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Gas and heat price brake in Germany: an overview of planned relief and open legal questions

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Following the discontinuation of Russian natural gas supplies, energy prices in Germany continue to rise. Compared to the previous year, the price/kWh has increased more than fourfold: 6.8 ct/kWh to 28.3 ct/kWh (comparison portal Verivox; data as of 07 October 2022). This sometimes affects consumers and industrial sectors to a considerable extent. Especially for companies that mainly heat with gas (e.g., the chemical industry, paper manufacturing, and glass processing), this can have existential consequences. As a result of this exceptional situation, the German government has provided a relief package of 91 billion euros, the use, and distribution of which requires further elaboration.
 
 

A. Introduction

To implement the gas price brake for the benefit of consumers and companies, the German government appointed a commission of experts, which presented an interim report for the first time on October 10, 2022, after only 16 days of deliberations. The gas price brake is to be implemented in a two-stage plan, thus relieving the consumer and avoiding company closures and insolvencies.

To ensure financial relief for those affected as quickly as possible, the Commission is proposing a two-stage approach: firstly, a one-off payment is to be made to consumers and small and medium-sized enterprises in December 2022, and secondly, a gas price brake is to take effect from March 1, 2023, to April 30, 2024.

 

B. Relief for private consumers and small to medium-sized enterprises

For the one-off payment in December 2022, the Commission proposes to use the advance payment from September 2022 as a basis. This is intended to bridge the gap until the gas price brake is introduced. In doing so, the state steps in as the payer of the down payments for all gas and "standard load profile" customers (commercial customers with consumption of up to 1.5 million kWh/a) except industry and power generation plants. In return, the utilities waive the budget billing to their customers. The discount the beneficiary receives must, in turn, be declared as a non-cash benefit in the income tax return - and the highest possible allowances are to apply. It is currently unclear whether there will be automatic data transmission to the tax authorities.

The gas and heating price break from March 2023 is intended to safeguard livelihoods; at the same time, an incentive to save will be created: The procurement price of gas is capped at 12 ct/kWh based on a basic quota. However, the basic percentage amounts to only 80% of the consumption on which the advance payment from September 2022 was based. Accordingly, it is suggested to save 20% of the gas consumption compared to the previous year. Thus, the average price/kWh applies to the consumer in excess consumption.

For a single-family house with an annual consumption of 20,000 kWh, a payment obligation of 4108 euros would currently be due. However, with the planned cap at 12 ct/kWh, this sum drops by 1366 euros to 2742 euros (saving 33%).

For district heating customers, the cap changes accordingly to 9.5 ct/kWh for a basic quota of 80%.
However, there are still several open legal questions regarding this subsidy method, among others:
  • For example, what applies if consumers or the company move before or during the subsidy period is unclear. What consumption should then be used as a basis?

  • What applies when a gas heating system is implemented for the first time, for example, because a changeover from oil heating to gas heating has occurred?

  • What applies to newly constructed and occupied real estate or commercial facilities?

  • Who decides on these doubtful cases? Probably not the utilities, which have little data on their customers.

  • What applies in the case of a change of supplier? How is the data reconciliation for the reference period carried out?

  • How is the fiscal consideration done in detail, including data transmission to the tax authorities (and by whom)? If, for example, an apartment building is supplied via the landlord, the question arises as to how exactly the subsidy of the individual tenant is determined by whom at the end.


Complex legal questions to be delineated will arise here in practice.

 

C. Concrete proposals in favor of German industry

It is also proposed to base the relief on gas consumption per kWh/a. Large industrial consumers (higher consumption than 1.5 million kWh/a), which have a regulated load profile measurement (RLM), are to be addressed in a separate relief instrument. This affects around 24,000-25,000 companies in Germany. Here, a one-off payment in December is omitted, and the gas price brake will come into effect as early as 01.01.2023. The quota is based on 70% at a procurement price of 7 ct/kWh.

To prevent companies from taking the subsidy with them, selling the gas on the market, and migrating, the financial assistance is to be tied to the maintenance of the location and a transformation perspective. In addition, an opt-in procedure is proposed: If a company decides to take advantage of the more favorable tariff, this must be notified to the supplier, and the participation must be published. Details of this still need to be worked out in law.

The biggest questions here are:
  • Can it be prevented legally so that highly profitable companies also take advantage of the subsidy and thus possibly increase the profits of partners or shareholders even with state subsidies?

  • What applies to companies that relocate their operations compared to the reference period and (have to) increase or decrease consumption?

  • Here, too, the question arises as to who decides on cases of doubt regarding subsidies.
 
 

D. Problems of EU state aid law

Whether the gas price brake complies with state aid law within the meaning of Article 107 TFEU has not yet been addressed by the Commission. The billion-euro relief package has caused quite a stir among other EU governments and the EU Commission. It would give unfair advantages to the standard internal market. On September 30, 2022, Internal Market Commissioner Thierry Breton announced that the package would be closely examined to determine whether it would distort the single market. German Chancellor Olaf Scholz notes that measured in terms of the size of the country and the number of inhabitants. The relief package is comparable with the aid packages of other countries and, for this reason, does not violate state aid law.

In addition, the EU Commission will soon present an expanded aid framework intended to give member states more leeway for state aid. The Commission recently stated that the package might have to be revised but is unlikely to be rejected in principle.
 
 

E. Prospects and criticisms

In its interim report, the appointed Commission leaves much room for interpretation. What sounds simple at first glance has many problems in practice. Once again, what applies, for example, if there is no previous year's consumption - for instance because a family of four moved from a smaller to a more prominent family in 2022? What applies to families that grew in 2022 and where a spouse with a baby is now permanently at home - with gas consumption likely increasing? If the state protects marriage and family under Article 6 of the Basic Law, does it want to treat such families worse? What applies to families who have switched from oil to gas heating in 2022?

There is also no mention of legislative instruments or concrete indications of the infrastructure expansion needed to implement the gas price brake.

Furthermore, it remains questionable why prices will not be adjusted until March 2023 for most consumers. Finally, the one-off payment would entail considerable bureaucracy, which would also be required to work out the subsequent gas price brake. Therefore, experts assume that implementation at an earlier date would not be possible. At the same time, an exception is being made for industrial customers.

In addition, social concerns are expressed: The villa owner benefits more from the gas price brake than the low-income earner with a two-room apartment. Financial assistance should indeed be subject to income tax above a specific limit to mitigate the effect somewhat. Nevertheless, many who would not need the assistance will benefit from the gas price brake. A more practical solution, however, could not be found at the necessary speed. After all, according to the scale, the supplier does not know whether it is supplying a villa or a prefabricated building.

Moreover, if at least 20% of gas consumption is not saved compared with the previous year, Germany may find itself in a gas shortage situation. This may not have been sufficiently taken into account by the Commission. Finally, the present model is based on voluntariness. Whether Germany experiences a shortage in the middle of winter is therefore left to the consumer's discretion. For this reason, a comprehensive information campaign is proposed that reaches as broad a section of the population as possible.

 

About the authors

Dennis Hillemann is a partner and specialized lawyer for administrative law in our Hamburg Office in Germany. Tanja Ehls is a lawyer in our Hamburg office focusing on public law. They currently counsels a number of clients on the energy crisis in Germany.
 

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