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German Gas shortage - can companies defend themselves against gas rationing?

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Germany

A. Introduction

We are all aware: that the complete interruption of Russian natural gas supplies to Germany can no longer be ruled out. Federal Minister of Economics and Climate Protection Robert Habeck has declared the so-called "alert level" (2nd stage of the gas emergency plan). In the fall or winter of 2022, the only ultima ratio looming is the declaration of the "emergency level" (3rd stage of the gas emergency plan). From a company perspective, this is a horror scenario. In this case, the state - specifically the Federal Network Agency (BNetzA) - would have the mammoth task of intervening in the market and distributing the scarce gas. To this end, it has many legal instruments (see C.).
 
A glance at the relevant legal bases and other documents, on the other hand, gives cause for concern: There is currently (as of July 19, 2022) no legally binding, detailed, and concrete-individual action plan from the BNetzA on how gas would be distributed among German market participants in the event of a shortage - a state of affairs that would pose a sheer threat to the existence of potentially affected resident companies. What does this mean for companies - and how can they defend themselves against BNetzA decisions?
 
In the following, this article takes this situation as an opportunity to shed light on the gas emergency plan, particularly the legal dimension of the 3rd stage. It shows that, in an emergency, the affected companies would not be (legally) defenseless against the BNetzA's decisions (under D.).

 

B. The Three Alarm Levels of the Gas Emergency Plan

The state resorts to the gas emergency plan when gas threatens to become scarce. It can declare three crisis levels; the early warning, the alert, and the emergency. Both the early warning stage (March 30, 2022) and the alert stage (June 23, 2022) have already been proclaimed in the recent past by the Federal Minister of Economics and Climate Protection Robert Habeck, who is responsible for this. 
 
The criteria that must be met for one of the stages to be declared are determined at the European level by Article 11 (1) of the so-called SoS Regulation (Regulation (EU) 2017/1938 of the European Parliament and of the Council of October 25, 2017). According to this, the early warning stage declared on March 30 exists if there are concrete, serious indications that an event may occur that leads to a significant deterioration of the gas supply situation. The early warning stage is therefore not linked to an actual decline. Instead, it is a forecasting decision on an uncertain factual basis.
 
In contrast, the alert level declared on June 23 (the 2nd stage of the gas emergency plan) is in the event of exceptionally high demand for gas or disruption in gas supply that leads to a significant deterioration in gas supply. However, the market can still cope with the interruption or demand at this level. In this respect, government intervention is only possible by utilizing non-market-based measures.
 
The focus of this paper, however, will be on the third stage of the gas emergency plan, the emergency stage. This stage is reached whenever there is an exceptionally high demand for gas, a significant disruption of gas supply, or other significant deterioration of the supply situation, and all relevant market-based measures have been implemented. However, the gas supply is still insufficient to meet the remaining gas demand. Therefore, from this point on, the BNetzA may take sovereign measures for the first time (detailed under C.).

 

C. Stage 3: the "emergency stage"

In the following, special attention must be paid to the third stage, the so-called "emergency stage." Due to the highly volatile situation in the gas market, it can no longer be ruled out that the determination of this emergency level will be established by a legal decree of the federal government. 
 
The orders issued based on Section 1 (1) of the Gas Security Ordinance (GasSV) are of particular significance for affected companies, businesses, and consumers. The BNetzA, as the federal load distributor, will regularly be responsible for issuing these orders and, consequently, will intervene in the market in a sovereign manner. 

According to Section 1 (1) GasSV, possible addressees of such orders are companies and businesses that produce, purchase or sell gas and consumers. Thus, among others, both gas consumers and gas suppliers (e.g., municipal utilities) are threatened by sovereign measures in the event of an emergency.
 
In the event of an emergency level being declared, it can be assumed that, for example, orders will be issued to large consumers to reduce their gas consumption, orders to shut down individual industrial customers and entire gas networks, or orders to increase gas storage.

These orders can have a devastating effect on the existence of the companies and businesses concerned. Especially in the case of gas shortages, the BNetzA is faced with the mammoth task of distributing the limited and coveted resource as efficiently/justly as possible among the ("right") shoulders. Therefore, it is foreseeable that there will be damage.
 
But at present, on the other hand, as of now (July 19, 2022), there is a lack of a legally binding and detailed action plan from the BNetzA as to how gas would be distributed among the resident consumers in the event of a gas shortage - an almost unbearable state of affairs for the potentially affected companies. 
 
The BNetzA published a five-page paper on May 17, 2022, in which it made its options for action as a federal load distributor transparent and the rough criteria for consideration. However, there is a lack of robust data to create a detailed and case-by-case overall concept at the time of issuance.  
 
From the company's perspective, this threatens disaster in the form of a reduction/shutdown order: the BNetzA announced in its paper that it can currently only issue sovereign measures against end consumers by way of general orders and only in installments. A broad ruling is not addressed to a specific recipient (e.g., not to company X or company Y) but industries as a whole. In this way, it could be decreed that all industrial plants in a specific region, for example, in the automotive industry, including suppliers, are no longer (allowed to be) supplied with gas.
 
According to the BNetzA, economic, ecological, and social consequences can only be adequately considered "when a need for action arises in the medium or long term." However, what period is meant by this remains entirely unclear?
 
If the federal government were to determine the emergency level today, the consideration of the measures to be applied would only be based on rough consideration criteria:
  • The urgency of the action.

  • Size of the affected plant.

  • Lead time to reduce gas purchases.

  • Expected economic damage.

  • Importance for the supply of the general public.

 
Due to this non-binding and rough concept of action, damages will occur that could have been avoided by a more extensive data determination of the BNetzA.
 
Because of how elementary the gas supply to the German economy is, the situation concerning standards is deplorable. It may provide a target for possible administrative court proceedings. Also, since, according to the established case law of the Federal Constitutional Court, essential decisions for the community may only be made based on statutory regulations and weighing criteria specified by the legislature, this indeterminate, vague and uncodified catalog of standards raises solid legal concerns. 

 

D. Legal protection against BNetzA decisions

But what legal defenses would be available to companies that receive an existentially threatening gas reduction order within the emergency level and are affected by a network disconnection order or other order?
 
One thing is clear: there is legal protection. What that will look like in detail depends mainly on how the BNetzA acts. But some primary considerations are already possible.

Following Article 19 (4) of the German Basic Law (GG), every company has the right to take administrative action - including against the BNetzA's rulings. A motion for annulment can be brought against a general or individual judgment, and an application can be made for a review by the administrative court. So there is the option of going to the administrative courts - and the vague criteria will undoubtedly play a role here. The decisive decisions will not be made in the legal action proceedings but in the urgent proceedings before the administrative courts. Companies will therefore have to file summary proceedings and lawsuits. After all, suits on the merits take several months or years - by which time the damage has been done.
 
This means that the companies affected will have to seek summary proceedings before the administrative court with the aim of a) having the relevant orders set aside and b) receiving a fair share of the available gas capacities. Simply applying to have the BNetzA's order set aside will probably not be enough, as this will not result in a supply of gas - another application will likely have to be filed to obtain a fair share of the available capacities.

In doing so, the administrative courts weigh up, among other things, whether the decision in the main action has a chance of success and whether it is reasonable to wait. Then, the courts examine the factual and legal situation summarily and issue temporary orders. Anyone who can present good reasons against the BNetzA's decision thus does not stand any chance - especially since, as shown above, there will also be profound constitutional questions about the BNetzA's actions.
 
Does it make sense to go into the proceedings? No one can predict that now. But the counter-question is: Should a tough decision with possibly existence-destroying consequences for the company be accepted? From the point of view of a managing director, it may be sensible here to take all means to avert damage - and thus also the administrative court proceedings. In any case, we are already equipping ourselves for such proceedings with our experience in administrative proceedings. We can draw on experience from hundreds of administrative court proceedings, including those involving existential issues for companies.
 
Further developments remain to be seen - we hope there will not be a gas emergency for Germany. But we consider it our duty to help affected companies in the worst case. What is incomprehensible at the moment is the inaction of the legislator on this issue - but at the same time, this also offers an opportunity for affected companies.
 
 

About the author

Dennis Hillemann is a specialist in administrative law and a partner in administrative law (primarily administrative procedural law) in Fieldfisher's Hamburg office. He advises companies and the public sector on complex public law issues and disputes. He has litigation experience from many administrative court proceedings.

 

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