Bundesminister Habeck zum Energiesicherungsgesetz (EnSiG)

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The Federal Government is continuing to equip itself to cope with heightening tensions on the energy markets. In this context, the Federal cabinet today agreed in a written procedure on a wording for an amendment to the Energy Security of Supply Act and other consequent amendments, e.g. to the Energy Industry Act. The wording is now being brought before the Bundestag via the parliamentary groups of the governing coalition. The aim is a swift conclusion to the parliamentary procedures.

Vice-Chancellor and Federal Minister for Economic Affairs and Climate Action Robert Habeck commented: “The situation on the gas market is tense, and we unfortunately cannot exclude the possibility that it will deteriorate further. We need to be prepared for a worsening of the situation. That is why we are sharpening the tools available to us by updating the Energy Security of Supply Act and the Energy Industry Act. The priority is to do everything possible to maintain the basic supply through the coming winter and to keep the energy markets going for as long as possible despite high prices and increasing risks.”

The draft text primarily alters the Energy Security of Supply Act in order to expand the instruments available for the taking of precautionary measures.

In addition to more detailed arrangements in the existing price adjustment rules of section 24 of the Energy Security of Supply Act, a new alternative instrument is introduced, the “netted price adjustment rules” of section 26 of the Act. This is a mechanism in which the additional costs of purchasing substitute volumes of gas in response to reduced gas imports can be distributed equally across all gas customers.

Both instruments – the price adjustment rules of section 24, and the netted price adjustment rules of section 26 of the Act – are subject to narrow preconditions and are not to be activated at present. However, they are to be available as an option in the toolbox so that we can respond to further increases in gas prices and a deterioration in the situation in the coming months.

The overarching goal of both alternative price adjustment rules is to maintain the market mechanisms and supply chains for as long as possible and to prevent cascade effects. Thus if gas imports are reduced, gas can be expected to become much more expensive on the market. If the energy companies cannot pay the high prices and therefore cannot fulfil their contracts, they may face financial difficulties, perhaps even insolvency. If these energy companies collapse, there is a danger of serious disruptions throughout the market along the supply chain, right down to the end user. In order to avoid this, extraordinary statutory price adjustment rules can be necessary, and can be activated, on a temporary basis and subject to strict preconditions.

Further to this, section 29 of the Energy Security of Supply Act introduces temporary alterations to corporate law which enable and make it easier for the Federal Government to stabilise companies providing critical infrastructure in the energy sector. These stabilisation measures may also be necessary to maintain market processes and avoid cascade effects here. In the case of companies providing critical infrastructure in the energy sector which are subject to the fiduciary management of the Federation under section 17 of the Energy Security of Supply Act, additional rules for capital measures are put in place in section 17a of the Act.

Stabilisation measures for energy companies can help to ensure that price adjustment mechanisms do not need to be deployed. For this reason, the Act provides for a clear ranking of the various instruments, so that the stabilisation possibilities within the meaning of section 29(1) of the Act must be considered before the two price adjustment mechanisms.

Also, the toolbox for possible energy conservation measures is expanded further. A new authorisation to issue ordinances is to enable measures to be taken before the event of a crisis and before the deployment of federal load distribution, e.g. as soon as the early warning level of the gas emergency plan has been declared. This will enable statutory instruments to regulate issues like energy conservation.

The drafting tool can be accessed here (in German).

Further information about the wording:

In detail, the draft wording to amend the Energy Security of Supply Act and the Energy Industry Act contains the following amendments:

1. Adjustments to the Energy Security of Supply Act

1.1. Expansion of the authorisations to issue ordinances in the Energy Security of Supply Act to include specific measures, e.g. energy conservation measures
A new authorisation to issue ordinances is to enable measures to be taken even before the event of a crisis and before the deployment of federal load distribution (e.g. as soon as the early warning level of the gas emergency plan has been declared), where this is appropriate and necessary. This can include energy conservation measures, measures relating to the transport of energy carriers by rail and to large transformers, and relaxations of environmental law, especially immission protection rules affecting installation operators.

1.2. Price adjustment mechanism of section 24 of the Energy Security of Supply Act – clarifications and greater detail
The revised Energy Security of Supply Act, which entered into force on 22 May 2022, provides for extraordinary statutory price adjustment rules in section 24. These are now being fleshed out. For example, the Act now states even more clearly that, for price adjustment rules to take effect, it is first necessary for the Bundesnetzagentur (Federal Network Agency) to determine a substantial reduction in total volumes of gas imports to Germany, and that there is no automatic activation of the statutory price adjustment rules when the alert or emergency level is declared under the provisions of the Emergency Plan for Gas. This means that the Bundesnetzagentur can make this declaration to activate the price adjustment rules of section 24 of the Act at a later point in time than the declaration of the alert or emergency level.

The aim of the provisions of section 24 of the Energy Security of Supply Act is to maintain the market mechanisms and supply chains for as long as possible and to prevent cascade effects. Thus if gas imports are reduced, gas can be expected to become much more expensive on the market. If the energy companies cannot pay the high prices and/or cannot fulfil their contracts, they may face financial difficulties, perhaps even insolvency. However, if the energy companies collapse, there is a danger of serious disruptions throughout the market along the supply chain, right down to the end user. To avoid this, price adjustment rules can be applied by way of exception, for a limited period of time and under very specific, narrowly defined conditions.

There are key principles governing the price adjustment rules. The price adjustment must be appropriate. It is made clear that a price adjustment may not exceed the additional costs of the purchase of substitute volumes of gas which arise due to the reduction in the volumes of gas imports for the relevant energy supplier for the gas to be supplied to the customers. Also, customers affected by the price adjustments may of course opt to immediately terminate the supply contract without notice.

As soon as the substantial reduction in the total volumes of gas imports to Germany no longer exists, the Bundesnetzagentur must revoke its declaration. The statutory price adjustment rules will no longer apply.

1.3. Exercise of force majeur is made subject to the approval of the Bundesnetzagentur
A new instrument in the toolbox is a provision on rights to refuse to provide a service. The exercise of rights to refuse to provide a service, frequently dubbed the “force majeur” case, which is only likely to actually exist in very rare instances, is made subject to approval by the Bundesnetzagentur.

This reservation serves the interests of security of supply. It protects the purchaser of gas against cessations of or reductions in supply, and thus ultimately protects the consumer against disruption and other uncertainty on the market. Specifically, this means that an energy supplier cannot assert “force majeur” when it is affected by much higher purchase costs, i.e. even where purchase costs are much higher, the gas must be purchased and the obligation to supply the customer must be fulfilled.

1.4. New instrument: netted price adjustment under section 26 of the Energy Security of Supply Act
As an alternative to the price adjustment rules of section 24 of the Act, an authorisation to issue ordinances for a redistribution mechanism is put in place as a precaution, permitting “netted” price adjustment within the meaning of section 26 of the Act. An authorisation to enact a statutory instrument is introduced. This means that the mechanism cannot take effect until the necessary statutory instrument has been enacted and has taken effect.

The aim of the netted price adjustment mechanism of section 26 of the Energy Security of Supply Act is – like that of the price adjustment mechanism of section 24 – to maintain the market mechanisms and supply chains for as long as possible and to prevent cascade effects.

Specifically, the netted price adjustment mechanism of section 26 of the Energy Security of Supply Act distributes the additional costs of the purchase of substitute volumes of gas – costs which are ascertained by an “independent treasurer” – across all the gas customers.

The netted price adjustment mechanism of section 26 of the Act also applies only under strict preconditions which must be precisely enumerated in a statutory instrument. Once again, the precondition is that a substantial reduction in the total volumes of gas imports to Germany is immediately impending or has been declared by the Bundesnetzagentur under section 24(1) sentence 1. The parties entitled to financial compensation are the energy suppliers (gas importers) directly affected by a substantial reduction in the total volumes of gas imports to Germany. The additional costs are to be determined in a “transparent and non-discriminatory” procedure.

The difference from the price adjustment mechanism is that the netting covers all the gas consumers and is equally high for all gas consumers. The price adjustment mechanism is narrower and depends on which importer passes on the prices.

1.5 Acceleration measures in corporate law for stabilisation measures to protect companies operating critical energy infrastructure (section 29 of the Energy Security of Supply Act)
Relaxations of corporate law are being introduced on a temporary basis in order to expand the toolbox and to make it possible to take short-term stabilisation measures. This facilitates the implementation by the Federation of stabilisation measures in companies providing critical infrastructure in the energy sector. Such rules worked well in the Economic Stabilisation Fund Act during the COVID-19 pandemic. This draft transfers the corresponding provisions of the Economic Stabilisation Acceleration Act to cover stabilisation measures under the Energy Security of Supply Act.

For example, the provisions envisage relaxations in the taking of decisions on capital measures under corporate law.

In the ranking of sections 24, 26 and 29 of the Energy Security of Supply Act, the Act makes it clear that that stabilisation possibilities within the meaning of section 29(1) of the Act must be considered before options available under section 26 and section 24 of the Act.

1.6 Capital measures for companies under fiduciary management (section 17a of the Energy Security of Supply Act)
In the case of companies providing critical infrastructure in the energy sector which are subject to the fiduciary management of the Federation under section 17 Energy Security of Supply Act, additional rules for capital measures are put in place in section 17a of the Act. In particular, the normal instruments used to optimise the accounts in a restructuring procedure may be used, thus facilitating financing. The implementation of such capital measures is subject to a separate legal basis which is now being put in place. This is necessary to fill the toolbox and expand the precautionary measures in this area too.

2. Adjustments to the Energy Industry Act

Furthermore, the draft contains amendments to the Energy Industry Act, also designed to enhance preparedness and referring specifically to the statutory instruments of the Act on the Maintenance of Substitute Power Stations. This includes the extension of the possibility to reduce the use of gas to generate electricity. The reduction in the volume of gas used to generate electricity must also be imposed via a statutory instrument. The corresponding statutory instrument was previously limited to a maximum of six months, and is now to be extended to nine months.

Also, the possibility for coal-fired power plants to take part on the electricity market is introduced from the point when the alert level is declared. Obligations to maintain operational readiness are also expanded. This means for example that the power stations must be available not only to take part on the electricity market but also to respond to demands from the transmission system operators.

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