Regulators to challenge German grid deal

Date: 06/01/2000

By Renée Cordes

EU and German regulatory authorities are expected to force the country's electricity operators and suppliers to revamp a new agreement laying down rules for gaining access to the country's power grid, amid widespread competition concerns.

Under the accord, German domestic operators who use the grid in Europe's largest electricity market would have to pay an annual access fee. The European Commission, Germany's Federal Cartel Office and the German government have been notified of the deal, which would divide the country's power grid into north and south zones, with operators required to pay 0.25 pfennigs (€0.0013) per kilowatt hour for energy which crosses the boundary.

The producers argue that the agreement is an improvement on the current practice of negotiating access charges on a case-by-case basis. "This will allow everyone to be treated equally," insisted Uwe Kirsche, a spokesman for the Frankfurt-based Association of German Electricity Producers (VDEW).

He said that in practice, less than 10% of the total amount of electricity exchanged between the two zones would be covered by the charge, and added that companies which used Germany as a transit country when transporting electricity across Europe would not have to pay the levy.

While the electricity associations are optimistic that they will be allowed to go ahead with the new arrangement - the first of its kind in Europe - both they and industry experts expect regulatory authorities to impose additional requirements to ensure fair competition.

The move comes as two of Germany's neighbours, France and Luxembourg, are under fire for dragging their heels in opening up their national electricity markets to competition. At its last meeting of 1999, the Commission opened legal proceedings against both countries for failing to implement new EU rules aimed at liberalising the sector.

Although Germany has already gone well beyond the requirements laid down in Union legislation in opening up its market to foreigners, industry experts claim the zone system would effectively discourage competition.

"They will eventually have to get rid of the northern and southern zones," said Lüder Schumacher, an analyst at Deutsche Bank AG in London. "Although the charge would not actually have too much of an impact from an economic point of view, it would constitute a competitive advantage for companies in both trading zones."

Experts argue that the zone-based charge would benefit the largest players in the German market, giving an unfair advantage to companies such as Veba AG and Viag AG, which are planning to merge, and RWE AG and VEW AG, which also intend to join forces. If the mergers are approved, the new entities would operate in both zones, giving them an exemption from paying the charge. "The only fair solution would be to do away with zones altogether," said Marcus Schmitz, an analyst at Hauck & Aufhauser in Munich.

The German organisation which represents electricity customers and independent suppliers (VIK) and originally argued against setting up a zone-based charging system has reluctantly signed up to the agreement.

"We always called for no distance-related prices and the compromise was to have two zones," explained Florian Baentsch, VIK's manager of energy affairs. "We think the cartel office will not block this, but some obligations will be imposed."

These could include, for example, requiring all parties involved to make a pledge to abide by the access rules and to ensure fair pricing of grid use by competitors. German cartel officials say they will examine the issue of grid access closely before approv-ing the planned merger between Veba and Viag to form Europe's third-largest diversified utility company.

"The Federal Cartel Office wants transmission fees low enough to allow unrestricted third party access," said Schumacher. In this case, he added, "the market for electricity would no longer be a regional market, but a European one and as such could not only cope with, but would call for, bigger companies".

EU and German regulatory authorities are expected to force the country's electricity operators and suppliers to revamp a new agreement laying down rules for gaining access to the country's power grid, amid widespread competition concerns.