Judgment of 28 November 2024 - 1 BvR 460/23
In a judgment pronounced today, the First Senate of the Federal Constitutional Court held that the interference in occupational freedom protected under Art. 12(1) of the Basic Law (Grundgesetz – GG) resulting from the redistribution of ‘surplus revenues’ from certain electricity producers to private and commercial electricity consumers as a reaction to the emergency situation in the energy market following the invasion of Ukraine in February 2022 is justified.
The enormous jump in electricity prices following the gas shortages resulting from the war led to a rise in revenues that far exceeded typical investor expectations, particularly among operators of renewable energy power plants; at the same time, this price increase led to exceptionally high burdens for electricity consumers. In this exceptional situation, the redistribution of the resulting so-called ‘surplus revenues’ establishes a reasonable balance between the interests of the producers and of the consumers.
Facts of the case:
In 2022, the price of natural gas soared due to shortages resulting from the war in Ukraine. Due to the price-setting mechanism of the electricity market, this led to a massive increase in the price of electricity. Pursuant to this mechanism, electricity prices on the European market are set based on reference prices that are determined in the context of an exchange auction for the following day on the so-called ‘Day-Ahead’ spot market. In these auctions, sales are not made based on the lowest bids, but instead in increasing order of the marginal production costs of the power plants, which are submitted by the operators and are particularly sensitive to the differing costs of the varying types of fuel used. The marginal production costs of the last power plant activated to meet the electricity demand, and therefore the highest marginal costs, set the decisive standard price for all producers. As the amount of electricity needed often requires production from high-cost gas-fired power plants, the enormous increase in fuel costs caused by the war led to a corresponding increase in the standard price of electricity. This increase in the standard price of electricity has led to exceptionally high profits for operators of power plants that have cheaper fuel costs, particularly renewable-energy power plants.
The massive increase in electricity prices resulted in an unexpected cost shock for businesses and private households. The uncertainty as to the ability of businesses and private households to afford their energy needs was classified as an exceptional emergency situation. Private and commercial consumers were implored to take all possible actions to reduce their electricity consumption.
In light of the foregoing, the European Union issued an emergency regulation that directed Member States to introduce a cap on revenues over a certain determined limit and to redirect such revenues to alleviate the burden of high electricity costs on consumers in a targeted manner. In view of the extremely high prices experienced by consumers, the exceptionally high revenues from the sale of electricity were to be capped at the investor expectations which had existed prior to the war in Ukraine. Germany implemented these obligations through the Act to Control Electricity Costs (Strompreisbremsegesetz – StromPBG). This act sets varying limits on revenues that reflect the cost structures of the various types of power plants. To the extent that the revenues exceed these limits based on the notional market value or the actual profits from purchase agreements, such revenues are capped and must ultimately be rebated to electricity consumers by means of a private pass-through mechanism involving the power plant operators, electricity supply grid operators, transmission system operators and electricity companies.
The 22 complainants in this matter operate power plants that generate power from solar energy, wind energy or solid biomass. They directly challenge the statutorily imposed redistribution of the ‘surplus revenues’ which exceed the determined maximum limits and the administrative burdens associated with the obligation to participate in the pass-through programme (§§ 13, 14, 15, 16, 17, 18, 29 Act to Control Electricity Costs). They contend that the interference in their occupational freedom is not justified. According to the complainants, the redistribution obligation constitutes an extraordinary levy to finance the alleviation of the burden on consumers that does not comply with the applicable constitutional requirements. They further contend that in contrast with gas-fired power plants, their facilities did not contribute to the high electricity prices, but instead had a cost-curbing effect. They claim that they bear no particular responsibility for reducing the burdens on consumers. The complainants maintain that the alleviation measures pursued are based on general social and economic policy considerations and should therefore only be financed from tax revenue.
Key considerations of the Senate:
The constitutional complaints, which are admissible only in part, are not well-founded.
I. The challenged rules are to be reviewed on the basis of the Basic Law. In view of the emergency regulation of the EU, the rules are not fully determined by EU law, but instead fall within the margin of appreciation provided for in the regulation.
II. The redistribution of surplus revenues interferes with the ‘freedom of enterprise’ protected by Art. 12(1) of the Basic Law as a manifestation of occupational freedom. This also applies to the obligations on the part of the power plant operators to participate in the redistribution system, which involves significant administrative burdens. However, these interferences are both formally and substantively constitutional.
1. The redistribution obligation falls within the Federation’s legislative competence for ‘energy’. Taxation powers are not implicated.
Due to the fact that the Federation generates no revenue through these measures, they are neither taxes, nor are they non-tax levies.
The Federation does not receive any portion of the revenues to be passed on by the affected power plant operators. Instead, the surplus revenues are ‘passed-through’ on the basis of private law relationships from the power plant operators to the electricity supply grid operators, transmission system operators and electricity companies, and finally to consumers. The subject of the legislation is therefore the redistribution of funds among private entities that results in the removal of a portion of electricity producers’ revenues from the sale of electricity and its transfer to electricity consumers. The Federation’s role is limited to a programme of interim financing similar to loans in the context of funds to be provided by the pass-through mechanism from electricity companies to consumers.
The statutory measure therefore establishes an obligation to pay as between private parties without any revenue accruing to the Federation or the Länder and, because it does not constitute competition to taxation, does not need to satisfy any particular constitutional law requirements concerning public finances. Therefore, the Federation may rely on its legislative competence in the area of energy law.
2. The measure is also constitutional in substantive terms. It pursues a constitutionally legitimate aim and is suitable, necessary and appropriate for achieving it.
a) The redistribution of revenues in excess of the established maximum limit serves the goal of establishing a reasonable balance between the interests of power plant operators, who received an exceptional benefit as a result of the distortions to the energy market caused by the war in Ukraine, and electricity consumers, who bear an exceptional burden due to the same circumstances. It does so by providing that revenues in excess of investor expectations prior to the war be redistributed to relieve the burden on consumers. This is a legitimate aim.
b) The redistribution of revenues is suitable and necessary to achieve this aim. In particular, the use of budgetary funds in place of the redistribution of revenues would not constitute less restrictive means, because the financial burden would simply be pushed off to the general public. The goal of balancing the interests of power plant operators and electricity consumers can only be achieved through redistributing the surplus revenues. Additionally, changing the way in which electricity prices are set to a procedure in which sales are made according to the lowest bid rather than a standard price is not a less restrictive alternative for power plant operators, nor would it be equally effective for the purpose. The standard price procedure ensures the cheapest electricity price, as only those power plants with the lowest marginal production costs are activated to meet the actual demand. For this reason, the massive increase in electricity prices occasioned by the war in Ukraine could not have been addressed through a lowest-bid procedure.
c) The interference with occupational freedom caused by redistribution obligation is appropriate.
aa) It is true that a redistribution among private entities to pursue tasks of the common good that lie outside the private law relationships of the parties affected cannot in any case be expected of private entities that have no specific connection to the task at issue. Here, however, the measure is aimed at balancing the interests of the power plant operators who received an exceptional benefit due to massively increased electricity prices and energy consumers exceptionally burdened by the same increases. The goal of balancing interests among private entities cannot be achieved through the use of budgetary means.
bb) The measure also satisfies the requirement of appropriateness in other respects.
(1) The obligation to redistribute surplus revenues results in considerable interference with the occupational freedom of the affected power plant operators. Above all, this follows from the fact that the revenues targeted by the measure are the result of a competitive free market price setting process. Moreover, the affected power plant operators are not responsible for the massive increase in electricity prices. There are also negative effects on the occupational activity of the affected power plant operators, including associated costs, due to the obligations to self-administer the distribution of the surplus revenues. On the other hand, the brief period in which the redistribution obligation applied – from 1 December 2022 to 30 June 2023 – and the fact that a large portion of the exceptionally high revenues occasioned by the war in Ukraine are not affected have a clear mitigating effect.
In light of the exceptional dimension of this disparity, the balance sought between those who benefitted from the effects of the war and those burdened by the effects has considerable significance.
(2) A redistribution between producers and consumers in a market with free competitive price setting processes that balance supply and demand requires justification in view of the occupational freedom protected by Art. 12(1) of the Basic Law. The mere fact that in a competitive price setting process, shortages can lead to exceptionally high profits or revenues is not sufficient to justify the redistribution of profit or revenue to consumers.
Here, however, redistributing surplus revenues generated by the sale of electricity for the benefit of electricity consumers, which was in light of a specific exceptional case that the electricity price mitigation was intended to address, was appropriate. Electricity is an indispensable commodity used to cover essential needs. For a considerable number of electricity consumers, the high electricity prices resulted in exceptional and unavoidable burdens. By contrast, the revenues of the power plant operators challenging the measure vastly exceeded the typical investment expectations, without these revenues leading to investment stimulus that would reduce prices in the long run.
(3) Finally, the justification of this measure is not negated by the fact that the participatory obligations of the power plant operators affected by the redistribution as well as those of the electricity supply grid operators, transmissions system operators and electricity companies in passing the revenues through to consumers resulted in high administrative expenses. It is true that, according to the information provided by the Federal Government at the oral hearing, the various administrative burdens are considerable when compared to the actual amount of surplus revenues distributed under the programme. However, at the point in time decisive for the constitutional assessment – the enactment of the Act to Control Electricity Costs – the legislator had anticipated substantially higher amounts of surplus revenues and therefore remained within its margin of prognosis and assessment.