Climate crisis, a transition in the fields of energy and heat generation, more use of renewables and more energy communities, security of supply and energy management in times of crisis, unpredictable price developments, the use of hydrogen and new technologies, etc. Energy law issues are more current and pressing than ever and affect everyone, from end users in their allotment garden houses to multinational industrial corporations.
With the new KWR Energy Laws News the KWR Energy Teamheaded by Thomas Rabl, will be informing you about the latest legal developments.
Issue 1 of KWR Energy Law News is about
New rules regarding natural gas stockpiling (strategic gas reserve):
1. The GWG 2011 Amendment
The invasion of Ukraine by Russia is an unprecedented threat to the security of gas supply in the EU and in Austria. In Federal Law Gazette I no. 38/2022, an amendment to the Gas Industry Act 2011 (GWG 2011) was passed (introducing new sections 18a to 18d); the purpose of the amendment is to establish a national strategic gas reserve. It remains to be seen whether adjustments will (have to) be made along the lines of planned EU projects (REPowerEU); the amendment is not associated to EU law.
2. Management via an AGGM subsidiary
The distribution area manager, AGGM Austrian Gas Grid Management AG (
www.aggm.at/), is entrusted with the
management of the strategic gas reserve by way of statutory delegation. The reserves are held in storage facilities. Up until now, the distribution area manager has acted as a strictly regulated system operator. AGGM has to form a subsidiary forthe purpose of reserve management, and the latter has to procure the gas reserve in a public tender procedure. The shareholders of AGGM (www.aggm.at/unternehmen/eigentuemer-und-organe) and the shareholder of the company to be formed cannot be held liable
for the liabilities of the new company unless they cause insolvency in a dishonest manner alone or in concert. Therefore, they will not be entitled to any profit from the activities related to the maintenance of the strategic gas reserve, nor will they have to bear any losses.3. Scope of the gas reserve
The scope of the reserve is calculated on the basis of the gas quantities delivered in January. For 2022, it amounts to 12.6 TWh.
4. Use of the gas reserve and costs
Gas quantities are to be released by decree of the Minister of Energy pursuant to the Energy Steering Act (EnLG) 2012. In such a case, the actual implementation lies within theresponsibility of the distribution area manager, whose sovereign discretion is based on the provisions of the decree. The costs are to be covered from federal funds inaccordance with the cost recovery principle, and the subsidiary is to make neither profits nor losses. Depending on the price development, this can cost up to € 2 billion (or even more). Market participants are given gas quantities within the framework of balance energy management. The distribution area manager has to determine and charge a fee according to certain criteria in this context.
5. Liability of public authorities
The federal government will be liable fordamage inflicted by board members, managing directors or employees of the distribution area manager in the performance of these duties; such liability is governed by the provisions of Act on the liability of public authorities (AHG).
6. Timetable
According to reports, the strategic gas reserve is to be built by filling storage tanks from 01 June 2022. It is to be available for the first time as from 01 November 2022.
7. No energy steering
Legally speaking, this process is uncharted territory in many ways. First of all, it is important to note that this is not energy steering in the actual sense; this primarily serves to avert an imminent disruption of Austria's energy supply or to remedy disruption which has already occurred; by contrast, the new type of stockpiling supplies (as has been done in case of oil for some time now) is a precaution in nature.
8. Delegation: Legal forms and legal protection are open to question
However, this process also includes a novelty, the explicit statutory delegation of tasks to AGGM (but not the subsidiary to be founded!); this not only raises questions about the legal form of action inthe formation of the subsidiary and the management of stockpiling (official decision, decree or just simply sovereign action in private-law style), this is also about legal protection against measures taken by AGGM and its subsidiary, etc. The fact that the federal government is liable here, partly under the Act on the liability of public authorities, does not help…
9. Formal statutory delegations
The new legal provisions are also largely underdetermined and probably also contain formal statutory delegations which are prohibited under constitutional law.
10. Practical sticking points
What does the new gas reserve actually mean in practice? Only time will tell because one can only stockpile what can still be found on the market somewhere. If Russia turns off the gas taps, even the best law will be useless because there will not be enough gas around to cover demand. One does not need to be a prophet to see that stockpiling at the expense of the federal budget will drive up the market price and makelife even more difficult for the utilities (and their customers).
- Gas users
It is doubtful that the new gas reserve will improve the situation for all gas users in practice, especially since prices will probably rise and one can only stock up on what is available on the market. If there is not enough supply, there will probably be no getting around energy steering measures!
- Gas utilities
The new company entrusted with procuring the gas reserve is becoming a competitor for the utilities; it could not only drive up prices in a market characterised by scarcity, but could also cause problems in the fulfilment of supply obligations towards customers. However, unlike in energy steering legislation, utilities are not exempted from liability here. Whether and how these higher procurement costs can be passed on to customers is yet another problem, which will probably be exacerbated by the gas reserve. Options for unilateral price changes, such as those possible in the electricity sector (sec. 80 par. 2a of the Electricity Sector and Organisation Act/ElWOG 2010), do not exist for natural gas.
11. Conclusion
It will soon become clear whether the new gas stockpiling system can effectively contribute to security of supply, and if so, what this contribution is. It is certainly not a masterpiece of law-making. One cannot help feeling that things were done rather rashly.
If you have any questions on this and other issues of energy law, the KWR Energy Team is ready to help at all times.