Recommunalisation: BGH Decision Specifies Obligations of Municipalities Granting Grid Concession Agreements

In two decisions, the Cartel Senate of the Federal Court of Justice (Bundesgerichtshof – BGH) held that the obligation of a municipality to chose a concessionaire for its electricity grid in a non-discriminatory and transparent procedure also applies when municipalities intend to grant the concession to a municipal undertaking (Eigenbetrieb).

In case no. KZR 65/12, plaintiff, the town of Heiligenhafen, who planned to operate the local grid through a municipal undertaking, demanded from defendant to transfer ownership of the grid. Defendant, who had previously operated the grid, had participated unsuccessfully in the tender for the concession agreement of the grid. 

Defendant’s bid to continue operating the grid was also unsuccessful in case no. KZR 66/12, in which 36 municipalities in the Sandesneben-Nusse and Berkenthin areas had concluded a concession agreement with plaintiff, an indirect subsidiary (mittelbare Tochtergesellschaft) of three other municipalities. Plaintiff again demanded the transfer of ownership of the grid.

The previous instances had dismissed the cases. BGH upheld their judgements, dismissing the appeals.

Concerning case no. KZR 65/12, BGH ruled that plaintiff did not observe the transparency obligation for granting the right of way for grid operations derived from Section 46 German Energy Act (EnWG), which stipulates that this procedure has to occur in a non-discriminatory way. The transparency obligation implies that the criteria upon which the decision shall be based and their relevance are communicated to all companies interested in operating the grid in good time before the deadline for submitting bids, the court said, adding that this also applied when municipalities intended to transfer grid operations to a municipal company. Municipalities could neither rely on the “group privilege” (“Konzernprivileg”) doctrine, nor on the “in-house exemption” (“In-house-Geschäft”) BGH said. The court also dismissed the claimed infringement of the municipal right of self-government enacted in Article 28 para. 2 of the Basic Code (German Constitution).

In case no. KZR 66/12 the transparency obligation was observed, yet the decision criteria and their individual weight did not fulfill the requirements of a non-discriminatory award of the concession agreement in the sense of Section 46 EnWG in connection with Section 1 EnWG, BGH held.

Since the infringements of Section 46 EnWG as applicable until 3 August 2011 violated the principles of non-discrimination and unfair competition in Section 20 German Act against Restraints of Competition (GWB), the new concession contracts that the plaintiff relied upon were considered void.

While the judgements were delivered regarding Section 46 EnWG as applicable until 3 August 2011, the subsequent changes did not alter the passages relevant in the judgements. Section 20 para. 1 GWG, on which the BGH judgements are based, has been deleted. However, the new Section 20 para. 1 GWG now refers to the Section 19 GWB, which specifies the situations in which the behaviour of a dominant market participant violates competition law.

The full text of the decisions has not yet been made publicly available by the court. The decisions are important for current and future renewals of distribution system concessions procedures, including several electricity and gas distribution system recommunalisation projects.

Source: Bundesgerichtshof, judgements dated 17 December 2013, ref. nos. KZR 65/12 and KZR 66/12, press release

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