Amendment of NRW Municipal Code Facilitates Energy Activities of Municipalities

The State Parliament of North Rhine-Westphalia (NRW) on 16 December adopted an amendment of the Municipal Code (Gemeindeordnung) to facilitate commercial activities of local utilities, in particular in the energy sector. The bill was approved with the votes of the ruling Social Democrat/Green coalition and was supported by the Left, against the votes of the CDU and the FDP.

Section 107 of the NRW Municipal Code (GO NRW) has mainly been reversed to its previous version from before the 2007 amendment of the previous CDU/FDP coalition. The 2007 amendment had restricted commercial activities of municipalities.

The NRW Municipal Code – as other state municipal codes in Germany – regulates what commercial activity municipalities can lawfully carry out. To be admissable, the commercial activity must pass three main tests:

  1. A public purpose requires the activity;
  2. There is an appropriate relationship between the type and scope of the activity and the capacity of the municipality;
  3. Outside the areas of water supply, public transportation, and the operation of telecommunication networks including telecommunications services, the public purpose cannot be fulfilled better and more economically by other enterprises.

A newly introduced Section 107a now facilitates energy activities of municipalities. It explicitly states that commercial activities in the electricity, gas and heat sectors serve a public purpose, and shall be permitted provided their nature and scope is appropriate in relation to the capability of the municipality. In addition, the amendment specifically allows energy activities outside the municipal area and (with special permission) also activities abroad.

The Rhein-Ruhr consortium of utilities that has just signed the purchase agreement for an initial 51% stake in Steag will be among the first to benefit from the amendment. It had previously been discussed whether or to what extent the existing provisions in the Municipal Code would allow the acquisition of Steag by the consortium.  The amendment will provide a broader legal basis for the acquisition.

The amendment of the Municipal Code remains to be promulgated, and will enter into force one day after promulgation.

Source: State Parliament of North Rhine-Westphalia