Regulatory round trip through several European and German cities: The 15th regulatory conference of the AK REGTP

Luxembourg – Brussels – Berlin – Karlsruhe – Düsseldorf – Bonn – Cottbus: A round trip in times of Corona? Due to the pandemic, the regulatory conference of AK REGTP had to take place digitally again this year. However, this time too, it became apparent that a digital conference has its advantages: With a wide variety of topics, the hosts Prof. Dr. Christian Theobald and Prof. Dr. Ines Zenke invited the over 350 attendees to join them on a virtual journey across Germany and Europe.

The effects of the pandemic were, of course, also felt by the grid operators over the past months.

“Despite all the restrictions of the pandemic, they managed to keep the systemically relevant grid operation running. This is a great accomplishment which was anything but self-evident. Germany has reached its limits in various areas, but not in this one. This is something that has to be said,” emphasised BBH partners Prof. Dr. Christian Theobald and Prof. Dr. Ines Zenke.

However, aspirations and reality do not always match up, as in the case of the energy transition and grid regulation. Without the distribution grids, we will not be able to tackle the challenges of the energy transition, noted Ingbert Liebing, CEO of the German Association of Local Public Utilities (VKU). However, the high demands on the distribution grids and a regulation that is not investment-friendly do not go well together. Barriers to investments would lead to a situation in which no investments would be made other than those which are absolutely necessary for the business operations. Qualitative and innovative investments would fall by the wayside, though. In the field of hydrogen, too, there is a gulf between ambition and reality. According to Liebing, there must be an organic development from natural gas grid operators to hydrogen grid operators. This would require a common regulation. He hopes for the Federal Government to give a clear signal in this regard. In any case, he does not think that an all-electronic world is possible: Where is all the electricity supposed to come from, which at the same time has to be green and CO2-free?

“We need a clear commitment to infrastructures,” agreed Prof. Dr. Ines Zenke, after taking a look back at 25 years of the internal energy market together with Prof. Dr. Christian Theobald and the attendees.

However, as became clear from the conversation with BBH partners Rudolf Böck and Astrid Meyer-Hetling, such firm commitment currently does not exist. Gas grids will become less important and their use will decline much sooner than in 2045, noted Rudolf Böck. This will be reflected on the earnings side. However, no end date has been provided in the context of the business and grid valuation. It is also not clear what will happen to the grids afterwards: Phase-out? Dismantling? Rededication? The lack of a clear perspective combined with the fact that a fundamental paradigm shift will definitely take place by 2045 at the latest will result in a situation in which grids are no longer a risk-free investment, Böck said. This, in turn, may also have an impact on gas concession procedures in the future, said Astrid Meyer-Hetling. It is possible that in individual cases no energy supplier will apply for a concession at all. Who would step in if this were to happen? The municipality as the provider of services of public interest? In this respect, Meyer-Hetling urges the legislator to provide for legal certainty and warns against leaving this to the courts (for clarification on a case by case basis).

After their stops in Brussels (European legislation) and Berlin (national legislation), the AK REGTP “tour group” moved on to Bonn and Cottbus, where the Federal Network Agency (Bundesnetzagentur – BNetzA) has established a new location. Vice President of the Federal Network Agency Peter Franke, who is a regular guest at the regulatory conference, held out the prospect of the rate of return on equity (Eigenkapitalzinssatz) for the 4th regulatory period being determined in the second half of 2021. According to him, the Federal Network Agency will stick to the methodology despite massive criticism from the sector: a disappointment for all those hoping for an adequate level of the rate of return on equity. Finally, economist Prof. Dr. Christoph Kaserer from the Technical University of Munich also emphasised that the Federal Network Agency was setting the market risk premium too low.

In the field of hydrogen, however, there was light on the regulatory horizon. While Jochen Homann, President of the Federal Network Agency, considered the prospects for the gas infrastructure to be limited at BBH’s annual conference a few weeks ago, Peter Franke stated that he could imagine hydrogen to be used also in the area of heat supply ; however, this would require primarily that the quantity problem is overcome. For this purpose, policymakers would have to define which types of hydrogen are admissible.

“This is the decisive question,” said Mr Franke. The various applications could only be discussed once this question was resolved.

Back to the facts. Anne-Christin Frister, Presiding Judge of the 3rd Cartel Panel of the Higher Regional Court of Düsseldorf, spoke about the proceedings currently pending before the Higher Regional Court of Düsseldorf that are relevant for distribution system operators. This also includes the topic of capital costs. In the Cologne studio, Ms Frister then took questions from BBH partner Axel Kafka and the attendees, who gladly seized the opportunity to speak directly with the famous 3rd Cartel Panel. Düsseldorf is always worth the journey!

As regards cybersecurity, pinning down a specific location is difficult in two respects: For one, basically any company can become the target of a cyberattack and, for another, such attacks can originate from anywhere in the world. Attacks on critical infrastructure are particularly sensitive. Any disruption in this area would dramatically restrict public life. How companies can guard against such attacks was the subject of a discussion between BBH partner Dr. Jost Eder, BBHC partner Dr. Andreas Jankiewicz as well as Peter-Michael Kessow and Ingmar Weitemeier of G4C, the German Competence Centre against Cyber Crime. The conclusion: Cybersecurity  frameworks and certifications are important measures to be taken in this context. In addition, cooperations that promote the exchange of experience and information can also be useful.

Next, BBH partner Stefan Missling took the attendees to Luxembourg and Karlsruhe. The sector is eagerly awaiting the decision of the European Court of Justice regarding the future role of the Federal Network Agency. The EU Commission complained about a lack of independence with respect to the regulatory regime of the Federal Network Agency. However, with its decisions regarding the rate of return on equity and the general sectoral productivity factor, the Federal Court of Justice implicitly confirmed precisely this discretionary power (which is very broad indeed), said Missling. To put it colloquially, one could sum up the decision of the Federal Court of Justice as follows: Anything not written in law is within the discretionary power of the Federal Network Agency. If the European Court of Justice were to follow the opinion of the Advocate-General, the determinations of the Federal Network Agency could no longer be reviewed by the courts. Surely this cannot be the intention.

The next topics on the agenda were climate protection and the ruling of the Federal Constitutional Court. Following the ruling, the Federal Government tightened the sectoral targets and brought forward the deadline for achieving climate neutrality by five years to 2045. In this regard, BBH partners Dr. Martin Altrock and Dr. Olaf Däuper pointed out that it is not only the objectives that are important but also the measures for reaching these objectives. What is for sure is that the pressure is mounting, also for local municipal utility companies, which need a perspective and require active grid planning for their gas distribution grids.

The revised Energy Industry Act will turn a lot of things in the areas of grids and sales upside down. The revision goes far beyond transposing the EU Winter Package. Heiner Bruhn from the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie – BMWi) was able to provide first-hand insights in this regard as he is currently dealing with the matter. At the moment, negotiations are still underway but according to Mr Bruhn, the revision is likely to take effect at the beginning of August. BBH partners Dr. Christian de Wyl and Dr. Jost Eder had to spoil the attendees’ well-deserved summer holidays by pointing out that a transition phase has not been provided for. The crucial phase will begin in August, i.e. in the middle of the summer.

Finally, the regulatory conference of the AK REGTP also looked at the topic of smart meters. The judgment of the Higher Administrative Court of Münster regarding the smart-meter rollout is still casting its shadow . The legislator wants to amend the Metering Point Operation Act (Messstellenbetriebsgesetz – MsbG) in the framework of the revision of the Energy Industry Act. However, at the moment, Dr. Jost Eder does not see the need for a full overhaul. The assessment is complex and a lot still has to be done, said Dr. Eder.

This concluded the 15th regulatory conference of the AK REGTP. What a ride! Nothing was left out and all points of interest were considered in detail. Next year, said Prof Dr. Christian Theobald, the promised evening cruise on the river Spree is going to happen at last!

Becker Büttner Held is a leading provider of advisory services for energy and infrastructure companies and their customers. Energy and supply companies, particularly public utilities, municipalities and local authorities, industrial companies and international groups are among its core clients. BBH advises these and many other companies and organisations in all legal matters and also assists them with business and strategic advice.

Prof. Dr. Ines Zenke                                                  
Lawyer (Rechtsanwältin), Partner
Phone +49 (0)30 611 28 40 - 179                                                             

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