Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Germany: Taking the Lead in Electricity and Gas

Fortnightly Magazine - January 15 2000

companies.

1. RWE Energie AG

2. Preussen Electra AG (part of Veba holding)

3. Bayernwerk AG (part of VIAG holding)

4. Energie Baden-Wurttemberg AG (EnBW)

5. VEAG Vereinigte Energiewerke AG

6. VEW Energie AG

7. Hamburgische Electricitaets-Werke AG (HEW)

8. Berliner Kraft-und Licht AG (Bewag)

Prior to a round of merger announcements in October, even the largest German electric firm, RWE, with 138 billion kilowatt-hours in sales, was dwarfed by both France's integrated national company Eletricité de France, or EdF, with 435 billion kWh, and the Italian state company, ENEL, with 225 billion kWh.

The Restructuring: Leaves

Details to Private Settlement

The 1998 electricity deregulation law moved Germany ahead of the United States and to the forefront of countries introducing significant liberalization of electricity markets. Despite its not having a completely privatized system, nor a totally opened market structure, Germany has moved ahead of all of its European neighbors except England, Norway and Sweden.

The new German law on energy supply marks the most important change in the German electricity and natural gas markets since 1936. The 1936 law had set up the concept of area monopolies and favored the creation of big gas suppliers. The next significant development was the privatization of several big electricity suppliers during the 1960s and 1980s. The new law, introduced by a conservative government in 1998, set out to abolish the area franchises in energy supply by April of that year.

The government's goals in liberalization of the energy sector were aimed at

* Lowering energy prices for smaller enterprises and households;

* Restructuring the energy supply industry, especially at the local levels;

* Reducing political influence, especially on the municipal enterprises; and

* Rationalizing the municipal enterprises, and ending subsidies paid for by energy consumers for public transport and other services such as theaters and swimming pools.

The new law embraced a concept of deregulation that combines a high degree of liberalization (i.e., open entry and competition) and a low degree of regulation (no federal regulatory agency was established). The legislation exceeds the standards of the European Union for open access. It also avoids copying the regulatory model of England and Wales, which were the pioneers of liberalization in Europe. The EU directives have separate timetables for the electric and gas energy sectors, but by including provisions for the joint liberalization of electricity and natural gas, Germany liberalized its gas markets way in advance of any EU gas directive.

The higher degree of liberalization is reflected in the German law's orders concerning market entry and customer phase-in. Area franchises are abolished, permitting any entity to serve in any area. There is no "phase in" of customer segments according to size, nor are there restrictions on customers by class of use. Such provisions are not unknown in the liberalization plans of other EU members. Under the German law, all customers immediately are eligible to choose from among competing suppliers of electricity and natural gas.

The German law also omits any heavy-handed regulatory structure. There is no requirement that existing electric companies divest themselves of transmission assets.