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 Dr. Dörte Fouquet, Rechtsanwältin/Partner Dr. Emmanuelle Raoult, Rechtsanwältin Becker Büttner Held Januar 2013

Az/Dok.-Nr.Seminarkürzel About us BBH has been operating as a law firm since 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 BBHs work. Your success is our success. This is something we are proud of.

3Seminarkürzel Dr. Dörte Fouquet, Lawyer 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 Environ- ment 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 Lawyers Association) Practice areas: Energy, environmental and competition law Dr. Dörte Fouquet Rechtsanwältin Partner (since 2011) Contact: Tel.: Dr. Dörte Fouquet Rechtsanwältin Partner (since 2011) Contact: Tel.:

4Seminarkürzel Germany

5Seminarkürzel 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 1990s 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.

6Seminarkürzel 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

7Seminarkürzel Examples for recommunalisation in Germany Already in 1996, the city of Nürnbrecht bought back energy networks from RWE and created the Gemeindewerk Nürnbrecht GmbH that today manages the newly renovated networks with an annual profit of up to EUR 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 EnBW shares from EDF 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.

8Seminarkürzel Germany

9Seminarkürzel 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: 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?

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

12Seminarkürzel FRANCE

13Seminarkürzel Current situation in the Energy sector Therefore the recommunalisation (or even an open-competitiveness) is not allowed by the French energy law. 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. L121-5 and L111-52) 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.

14Seminarkürzel 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 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 Governments 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. This example shows the reluctance of France to open the management of electricity infrastructures to new actors.

15Seminarkürzel 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 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 The other local public authorities waited for the end of the concession.

16Seminarkürzel European Union

17Seminarkürzel European Union The European Commission proposed an Energy transition through the 2050 Energy Roadmap, committing to decarbonised the European power sector by 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

18Seminarkürzel European Union Commission Communication on the Internal Energy Market (November 2012) Commission insists on the implementation of the 3rd 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)

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