Oil and Gas Utilities: New Rules for Energy Security

With the amended law on energy security, Germany should be better prepared in the event of a Russian gas supply freeze. It provides for expropriations if necessary. There are also innovations for consumers. What exactly is changing?

Today, the Bundestag is finally deliberating on the amendment to the Energy Security Act. The reform of the law is scheduled to come into force in June. In this way, the federal government wants to ensure that there are no upheavals on the German energy market despite the massive effects of the Russian war against Ukraine. What are the most important innovations? Answers to some questions.

What is the Energy Security Act?

The Energy Security Act dates from 1975. At that time, it served to cushion the consequences of the oil price shock. The law authorized the government to take countermeasures in the areas of energy production, transport and distribution in the event of a threat to the energy supply. This even includes speed limits on motorways and driving bans. There was a Sunday driving ban for four days. In addition, a maximum speed of 100 kilometers on motorways and 80 kilometers on country roads was prescribed at times.

Why is an amendment necessary?

When the law came into force in 1975, there was still the Soviet Union and no internet. Therefore, the law, which has hardly changed since then, is now to be adapted to the current energy crisis. The case of Gazprom Germania shows how necessary this is. The German subsidiary of the Russian gas monopolist could only be placed under the trusteeship of the Federal Network Agency because of a formal error that was discovered by chance. The new law should make such a measure officially possible in the future. Some therefore speak of a “Lex Gazprom”.

A similar case is the PCF refinery in Schwedt, which is controlled by the Russian state-owned company Rosneft. With the amendment to the Energy Security Act, Federal Economics Minister Roland Habeck wants to create the basis for placing the refinery in Schwedt under state trusteeship. In this respect, the novella has already been referred to as “Lex Rosneft”.

What is the most important change?

In the future, Germany can place a company in the critical energy infrastructure under state trusteeship if the supply is at risk. If necessary, expropriation is even possible. The fiduciary administration could be ordered by the Federal Ministry of Economics if there is a risk that a company will not fulfill its tasks serving the functioning of the community in the field of energy and there is a risk of the security of supply being impaired, according to the bill. The Ministry would then issue such an order for six months. It could later be extended for another six months.

If a trust management is not sufficient to ensure the security of supply, there would be expropriation as a last resort. According to the Parliamentary State Secretary in the Ministry of Economic Affairs, Oliver Krischer from the Greens, it cannot be that someone who owns a critical infrastructure for the energy supply is endangering it.

First, the PCK refinery in Schwedt, owned by Russia’s Rosneft group, could come under state trusteeship. According to Minister of Economics Habeck, Rosneft’s business model is to buy Russian oil. If you no longer want this oil, you need an alternative for Schwedt. One such alternative could be to place the refinery under state supervision – like Gazprom Germania.

What rules apply to gas trading, prices and storage?

In order to be prepared for a possible gas embargo or a delivery stop, the amended law provides for the establishment of a digital gas platform. Large industrial companies and gas traders are to register on this platform. On the basis of their data, a decision should then be made in an emergency as to where gas can be saved and where shutdowns must take place. The corresponding gas safety regulation must be changed for this.

Another change is the price adjustment norm. Immediate price increases across the entire supply chain to the end customer should be possible so that suppliers do not experience difficulties and bankruptcies in the event of a gas shortage. This is intended to prevent a cascade in the energy industry.

Changes are also planned in the Energy Industry Act. In the future, planned decommissioning of gas storage facilities will have to be reported to and approved by the Federal Network Agency. This can prevent gas storage facilities from being shut down without the knowledge of the federal government, according to the draft law.

What does the law bring to consumers?

In the future, energy providers will no longer be able to easily terminate their contracts. The Federal Network Agency must approve the providers’ contract terminations. In addition, in the event of an energy provider going bankrupt, the insolvency administrator will be obliged to continue to fulfill energy contracts. In this respect, security of supply increases for customers. On the other hand, the price adjustment standard with price increases possible at any time in the event of an acute gas shortage is bad news for consumers.

What are the criticisms of the law?

Business is critical of the expropriation plans. According to the Association of German Chambers of Industry and Commerce (DIHK), encroachments on private property should only be carried out in an absolute emergency when no milder means are available. Control by the Bundestag is therefore desirable. The Association of German Energy Traders also considers the regulations on trust management and expropriation to be too extensive. Before such a step, at least energy suppliers with majority German shareholders should be given financial aid.

The association of energy traders has also sharply criticized the price adjustment rules. Due to the individual design and the large number of commercial contracts, an intervention in private autonomy could lead to unpredictable results. The association expects a wave of contract terminations, financial difficulties and insolvencies.

Does the law regulate who can still get gas if necessary?

The law doesn’t go that far. The three-stage gas emergency plan regulates where the gas is rationed if necessary. This provides for prioritization. Accordingly, private households are given preferential treatment. In other words, in the event of a gas crisis, industry must shut down first, with private households coming last. The Federal Network Agency decides which companies have priority.

In the event of bottlenecks, the Ministry of Economics may want to intervene in private heating behavior with additional regulations. There is “no right” to a room temperature of 25 degrees, State Secretary Patrick Graichen said recently. However, such restrictions could hardly be controlled.