In recent months, there has been much coverage of the gas emergency plan and its three levels – early warning, alert and emergency, with the focus often being on government-imposed gas rationing measures that may be triggered if the emergency level is declared. But on top of these, there are also other gas supply security measures that would have a serious impact on companies that are significantly dependent on gas. The government recently changed the law to make it possible to introduce a levy (Umlage) and adjust prices, and this is likely to result in very significant additional costs for gas-consuming companies. To ensure preparedness for a further escalation of the energy crisis, companies should take action early on to assess the available legal remedies in the face of government-imposed gas rationing and other additional costs resulting from government measures.
Three different mechanisms for securing the supply of gas
In July 2022, the legislator introduced further regulatory measures to secure gas supplies (see newsletter from 20. July 2022). As the legislation currently stands, companies must prepare for three mechanisms and consider the possibilities available to defend themselves against them in court:
- Levy system (section 26 Energy Security Act (Energiesicherungsgesetz, “EnSiG”)),
- Price adjustment by the energy provider (section 24 Energy Security Act), and
- Official rationing by the Bundesnetzagentur (Federal Network Agency).
Levy system
In July, the legislator created a legal basis for the financial stabilisation of ailing energy providers that are system-relevant when it comes to the security of supply (section 29 EnSiG). A levy system (section 26 EnSiG) has also been introduced; the new ordinance necessary for that was adopted by the Federal Cabinet on 4 August 2022 and it is scheduled to enter into force by 9 August. It is a temporary measure, remaining in force until 30 September 2024 (BMWK - Bundeskabinett verabschiedet zeitlich befristete Gas-Umlage für sichere Wärmeversorgung im Herbst und Winter). The levy gives gas importers the opportunity to obtain financial compensation for the high cost of sourcing alternative supplies of gas. Gas importers must apply to the so-called market area manager (Trading Hub Europe) for compensation and the costs will subsequently be passed on to all gas consumers. The resulting price increases will not only affect individual gas customers, therefore; quite the opposite: The very purpose of the levy is to apportion the costs for the sourcing of alternative supplies equally across all gas customers. The levy will apply from 1 October 2022 to 1 April 2024. System-wise, the mechanism is based on previous levy-based regimes such as the renewables levy and the combined heat and power levy, but is not intended to provide any relief for major consumers.
Only limited legal remedies are available to customers of energy providers to protest the increase in prices via the levy. The price increase is not being set unilaterally by the energy provider, but on the basis of a legal ordinance implemented by the Federal Government. Anyone affected by the price increase is free to take individual legal action by way of seeking an incidental review (Inzidentkontrolle), i.e. by filing an action in connection with the gas bill that includes the levy in the price (in particular an action for a judgment declaring the price increases to be unreasonable or a defence of an action for payment by the energy provider). A general judicial review (Normenkontrolle), in which a court decides – centrally and uniformly – on the validity of a regulation for all those affected, is not available as a remedy against federal ordinances. One must also bear in mind that, substantively, there is only limited scope for subjecting price increases set by the Federal Government as part of the levy system to judicial review. The legislator simply requires the Federal Government to ensure that the levy system introduced by the ordinance is transparent and non-discriminatory and gives due consideration to consumers’ interests. Although these criteria are subject to judicial review, they are so vague that a legal action against the levy and its amount, especially in injunction proceedings, must be well prepared and will only be successful if blatant violations are shown to have been committed.
Price adjustment by the energy provider
As a second option, the law still gives energy providers a right to adjust prices themselves (section 24 EnSiG). There are two requirements to be met before prices can be adjusted: First, the alarm or emergency level of the gas emergency plan must have been declared (see newsletter from 20. July 2022). The Federal Ministry of Economics and Climate Protection already declared the second, i.e. alarm, level on 23 June 2022, meaning that this requirement has been met. The other requirement, which has not been met to date, is a formal determination by the Bundesnetzagentur that there has been a significant reduction in total gas import volumes to Germany. This decision is at the discretion of the authorities and must be published in the Federal Gazette.
If both requirements are met, all the energy providers concerned along the whole length of the supply chain will be given the right to adjust the prices they charge their customers for gas to an “appropriate level”. The energy provider must notify its customers of the price adjustment in good time before it comes into force, stating its reasons for making price adjustments. For end consumers, the minimum period between notification and entry into force of the price increase is one week, for other customers in the supply chain one day. Price adjustments could therefore follow quickly on the heels of a formal determination by the Bundesnetzagentur.
As a general principle, the right to adjust prices is intended to be secondary to the stabilisation measures and the levy mechanism. Once the aforementioned ordinance on the levy system has entered into force, initially the gas providers may no longer exercise their right to adjust their prices. It remains to be seen whether the Federal Government will fall back on the individual price adjustment rights of energy providers after the planned activation of the levy system; it is not out of the question, either after the ordinance expires on 1 October 2024 or if the ordinance is repealed before then.
The law does not put any clear limits on these price adjustment rights – it simply says that the adjustments must be appropriate. The test of appropriateness is by its very nature vague and opens up a gateway for judicial review. The EnSiG uses a negative criterion to define appropriateness, stating that a price adjustment ceases to be appropriate in particular at the point where it exceeds the additional costs incurred by the energy provider in question for sourcing an alternative to supply to customers due to the reduction in the volumes of gas imported. The price increases are to be kept within a range that covers the actual additional costs and should not be used to generate profit.
When laying down the details of the right to adjust prices, the legislator fell back on the provisions of the German Civil Code (Bürgerliches Gesetzbuch, “BGB”) on the unilateral right to specify performance. The amount of the price adjustment is determined unilaterally by the energy provider and communicated to the customer. The customer has the right to require the energy provider to review and, if necessary, immediately adjust the price to an appropriate level every two months after the price change takes effect. The energy provider must announce the result of its review within two weeks, whereby it must also take into account any cost reductions that have occurred in the meantime. A large number of court cases are to be expected on the back of the price adjustments.
Where a customer still considers the price increase to be unreasonable, they can take legal action against the energy provider to have the price increase declared “inappropriate”. Legal actions by energy providers against customers who fail to pay the price increases are also conceivable. The EnSiG states that disputes over price adjustments are to be settled in the ordinary courts of law; actions by or against energy providers are to be brought before the courts that have local jurisdiction in the particular case. Though this could initially lead to some inconsistency in the rulings handed down across the various courts, it has the advantage that there is not one single judiciary body that will be subjected from the start to an avalanche of injunction applications.
Official gas rationing by the Bundesnetzagentur
The state already exerts influence on the market through the rules on the levy system and on price adjustments. If the energy crisis worsens and the Federal Government declares the emergency level of the gas emergency plan, the state can also intervene directly in the market by taking genuine sovereign measures (section 1(1), no. 1 in conjunction with section 4(4) EnSiG) because that then makes the Bundesnetzagentur what is referred to as the federal load distributor. It then decides which gas-consuming companies will have their “gas tap turned off”. To date, there is no fixed order of shutdown; there is currently talk of different criteria that the Bundesnetzagentur could use as a basis for its decisions. For the emergency level to be declared and for the Bundesnetzagentur to take on the function of federal load distributor, a further legal ordinance is required, which will then presumably set out the shutdown criteria. Consideration will also have to be given to the shutdown criteria the EU gas emergency plan provides for in its final version (see newsletter from 22. July 2022).
A significant wave of lawsuits can be expected, should state gas rationing be introduced. Even simply from the perspective of the responsibility and liability incumbent on executive boards, supervisory boards and managing directors, it may make sense to have a state shutdown order reviewed by the courts. A legal remedy of this kind against the direct state measure could be a prerequisite for a possible (official) liability claim against the state. Unlike with the legal remedies against the levy or the price increases by the energy providers, however, it is not the regional courts (whether at the energy provider’s seat or at the gas delivery point) that have jurisdiction for actions against shutdown orders, but just one (cartel) division of the Higher Regional Court in Düsseldorf for all reductions in the supply of gas in the territory of the Federal Republic. It is possible that this division will be overloaded. Major gas consumers should lay the groundwork for taking legal action, but at the same time recognise that, even in injunction proceedings, they may not secure timely and thus effective legal protection. Here, too, it is advisable to prepare early for such a scenario.
Conclusion
No one can say for sure at this stage how the gas supply situation in Germany will evolve. With the levy system and, at the next level down, the statutory right to adjust prices, the legislator is relying on price signals to nudge consumers into using gas sparingly. State-imposed gas rationing will be the last resort after these measures.
Both state-imposed price increases in the form of a levy or a price adjustment and state-ordered reductions in gas supply can be reviewed in court. As there are already signs that measures aimed at securing gas supplies may be triggered within a matter of days, gas-consuming companies should not only prepare for the actual consequences of a gas shortage, but also for possibly taking legal action against related measures. The groundwork for legal remedies of this kind can already be laid now, e.g. by developing lines of argument internally and collating evidence.
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