital portion of the VAD. Said expert’s projections for EEGSA’s capital expenditures are out of line with the capital costs of EEGSA itself or the amount of capital expenditures for other comparable distribution companies.318
346.
Moreover, the Claimant argues that Respondent’s expert did not calculate EEGSA’s "but-for" valuation by using the Bates White study, but relied instead on Mr. Damonte’s model, which does not incorporate all of the Expert Commission’s rulings.319 The Claimant argues that it makes no sense to calculate EEGSA’s value in the "but-for" scenario by using a model that does not accept the Expert Commission’s rulings.320
347.
Regarding the value of Teco in the actual scenario, the Claimant agrees that the real transaction price of the company that is being valued is the best evidence of that company’s actual value; in this case, however, the sale was of DECA II and not only of EEGSA, and the price paid by EPM did not specify the price paid for EEGSA, thus the Claimant considered it more appropriate to conduct the valuation using other traditional valuation methods.321

d) Reasonableness of the valuation of Claimant’s experts

348.
According to the Claimant, the three following additional tests show that its expert’s valuation is reasonable.322

i. The internal rate of return ("IRR ") for the cost of equity

349.
In both scenarios, actual (0.6 percent) and "but-for" (7.7 percent), the IRR is below the real cost of equity (11.01 percent).323

ii. The VNRs calculated by Bates White and Sigla

350.
According to Mr. Kaczmarek, the valuation of EEGSA could be checked against EEGSA’s VNR, which should approximate the fair market value of EEGSA. He submits that the valuation of EEGSA in the "but-for" scenario was within 6 percent of Bates White’s VNR value, and that the valuation of EEGSA in the actual scenario was lower than Sigla’s VNR because Sigla used the CNEE’s FRC, which reduced EEGSA’s return on capital.324

iii. The selling price at which EPM bought DECA II

351.
Teco received US$181.5 million for its share of DECA II, and analyzing the value allocated to each company of DECA II, EEGSA accounted for 62.2 percent, which, according to the Claimant, results in an implied valuation for EEGSA of US$498 million.325

e) Interest

352.
Article 10.26(1) of the Treaty provides for an award of monetary damages and any "applicable interest". The Claimant therefore contends that it should be awarded both pre-award and post-award compound interest at a rate of 8.8 percent up to the date of effective discharge of the obligations.326
353.
Respondent’s expert Dr. Abdala acknowledged at the hearing that this would be an appropriate pre-award interest rate for the period between August 1, 2008 and October 21, 2010, since it corresponds to EEGSA’s WACC at that time327.
354.
Claimant argues that the same interest rate should be applied from the date of the sale of EEGSA up to the date of the award because Teco sold its interest in EEGSA as a result of Respondent’s actions during the 2008-2013 tariff review.
355.
According to the Claimant, this same rate should also apply to post-award interest because, as explained by its expert Mr. Kaczmarek, there is no reason to differentiate between the rate applicable pre- and post- award.328
356.
As the ILC Articles on State Responsibility also recognize, interest must run until the date the obligation to pay is fulfilled.329
357.

Interest should be capitalized annually, for it is now widely recognized that "tribunal practice has shifted towards awarding compound interest when requested by the claimant"330

358.
The Claimant opposes the Defendant’s contention that a risk-free rate similar to that applied to U.S. sovereign debt331 should be applied. As a matter of fact, this would not be a commercially reasonable rate because it is not available to participants in the commercial sector. According to Teco, the Respondent does not cite a single case in which an arbitral tribunal has ordered capitalized interest to be paid at a risk-free rate.332
359.
The Claimant also rejects Guatemala’s argument that interest accruing after the sale of EEGSA should be set at a risk-free rate because, since that time, the Claimant was no longer exposed to the risk of operating said company. According to Teco, that fact is irrelevant because EEGSA was valued by discounting projected future cash flows at the company’s cost of capital333

B. Respondent’s Position

360.
According to the Respondent: (1) the dispute between the Parties in this arbitration relates to a difference of opinion regarding the application of the regulatory framework of the electricity sector in Guatemala, which is not covered by the minimum standard of treatment under the Treaty. The Respondent, nevertheless, answered the specific allegations made by the Claimant with respect to (2) the alleged frustration of its legitimate expectations, and (3) the alleged injust and arbitrary actions taken by the State in the tariff review process. Finally, (4) Guatemala addressed Claimant’s claim for damages.

1. The minimum standard of treatment under the Treaty does not cover Teco’s claims

361.
The applicable standard is the minimum standard of treatment under international law in accordance with Article 10.5 of the Treaty. Guatemala contends that the Claimant therefore has the burden of proof of the "general and consistent practice of States that they follow from a sense of legal obligation" in order to provide content to the minimum standard of treatment, but it has not satisfied this burden.334
362.
In order to constitute a breach of the international minimum standard of treatment, the State’s conduct must be particularly egregious against the investor’s interests, as various Arbitral Tribunals constituted under NAFTA or other treaties have decided.335
363.
The international minimum standard of treatment accords an ample margin of appreciation to the State, it is therefore not to be applied to disputes stemming from supposed irregularities allegedly contrary to the domestic law, the determination of which is reserved for the local courts.336 Although the decision of a regulatory body may be subject to criticism or even be contrary to law from the perspective of the relevant domestic legislation, it does not for that reason alone violate international law. For this, the conduct must constitute a deliberate violation of the regulatory authority’s obligations or an insufficiency of Government action falling far below international standards.337
364.
The Respondent contends that the present case concerns discrepancies between the investor and the regulator regarding the interpretation of the regulatory framework and cannot be considered a case of direct and shocking repudiation of the applicable rules. Therefore, the Claimant’s claims must be brought before the domestic courts.338
365.
Guatemala’s position is that a violation of domestic law does not breach the international minimum standard of treatment unless it is a manifest and unjustified repudiation of a right and the victim did not have access to domestic courts, that is, justice has been denied.339 However, the Respondent submits that the Claimant has already brought its case before the local courts of Guatemala, that such courts were available to hear its claims and have done so independently and impartially, as is clear from the various favorable decisions obtained by the Claimant.340 In any case, the Claimant has not alleged denial of justice in this arbitration.341
366.
Finally, the doctrine of legitimate expectations does not apply in the context of the international minimum standard of treatment, as the practice and opinio juris of State Parties to the Treaty demonstrate.342 Guatemala submits that the Claimant has yet to provide a single example of a violation of the international minimum standard of treatment in which the breach of legitimate expectations was found to be the basis of the State’s responsibility.343
367.
Furthermore, the autonomous standard referred to by the Claimant, although not applicable in this case, does not protect the mere ordinary expectations of an investor that a public authority will not breach a contract or will not commit any irregularity under the applicable regulatory framework.344

2. The alleged representations made by Guatemala and the alleged frustration of Teco’s legitimate expectations

368.
The Respondent argues that, contrary to Claimant’s averment, the electricity regulatory framework under which Teco made its investment continues to be in effect because, although there have been some adjustments to the regulations, these are normal and were expected and accepted by Teco in the Authorization Agreements, which did not contain any stability clause.345
369.
Teco’s own attitude is inconsistent with its claims in the arbitration, as shown by the declarations of its CEO who, three months before initiating arbitration, stated that Guatemala was a market in which the rules were clear and there was certainty.346
370.
Moreover, Guatemala rejects the idea that Teco could have created legitimate expectations at the time that EEGSA was privatized, because at that time Teco had yet to come into existence. Indeed, Teco was created in 2005 and it was only then that it acquired the shares in EEGSA, so expectations could hardly have been created based on the statements of Guatemala during the privatization process.347
371.
Although Teco has alleged that EEGSA’s shares always belonged to the same group of companies and the expectations of the group were transferred to Teco, a simple reference to being a member of a group is not enough to exclude an analysis of the transfer of legitimate expectations. According to Guatemala, this would require inquiring into and demonstrating what the expectations of each company of the group were in relation to the investment in Guatemala.348 The Claimant has not proven that the company that acquired the EEGSA shares in 1998 had the same executives as Teco.349
372.
With regard to the regulatory framework and the tariff-setting process, Guatemala responded to the Claimant’s allegations about (a) the amendment of Article 98 of the RLGE in 2007, (b) the FRC in the 2008 Terms of Reference, and (c) the role of the Expert Commission.

a) The amendment of Article 98 of RLGE in 2007

373.
Guatemala contends that, contrary to the allegations of the Claimant, the 2007 amendment to Article 98 RLGE was not politically conceived to interfere with the 2008 tariff review, nor was it unconstitutional or in violation of the LGE.350
374.
The 2007 amendment originated in an amendment of Articles 98 and 99 of the RLGE made in 2003, which had solved some problems concerning the tariff review timeframe and sought to address the situation in which, for whatever reason, the distributor did not have a tariff schedule in place after the expiration of the existing tariff351
375.
The 2007 amendment to Article 98 RLGE sought to correct the undesirable situation that could arise if the distributor did not submit or correct its study, for in such cases the RLGE would have rewarded the distributor with the continued application of the existing tariffs, which could be beneficial for the defaulting distributor because in an efficient business system, the distributor tends to reduce costs progressively, which should result in a reduction of tariffs.352
376.
In any case, at no point before this arbitration did EEGSA or its shareholders ever object to the 2003 and 2007 RLGE reforms.353 In fact, given that the modification took place in March 2007 and the Claimant only raised the argument in its October 2010 Request for Arbitration, such claim falls outside the three year time limitation provided by Article 10.18.1 of CAFTA-DR and is therefore time-barred.354