Reichstag: political pressure is building for the renationalisation of Berlin’s water supplier

Germany's constitutional court has extended the powers of state competition authorities, allowing them to regulate water company charges. Simon Jones says the ruling has alarmed a water sector widely accused of overcharging customers.

Germany's water industry is bracing itself for tough times after a constitutional court extended the powers of state competition authorities to allow them to regulate water prices. Water is the latest utility sector to find itself under the regulatory spotlight, as consumers campaign against ­rising tariffs and the presence of private suppliers.

Germany already has some of the highest water charges in Europe. As in the UK, prices are set to cover both capital and operating costs, but until now light-touch regulation of a sector still largely in municipal hands has left consumers in the dark about what costs should be.

With charges at the country's 6,200 suppliers varying by up to 300 per cent, the court ruling was widely anticipated as a chance to force some much-needed transparency into the sector.

Court in the act

Last month's judgment by Germany's highest court was the final stage of a two-year legal battle by water supplier Enwag against a 29 per cent price cut ordered in May 2007 by the economics ministry in the state of Hesse, acting in its role as a competition authority.

The price cut was ordered to take effect by the end of 2008, but was also backdated to July 2005. Under German cartel law, the authorities can impose retrospective punishment of market abuse.

In November 2008, a Frankfurt regional court found Enwag guilty of market abuse, rejecting its claim that the ministry's demands for sweeping cuts was an abuse of power. It agreed, however, that a refund from 2005 was ­unreasonable.

The constitutional court in Karlsruhe has now confirmed that ruling on all points, rejecting Enwag's arguments and expert legal opinion supplied by German water association BDEW.

In future, competition authorities can use price comparisons with other water suppliers as a basis for market abuse charges, with the burden of proof switching from the regulator to the firms concerned, a move the court said was "of great significance for regulatory control of water prices". It said Enwag had offered no such proof to back its claims that high charges were needed to cover exceptional costs caused by a mountainous supply zone and other geological issues.

The court's president also criticised BDEW for its intervention in the case.

Enwag was one of eight water suppliers in Hesse accused of overcharging after a nationwide probe into water tariffs by the state economics ministry. The list includes Frankfurt firm Mainova and six municipal utilities.

Eight on the hit list

Together, the eight utilities supply one million customers. The ­ministry claimed that a detailed study showed Enwag's tariffs of £1.90-2.10 per cubic metre were 40-140 per cent above those of 18 broadly similar firms. A similar comparison of Mainova with 14 other suppliers found its 650,000 customers were being overcharged by 50 per cent.

Revenues at the Wenzlar-based supplier - 49.9 per cent owned by former Eon company Thuga - will fall £1.4 million annually following the latest ruling. Enwag chairman Wolfgang Schuch insists that lower prices are a threat to water quality.

Municipal supplier lobby VKU rejects the court's extension of simple price comparisons between energy suppliers to the water industry.

"It's now clear that the existing legal framework does not take sufficient account of the specific and fundamental issues applying to water supply," argues VKU head Hans-Joachin Reck. BDEW chairman Martin Weyand warns that "it's unclear on what basis water tariffs can now be set after the intervention of courts and cartel offices".

For Hesse's economics minister, Dieter Posch, "this process shows that water price controls work and can be implemented effectively". His ministry has already demanded price cuts of 37 per cent from Mainova and Stadtwerke Kassel, and further rulings are in the pipeline.

Posch also predicts that water suppliers across Germany will face closer regulatory ­scrutiny. "The constitutional court's ­judgment sends a signal to other cartel authorities," he says. "The grounds for our action can be found among suppliers in almost every federal state."

The socialist-communist alliance that rules in Berlin also hopes that tighter price controls will strengthen its campaign to return local water supplier Berlinwasserbetriebe (BWB) to municipal control.

Renationalisation

Economics minister Harald Wolf has already announced an inquiry "to establish what impact the ruling will have on future tariffs at BWB". The government sold a 49.9 per cent joint stake in BWB to Veolia and RWE in 1999. Rising prices since have triggered a popular campaign to renationalise the company.

"The judgment underlines that private investors cannot do what they want with their minority stake, and that federal states and local communities retain an important voice over water suppliers," says Berlin's SPD leader Michael Muller. "It means we no longer have to accept price increases on the scale of recent years. In the medium term, it also puts renegotiation of BWB's sale - from today's perspective, clearly a mistake - firmly on the agenda."

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