Düsseldorf Higher Regional Court confirms that the remuneration system applied in the "Irsching contracts" is in violation of competition law

In its decision of 28. April 2015 (see Press Release of the Düsseldorf Higher Regional Court of 28 April 2015) the Düsseldorf Higher Regional Court confirmed the Bundeskartellamt's view that the remuneration system applied in the "Irsching contracts" agreed between the companies E.ON and TenneT limits the amount of electricity generated and thus violates the prohibition of anti-competitive agreements.

In the proceeding at the Higher Regional Court several energy providers had opposed a provision made by the Bundesnetzagentur (Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railway) stipulating which payments power plant operators should receive if a network operator requires a power plant to alter its output.

In order to ensure the stability of the German electricity network, network operators must intervene in the operation of power plants in cases of network bottlenecks. The power plant operators are required to increase or reduce the output of their power plants ("redispatch"). For these measures the power plant operators receive a remuneration paid by the respective network operator. These costs are passed on to electricity customers via the network fees.

The provision of the Bundesnetzagentur which has now been annulled by the Higher Regional Court stipulated that the plant operators were generally to be compensated for the costs of the redispatch measures. Under certain conditions and in coordination with the Bundesnetzagentur, the network operators and power plant operators were able to agree on a remuneration which exceeded the compensation of these costs.

Contracts concluded in April 2013 for the power plants Irsching 4 and Irsching 5 were the first contracts in Germany to provide for such additional remuneration ("Irsching contracts"). When the Bundeskartellamt became aware of the remuneration system it initiated a cartel proceeding which was conducted in close coordination with the Bundesnetzagentur. The Bundeskartellamt proceeding targeted the specific arrangements for remuneration payments.

Andreas Mundt, President of the Bundeskartellamt: "According to the remuneration system agreed between E.ON and TenneT for redispatch measures, payments increased while power output by the plants decreased. The financial incentive to generate as little power as possible in Irsching was enormous. As a consequence of the remuneration system it no longer made sense in economic terms for the owners to operate a power plant even in hours when electricity prices were high. The Düsseldorf Higher Regional Court has now confirmed that it is inadmissible under competition law to limit the generation of power in such a way."

In the year before the contracts were concluded Irsching was still operating on a large scale in the normal electricity market whereas throughout 2014 it did not generate any electricity for the market at any time.

For the assessment of the remuneration system under competition law it was irrelevant that since 2012 the owners of Irsching have expressed their intention to close the plant down. This was not a legal precondition for the additional payments. The amount of remuneration was in fact based on the redispatch generation ("10% threshold"). A different legal basis applies for the provision of systemically important power plants (Reservekraftwerksverordnung, German ordinance on reserve power plants).

Andreas Mundt: "There was an urgent need for the Bundeskartellamt to intervene in this case. There was a real danger that the problematic remuneration system would be used for further German power plants as well. These would also have limited their energy production which would have led to higher electricity wholesale prices. This danger has now been averted by the decision of the Düsseldorf Higher Regional Court.“

The Bundeskartellamt proceeding was not directed against the fact that such contracts had been concluded or the amount of the remuneration. Such issues lie within the competence of the Bundesnetzagentur. As the significance of the cartel proceeding reached beyond the individual case, the Bundeskartellamt made use of its right to comment on the issue in the proceeding of the Higher Regional Court. By virtue of the court's decision the Bundeskartellamt's Irsching proceeding could now be discontinued.