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Gasunie acquires major German gas transmission network
Osborne Clarke's Cologne and London offices, together with Osborne Clarke Alliance Member, Ploum Lodder Princen in Rotterdam recently advised N.V. Nederlandse Gasunie (Gasunie) on the acquisition of a major German gas transmission network.
Background to the transaction
Already one of Europe’s largest transport system operators (TSOs) for natural gas, Gasunie signed agreements with Shell and Exxon Mobil to acquire two supra-regional pipeline systems in Northern Germany. The transaction creates of a cross-border network reaching from The Hague to Berlin. As its operator, the Gasunie group is taking an active part in the creation of a European energy market. It might also become a role model for other industry players: Gasunie has been a fully unbundled transport operator ever since the separation of Gasterra in 2005.
The German gas market
Tariffs
TSOs' activities are subject to sector-specific regulation. In Germany, tariffs for the transportation of natural gas are subject to review by the Bundesnetzagentur or Federal Network Agency (FNA).
If they are subject to effective competition, operators of supra-regional networks are allowed to charge market-based tariffs. Such competition may exist between different pipelines having entry and exit points in the same geographic area, or through pipe-in-pipe competition, where a pipeline is jointly owned by several TSOs, but each TSO can market its capacity independently of the others, and customers can choose between these different TSOs. However, the FNA has yet to delineate which degree of competition is required, and is currently investigating the market-based tariffs of several supra-regional TSOs. Decisions are expected by mid-year.
Where market-based tariffs are not approved by the FNA, TSOs will need to calculate their tariffs based on a scheme provided for in German energy law. The current model essentially focuses on the cost base of a TSO. However, following a German Federal Decree passed in late 2007, the FNA will now compare the efficiency of TSOs and the level of tariffs will factor in the class rank of a particular TSO. Those faring badly against their counterparts will face a mandatory reduction in the level of tariffs that they are allowed to charge. The regulatory regime is designed as an incentive for efficiency, as well as aiming to reduce the overall level of prices in the energy sector.
Regulatory authorities
The German energy sector is monitored by the FNA as well as the German competition authority or Bundeskartellamt (BKartA). The BKartA reviews mergers and prohibits anti-competitive agreements and abuses of market dominance. It normally carries the burden of proof in successfully prosecuting breaches of the rules. However, according to a recent amendment of the German Competition Act, the burden of proof is reversed when it comes to a dominant energy provider charging prices that are higher than those charged by other providers in similar circumstances. The provider will therefore need to show that there is an objective justification for the higher level of prices. This provision only applies to suppliers of electricity or natural gas, however, and not TSOs.
Only a few weeks after the amendment entered into force, the BKartA initiated investigations against 35 suppliers of natural gas. These will now need to justify their conduct, including the prices charged to their respective customers.
Unbundling
Under current German law, companies may include energy providers and TSOs within the same group. For example, E.on Ruhrgas operates pipelines and sells gas. Unbundling requirements are stricter in the Netherlands, which introduced such legislation in 2005. The Dutch experience may soon become relevant to all other EU member states, as the European Commission has presented plans for a third liberalisation package, which would require a far-reaching separation of infrastructure companies from energy providers. After having originally opposed the idea, the leading providers of electricity in Germany, E.on and RWE, have now indicated their readiness to sell their respective grids.
In light of the push to more unbundling in the energy sector, the next few years are likely to be a time of great change for
German and other EU energy companies.