Electricity and Gas Concession Agreement Guideline Issued by Federal Cartel Office and Federal Network Agency

Many of the about 20,000 gas and electricity concession agreements between municipalities and utilities for the use of public property are about to expire. A new Joint Guideline by the Federal Cartel Office and the Federal Network Agency shall provide guidance for new concession agreements, particularly in light of recent remunicipalisation developments.

For their Gemeinsamer Leitfaden (Joint Guideline), the Federal Cartel Office (Bundeskartellamt) and the Federal Network Agency (Bundesnetzagentur) also involved regulatory authorities and cartel offices from the German states (Länder).

New concession agreements do not fall within the scope of the German public procurement law, the guideline states.  However, primary EU procurement principles such as equal treatment, non-discrimination and transparency shall be observed.

When granting concessions for gas and electricity networks for money, municipalities engage in commercial activities. Hence, German and European anti-trust law is applicable, the guideline states. Only the municipalities can grant access to their property for the purpose of gas and electricity networks. Therefore, they hold a dominant position in the local market, and must observe the relevant provisions against abuse of a dominant position of the German Law Against Restraints on Competition (Gesetz gegen Wettbewerbsbeschränkungen – GWB) or Art. 102 Treaty on the Functioning of the European Union (TFEU).

According to the Joint Guideline, municipalities are under a special obligation with a view to the general public interest and the principles for the energy supply laid down in Section 1 of the German Energy Act (EnWG) to ensure competition when granting a concession. This includes competition in the market for end-users of electricity.

The following activities are considered an abuse of a dominant position:

  • granting a concession without the necessary prior notice;
  • demanding undue consideration which is inconsistent with the Ordinance Regulating Concession Fees for Electricity and Gas (Verordnung über Konzessionsabgaben für Strom und Gas – Konzessionsabgabenverordnung – KAV);
  • unduly influencing the sales activities of bidders or the incumbent concessionaire;
  • not clearly disclosing the selection criteria and the importance accorded to each of them;
  • not providing interested parties with the network related bidding information in a non-discriminatory way;
  • favouring individual bidders, especially companies affiliated with the municipality, without substantive reason.

Selection criteria must relate to the concession or the network and have to be disclosed to all bidders in a transparent manner.

The Joint Guideline also contains a long list of data which municipalities have to make available to all bidders, so as to provide sufficient information to calculate a price. Conversely, this means there is a respective right to obtain said information from the incumbent concessionaire.

The energy related section of the document deals with questions concerning the transfer of the grid and related regulatory issues.

The Joint Guideline points out that in principle not only the legal transfer of ownership of the networks but also an extensive right-to-use, for instance under a lease agreement, would be compatible with the wording. However, the issue is controversial, and has not yet been finally decided by the courts. While the Federal Network Agency assumes that a lease agreement is sufficient, the Federal Cartel Office is of the opinion that a formal transfer of ownership is necessary to satisfy the requirements of Section 46 para. 1 EnWG. With a view to their differing opinions on the matter, both authorities appeal to the legislator to clarify the matter.

The document provides guidance regarding the extent to which networks and related installations have to be transferred by the previous concessionaire. Furthermore, it gives indications with respect to the adequate consideration and the data the previous concessionaire has to disclose.

The Joint Guideline is not legally binding, and in several parts covers areas that are still controversial. However, it is likely to have considerable influence on the future practical handling of new concession agreements with the municipalities.

Sources: Federal Network Agency; Kartellblog; EnergienetzRecht.de