New rules on price control for the energy and food trade sector in Germany

06 February 2008

Stephan J. Waldheim, Shiraz Kutar

With the 8th amendment of the German “Act against Restraints of Competition” (Gesetz gegen Wettbewerbsbeschränkungen, ARC) Germany intensifies the cartel law provisions on the abuse of a dominant market position with respect to the energy and the food trade sector.

Electricity tariffs in Germany have risen significantly within the last nine years and for 2008, electricity utilities have already announced further increases. German and EU competition watchdogs consider insignificant competition on the up- and downstream markets to the power grid to be a cause of this development. Whereas the big energy suppliers in Germany attribute the rise in costs to a parallel increase of the primary energy costs, the German Federal Government has supported a more severe price control in the energy sector by means of competition law.

Therefore, the German Bundestag has recently passed the new Section 29 ARC, enlarging inter alia the Federal Cartel Office’s (FCO) competencies in the field of price control in the energy sector. So far the antitrust authorities carried full burden of proof for an undertaking’s eventual abuse of a dominant market position, whereas the new provision now provides to some extent for a reversal of the burden of proof. In practice, this means that once the FCO comes to the conclusion that a given energy supplying company charges fees or other business conditions adverse to the ones of its competitors or of undertakings on similar markets, it will be up to this undertaking to justify the discrepancy on reasonable grounds. Even more, if the fees charged “inadequately exceed” the production costs, justification will not be possible at all. Taking this into account, the judicial attention will in the future probably turn to the question of when a given price is considered to be “inadequate”. Whether the new legislation will have a positive impact on energy prices, remains to be seen.

The new ARC will also include a provision on food trade. A further provision has been added to the existing Section 20 para 4 sentence 2 of the ARC on the prohibition of discrimination. It mainly prohibits food traders from selling goods for less than the price of acquisition (Einstandspreis). The existing Section 20 para 4 sentence 2 ARC already included this prohibition in general terms for periodically repeated promotions but now the law stipulates that each single promotion campaign in the food trade with prices below acquisition prices falls under the prohibition. Virtually at the last minute, a further provision was introduced to reinforce the protection against margin squeeze applicable also beyond the area of food trade.

Finally, the 8th amendment to the ARC contains important procedural modifications. Whereas so far appeals against FCO’s decisions on the abuse of a dominant market position had suspensive effect (Section 64 ARC), this will not be the case in the future. With this change, the German legislator has adjusted to European legislation, as Commission’s decisions on the abuse of a dominant market position have always been of immediate effect. This is also in line with a recent decision of the German Federal Court of Justice (BGH), requiring the synchronisation of appeal proceedings in Germany and Europe. Furthermore the adopted modification adjusts the proceedings in cases of abuse to the given anti trust legislation, as appeals against decisions based upon Section 1 ARC respectively Art. 81 EG already do not have suspensive effect.

The new legislation is due to enter into force in January 2008. The provisions for the energy and trade sector are limited in time and will expire on 31 December 2012.