According to Advocate General Pitruzzella of the European Court of Justice (ECJ), Germany is in breach of EU Directives 2009/72/EC and 2009/73/EC, which provide for the creation of an open and competitive internal market in electricity and natural gas, respectively, and in particular require the independence of the BNetzA and the transmission system operators.

With the Opinion published on January 14, 2021, the Advocate General fully follows the opinion of the EU Commission, which had already initiated infringement proceedings against the Federal Republic of Germany in February 2015. The proceedings essentially relate to two implementation deficits:

Independence of the BNetzA

In the opinion of the EU Commission and Advocate General Pitruzzella, Germany has transposed the provisions on the powers and independence of the BNetzA into German law in a deficient manner. In particular, Pitruzella argues, the relevant provision in § 24 EnWG does not give the BNetzA unrestricted discretion in setting network tariffs and other conditions for access to networks and balancing energy services, since numerous aspects of the setting of these tariffs and conditions are largely regulated in the ordinances of the German government to be issued pursuant to this provision. In this respect, § 24 EnWG confers powers on the government in an area which, according to the intention of the directive’s issuer, is reserved exclusively for the National Regulatory Authority.

Art. 35 (4) of Directive 2009/72/EC and Art. 39 (4) of Directive 2009/73/EC require the Member States to ensure the independence of the national regulatory authorities and to ensure that they exercise their powers impartially and transparently. The national regulatory authorities must be able to make their decisions independently and solely on the basis of the public interest when carrying out their regulatory tasks and powers and, in particular, must not be subject to instructions from public or private bodies.

According to Art. 37 (1) (a) and (b) of Directive 2009/72/EC and Art. 41 (1) (a) and (b) of Directive 2009/73/EC, the national regulatory authorities are responsible for ensuring the proper functioning of the system as a whole. For this purpose, they shall have the possibility to fix or approve tariffs or tariff calculation methodologies on the basis of a proposal by the transmission system operator(s) or the distribution system operator(s) or on the basis of a proposal agreed between these operators and system users.

In view of the principle of procedural autonomy, the member states have the right to determine the organization and structure of their national regulatory authorities. Member States may also provide “general policy guidelines” for network regulation. In doing so, however, the objectives and obligations set out in Directives 2009/72/EC and 2009/73/EC and the areas of responsibility defined in the directives must be observed. By empowering the government through § 24 EnWG to determine the conditions for network access as well as the determination of transmission and distribution tariffs by statutory order, the exclusive competence of the Federal Network Agency in this area is affected and its discretion is limited in an impermissible manner.

Infringements with regard to vertically integrated transmission system operators

According to the Advocate General, Germany has also failed to properly transpose into national law several requirements relating to the model for unbundling the independent transmission operators.

For example, the concept of a “vertically integrated undertaking” had been incorrectly transposed into German law. The definition of vertically integrated undertakings contained in § 3 No. 38 EnWG impermissibly excludes activities outside the Union. The definitions in Art. 2 No. 21 Directive 2009/72/EC and Art. 2 No. 20 Directive 2009/73/EC, on the other hand, do not provide for any geographical restriction. According to the Advocate General, the wording and context of the provisions of the Directive suggest that the scope of application of the definition should not be limited to activities carried out within the Union. This is also supported by the objective of ensuring an effective separation of network operation from the generation of electricity or the production of gas and the supply of these two energy products.

Furthermore, the provisions on the independence of the personnel and the administration of the transmission system operator are not fully in line with the above-mentioned directives. § 10 (2) and (6) of the EnWG inadmissibly restricted the scope of the provisions of Art. 19 (3) and (8) of the Guidelines. According to this provision, executives and/or members of the administrative bodies of the transmission system operator, as well as all other persons referred to in Paragraph 8, may not essentially have had any employment or business relations with the vertically integrated company, any of its divisions or its majority shareholders during certain waiting periods (3 years or 6 months prior to their appointment). In contrast to the provisions of the Directive, the provisions of § 10 (2) and (6) EnWG apply solely to the personnel of the parts of the vertically integrated company operating in the energy sector. In the opinion of the Advocate General, this restriction of the scope of application, which is not provided for in the Directive, jeopardizes the full and effective independence of the vertically integrated transmission system operator.

Finally, the Advocate General criticizes the inadequate implementation of Article 19 (5) of the Directives. The provisions mentioned there clearly prohibit both the persons of the management and/or the members of the administrative bodies and the employees of the transmission system operator from holding shares in parts of the vertically integrated company. The German transposition provision of § 10c (4) EnWG, on the other hand, only applies to the shares acquired by the management of the transmission system operator. In order to ensure the full and effective independence of the transmission system operators, a broad interpretation of the prohibition on holding shares in the vertically integrated company is required. A restrictive implementation of this prohibition, as undertaken by the German legislator, is therefore not permissible.

What’s next?

The ECJ’s ruling is still pending, and the last word has not yet been spoken in this matter. In most cases, however, the court follows the recommendations of its Advocate General. Should this also be the case here, the entire German energy regulation law would face a fundamental upheaval and shift of power. The Bundestag, Bundesrat and Federal Ministry of Economic Affairs and Energy would have to relinquish powers, and the BNetzA would become even more powerful. The president of the BNetzA, Jochen Homann, is not afraid of more responsibility, according to his own statement at the digital energy summit of the “Handelsblatt”. This would have an impact on the lobbying process for future changes to the regulatory framework. Legal protection against BNetzA decisions would also change significantly. The BNetzA would be measured less by the sometimes very detailed requirements of the national legislature and more by the requirements of European law. The ECJ is expected to rule before the end of this year. It remains exciting.

(18 January 2021)