Table of Contents
I. Introduction
In Germany, Energy Regulation is mainly subject to the Energy
Industry Act (Energiewirtschaftsgesetz - hereinafter „EnWG")
which is Federal Law. The new EnWG dealing with the general structure
of electricity and gas markets came into effect on 29 April 1998 and is
directed towards the liberalization and deregulation of the German electricity
and gas markets with the intention to lower prices for electricity and
gas to a competitive level within in the European common market. The amending
law serves to implement the EU Directive concerning common rules for the
internal market for electricity into national law, in particular by changing
the Energy Industry Act of 1935 and the Act
Against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen
- hereinafter „GWB"). The EnWG aims to achieve a safe,
reasonably-priced and ecological-oriented energy supply for the public
benefit (§ 1 EnWG).
In accordance with the EU Directive, the EnWG lays down objective and
non-discriminating principles for the taking up of energy supply and the
construction of power plants and power lines. Due to Art. 21 (2) of the
EU-Directive, under the new EnWG every undertaking intending to take up
power generation or power supply is free to construct power plants or
power lines. According to § 3 (2) EnWG, the permission to supply
energy may only be rejected if the applicant does not have the necessary
personal, technical or economical productivity or its activities would
lead to less favorable conditions of supply for the entirety of customers
in the market or to disadvantages in the remaining supply area of the
existing supplier. Thereby the objective of a secure, low-priced and environment-protecting
energy supply shall be adequately considered. No authorization is required
to induct electricity in power grids of electricity undertakings and to
supply customers beyond the public energy supply, as far as the supply
mainly results from plants using renewable energies, cogeneration-plants
or plants run by industrial undertakings for eeting its own requirements.
According to § 9 (2) EnWG, electricity utilities have to account
separately for generation, transmission and distribution and for activities
outside of the energy sector.
Territorial authorities are obliged to make public roads available for
installation and operation of mains for the immediate supply of electricity
to final customers in the territory in a non-discriminatory manner (§
13 EnWG). Installation and operation of mains may be denied if the intended
supply of electricity leads to an ousting of electricity generated in
cogeneration-plants or in plants for the use of renewable energies or
if the utility refuses to pay a reasonable concession fee. The term of
agreements between utilities and territorial authorities granting the
right to install and operate mains for the public supply of energy may
not exceed 20 years (§ 13 (2) EnWG). With regard to concession fees
to be paid to the territorial authority for the right of installation
and operation of mains, the Federal Ministry of Economic Affairs has issued
the Concession Fee Regulation (Konzessionsabgabenverordnung) in 1992 which
regulates the calculation basis and the maximum amount of concession fees.
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II. Abolition of Antitrust Exemptions for the Energy Sector
Until 1998, the former § 103 (1) No. 1 GWB exempted various
demarcation agreements, i.e. agreements between public utilities supplying
electricity and other utilities or territorial authorities where one of
the parties agreed to refrain from the public supply of electricity in
a certain territory through fixed mains. Furthermore, § 103 (1) No.
2 GWB exempted agreements between utilities and territorial authorities
where the authority granted exclusively to one utility the right to install
and operate mains upon or underneath public roads for the current or intended
direct public supply of electricity to final consumers within the territory
of such authority. These and other contracts exempted by § 103 (1)
GWB were only subject to an abuse supervision by the cartel authority.
Not only due to these legal circumstances, the electricity and natural
gas sectors in Germany have been characterized by their large number of
enterprises (approximately one thousand) and by the strong involvement
of municipalities. Exclusive concession contracts with municipalities
and demarcation agreements have impeded competition. There are also cross-shareholdings
between energy enterprises, industry and finance and among enterprises
in the same sector. Although the tendency is towards privatization, there
is also a mix of private/public ownership as the Laender and municipalities
own shares in many electricity and natural gas enterprises. Municipal
companies (Stadtwerke) are involved in natural gas distribution, electricity
production and distribution as well as other activities such as public
transport. Revenues from natural gas and electricity sales are partially
used to finance other activities. Municipalities collect concession fees
from gas and electricity distribution companies. Most of the energy suppliers
used to have their own clearly demarcated market which was inaccessible
to competing suppliers. Therefore, many German public utility enterprises
were in effect monopolists in their regional and local markets.
The last years have seen enormous changes in the market structure, the
most important being two mergers between the leading energy suppliers
in Germany. In 2000, the Commission has cleared the merger between VIAG
and VEBA on 13 June 2000, and the Federal Cartel Office (Bundeskartellamt)
has cleared the merger between VEW and RWE on 3 July 2000. The two groups
of undertakings resulting from these mergers are assumed to control the
majority of the German energy markets.
With the abolition of antitrust exemptions for the energy sector, the
prohibitions of the GWB are generally applicable to energy supply contracts,
which are now treated like all other (long-term) contracts. It is highly
disputed under which conditions such contracts are prohibited and therefore
invalid under §§ 1, 19 or 20 GWB or under Article 81 or 82 EEC
Treaty and for which term they may be at least partly valid due to §
139 of the Civil Code (BGB) or due to a salvatorial clause. Also, many
questions with regard to both parties’ claims in case a contract
is found to have been invalid in the past are pending before the courts
at the moment.
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III. Control of Prices and Conditions
The former special price control for the energy sector under
§ 103 (5) No. 2 GWB which was based on a comparison of prices in
comparable markets has been abolished.
Under current law, only tariffs charged to private households, agricultural
concerns and small commercial properties (so-called tariff customers)
are subject to approval by the Price Supervision Authorities of the Laender
(in general the Ministry of Economic Affairs) under the Federal
Regulation on Electricity Tariffs (Bundestarifordnung Elektrizität
– BTOElt) of 18 December 1989. Tariffs must be authorized
by the Supervisory Authority in advance before they may be applied. The
aims of the price control after the BTOElt are the protection of tariff
customers against excessively high prices, the protection of utilities
by guaranteeing them reasonable profits, the protection of the environment
and the sparing use of resources.
Furthermore, the fixing of tariffs may fall under prohibitions of the
GWB, the Act
Against Unfair Trade Practices (Gesetz gegen den unlauteren Wettbewerb
- UWG), the Rebate Act (Rabattgesetz) or EC Competition
Law (Articles 81 and 82 EEC Treaty). For instance, provided the energy
supplier holds a dominant position in the market, the price control of
§ 19 GWB or of Article 82 EEC Treaty may apply. In this context,
the finding of a dominant market position mainly depends on the definition
of the relevant geographic market which is highly disputed with regard
to German electricity markets.
In order to secure the supply of end customers, § 10 EnWG obliges
utilities supplying end customers in a municipal territory to publish
General Terms and Conditions and General Tariffs for the supply in low-voltage
grids and to grid-connect and to serve customers pursuant to these conditions
and tariffs, provided that the grid connection and the supply is not unacceptable
for the utility because of economical reasons. The utilities are restricted
in their negotiations of supply conditions with so-called tariff-customers
(i.e. private households, agricultural groups and small commercial properties)
by the Regulation on General Conditions for the Supply of Energy to General
Customers (Verordnung über Allgemeine Bedingungen für die Elektrizitätsversorgung
von Tarifkunden - AVBEltV) which has been issued by the Federal Ministry
of Economic Affairs on 21 June 1979.
Different general tariffs for different municipal territories are only
allowed if the supplier proves reasonable justification, that the discrimination
does not lead to increased prices for any customer and that the price
differences for all customers are appropriate.
Autoproducers or customers being provided by third electricity suppliers
cannot rely on this so-called compulsory connection and supply under §
10 EnWG. These customers may only claim to be connected and supplied to
the extent and on conditions being economically acceptable for the utility.
In contrast to the supply to tariff-customers, the terms and conditions
for the supply of distributors and industrial customers with electricity
depend solely on the negotiations between the utility and the customer.
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IV. Grid Access and Power Transmission
The amendment of the EnWG fully opens up the German power market
for competition. Every customer shall have free choice of his supplier.
Electric power can be transported by transmission or, as an exemption,
up to the end of 2005, by way of the so-called single-buyer system. This
differs from transmission primarily in that under the single-buyer system
the customer cannot establish an independent relation with a third-party
supplier because the latter has to deliver the electricity to the single
buyer.
Competition on the electricity market is expected to take place primarily
by use of the currently existing grid. Construction of new power lines
is unlikely to play a major role. The new law contains an explicit right
to access the power grid (§ 6 EnWG – negotiated third party
access). Grid owners are obliged to transport the energy to the consumer
under conditions no less favorable than for comparable services to affiliated
enterprises. In addition to § 6 EnWG, a right to access power grid
may result from § 19 (4) No. 4 GWB. These rights are enforceable
in civil courts. Furthermore, in case of unjustified refusal of third
party access, damage claims are possible. Nonetheless, there are a few
enumerated exceptions where third party access can be denied. In particular,
third party access may be refused if transmission is impossible or inappropriate
for operational or any other reasons. In determining appropriateness account
shall be taken of whether
- a district-heat-oriented cogeneration plant or a renewable-
energy generation plant is put to a disadvantage
or
- electricity from abroad is transmitted and whereas
in the
export country the domestic customer cannot also
be
supplied by third parties (so-called Reciprocity
Clause; valid
until the end of 2006) or
- power generation from East German lignite would be
endangered (so-called Lignite Protection
Clause
(Braunkohleschutzklausel); valid until the end
of 2005
at the latest).
The burden of proof for these exceptions is imposed on the owner of the
grid. Furthermore, discrimination against third party users is prohibited.
They have to be treated on equal terms as subsidiaries of the owner.
According to § 6 (2) EnWG, the Federal Ministry for Economic Affairs
is authorized to regulate the arrangement of third party access contracts
and the criteria for the calculation of transmission fees, as far as regulation
is necessary to achieve a reliable and fair priced supply, environmental
protection and effective competition. However, state regulation may be
unnecessary as long as the Energy Industry is able to self-organize third
party access according to the objectives of the EnWG and as far as disputes
concerning third party access are limited to some individual cases which
can be solved by applying antitrust law. Accordingly, German power plants
and industrial consumers agreed upon general guidelines for transmission
fees to be paid for the use of the grid in order to avoid a state regulation.
On 22 May 1998, the Federal Association of the German Industry (Bundesverband
der Deutschen Industrie - BDI), The Association of Energy and Power Industry
(Verband der Industriellen Energie- und Kraftwirtschaft - VIK) and the
Association of German Energy Producers (Vereinigung Deutscher Elektrizitätswerke
- VDEW) concluded the „Agreement Among Associations on Third Party
Access" (Verbändevereinbarung I). The Bundeskartellamt gave
its consent to this agreement, and also the EC Commission signaled its
approval. On 13 December 1999, the Verbändevereinbarung I was replaced
by the so-called Verbändevereinbarung
II which is still under review by the Bundeskartellamt and the
EC Commission.
The Verbändevereinbarungen are binding only on the associations BDI,
VIK and VDEW as contracting parties. The energy suppliers being members
of the contracting associations are not bound by them. The Verbändevereinbarungen
are regulations containing specific standards for the electricity sector
and guidelines for third party access agreements between electricity undertakings
and electricity customers.
Since grid operators are not legally bound by the Verbändevereinbarung,
they are free to conclude individual agreements with either electricity
undertaking who wants to transmit electricity or with customers who want
to be supplied with energy by way of transmission. If no agreement is
reached, § 6 (1) EnWG and § 19 (4) No. 4 GWB apply. Pursuant
to § 6 EnWG and § 19 (4) No. 4 GWB, third party access has to
be granted under conditions no less favorable than for comparable services
to affiliated undertakings. According to §§ 315, 316 of the
Civil Code (Bürgerliches Gesetzbuch), the grid operator has the right
to fix the amount of transmission fee in his fair judgment. If the potential
grid user does not agree to the transmission fee fixed by the grid operator,
he has to bring an action against the grid operator in the competent court
to decide on the question of reasonableness.
§ 6 (1) EnWG and § 19 (4) No. 4 GWB do also apply if the grid
operator and the grid user agree to apply the Verbändevereinbarung,
since both provisions are compulsory law which cannot be superseded by
private agreements.
In addition to the Verbändevereinbarungen, further non-binding, private
standards concerning third party access have been stipulated i.e. the
Grid Code of October 1998, which contains regulations for the feeding
in of electricity from power plants and for the transmission of electricity
in transmission grids, the Distribution Code of May 1999 which stipulates
standards for the feeding in and the transmission in distribution grids,
the Metering Code of May 1999, which regulates measuring procedures, and
the Verbändevereinbarung for gas which has been concluded on 4 July
2000.
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V. Promotion of Renewable Energy Sources
The EnWG declares reliability of supply, fair pricing and environmental
protection as its objectives. Renewable energy sources (e.g. wind, water
and solar energy) are privileged under the Renewable
Energy Act (Gesetz für den Vorrang Erneuerbarer Energien or Erneuerbare-Energien-Gesetz)
of 29 March 2000 and the Combined
Heat and Power Act (Kraft-Wärme-Kopplungsgesetz) of 12 May
2000. According to § 3 of the Renewable Energy Act, grid owners are
obliged to access energy suppliers producing energy exclusively by water,
wind, solar, geothermal, natural gas, marsh gas or biomass and to purchase
the electricity generated in such plants at certain minimum rates as provided
for in § 4 - 8 Renewable Energy Act.
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VI. Enforcement
A special authority responsible for the deregulation of the
energy sector does not exist in Germany, although there have been proposals
for an Authority with similar tasks as the Regulatory Authority for Telecommunications
and Postal Services. As far as deregulation is governed by the GWB, it
is enforced by the Federal
Cartel Office (Bundeskartellamt), by the Cartel Authorities of
the States (Laender), which are generally departments of the Ministry
of Economy, and by private parties. Other regulatory affairs as the permission
of energy plants and the enforcement of the EnWG are carried out by a
number of different authorities, mainly by the Ministries of the German
States (Laender). However, to a considerable extent regulatory energy
law in Germany is enforced by private parties before the civil courts
and in negotiations, which is demonstrated by the Verbändevereinbarung
mentioned above.