The role of local public authorities in the

The role of local public authorities in the networks management: legal situation in France, Germany Die Rolle der kommunalen Ebene im Energiesystemwandel - Rechtliche Situation in Deutschland und Frankreich 28 - 29 Januar 2013 Dr. Dörte Fouquet, Rechtsanwältin/Partner Dr. Emmanuelle Raoult, Rechtsanwältin Becker Büttner Held

About us § BBH has been operating as a law firm since 1991. § Partnership of lawyers, auditors and tax consultants – with engineers and further experts in our BBH Consulting. § Over 450 employees, with more than 200 professionals, are at your service. § Provide advice to more than 3, 000 clients. § The leading law firm for the energy and infrastructure industry. § BBH is known as „the“ law firm of public utilities, which we really are. But we are far more than that, in Germany and in Europe. § The decentralized utilities, the industry, investors, intermediaries and political bodies, like the European Commission, the Federal Government, the Federal States and public corporations and many more appreciate BBH’s work. § Your success is our success. This is something we are proud of. 3/19/2018 Seminarkürzel Az/Dok. -Nr.

Dr. Dörte Fouquet, Lawyer § § § § Dr. Dörte Fouquet Rechtsanwältin § § Partner (since 2011) Contact: doerte. fouquet@bbh-online. be Tel. : +32 2 204 44 -12 Born in Recklinghausen in 1957 Married, 1 child Studies of Law at the Universities of Marburg and Hamburg 1982 Academic and Reasearch Associate, Junior Lecturer at the University of Hamburg, Law Faculty 1988 Civil servant of the State of Hamburg, Ministry for the Environment and Energy 1991 Civil servant in liasion office of Hamburg and Schleswig-Holstein to the European Commission in Brussels 1993 Partner in law firm Kuhbier, Brussels, specialising in European and International law and consulting on European affairs in the fields of competition, energy, transport, environment Since 2011 Partner in law firm BBH and head of the Brussels office of BBH Memberships: § Admittance to the German Bar of Berlin and to the Brussels Bar § Green Budget Europe, FÖS § Eurosolar § BWE (German Wind Energy Association) § Deutscher Juristinnenbund (German Female Lawyer‘s Association) Practice areas: Energy, environmental and competition law 3/19/2018 Seminarkürzel 3

Germany 3/19/2018 Seminarkürzel 4

What role is played by municipalities in Germany? Historical background § For decades it was standard practice that municipalities as grid-owners organised the provision of electricity and gas § The liberalisation of the energy markets in the late 1990 s then led to privatisation and more competition. § One of the consequences were large scale sell-offs of municipal utilities (“pressure to privatise“) § However, since the past few years the trend changed to growing recommunalisation. 3/19/2018 Seminarkürzel 5

Reasons for the recommunalisation § Expiry of contracts In 2016 almost all existing concessions in the energy sector are up for renewal and about two thirds of all German communes are considering buying back both electricity generators and the distribution networks. § Private sector failure as well as achievement of public service objectives Failures in performance, service and infrastructure maintenance are key reasons for recommunalisation. Especially public service obligations require enormous investments and can only be successful if the long-term goal is sustainable economic success rather than short term profit maximization. § Efficiency and costs Cost savings and greater efficiency of in-house services as well as the possibility of cross- subsidisation are an important factor in recommunalisation. One cost factor among others is the process of tendering and the need to monitor the performance of companies. These costs can be saved by municipalities by managing the work themselves § Many of the energy and climate policy targets planned at federal level require implementation at local level § Municipal utilities have the expertise, esp. regarding renewable power generation 3/19/2018 Seminarkürzel 6

Examples for recommunalisation in Germany § Already in 1996, the city of Nürnbrecht bought back energy networks from RWE and created the Gemeindewerk Nürnbrecht Gmb. H that today manages the newly renovated networks with an annual profit of up to EUR 200. 000 § Around the largest German lake, the Bodensee, seven communes have cooperated in the creation of the public Regionalwerk Bodensee, which already controls a third of the local energy market § In 2010, six communes in North Rhine Westphalia bought the fifth biggest German energy produces Evonik-Steag § In 2010, Baden-Württemberg bought back the 45% of En. BW shares from EDF à Since 2007 more than 44 local public utilities (Stadtwerke) have been set up and more than 100 concessions for energy distribution networks and service delivery have returned to public hands. This process is expected to continue. 3/19/2018 Seminarkürzel 7

Germany 3/19/2018 Seminarkürzel 8

BBH clients perspectives Our clients generally consider recommunalisation as an option, but face several challenges: § Is the investment economically sensible? § How cooperative is the private counter-party? § What are the strategic options along the energy value chain? § What about political interference? § Legal challenges: § § 3/19/2018 How does the future regulatory framework look like? In particular, how will the framework for RES support develop? Does grid tariff regulation allow for reasonable profits? Does grid tariff regulation allow for the rollout of smart grids? Seminarkürzel 9

Germany 3/19/2018 Seminarkürzel 10

BBH services BBH provides comprehensive advice, thereby ensuring that recommunalisation projects are a success story Advice includes: § Strategic aspects ü Pure recommunalisation or cooperation? ü Establishing cooperatives? § Political aspects ü On local, regional and federal level § Economic aspects ü E. g. innovative funding models § And, of course, legal aspects ü Energy law (in particular, renewable energies) ü Regulatory questions ü Municipal business law ü Tax law ü… 3/19/2018 Seminarkürzel 11

FRANCE 3/19/2018 Seminarkürzel 12

Current situation in the Energy sector Local public authorities’ role limited by law in the electricity sector § So far in France, local public authorities are not involved in networks management and electricity distribution. § The Energy law (art. L 121 -5 and L 111 -52) gives an exclusive right to ERDF to supply electricity (few regions – as established in 1946 – keep the distribution right). § ERDF (belonging 100 % to EDF) is managing 95% of the public electricity distribution network in France = 1, 3 million network kilometres. § The network belongs to the public authorities. They have to give the management right to ERDF through a public services concession that cannot be open to competition. à Therefore the recommunalisation (or even an open-competitiveness) is not allowed by the French energy law. 3/19/2018 Seminarkürzel 13

Current development in the Hydro-electricity sector § In 2010, Environment Ministry launched the liberalisation of hydroelectric plants. § 16 concessions contract are coming to an end in between 2011 and 2015. § In October 2012, the energy minister, Delphine Batho, spoke against this liberalisation and announced that the Government would look into other alternatives. § The current situation brings a lack of clarity on the Government’s position and all actors are waiting for the final decision. § It seems also unclear how legally the French Government could stop this liberalisation, as it is required by the European Law and such a decision might trigger the reopening of the 2006 proceeding of the European Commission against the French administration. à This example shows the reluctance of France to open the management of electricity infrastructures to new actors. 3/19/2018 Seminarkürzel 14

Recommunalisation in the water sector However, recommunalisation is happening in the water sector. § Veolia et Suez Environnement are managing 80 % of the water supply network through public services concession. Local public authorities own the infrastructures but delegate the management to those private companies. § For some years, some cities are taking back the control of those infrastructures. This has already happened in Paris and Grenoble in 2008 or in the Montbéliard urban area in 2011. § The Montbéliard urban area was the first to actually unilaterally stop an ongoing concession contract with Velia while the contract would have been valid until 2022. The other local public authorities waited for the end of the concession. 3/19/2018 Seminarkürzel 15

European Union 3/19/2018 Seminarkürzel 16

European Union § The European Commission proposed an Energy transition through the 2050 Energy Roadmap, committing to decarbonised the European power sector by 2050. § Similar challenges: § Regulatory framework? § Investment security? § The European Commission is more and more recognizing the fact that the energy turnaround will only be successful with proper involvement of municipalities and DSOs 3/19/2018 Seminarkürzel 17

European Union § Commission Communication on the Internal Energy Market (November 2012) § Commission insists on the implementation of the 3 rd legislative package that require liberalisation. Infringement procedures have been started. § Development of transparent and easily understandable rules for demand response § Further roll-out of smart meters § Reflection on the future role of DSOs required § Long-term, predictable and stable regulatory framework that incentivises and facilitates the transition of DSO networks, including adequate incentives for investment § Caveat: “framework should be conducive to competition“ § Commission could limit the role of DSOs to balancing of the system while the rest of their activities is open to competition (free market) 3/19/2018 Seminarkürzel 18

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