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Germany's gas shortage – can companies defend themselves against gas rationing?

22/07/2022

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With German industrial gas users facing possible emergency government intervention in distribution resulting in crippling supply restrictions, Fieldfisher administrative law partner Dennis Hillemann looks at the options for businesses to challenge regulatory decisions.

In light of recent international developments in energy markets and the stand-off with Russia over Ukraine, the complete interruption of Russian natural gas supplies to Germany can no longer be ruled out.

Following the issuance of an early warning alert on 30 March this year concerning gas supply, on 23 June, Germany's federal Minister of Economics and Climate Protection, Robert Habeck, declared the government was implementing the second level of the country's gas emergency plan.

The move came as the amount of gas flowing through Nord Stream I, the pipeline that carries a third of the EU's gas supply from Russia, dipped to 40% of normal levels.

Triggered in the event of exceptionally high demand for gas, or disruption that leads to a significant deterioration in gas supply, alert level 2 does not call for state intervention measures as the market can still cope with demand or disruption at this level.

Government intervention using non-market-based measures kick in at the “emergency phase”, or stage three, of the emergency plan, which the German government fears could be necessary as the country enters the winter months when gas demand rises.

In this phase, the German network regulator, the Bundesnetzagentur (BNetzA), will step in to ensure delivery of "vital demand for gas with special consideration of protected customers and minimising consequential damage".

In broad terms, this means a rationing system will be implemented, with supply to industry curtailed first, while households and critical institutions such as hospitals will continue to receive available gas.

Crunch time for gas users?

For German businesses, especially those in its industrial heartlands, the rationing of gas supply is a nightmare scenario.

There is currently (at the time of writing) no legally binding, detailed action plan from the BNetzA on how gas would be distributed among German market participants in the event of a shortage.

So are companies operating in Germany completely powerless in the face of BNetzA decisions on gas supply?

Technically, German industrial gas users may have some legal defences against rationing. The orders issued by the BNetzA based on Section 1 (1) of the Gas Security Ordinance (GasSV) are of particular significance for affected companies.

In the event of an emergency level being declared, it is assumed orders will be issued to large consumers to reduce gas consumption, shut down individual plants and/or entire gas networks, or increase gas storage.

On 17 May, the BNetzA published a five-page paper outlining its options for action as a federal load distributor and setting out six (fairly vague) criteria for how it plans to allocate gas rations.

These are:

  • The urgency of the need to cut off gas;
  • The size of the affected gas user(s) and its gas supply;
  • Lead time needed to shut down and reduce gas purchases;
  • The expected economic damage resulting from shutting off gas supply;
  • The cost and duration of restarting after a gas supply reduction; and
  • Importance of the supply (of whatever the industry produces or does) to the general public.

In other words, BNetzA is likely to focus gas supply restrictions on companies where shutdowns will have large gas-saving effects with short lead times, cause the least possible economic damage and the least disruption to supplies of goods or services to the German public.

However, there is a lack of robust data to create a detailed distribution plan and BNetzA has made it clear it intends to make broad rulings on gas supply, covering whole industries as opposed to individual companies.

Many businesses will feel that this course of action will cause damage that could have been avoided with more extensive data determination and impact modelling by the BNetzA. As such, its decisions may become the target for possible administrative court proceedings.

Further, established case law of the Federal Constitutional Court has determined that essential decisions for the community may only be made based on statutory regulations and weighing criteria specified by the legislature.

The BNetzA's attempt to base decisions on a vague and uncodified set of standards therefore raises solid legal concerns, which may provide the basis for legal challenges.

Right to administrative challenge

How the legal options for companies seeking to challenge gas distribution measures present themselves depends largely on how the BNetzA decides to act, but broadly speaking, companies can consider mounting an administrative law challenge.

Under Article 19 (4) of the German Basic Law (Grundgesetz für die Bundesrepublik Deutschland), 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.

Such challenges are likely to rest to a greater or lesser extent on the BNetzA's vague criteria for deciding how to restrict gas supply.

To be useful to the affected companies, legal determinations of the validity of BNetzA's decisions will need to be made in urgent proceedings before the administrative courts.

Companies will therefore have to file summary proceedings and lawsuits with the aim of a) having the relevant orders set aside and b) receiving a fair share of available gas capacities, to ensure their challenge is resolved quickly and giving them the greatest chance of minimising any damage to their business.

Simply applying to have the BNetzA's order set aside will probably not be enough, as this will not guarantee the supply of gas.

For their part, the courts will weigh up, among other things, whether the main action has a chance of success and whether it is reasonable to wait or expedite proceedings. Assuming the court agrees with the urgency of the application, it will examine the factual and legal situation summarily and issue temporary orders.
Given the broader political situation and the gas crisis facing Germany, it is impossible to predict how the courts will treat challenges against BNetzA's gas rationing decisions.
 
However, that does not mean that companies facing potentially disastrous consequences as a result of having their gas supply shut off should accept the authority's decisions without question.
 
It is to be hoped that Germany will not reach emergency level 3 when such intervention measures are needed, but business leaders should nevertheless be considering their options now.
 
This article was authored by Dennis Hillemann, administrative law partner in Fieldfisher's Hamburg office.

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