The European Court of Justice (ECJ) today upheld an action brought by the European Commission against the Federal Republic of Germany: The ECJ took the view that Germany failed to correctly transpose parts of the third internal energy market package due to, among others, a lack of independence of the Federal Network Agency (Bundesnetzagentur – BNetzA). The law firm Becker Büttner Held (BBH) considers the judgment to be wrong and calls for a clarification of the EU legislation by the European legislator. According to BBH, the Federal Government must insist on a revision of the relevant EU law.

“The implementation of this ruling raises significant questions in terms of constitutional law. The Federal Network Agency would become a kind of “super-authority” that would ultimately make and also apply its own laws largely without being bound by any legal requirements of the German legislator. The legal protection available to the companies subject to regulation by the Federal Network Agency would be close to zero,” says lawyer and BBH partner Prof. Dr. Christian Theobald, who is renowned across Germany for his regulatory expertise; he doubts that such a scenario was intended in the EU’s third internal energy market package.

Therefore, BBH calls for clarification by the European Parliament and the Council. The Federal Government must push for the matter to be dealt with. “Energy market regulation cannot function without a corresponding normative framework set by the national legislator. The EU directives are too abstract in this regard. We now need an unambiguous European regulation that clearly defines the interplay of the national legislator and the regulatory authorities. This should happen within the framework of the upcoming revision of the EU Gas Directive,” said Prof. Dr. Christian Theobald, pointing out that the ruling of the ECJ runs counter to the achievements accomplished in the past 15 years of German energy market regulation: “It was precisely the paradigm shift to a normative-administrative regulation by the national legislator in 2005 that first brought about a level competitive playing field in the area of electricity and gas grids.”

Today’s ruling by the ECJ marks a turning point for the German regulation (of network charges) as the ECJ considers the tiered legal provisions applicable so far to be inadmissible. The main point of criticism by the European Commission is that the German regulatory system does not comply with EU law, which requires that national regulatory authorities must be independent. The German Energy Industry Act (Energiewirtschaftsgesetz – EnWG) along with the Incentive Regulation Ordinance (Anreizregulierungsverordnung – ARegV), the Electricity Grid Charges Ordinance (Stromnetzentgeltverordnung – StromNEV) and the Gas Network Charges Ordinance (Gasnetzentgeltverordnung – GasNEV) provided the Federal Network Agency with too little room for manoeuvre.

Against the background of the ruling, it is now unclear which powers still rest with the national legislator in terms of regulation and what is to happen with the respective clarifying ordinances. Furthermore, the energy sector fears drastic effects on the design of the framework for the regulation of (network) charges. The Federal Network Agency already enjoys a substantial degree of autonomy when it comes to stipulating the rate of return on equity, as a result of which the rates have been reduced again and again. In the fourth regulatory period, the rate is to amount to only 4.59 percent – a decrease of two percent compared to the previous regulatory period.

“The grid operators are stunned in view of this downward spiral. On the one hand, they are to make their grids fit for the energy transition and future-proof, on the other hand, they have less and less budget available to do so. That is paradoxical,” says M&A expert and BBH partner Rudolf Böck, a public auditor and tax advisor. “That is also not in line with the international financial environment.”

Becker Büttner Held is a leading provider of advisory services for energy and infrastructure companies and their customers. Energy and supply companies, particularly public utilities, municipalities and local authorities, industrial companies and international groups are among its core clients. BBH advises these and many other companies and organisations in all legal matters and also assists them with business and strategic advice.

Contact:
Prof. Dr. Ines Zenke                                                  
Lawyer (Rechtsanwältin), Partner
Phone +49 (0)30 611 28 40 - 179                                  
ines.zenke@bbh-online.de                                    

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