Between 2007 and 2012 more than 230 German municipalities founded their own utility or bought back the infrastructure from private individuals. Since the twenty-year concession contract is about to expire thanks to which, today, these services are in the hands above all of Eon, RWE, Vattenfall and EnBW, new companies can apply as service managers: among these, local authorities.
In particular, the remunicipalisation mainly concerns the electricity, gas and district heating networks. Similarly to the case of the water service in France (about which we wrote in May in "Is the water in Paris better?"), public management (preferably regulated) is, according to European legislation, one of the possibilities for managing local public services, but certainly not the only one. And it is good administration that the choice is responsibly motivated.
The goals of re-advertising
Those in favor of re-advertising argue that private individuals would have no incentive to abandon conventional energies (coal and nuclear) in favor of renewable energy sources. They also believe that, since energy supply is a basic public service, it should not be managed by private companies, which by definition aim at profit: in particular, high tariffs are accused.
However, German electricity networks are natural monopolies regulated by the Federal Network Agency. In fact, therefore, the managers have a very limited ability to decide and influence the prices, which are instead determined and controlled by this agency. Furthermore, investments in renewable sources also affect prices: in Germany, the percentage of electricity produced from these sources is equal to 24%.
According to several studies (among others, a survey by the University of Leipzig, KPMG and Monopolkommission), the decision to remunicipalise is aimed at maintaining control over energy choices and not, instead, at guaranteeing efficiency objectives or limiting social impact of private electricity supply. Suffice it to say that in Germany, thanks to tax incentives, important energy efficiency objectives have already been achieved: despite the economic growth, both in 2011 and 2012 the demand for energy decreased.
We must also consider that the re-publicisation would weigh on the municipal budgets (it would cost the city of Hamburg around 2 billion euros to buy back the energy networks), not to mention the probable conflicts of interest that arise when the role of manager and controller is performed by the same subject. For example, it would be difficult to verify whether revenues from distribution charges are used to finance other services (think of local public transport) in order not to raise taxes, especially in a context of often precarious local finance.
Finally, we must not forget that investments in intelligent grids are very high and municipalities may not have the necessary economic resources; moreover, municipal companies will now find themselves competing in a very different market – more competitive (thanks to the separation of the network) – compared to twenty years ago, when consumers did not have alternative suppliers to turn to.
Model competition
As stated, there is not a single preferable option with regard to the management model of local public services: the final choice can only represent the outcome of a process studded with trials, errors and corrections, with the consequence that, not having been this process still completed, it is now not possible to give a definitive judgment.
As demonstrated by a study by David Hall, Emanuele Lobina and Philipp Terhorst (“Re-municipalisation in the early twenty-first century: water in France and energy in Germany”), in the management choices of local public services it is inevitable that they assume In addition to economic-financial considerations, political and social considerations are also relevant: according to the authors, the final result depends on the continuous comparison and alternation between public and private management, as well as on the degree of social acceptance of these different models. This is supported by the fact that the influence of the national association of local utilities (the VKU, Verbandkommunaler Unternehmen, which has over 1400 members) played an important role in the German decision.
The ability to compete, therefore, both between companies and between management models, is fundamental. A possible source of inefficiency of the German model could be explained precisely by the scarce competition of this market, dominated by a few major players (above all the aforementioned Eon, RWE, Vattenfall and EnBW).
Finally, it should be considered that even when management is in public hands, the skills of external experts are important. An exploratory study by the Wuppertal Institute, concerning the objectives of the remunicipalisation of new public utilities born since 2005, concludes that there is a good chance that most of the ten most important objectives that can be associated with the founding of a start-up will be achieved. up, including general energy policy objectives, climate change, public service and social policy objectives, but also economic-financial objectives. However, given the complexity of these goals, the involvement and active participation of external experts is recommended.
Both the French experience of water and the German one of energy therefore demonstrate the prevalence of motivated choices and rigorous analyzes and evaluations. While here, at least so far, the judicial route prevails (and more lawyers than all citizens gain from it): from the Constitutional Court to the Cassation, from the Court of Auditors to the Tar.
