1999/794/EC: Commission Decision of 8 July 1999 concerning the German application for a transitional regime under Article 24 of Directive 96/92/EC of the European Parliament and of the Council concerning common rules for the internal market in electricity (notified under document number C(1999) 1551/4) (Only the German text is authentic)
Date: 1999-07-08
Institutions: European Commission
Subjects: Germany, approximation of laws, electrical energy, single market, transitional period (EU)

L 319/18

EN

Official Journal of the European Communities

11.12.1999

COMMISSION DECISION

of 8 July 1999

concerning the German application for a transitional regime under Article 24 of Directive
96/92/EC of the European Parliament and of the Council concerning common rules for the
internal market in electricity

(notified under document number C(1999) 1551/4)

(Only the German text is authentic)

(1999/794/EC)

Having
application,

informed

Whereas:

1. Procedure

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

the European
Having regard to Directive 96/92/EC of
Parliament and of
the Council of 19 December 1996
concerning common rules for the internal market in electricity
(hereinafter (cid:145)the Directive(cid:146)) (1), and in particular Article 24
thereof,

the Member

States of

the German

zur Neuregelung des Energiewirtschaftsrechts(cid:146), which
was published in the Bundesgesetzblatt on 28 April
1998 (2) and entered into force on the following day.

in Bonn. The Ministry confirmed that

(4) On 14 July 1998, Commission representatives undertook
a fact-finding mission to the Bundesministerium f(cid:252)r
Wirtschaft
it
regarded the application of 12 February 1998 as final
and that, apart from the protection clause for lignite
contained in the application,
there were no other
transitional regimes for which the Government would
envisage support or aid schemes. The Commission
the
requested
development of the lignite sector in the new L(cid:228)nder as
well as on the contractual situation between the parties
concerned, which is the basis of the commitments in
accordance with Article 24(1) of the Directive.

information

concerning

additional

I. FACTS

(5) By letter of 11 September 1998, the Ministry submitted

this additional information.

(1) By letter of 30 July 1997, the German Bundesministerium
f(cid:252)r Wirtschaft (Ministry of Economic Affairs) asked the
Commission to comment on, among other issues, the
introduction into the German (cid:145)Gesetz zur Neuregelung
a
des
protection clause for lignite-based electricity production.

Energiewirtschaftsrechts(cid:146)

(Energy Act),

of

(6) Additionally,

in

and

agreement with

the
the
Bundesministerium f(cid:252)r Wirtschaft, there was direct contact
between the Commission and the company primarily
concerned, Vereinigte Energiewerke AG (VEAG). VEAG
set out its position in a letter to the Commission dated
28 January 1999. On 12 February 1999, a meeting
between VEAG and the Commission took place in
Brussels. By fax of 23 March 1999, VEAG submitted a
report
accountants
evaluating the need for the lignite protection clause.

from chartered

commissioned

(2) By letter of 22 September 1997, the Commission replied
that a protection clause including a possible refusal of
system access would be a derogation from the access
right under the terms of Article 17 of the Directive and
the
could not
Directive, but would need to be
in
accordance with the procedure set out in Article 24 of
the Directive (transitional regime).

therefore be based on Article 8(4) of
applied for

(3) By letter of 12 February 1998, the German Ministry of
Economic Affairs applied for a transitional regime in
accordance with Article 24 of the Directive in relation to
the provisions of Article 4(3) (new L(cid:228)nder) of the (cid:145)Gesetz

2. Structure and development of the electricity sector

in the new L(cid:228)nder

(7)

Electricity transmission in the new L(cid:228)nder is carried out
by VEAG. VEAG is also the largest electricity producer
in the new L(cid:228)nder, accounting for approximately 60 % of
total electricity production. VEAG produces 92 % of its
electricity generation on the basis of lignite. Electricity
distribution is organised by 15 regional distribution
companies (in which VEAG or its shareholders often

(1) OJ L 27, 30.1.1997, p. 20.

(2) BGBl. I, p. 730.

11.12.1999

EN

Official Journal of the European Communities

L 319/19

own shares). In addition, several municipalities own local
electricity distribution companies, which also own
generating facilities. Thus the structure of the electricity
network in the new L(cid:228)nder consists of up to three levels,
as in other parts of Germany: (1) VEAG’s high-voltage
companies’
grid;
medium-voltage grids;
the municipal distribution
companies’ low-voltage or medium-voltage grids.

regional
(3)

distribution

the

(2)

(8)

on

the

and

and

one

trust

(power

(Government

the (cid:145)Stromvertrag(cid:146)

then German Democratic Republic

In the period between the German economic and
monetary union (1 July 1990) and political reunification
(3 October 1990),
supply
contract) was concluded on 22 August 1990 between
the
the
Treuhandanstalt
for privatising East
German property established by an Act of 17 June
1990)
Bayernwerk AG,
side
PreussenElektra AG and RWE Energie AG on the other).
the electricity
The contract sets out
following reunification.
sector
It
provides for the sale of
former East German power
plants and transmission lines to VEAG, a joint venture
company founded on 12 December 1990 by the
Treuhandanstalt. VEAG was 75 % owned by the three
largest West German electricity companies, RWE Energie
AG (26,25 %),
and
Bayernwerk AG (22,5 %). The remaining 25 % was held
by four other German transmission system operators via
the holding company EBH GmbH.

PreussenElektra AG (26,25 %)

in the new L(cid:228)nder

the structure of

the

(9) As an integral part of the purchase agreement with the
Treuhandanstalt, VEAG (or more precisely in 1990 its
three main subsequent shareholders) committed itself to
maintaining lignite-based electricity generation and to
investing large amounts in modernising existing plants
and bringing them into line with higher environmental
standards. These commitments by VEAG were confirmed
in a parallel contract concluded on 27 August 1990
between
AG,
PreussenElektra AG and RWE Energie AG (shareholders
in VEAG) and the regional electricity companies. This
contract was
subsequently confirmed in a series of
20-year bilateral contracts between VEAG and the
regional electricity companies. These contracts require
their
the regional distributors
electricity consumption (i.e. the electricity sold by them)
over 20 years from VEAG at a price based on full costs,
with the distributors passing on any resulting higher
costs to final customers.

to purchase 70 % of

consortium of

Bayernwerk

3. Development of the lignite mining sector

(10)

In 1997, VEAG produced 46,6 TWh of electricity from
lignite, which accounts for approximately 60 % of the
total of 77,5 TWh of electricity produced in the new
L(cid:228)nder. The remaining 40 % is generated via municipal
by
generators,
independent power producers (IPP). Lignite output
in
1997 was 73,8 million tonnes, of which VEAG

autoproduction

generation

and

purchased 54,3 million for electricity production. Before
reunification in 1989, East German lignite mines
produced 300 million tonnes. Since
then, output
capacity has been gradually reduced to the current level.

(11)

(12)

Lignite mining in the new L(cid:228)nder is carried out by two
major companies. Mibrag (Mitteldeutsche Braunkohle)
was privatised in 1993 and sold to an Anglo-American
and Morrison
consortium (PowerGen, NRJ Energy
Knudsen). Laubag (Lausitzer Braunkohle) was sold to a
German consortium, 55 % of which is owned by
Rheinbraun AG/RWE, 30 % by PreussenElektra AG and
15 % by Bayernwerke AG. Thus, Laubag and VEAG are
linked via common shareholders.

In 1989, 138 800 employees were working in the lignite
mining sector and 30 499 in the electricity production
sector. Since then, employment has declined dramatically
to a current level of 16 400 in the lignite mining sector
and 8 163 in electricity production with VEAG. Thus,
together with an additional 5 000 employees depending
indirectly on lignite mining and electricity production, a
total of 30 000 employees currently depend on the
lignite sector.

(13)

Since 1990, VEAG has invested DM 13 000 million in
modernising lignite power plants. DM 2 000 million
have been invested in lignite mining. VEAG’s
total
to DM 20 000 million,
investment plan amounts
running until 2001.

(14) At

the
the fact-finding meeting on 14 July 1998,
German Ministry of Economic Affairs drew the following
conclusions from the above figures:

(cid:151) a further decrease in the use of lignite in electricity
into question the future of

production would call
lignite mining as a whole,

(cid:151) a key consideration as to why German energy policy
lignite is long-term security of
needs to protect
supply. German energy policy has
to weigh
increasing dependency on imported natural gas
against the disadvantages of existing indigenous fuels
such as lignite.

4. The opening of the German electricity market to

competition: implementation of Directive 96/92/EC

(15) The

German

des
Energiewirtschaftsrechts(cid:146) entered into force on 29 April
1998. It implements Directive 96/92/EC by opting for a

Neuregelung

(cid:145)Gesetz

zur

L 319/20

EN

Official Journal of the European Communities

11.12.1999

contract-based third party access system with a parallel
single buyer option for distributors until 2005. The Act
the
provides for an immediate 100 % opening-up of
final
market:
consumers
eligible
customers.

is no eligibility threshold,

distributors

there

jure,

and

are,

all

de

(16) Thus, under the liberalised system introduced by the new
German Act, all eligible customers in the new L(cid:228)nder (all
for
final consumers and all distributors) can contract
in
supplies from outside the VEAG system. However,
order to deal with the situation that would result
if
many consumers transferred their demand to competing
if not
suppliers,
impossible for VEAG to sell its lignite-based electricity,
Article 4(3) of the Act provides for a transitional regime.

increasingly difficult

thus making it

5. The transitional regime notified by the German

Government

(17) The notification of 12 February 1998 and the
complementary information of 11 September 1998
define the following transitional regime.

(18) The basis of

for

programme

construction

the transitional

regime is
the

the VEAG
and
investment
modernisation of
lignite-based power plants with a
financial volume of DM 20 000 million, which will be
terminated around 2000. The programme is part of
VEAG’s commitment under the contract of 22 August
1990 between the then German Democratic Republic
and the Treuhandanstalt on the one hand and
Bayernwerk AG, PreussenElektra AG and RWE Energie
AG (later VEAG) on the other. The programme must
also be seen in the light of the 20-year commitment
under the terms of the contract of 27 August 1990
between
AG,
PreussenElektra AG and RWE Energie AG (later VEAG)
and the regional electricity companies, as well as the
related series of bilateral contracts between VEAG and
the regional electricity companies.

consortium of

Bayernwerk

the

(19) The proposed transitional

regime provides

the
for
possibility of
to eligible
customers, in so far as the requirements as defined in
Article 4(3) of
zur Neuregelung des
(cid:145)Gesetz
Energiewirtschaftsrechts(cid:146) are fulfilled:

refusing network

access

the

the

customers

system to

(cid:145)(1) When assessing whether refusal to permit access
to
in Berlin,
supply
Brandenburg, Mecklenburg-Western Pomerania, Saxony,
Saxony-Anhalt and Thuringia with electricity pursuant to
Article 1 (6) and (7)
is impermissible or represents
abuse, discrimination or unfair impediment as defined in
Section 22, paragraph 2 and Section 26, paragraph 2 of
restraints of competition, particular
the Act against

attention shall be given to the need for a sufficiently
high level of power generation from lignite from these
L(cid:228)nder.

(2)
The Federal Ministry for Economic Affairs shall
report to the German Bundestag in 2002 on the impact
of this provision on power generation from lignite and
on the electricity price trend in the L(cid:228)nder
listed in
is not
paragraph 1.
extended until 31 December 2005 on the basis of that
report,
this transitional provision shall expire on 31
December 2003.(cid:146)

In so far as this arrangement

less

electricity

from VEAG.

(20) Thus, in principle, all clients in the new L(cid:228)nder as well as
in the remainder of Germany are eligible. However, if a
significant number of such clients choose to purchase
from new suppliers, the distributors tied to the 70 %
purchase obligation from VEAG may lose sales, thereby
purchasing
such
circumstances, VEAG itself would lose market share,
making it difficult in turn to maintain lignite purchases
and resultant electricity generation. If this occurs, VEAG
and,
the
distributors may decide to refuse network access to
requiring customers de facto to
eligible customers,
electricity
lignite-based
purchase more
supplied by VEAG. Any such refusal
is potentially
subject to the control of the Bundeskartellamt, which will
decide whether the refusal was reasonable and necessary
in order to meet the need to maintain lignite production.

according to the wording of

expensive,

law,

the

In

II. LEGAL ANALYSIS

1. Legal basis: Article 24 of Directive 96/92/EC

by Article

(21) The German notification of 12 February explicitly
applies for a transitional regime pursuant to Article 24
of the Directive. It also, however, contains a declaration
that the German Government considers the regime laid
is already
down in Article 4(3) of
covered
96/92/EC.
Originally,
in the memorandum to the draft Act of
March 1997, the Government justified this provision on
the grounds of Article 8(4) of the Directive (dispatching
priority for indigenous fuel sources to cover up to 15 %
of consumption). This approach was also taken in the
official
the
transitional regime in accordance with Article 24 of the
Directive.

application of 12 February 1998 for

the German Act
of Directive

8(4)

(22) However, Article 8(4) of the Directive does not apply to

the scheme as notified.

11.12.1999

EN

Official Journal of the European Communities

L 319/21

(23) Article 8(4) of the Directive states:

(cid:145)A Member State may, for reasons of security of supply,
direct that priority be given to the dispatch of generating
installations using indigenous primary
fuel
sources, to an extent not exceeding in any calendar year
15 % of the overall primary energy necessary to produce
the electricity consumed in the Member State concerned.(cid:146)

energy

a whole,

represents

(24) Although electricity from lignite in the new L(cid:228)nder
represents less than 15 % of electricity production in
Germany as
approximately
it
60-70 % of electricity production in the new L(cid:228)nder. This
high percentage is not
the whole of
a pure dispatching obligation in
Germany under
is
accordance with Article 8(4) of
the Directive, but
locally protected by potentially refusing access
to
the possibility of
customers wishing to make use of
purchasing elsewhere, via network access, an essential
requirement of the Directive defined in its Chapter VII.

spread over

transmission. Article 8(4)

(25) The provision for priority treatment under Article 8(4)
under no circumstances justifies refusal of an application
for network access or
is
explicitly limited to making provision for a maximum of
15 % to be purchased from plants using indigenous fuels.
Article 8(4), as well as Article 8(3), have to be seen as
special provisions in the context of the general merit
order principle as laid down in Article 8(2). The present
mechanism (cid:151) potentially refusing access to the network
for bilateral purchasing contacts between eligible clients
and producers (cid:151) clearly falls outside the scope of this
provision.

2. The requirements of Article 24

(26) Article 24 (1) and (2) of Directive 96/92/EC require the
following elements to be examined by the Commission
in the light of
the EC Treaty when considering any
application for a transitional regime.

(3) A causal
inability
Directive
commitment must be established.

link between the entry into force of the
the

honour

and

the

to

2.2. Requirements concerning the measures

proposed in order to achieve the objectives in
question

(28)

(1) The measures of the transitional regime must fall
within the scope of derogations from Chapters IV, VI
and VII of the Directive.

(2) The transitional regime must be of limited duration
the commitments or

and linked to the expiry of
guarantees of operation in question.

(3) The

the

apply

transitional

least
regime must
restrictive measures reasonably necessary to achieve
the objectives, which themselves must be legitimate.
In deciding on these issues the Commission must
take into account, amongst other things, the size of
the system concerned, the level of interconnection of
the system and the structure of
the electricity
industry in the Member State in question.

3. Assessment of the German transitional regime

3.1. Requirements concerning the nature of the
commitments or guarantees of operation in
question

(29) The information contained in this Decision concerning
the legal and contractual situation at the time of German
reunification in 1990 is based upon the description of
the relevant contracts provided by the German Ministry
of Economic Affairs by letter of 11 September 1998.
Two sets of contracts are mentioned therein:

(i)

of

contract

22 August

between
the
the German Democratic
the
Treuhandanstalt on the one hand and Bayernwerk
AG, PreussenElektra AG and RWE Energie AG on
the other;

Republic

1990

and

2.1. Requirements concerning the nature of the
commitments or guarantees of operation in
question

(27)

(1) The existence of a commitment or guarantee of

operation must be proven.

(ii) the contract of 27 August 1990 between the
consortium of Bayernwerk AG, PreussenElektra AG
and RWE Energie AG (later VEAG) and the regional
electricity companies, as well as
the series of
subsequent bilateral contracts between VEAG and
the regional electricity companies.

(2) The commitment or guarantee of operation must

have been given before 20 February 1997.

(30) The central commitment within the meaning of Article
24(1) is the investment commitment by Bayernwerk AG,
PreussenElektra AG and RWE Energie AG, represented in

L 319/22

EN

Official Journal of the European Communities

11.12.1999

VEAG, based on the Stromvertrag of 22 August 1990.
VEAG not only took over production and transmission
facilities but, as part of the contract package, committed
itself to a DM 20 000 million investment programme to
modernise the lignite sector.

(31) This investment commitment was based on a long-term
guaranteed minimum delivery of
electricity and a
corresponding amortisation of the investment. To this
end, the central Stromvertrag is complemented by 20-year
power
downstream
agreements
distributors.

purchase

with

if

the

that

have

assumed

undertaken

the investment in lignite production capacity. It can
in 1990 Bayernwerk AG,
be
PreussenElektra AG and RWE Energie AG would
not
investment
lignite
commitment
there had been no guaranteed
delivery, ultimately based at that time on a captive
market.
It can further be assumed that 100 %
liberalisation, defining all categories of customer as
eligible
the
Directive, might well
lead to a situation where
VEAG may not be in a position to complete its
DM 20 000 million investment programme, which
will not be completed until 2000, if no transitional
regime is established.

customers within the meaning of

(32) This

the

in 1990, VEAG undertook

investment
commitment on the basis of
the guaranteed 20-year
electricity purchase agreements, which themselves were
ultimately based on, or guaranteed by, the monopoly
supply of captive consumers, which was the situation
prior to liberalisation of the German electricity market in
April 1998.

than

electricity

from other

(33) The German Government considers that this investment
commitment may not be honoured under the liberalised
system if not protected until 2003 with the clause
relating to potential refusal of access. This is because of
the concern that lignite-sourced electricity will be more
sources,
expensive
particularly due to the very heavy investment obligations
on VEAG arising from modernisation requirements.
If
this
is correct, and VEAG is unable to make the
necessary improvements in efficiency to compete at
market prices, purchases from distributors linked to
VEAG by the 70 % purchasing obligation will decrease as
eligible customers source elsewhere,
leading to falling
sales by VEAG. Under these circumstances it does appear
correct that, with regard to VEAG, a commitment or
guarantee of operation had been entered into prior to
the entry into force of the Directive, and that fulfilment
of
is endangered by the entry into
force thereof.

this commitment

3.2. Requirements concerning the measures

proposed to achieve the objectives in question

(35) 1.

in question fall within the

The measures
scope of
derogations from Chapters IV, VI and VII of Directive
96/92/EC.

of

sufficient

(36) The German transitional regime refers exclusively to the
protection clause of Article 4(3) of the Energy Act. It
gives transmission system operators the right to deny
network access on a case-by-case basis in order to
guarantee
from
delivery
lignite-fired power plants. Refusal of access on the
grounds of guaranteeing sufficient delivery of electricity
from lignite-fired power plants is not covered by Article
17(5) of Directive 96/92/EC, which only refers to the
lack of necessary transmission or distribution capacity
and duly substantiated reasons with regard to notified
public service obligations as defined in Article 3 of the
Directive. Germany has not notified any public service
obligations under Article 3 of the Directive.

electricity

(34) The Commission therefore considers that:

(1) a commitment or guarantee within the meaning of

Article 24(1) of the Directive exists;

(2)

such commitments or guarantees of operation were
given prior to the entry into force of the Directive;

(3)

causal

the necessary
connection between the
inability to fulfil the commitment and the entry into
force of
been sufficiently
established for the VEAG commitment arising from

the Directive has

(37) Consequently, the German transitional regime represents
a derogation from Article 17(5) in Chapter VII of the
Directive. Such a derogation falls under the measures
mentioned in Article 24(2). Article 24 is
therefore
applicable.

(38) 2.

The transitional regime is of
limited duration and is
linked to the expiry of the commitments or guarantees of
operation in question.

(39) The German transitional regime is of limited duration,
namely until 31 December 2003. The Act provides for
the possibility of an extension until 31 December 2005,
depending on the outcome of a report which the
to the Bundestag in 2002
Ministry must present

11.12.1999

EN

Official Journal of the European Communities

L 319/23

regarding the impact of the transitional regime on power
generation from lignite and electricity price trends in the
new L(cid:228)nder.

3.2. The least restrictive measures taking into account,
amongst other things, the size of the system
concerned, the level of interconnection of the
system and the structure of the electricity industry
in the Member State concerned

(40) The Commission therefore

considers

this Decision
regarding a transitional regime to be valid until 31
December 2003. Should Germany decide in 2002 to
extend the transitional regime until 31 December 2005,
this additional period would at that stage have to be the
subject
the
Commission requesting an extension of the transitional
regime.

complementary

application

to

of

a

(41) Whilst

the Commission is not at present considering
extending the derogation from the Directive granted by
this Decision, such an eventuality is not completely
to envisage such an
excluded.
extension as being compatible with the Directive were it
to be long term in nature, for example extended beyond
2005. However, it is not necessary to address this issue
at present.

It would be difficult

(42) 3.

The transitional regime has to apply the least restrictive
measures necessary to achieve the legitimate objectives,
taking into account, amongst other things, the size
of
of
interconnection of the system and the structure of
the
State
concerned.

system concerned,

in the Member

electricity

industry

level

the

the

3.1. Legitimate objectives

the

the

and

lignite

justifies

related to these

commitments. As

(43) The objective pursued by the scheme in question is to
permit VEAG to honour
investment
commitments entered into and to meet the legitimate
a
expectations
background element, Germany further
the
objective of the transitional regime with two additional
arguments. Firstly, the specific economic situation of the
new L(cid:228)nder
and
need
environmentally acceptable restructuring of the energy
sector in this region. A further decrease in the use of
lignite for electricity production would call into question
lignite mining activities as a whole. Secondly, Germany
argues that the measures are necessary in terms of long
term security of supply. The continued use of electricity
produced from lignite is part of overall German energy
policy which attempts to weigh increasing dependency
on imported natural gas against the environmental and
cost disadvantages of existing indigenous fuels such as
lignite.

socially

for

a

(44) On the basis of

these

Commission considers
Germany to be legitimate.

the

three

considerations
objectives pursued

the
by

(45) Under

all

the new German Energy Act,

eligible
customers (all final consumers and all distributors) may
contract supplies from outside the VEAG system. Article
the German Act
4(3) of
is designed to provide a
limit to purchases of electricity from outside
potential
the VEAG system where this would result
in severe
difficulties in continuing to operate lignite-fired power
plants.

(46)

(47)

In practice, such an occurrence cannot be excluded.
According to the German Government, the electricity
produced by VEAG on the basis of lignite is not only
more expensive than electricity provided from other
sources such as natural gas, but even more expensive
than lignite-based electricity from the western L(cid:228)nder.
The uncompetitive situation of east German lignite has
been explained by the
the high
investments in modernisation. As most of these costs are
fixed, a significant fall in VEAG electricity sales would
increase the cost burden on remaining customers.

amortisation of

to fulfil

If VEAG lost significant sales due to eligible customers
purchasing elsewhere, this would, as mentioned above,
endanger its lignite-based electricity production and its
and modernisation
investment
ability
commitments. The transitional regime would enable it to
refuse these eligible customers access to its transmission
network. These eligible customers would therefore be
obliged to continue
expensive,
lignite-based electricity from VEAG.

to purchase more

its

(48) The Commission considers that Germany has sufficiently
demonstrated that the transitional regime is a possible
measure to achieve the objectives in question. However,
the practice in other Member States shows that there are
problems.
alternative
stranded
solutions
Therefore,
specific attention must be given to the
question of whether the German transitional regime
applies the least restrictive measures possible in order to
achieve the objectives in question.

cost

for

(49) The German Government considers that, in the light of
the current
the particular circumstances in question,
solution is less restrictive to trade and competition than
lignite,
the alternative, namely statutory quotas
possibly
electricity
all
a
by
consumption in Germany. This is due to the temporary
is
the support scheme, and in fact
nature of

financed

levy

that

for

on

it

L 319/24

EN

Official Journal of the European Communities

11.12.1999

that

states only

not possible to determine whether protection will in fact
the
be necessary. The proposal
Bundeskartellamt, when judging disputes over refusal of
access, must consider the lignite issue among other
arguments, notably capacity restraints. According to the
government, this is only likely in rare cases to lead to a
refusal of access and would only exist in principle until
2003. Furthermore, this approach has the advantage that
it would not affect the contracts between VEAG and the
regional distributors. Under these circumstances,
is
the present approach taken by the German
argued,
Government ensures that market distortion will occur
only if, and in so far as, necessary.

it

(50)

(i)

the

area

limited

concerned

the strictly limited timescale,

In the light of the specific circumstances of the case, and
in particular
in
comparison to the size of the entire German system, (ii)
the lack of certainty that any protection will in fact be
necessary, and (iii)
the
Commission considers that such a scheme is indeed a
reasonable method of
in
It is not possible to demonstrate that other
question.
schemes, such as those based on levies, would be less
restrictive of trade and competition that the transitional
regime as notified, given the very special circumstances
under consideration here.

achieving the objectives

(51) However,

two caveats are necessary in this

respect
the transitional regime as
regarding certain details of
regional
notified:
for
possibility
the
firstly,
transmission/distribution system operators
to refuse
network access pursuant to this scheme, and secondly
ensure
the
defined,
need
non-discriminatory,
transparent and verifiable criteria
exist regarding the right to refuse access.

clearly

that

to

3.2.1. The possibility for regional transmission/distribution

system operators to refuse network access

(52) The wording of Article 4(3) of the German Act does not
specifically restrict to VEAG the right to refuse network
access. It would also, subject to ex-post approval by the
Bundeskartellamt, allow regional transmission/distribution
system operators to implement the clause and to deny
in fact only VEAG
access to their networks. However,
is
investment
in electricity production. The regional
commitment
electricity companies are neither producing electricity
their only obligation is to
from lignite nor ([(cid:133)] (*);

substantially

through

affected

its

(*) Business secret.

procure 70 % of their sales from VEAG). Under these
circumstances, it does not appear necessary to allow the
regional
transmission/distribution companies to refuse
network access on the grounds of the need to ensure
adequate production from lignite.

(53)

this.

Secondly,

as
interest

can determine

Firstly, the regional distribution/transmission companies
are not
falling
in a position to determine whether
demand from their customers for electricity, resulting in
reduced purchases from VEAG, will actually endanger
continuing production by VEAG of electricity from
lignite. Only VEAG, which can take into account
purchases by all distributors and individual eligible
the
customers,
distributors have no direct or commercial
in
lignite production, any need that they might experience
to restrict access to their networks might be based more
on commercial considerations than on the need to
maintain lignite production. This, combined with the
impossibility
distribution/transmission
companies to determine in practice whether falling sales
overall
on
lignite-based production, makes
to
permit regional distribution/transmission companies to
refuse access on these grounds. Consequently, only
VEAG, entitled on the basis of a commitment within the
meaning of Article 24(1) of the Directive, should be in a
position to invoke the protection clause.

prejudice VEAG’s
it

inappropriate

part would

regional

their

for

(54) Moreover, it would significantly compromise the market
position of eligible customers if they had to face not one
potential access dispute settlement with the transmission
system operator, but possibly two, one on the level of
the distribution network and the other on the level of
the transmission network.

(55) A further

of

by

demand.

distributors

issue raised by Germany in this
purchases

respect
concerns
electricity
originating from outside the new L(cid:228)nder, which would
involve only the low and medium-voltage grid. VEAG
would not be aware of these (cid:145)imports(cid:146), and would not
therefore be able to take them into account in planning
future lignite-based production levels based on likely
the
If
(cid:145)domestic(cid:146)
low/medium-voltage grid reached a certain level,
the
distributors’ sales would be reduced. Consequently, the
amounts bought by them from VEAG would also fall,
thus reducing VEAG’s sales. The Commission has tested
se, as
this argument, but does not
justification for allowing the distribution/transmission
companies to refuse network access in the medium term
on the grounds of the need to protect lignite. Firstly,
given the fact that these (cid:145)imports(cid:146) can only be via the
low/medium-voltage grid, it cannot be taken for granted

regard it, per

(cid:145)imports(cid:146)

such

via

11.12.1999

EN

Official Journal of the European Communities

L 319/25

that such flows will acquire any quantitative significance.
Secondly, this issue can be resolved in a manner less
restrictive of trade and competition than the possibility
of refusing network access at regional level.

(56) Germany can,

for

example,

establish a procedure
whereby regional companies are obliged to inform
VEAG of transmission contracts concluded at the level of
the regional network operators which could indirectly
affect VEAG’s lignite-based electricity production. This
would enable VEAG to include these cases in its overall
planning and thus submit it as evidence when claiming
refusal of access. However, in order to give Germany the
such additional
opportunity to determine whether
measures are required, in order to enable VEAG to fulfil
its lignite-based production obligations and to ensure
that regional distributors have an appropriate period of
time to adapt prior to the introduction of this additional
market
it
appropriate to bring this condition into force with
suspensory effect (cf. 3.2.3 below).

Commission

considers

pressure,

the

(60) There is a risk that, in the absence of such a caveat, little
competition would develop in the new L(cid:228)nder during the
period in question and that, in particular, VEAG might
face insufficient pressure to increase efficiency and lower
prices. At present, approximately 60 % of electricity
generation is by VEAG and 40 % by municipal producers
and autoproduction. It is to be expected that,
if even
limited numbers of eligible clients decide to purchase
elsewhere, this will inevitably, and probably immediately,
put pressure (cid:151) albeit limited (cid:151) on VEAG’s lignite-based
production. To meet this challenge it would need to
increase efficiency and competitiveness, or risk losing
market share. However, rather than cutting costs and
reducing prices, in the absence of a minimum number of
unequivocal eligible customers VEAG may adopt a
policy of systematically refusing any request for network
access
share and,
indirectly,
lignite production. The possibility of such a
policy by VEAG is supported by the conclusions of the
report evaluating the need for the lignite protection
clause
by VEAG from chartered
accountants PWC Deutsche Revision (see below).

to maintain its market

commissioned

in order

(61)

(62)

3.2.2. Clearly defined, non-discriminatory, transparent and

verifiable criteria

by

(57) The Commission regards refusal of network access as a
severe measure which is directly opposed to one of the
the Directive, namely to permit
main objectives of
supply
competition for
introducing
electricity
network access. In this light,
it is important that any
application of the lignite protection clause be exercised
defined,
according
and
restrictively
non-discriminatory,
transparent and verifiable criteria.
The Commission considers that the wording of Article
4(3) of the German Act does not satisfactorily fulfil these
it
criteria.
necessary to ensure that several conditions are met
the regulatory procedures and
within the scope of
dispute
Such
conditions are:

settlement mechanisms

the Commission

in question.

Therefore,

considers

clearly

to

(58)

(59)

(1)
that a refusal of access will only take place on a
case-by-case basis, that there will therefore be no a priori
or systematic refusal, and that in every case of refusal
detailed reasons will be given by VEAG as to the need to
refuse transmission to ensure an adequate level of lignite
generation;

(2) a minimum opening-up of the market must also be
guaranteed in the new L(cid:228)nder so that a network access
system can develop in practice, albeit on the basis of the
transitional regime at a pace below the minimum market
opening requirements of the Directive. Thus, it must be
guaranteed
eligible
customers must have the unrestricted right to change
supplier in spite of the legitimate interests of VEAG.

a minimum segment of

that

of

the

lignite

clause,

(3) Although the German Government argued that a
minimum opening-up of the market and market practice
would be ensured by the case-by-case approach of the
German Article 4(3)
the
Commission considers that Article 4(3) firstly provides
insufficient guarantees in this respect, and secondly does
not comply with the requirement for clear and verifiable
criteria, which are necessary to differentiate clearly
between those network access applications which are
admissible and those which are to be refused. These
concerns have already been stressed by the Commission
in the letter to the Ministry of Economic Affairs of 22
September 1997. Such clear and verifiable criteria must
be specified in order to enable customers to predict
whether they will be able to exercise their right
to
network access. This will avoid potential discriminatory
application of
from excessive
discretion in the case-by-case assessment of refusals of
access.

arising

clause

the

seems

appropriate

that, when weighing

lignite-based electricity, or whether

It
the
justification of a refusal of access against the right of
eligible customers to choose their supplier, account must
be taken of whether the eligible customer is itself a party
to long-term purchasing commitments, e.g. in the case
of distributors committed to taking 70 % of
their
electricity from VEAG, in which case particular attention
may be given to the interest in ensuring sufficient sales
of
eligible
customer is a final consumer without specific long-term
purchase commitment, in which case particular attention
may be given to access to competitive electricity prices.
In this context, it is important to note that VEAG and
the regional distribution companies are in many cases
affiliated
companies
belonging to the same shareholders. With regard to the
need for major industrial final consumers to have access
the
to competitive electricity prices, Article 19(3) of

companies,

associated

the

or

or

L 319/26

EN

Official Journal of the European Communities

11.12.1999

(on a

segments
the market,

Directive lays down that, despite a certain discretion for
for
in defining customer
Member States
achieving a minimum opening-up of
(cid:145)all
final consumers consuming more than 100 GWh per
and including
year
consumption site basis
in the category of
autoproduction) must be included(cid:146)
eligible customers. Thus the Commission considers that
at least this customer segment (3) should have a clear
guarantee that their potential requests for market access
will not be refused on the basis of Article 4(3) of the
German Act.

(63) This would be

transparent

and would avoid any
potential discrimination.
In this way, an appropriate
balance can be struck between the need to provide
adequate and effective protection for lignite production
in Germany and the need to ensure that competitive
forces (cid:151) the basic aim of the Directive (cid:151) nonetheless
play an important role in ensuring that all companies
increase efficiency and lower prices.

3.2.3. Entry into force of this Decision

(64)

In order to permit:

(cid:151) preparation of suitable and appropriate measures as
necessary in order to ensure that electricity sales to
eligible customers, via the regional distributors’
low/medium-voltage grid only, do not bypass
production
VEAG’s
obligation, and to enable the regional distributors to
prepare for the introduction of such competition,

lignite-based

electricity

(cid:151) VEAG to adapt to the new situation with regard to
than 100 GWh

consuming more

customers
annually,

it appears reasonable to ensure a suitable period of time
prior to the entry into force of the conditions set out in
3.2.1 and 3.2.2(3).

(3) Although no official data have been presented, the Commission
received oral information from VEAG as well as from electricity
consumers (VIK)
indicating that the category of final consumers
consuming more than 100 GWh/year in the new L(cid:228)nder represents
15-20 companies with a consumption share of approximately
15-16 %.
Inaccuracies stem in particular from the difficulties of
assessing autoproduction and defining the consumption site.

(65)

In particular,

It should be noted that the circumstances leading to the
choice by the German Government of this transitional
regime, as well as the objectives pursued by it, are
specific and not characteristic of
the other schemes
notified to the Commission pursuant to Article 24 of the
this regime results from the
Directive.
significant reconstruction of the electricity sector in the
new L(cid:228)nder
following reunification, and the resulting
very major and localised regional and employment
problems. Under these circumstances it is particularly
important in this case that an appropriate balance is
struck between the need for VEAG to be placed under a
reasonable degree of competitive pressure and the need
to ensure that VEAG can meet
its investment and
lignite-based electricity production obligations. This
its nature and
Decision is
therefore,
extremely
objectives,
in comparison with
transitional
regimes accepted or examined in other
Member States. The other schemes relate to the need or
aim to maintain the viability or competitiveness of
individual undertakings, not
the reconstruction and
major modernisation of an entire regional electricity
sector.

in terms of
specific

(66)

In this light, the Commission considers it appropriate to
provide for an interim period of
two years between
publication of this Decision and the entry into force of
the conditions set out in Article 2(2) and (3) below. This
period will provide VEAG and the regional distributors
with the necessary time to take corresponding measures
to meet any additional competitive pressure resulting
from this Decision.

3.2.4. Additional considerations

(67) 1.

a

to limit

In order

the possible impact of

this
Decision, and in particular the conditions set out
in
3.2.1 and 3.2.2(3), to the competitiveness and viability
of VEAG, a review of the Decision is scheduled for two
years after its adoption. The basis for such a review must
be
report by the German Government on its
experience with the application of Article 4(3) of the
the additional
German Act and the application of
Condition (3) of this Decision. If the proportion of final
customers which have
transferred to an
electricity supplier not producing on the basis of lignite
from the new L(cid:228)nder is substantial and endangers the
the Commission will review this
viability of VEAG,
Decision, and in particular, if appropriate, Condition (3).

actually

(68) 2.

In order

to ensure sufficient

the
Commission also considers it necessary to ensure close
monitoring of
the application and interpretation of
Article 4(3) of German Act. Thus the Commission must
be notified of any decision by a German arbitration or

transparency,

11.12.1999

EN

Official Journal of the European Communities

L 319/27

regulatory body which conditionally or unconditionally
approves a refusal of network access on the basis of
Article 4(3) of the German Act.

3.2.5. Appreciation of the arguments of VEAG

(69)

In order to support its arguments expressed by letter of
28 January 1999 and during a meeting between VEAG
and the Commission on 12 February in Brussels, VEAG
submitted a report commissioned from the chartered
accountants PWC Deutsche Revision evaluating the need
for the lignite protection clause.

(70)

In its letter of 28 January 1999, VEAG argues that any
loss of sales whatsoever would be unsustainable. The
lignite protection clause in Article 4(3) of the German
Act should therefore be applied in full without any
restrictions.

(71) The accountants’ report calculates target quantities for
electricity sales in order to cover VEAG’s full costs (p.
24). This calculation is based on data from VEAG’s
medium-term cost planning of VEAG and cannot
therefore be directly compared with data from the
published annual accounts. The cost base for calculating
the target quantities includes capital costs of [(cid:133)] % (*)
and a margin for a return on equity of [(cid:133)] % (*) p.a.
([(cid:133)] % (*) state obligation plus [(cid:133)] % (*) risk premium),
assuming [(cid:133)] % (*) equity capital.

(72) A comparison between the calculated target quantities
for electricity sales and actual electricity sales for 1998,
and estimated electricity sales planned by VEAG for
2003 gives the following results: in 1998, actual sales
exceeded calculated target quantities by [(cid:133)] % (*).
In
2003, however,
target quantities are [(cid:133)] % (*) higher
than planned sales. This leads to the conclusion that
future operations will not fully cover costs (p. 27).

(73) The report subsequently examines two scenarios up to
2003. Scenario 1 assumes full application of the lignite
protection clause in Article 4(3) of the German Act in
VEAG’s favour. It concludes that, except for 2000, all
years will show a surplus, peaking in 2002, showing a
sales margin of [(cid:133)] % (*) which translates into a return
the
on equity of
is
abovementioned quantitative gap of
(2003)
results in a decreased return on equity from the expected
[(cid:133)] % (*) to [(cid:133)] % (*) (2002, comparable figure for 2003
not available).

shown that
[(cid:133)] % (*)

[(cid:133)] % (*). Thus

it

(74) The report also examines a Scenario 2, assuming that
representing [(cid:133)] % (*) of VEAG turnover
consumers
change to a different
supplier. The assumption of
[(cid:133)] % (*) is derived from a [(cid:133)] % (*) market segment of
total electricity production in the new L(cid:228)nder ([(cid:133)] (*)
TWh) which is assumed to be lost exclusively from
VEAG turnover. This scenario concludes that VEAG’s
viability will be threatened, although there is no detailed
analysis of realistic plant operation, nor are revenues
from sales to alternative customers or on spot markets
taken into account.

(75) The Commission concludes as follows:

(76)

a)

(77)

b)

(78)

c)

costs

to make

the report does not provide for a detailed analysis
of VEAG’s cost structure according to fixed and
to assess
variable
short-term marginal costs; nor does it provide any
cash-flow analysis
to assess VEAG’s
in order
liquidity. This according to the data provided, the
short and medium-term viability of VEAG cannot
be considered to be directly threatened;

it possible

the report’s conclusions are based on the objective
of maintaining full cost coverage including a profit
margin ([(cid:133)] % (*) ROE). As
is not
achieved, even if the lignite protection clause is fully
applied in VEAG’s favour (resulting in [(cid:133)] % (*)
ROE), the rather pragmatic conclusion is that no
restriction on the
lignite
application of
protection clause would be sustainable;

target

this

the

data

provided

show that

The
full-cost
accounting approach chosen includes a number of
safety nets before VEAG’s viability would be
seriously called into question:

the

(cid:151) [(cid:133)] % (*)

profit margin

included

in

the

calculations,

(cid:151) undisclosed potential margin included in the
to procure lignite from the related

contract
company Laubag (4),

(cid:151) [(cid:133)] % (*) equity capital,

(cid:151) revenues

from surplus

to
alternative customers or on spot markets would
have to be included when calculating the effect
of customer losses;

electricity

sales

(4) According to the report (p. 17), until [(cid:133)] (*) VEAG purchased
lignite mainly from Laubag, a company which is related through
common shareholders, at [(cid:133)] (*), and after [(cid:133)] (*) according to a
price-quantity schedule [(cid:133)] (*). Neither Laubag’s cost structure nor
the current profit margin have been disclosed and analysed.

L 319/28

EN

Official Journal of the European Communities

11.12.1999

(79)

d)

Scenario 2, assuming af [(cid:133)] % (*)
is
based on assumptions which cannot be compared
with the potential effects of the conditions referred
to in 3.2.2 of this Decision.

loss of sales,

(80)

e)

In contrast to the position expressed by the German
Government, namely that
the lignite protection
clause would apply on a case-by-case basis, thereby
allowing a degree of market opening, the position
expressed
the
accountants’ report makes it clear that VEAG would
strive for a systematic refusal of access to all direct
and indirect VEAG customers over the full period of
application of the clause.

by VEAG and

supported

by

(81)

In summary,
the Commission recognises VEAG’s
legitimate concern to maintain sufficient sales in order to
ensure the specific economies of scale for lignite-based
electricity production. Thus the Commission developed
the conditions in 3.2.2 with regard to these concerns,
albeit weighed against the equally legitimate needs of
review
consumers. The possibilities
electricity
described above
the
competitiveness and viability of VEAG.

safeguard for

further

are

for

a

(85) The Commission therefore concludes that a number of
to ensure the
conditions must be fulfilled in order
adequate predictability and transparency of the German
transitional regime. The conditions can be implemented
either through an amendment of the law or through
adequate application of provisions or practices on the
part of
implementing
Article 4(3) of the German Act,

the authority responsible for

HAS DECIDED AS FOLLOWS:

Article 1

the German (cid:145)Gesetz

Energiewirtschaftsrechts(cid:146)

(new L(cid:228)nder) of
des

Article 4(3)
zur
(Energy Act),
Neuregelung
published in the Bundesgesetzblatt on 28 April 1998, p. 730,
which is the single subject of the application for a transitional
regime in accordance with Article 24 of Directive 96/92/EC,
notified to the Commission on 12 February 1998, shall be
considered to be based on a commitment or guarantee of
operation within the meaning of Article 24(1) of the Directive.

4. Conclusions

the commitment within the
In the abovementioned case,
meaning of Article 24(1) of Directive 96/92/EC is the contract
concluded on 22 August 1990 between the German
Democratic Republic and the Treuhandanstalt on the one hand
and Bayernwerk AG, PreussenElektra AG and RWE Energie AG
on the other.

(82) The transitional regime was applied for by letter of 12
February 1998. Thus the application is in accordance
with the deadline laid down in Article 24(2).

Article 2

(83) The

based

regime

series of

transitional

is
from a

on investment
commitments
arising
contracts
former German
concluded in 1990 between the
Democratic Republic, the Treuhandanstalt, Bayernwerk
AG, PreussenElektra AG, RWE Energie AG and the
regional electricity companies. The nature of VEAG’s
investment commitment meets all the criteria of Article
24(1) of the Directive.

(84) As

regards

the measures proposed,

the transitional
regime is a derogation from Chapter VII of Directive
96/92/EC, namely refusal of network access, which in
principle falls within the scope of Article 24(2) of the
Directive. The proposed transitional regime is of limited
duration and linked to the expiry of the commitments or
guarantees of operation in question. The requirement
that the transitional regime applies the least restrictive
measures necessary to achieve the legitimate objectives is
in principle fulfilled, albeit with two limitations, namely
the need to clarify its scope, which is to be limited to
the lignite-based electricity-producing
the network of
company, and clarification of
the
German transitional regime, which is not sufficiently
clearly defined in order to ensure non-discriminatory,
transparent and verifiable application.

the wording of

In accordance with Article 24(2) of Directive 96/92/EC,
Germany shall be entitled to derogate from Article 17 and
thus from Chapter VII by applying Article 4(3) (new L(cid:228)nder) of
the Energy Act as a transitional regime limited until 31
December 2003, under the following conditions.

(1) Germany shall ensure that the right to network access also
remains the general norm in the new L(cid:228)nder, and that
every refusal of network access is considered an exception
which must be duly substantiated on a case-by-case basis.

(2) Requests for network access may only be refused where
they involve the Vereinigte Energiewerke AG (VEAG)
and
transmission
distribution system operators may not apply the provisions
of the transitional regime. This condition shall be applied
not
this
later than two years following publication of
Decision.

transmission

network.

Regional

(3) A minimum proportion of final electricity consumption
must also remain open to competition in the new L(cid:228)nder.
Therefore, at least those final consumers consuming more
than 100 GWh per year (on a consumption site basis and

11.12.1999

EN

Official Journal of the European Communities

L 319/29

including autoproduction) within the meaning of Article
19(3) of Directive 96/92/EC shall not be refused network
access on the basis of Article 4(3) of the Energy Act. This
condition shall be applied not
than two years
following publication of this Decision.

later

approval of such refusal at first instance (Landeskartellbeh(cid:246)rde or
Bundeskartellamt).

3.
Germany shall notify to the Commission any change in
relation to the Energy Act which may directly or indirectly
affect the application of this transitional regime.

Article 3

Germany shall submit to the Commission, within three
1.
years of the adoption of this Decision, a report on the actual
use of network access by final customers in the new L(cid:228)nder.
Should this report conclude that
final
consumers who have actually changed to an electricity supplier
not producing on the basis of lignite from the new L(cid:228)nder is
substantial
the
the
Commission shall review this Decision.

viability of VEAG,

the proportion of

and endangers

2.
Germany shall notify to the Commission every refusal of
network access in accordance with Article 4(3) of the Energy
conditional
Act

following unconditional or

immediately

Article 4

This decision is addressed to the Federal Republic of Germany.

Done at Brussels, 8 July 1999.

For the Commission

Christos PAPOUTSIS

Member of the Commission