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Cablegate: Hesse Enters Energy Debate

VZCZCXRO4766
OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFT #5275/01 3521123
ZNR UUUUU ZZH
O 181123Z DEC 07
FM AMCONSUL FRANKFURT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4218
INFO RHEBAAA/DEPT OF ENERGY WASHDC IMMEDIATE
RUCNMEM/EU MEMBER STATES IMMEDIATE
RUCNFRG/FRG COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 02 FRANKFURT 005275

SIPDIS

DEPARTMENT FOR EUR/AGS

SIPDIS

E.O. 12958: N/A
TAGS: ENRG SENV GM
SUBJECT: Hesse Enters Energy Debate


ENTIRE TEXT IS SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET
DISTRIBUTION

REF: Berlin 2034

1. SUMMARY: The Hesse state government intends to introduce a bill
in the upper chamber of the German federal parliament (Bundesrat) in
early 2008 offering an alternative strategy for energy deregulation
in Germany. Under the plan, the federal government will be able to
force energy suppliers to sell their power plants and other assets
in order to create more competition in the industry. The bill
offers an alternative approach to both the EU's "unbundling"
proposal and the German Federal Economic Ministry's plan to
deregulate the energy market. END SUMMARY.

Hesse's Energy Initiative
-------------------------
2. On December 6, ConGen Frankfurt representatives attended a
round-table hosted by the Hesse Economic Ministry on the state's
proposal to modify the federal law on anticompetitive practices
(GWB). Economic Minister Alois Rhiel (CDU) outlined his proposal,
which would give the Federal Antitrust Agency (Bundeskartellamt) the
power to force energy companies to sell off a designated amount of
their power plants and other assets, but not to specify which assets
are to be sold. The proposal contrasts with both the current EU
"unbundling" initiative which would force European energy companies
to divest themselves of either their transmission networks or power
generation assets and German Federal Economic Minister Michael
Glos's (CSU) counter-proposal calling for more deregulation and
network integration among EU member states (see reftel). Hesse will
most likely bring the proposal before the Bundesrat in January 2008.


3. Rhiel and a team of legal experts argued that the Hesse proposal
is constitutional and unlikely to be challenged successfully in
court. Pointing to successful earlier breakups of monopolies like
the Deutsche Post, Rhiel said that the state clearly had the law on
its side when it fostered more competition for the public good.
According to Rhiel, current soaring energy prices in Germany amount
to a "regressive tax and a limitation on competition within the
German energy market." Other states in Germany have shown an
interest in Rhiel's proposal. At the Conference of State Economic
Ministers chaired by Rhiel in Darmstadt in November 2007, the
ministers concluded that they needed to see if the GWB should be
widened to include "an instrument that enables structural changes
for the improvement of competition," meaning forced sales.

Hesse's Champion of Cheaper Energy
----------------------------------
4. The German energy market is dominated by four big energy
suppliers, E.on, RWE, Vattenfall and EnBW who control 80% of the
market and are often accused of setting prices. All four of them
have announced price increases of at least 10% in 2008 and the price
of energy in Germany has increased 38.5% in the last seven years,
making German consumer energy costs the third highest in Europe.
Rhiel has long been known as a champion of the consumer in the
energy debate. He gained fame in 2005 and 2006 when he banned
increases in energy prices in Hesse. At that time, he said that the
state was obligated to protect its citizens from exploitation by an
oligarchy. Rhiel also criticized the fact that the federal
government gave energy suppliers certificates to emit CO2, instead
of selling them.

Big Business, Big Election
--------------------------
5. Deputy Chief of the Frankfurt Chamber of Commerce (IHK) Johannes
Wagner told Pol Specialist that the private sector is very skeptical
of Rhiel's initiative and favors an EU-led solution that lowers
energy prices simply by fostering cross-border competition and free
trade. Many private companies contend that forced sales are
unconstitutional and are wary of state intervention in market
structures. Wagner argued that private companies opposed a
unilateral privatization or deregulation that would hinder
competition with state-owned energy suppliers in France and Italy.
Minister Glos has also said Germany needs large, powerful energy
suppliers able to compete with European counterparts.

6. Rhiel's proposal comes shortly before the January 27, 2008 Hesse
state parliament election, when his job may be on the line. The CDU
looks set to lose its outright majority and could conceivably end up
out of power. If the CDU stays in power, it will most likely be in
a coalition with the FDP, who not only are interested in taking over
the state Economic Ministry but have also expressed support for the
Federal Economic Ministry's proposals. The Hesse FDP would like to
see the state create more incentives to build power plants and more
competition by increasing supply, not through forced sales.

7. COMMENT: By submitting his proposal to the Bundesrat, Rhiel will
be challenging the approach of his own party at the federal level.

FRANKFURT 00005275 002 OF 002


The Government and German energy companies have strongly opposed the
EU's unbundling directive and would be unlikely to support this
proposal. The CDU/CSU currently has a majority in the Bundesrat and
Rhiel's initiatives have enjoyed the support of other states in the
past. Whatever his chances of success, Rhiel has shown that while
German politicians may be united in their opposition to the EU's
"unbundling" proposal, there is still no consensus on a solution to
rising energy prices in Germany. END COMMENT.

8. This cable was coordinated with Embassy Berlin.
POWELL

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