(Bloomberg) -- Germany’s energy network operators face a blow in their legal fight to increase the returns on their grid investments in the country, after the nation’s top civil court indicated it will probably side with the agency regulating these rates.
The Federal Network Agency is likely to win approval for its 2021 decision on how much network operators can charge electricity and gas suppliers for grid-use as a return of their investment, Presiding Judge Wolfgang Kirchhoff said at a hearing on Tuesday in a case at the Federal Court of Justice in Karlsruhe.
The five judges are likely to overturn a Dusseldorf court’s judgment that last year toppled the agency’s decision, he added.
The agency “has a margin of discretion in choosing the right methods to calculate these rates,” said Kirchhoff. “A court may not undermine it by choosing the method itself instead of the regulator.” The assessment is preliminary and may still change during deliberation, he said. Fourteen energy companies are submitting oral arguments in the case on Tuesday.
About 900 energy companies in Germany have sued against the federal agency’s 2021 interest-rate decision. The cap is calculated as a rate of return on spending on grids and the regulator’s task is to make sure investors in networks get an appropriate return on equity. Grid operators are bound by these rates when charging network costs and utilities are ultimately passing these fees on to energy consumers.
While any increase of these rates makes investment more attractive, it would increase power prices in the country even further. Germany’s industry has been struggling with high energy costs and many companies have threatened to relocate abroad if prices rise further.
Markets are closely following the case as any ruling will also have an impact on potential sales of network operations. The German government is seeking to regain minority control of its largest power grid operator Tennet, which the Dutch government had put up for sale. The nation’s largest power producer RWE AG is also looking to sell its stake in grid operator Amprion, a deal valued at around €2 billion ($2.1 billion).
German utility EON SE, which ramped up investments by more than 20% in the first half of the year, fell 3.2% at 12.59 p.m. in Frankfurt following the judge’s comments.
Chris Mögelin, head of legal at the network agency, told the judges he’s relieved by Kirchhoff’s words. But lawyers for the grid companies warned that a negative ruling would deter investment and cripple the nation’s energy transition.
“This will shut down the energy transition,” Thomas Burmeister, a lawyer for Amprion, told the court in a reply to the judge’s comments.
In its Oct. 2021 decision, covering the fourth regulatory period from 2024 to 2028, the agency set the interest rate at 5.07% for new assets and 3.51% for old ones. One percentage point of return on equity for the regulatory period corresponds to a volume of around €1 billion, according to an estimate by German utility association VKU.
A Dusseldorf appeals court last year overturned that ruling. While it said the regulator used a viable method to determine the rates, it failed to double check the market risk premium, a decisive element of its calculations. The agency only used historical data to determine it and didn’t add other plausibility reviews, the court said at the time, adding that the fact that Germany now has the lowest equity interest rate compared with those determined in other countries.
Germany wants to quickly expand its power grids as it aims to reach net-zero electricity generation by 2035 — up from around 50% currently — a task that is pegged at almost half a trillion euros. Grid operators were disappointed with the move and pointed to the massive capital requirements, for which they are in a fierce international competition with investment funds.
The cases are: BGH, EnVR 80/23 et al.
--With assistance from Petra Sorge and Eva Brendel.
(Updates with lawyers’ comments starting in seventh paragraph)
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