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The EU State aid law hot spot in the Energy sector from a German perspective

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Christian Koenig presents at the Vienna Forum on European Energy Law, 2013

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The EU State aid law hot spot in the Energy sector from a German perspective

  1. 1. Univ.-Prof. Dr. Christian Koenig, LL.M. (LSE) Center for European Integration Studies, University of Bonn
  2. 2. a) Background  German energy policy changed after Fukushima  Faster nuclear power phase-out than originally planned by the government  Material switch to energy from renewable sources  Implications on grid dimensions, energy producers and prices
  3. 3. b) Introducing Sec. 19 para. 2 s. 2 German regulation on grid access fees (StromNEV) „Erreicht die Stromabnahme aus dem Netz der allgemeinen Versorgung für den eigenen Verbrauch an einer Abnahmestelle die Benutzungsstundenzahl von mindestens 7 000 Stunden und übersteigt der Stromverbrauch an dieser Abnahmestelle 10 Gigawattstunden, soll der Letztverbraucher insoweit grundsätzlich von den Netzentgelten befreit werden.“  Attempt of the German government to exempt large-scale energy consumers from grid fee  Those consumers whose grid usage exceeds 7.000 hours per annum and whose gross energy consumption exceeds 10 GWh can apply for an (total) exemption from the obligation to pay grid fees.  Advantage depends on an administrative decision taken by the National Regulatory Authority (Bundesnetzagentur, BNetzA)
  4. 4.  Lost revenues resulting from the exemption are invoiced to the upstream grid operators.  The transmission system operators will then “collect” these lost revenues (sec. 19 para. 2 s. 6) and equalize the burden between them (sec. 19 para. 2 s. 7) through a mechanism provided for by sec. 9 of the Combined Heat and Power-Act.  The transmission system operators will then calculate a so called "sec. 19 apportionment" and invoice this collective burden to downstream grid operators, who pass these additional costs on to their customers, i.e. to the suppliers and ultimately to the consumers (BNetzA, dec. of 14.12.2011, BK8-11-024).  Privileged consumers with a grid fee exemption only pay a limited part of the “sec. 19 apportionment” due to their intensive and excessive grid usage (p.24 of the aforementioned BNetzA decision) – therefore they are in fact privileged twice.
  5. 5. Marketlevels Upstream grid operators Transmission grid operators Lost revenues € € € € Grid operators Lost revenues Lost revenues Consumers Grid Usage > 7000 hours/annum or > 10 GWh gross energy Grid fee exemptions (authorized by BNetzA) Burden is collected and equalized (Sec 9 Combined Heat and Power Act) All consumers (however for consumers with grid fee exemption the apportionment itself is also limited) € € € € € € € € € € € €
  6. 6.  Preliminary proceedings against this grid fee exemption and "sec. 19 apportionment" mechanism  Amicus curiae procedure under the notice of the European Commission regarding the enforcement of State aid law by national courts: does the exemption of large-scale electricity consumers from the obligation to pay grid fees constitute State aid according to Art. 107 para. 1 TFEU?  European Commission has not affirmed this question so far, but is now in direct communication with the German government aiming at opening State aid proceedings.
  7. 7. a) The relevant criterion: Aid granted “by a Member State or through State resources”? and/or Economic attribution criterion Governmental origin of monies Control Criterion Attribution to a Member State
  8. 8.  Decision PreussenElektra (ECJ, judgement of 13.3.2001, C- 379/98): There is no “aid granted by a Member State or through State resources” in place if a private electricity supplier is obliged by binding and immediately applicable law to take delivery of electricity generated from renewable sources at regulated minimum prices.  The resulting economic advantages in PreussenElektra do neither rely on a direct nor indirect transfer of public money.  On the contrary: If prices are invoiced and paid out by a governmentally dominated clearing agency aid is granted “through State resources”.
  9. 9.  First step: ECJ overcomes the implications of its decision in the Pearle case, implying monies collected by an industrial association, which were used for “a purely commercial purpose and had nothing to do with a policy determined by the authorities”.  By contrast, in Essent Netwerk (ECJ, judgement of 17.7.2008, C-206/06) “the payment of the amount of NLG 400 million to the designated company had been the subject of a decision by the legislature” and therefore constitutes State aid.
  10. 10.  Second step: ECJ distinguishes the Essent Netwerk case from the facts of PreussenElektra.  In PreussenElektra “the undertakings had not been appointed by the State to manage a State resource, but were bound by an obligation to purchase by means of their own financial resources.”  In Essent Netwerk however, the payments “constitute intervention by the State through State resources”.  “The amounts paid to the designated company constitute ‘State aid’ as they represent an economic advantage and not compensation for the services provided by the designated company in order to discharge public service obligations.”
  11. 11.  Is the exemption directed individually and on a case-by- case basis by an agency controlled by the State (control criterion)?  An involvement or burden of official public budgets (economic attribution criterion) is not necessary to constitute State aid as long as the administration of the scheme is dominated by a State agency.  Sec. 19 para. 2 s. 3: conditioning of the grid access fee exemption by a decision of the National Regulatory Authority on a case-by-case basis and on application of either the grid operator or the large-scale electricity consumer as the beneficiary (sec. 19 para. 2 s. 4)  This mechanism meets the control criterion.
  12. 12.  PreussenElektra: feed-in-scheme of renewable electricity at fixed (higher than market) prices, prescribed by generally binding law and implemented by virtue of private law contracts without a transposing decision of any public authority  In contrast: Sec. 19 para. 2 s. 2-4 StromNEV provides for an entirely State administered implementing procedure. Its administrative mechanism, i.e. the decision-making of the National Regulatory Authority upon application of either the grid operator or the large-scale electricity consumer as the beneficiary, can be compared to administrative procedures on granting public subsidies.  The grid fee exemption is refinanced entirely through a virtual State controlled “apportionment budget”.
  13. 13.  The State attribution even becomes clearer with a view to the transitional rule in No. 10 of the operative provisions of the BNetzA decision, according to which, lost grid revenues for the year 2011 are not covered by any apportionment, but are written to the regulatory account maintained by the BNetzA according to sec. 5 of the German incentive regulation ordinance (§ 5 Abs. 1 S. 4 ARegV).  Under the aforementioned regulatory provision, the BNetzA is empowered to level out differences between predicted and actual revenues from grid fees. According to its sec. 5 para. 4 s. 2 the imbalance resulting from differences is distributed equally over the next regulatory period and compensated within the regulatory account being set up by the BNetzA.  The economic attribution criterion is therefore also fulfilled.
  14. 14.  The breach of the stand-still-clause under Art. 108 para. 3 s. 3 TFEU would result in the inapplicability of sec. 19 para. 2 s. 2 of the regulation.  The return of financial advantages (including interests) to the Member State  Private enforcement: Directly or indirectly affected competitors of large-scale energy consumers favoured by the mechanism could furthermore successfully file claims for disclosure, the return of advantages, omission and damages.
  15. 15.  The grid fee exemption and the "sec. 19 apportionment" mechanism constitute illegal State aid according to Art. 107 para. 1 TFEU.  If the European Commission reaches the same conclusion, there will be significant legal consequences both for Germany and grid fee users that took advantage of Sec. 19 StromNEV.
  16. 16. Thank you very much for your attention! Univ.-Prof. Dr. Christian Koenig, LL.M. (LSE) Director at the Center for European Integration Studies (ZEI) – University of Bonn Walter-Flex-Straße 3 53113 Bonn E-Mail: profkoenig@gmx.de

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