Bright Lights, Big Cities, No Competition

Open markets and lower prices were the goals when the German electricity market was liberalized in 1999. Today, electricity is 8 percent more expensive than it was before -- the most costly in the European Union.

A look at the pricing statistics of the Energy Information Center in July 2004 makes it clear: a German household using 3500 kilowatt hours of electricity per year pays €615 ($748), while in Britain the same usage costs €435 a year. The Finns got off the lightest, with a bill of €370.

In terms of Europe-wide electricity prices for industrial users, Germany came in at second place, behind Italy. And here is no lowering of prices in sight. Rather, the big energy providers, such as Eon, Vattenfall and RWE, want to increase electricity prices further.

Warning: economy threatened

This poses a danger to the German economy, said Claudia Kemfert of the German Institute for Economic Research (DIW) in Berlin.

"Energy intensive branches would be especially effected, for example the chemical sector," she said.

Especially now, when the Germany economy is looking for an upswing, a price increase would be dubious, said Kemfert.

"We hope that the big energy concerns consider the Germany's economic situation, and increase prices less than expected," she said.

Monopoly at fault

Electricity prices fell Immediately following the liberalization of the electricity market four years ago. But quickly thereafter, market tendencies such as mergers and takeovers in the energy industry led to increased electricity prices, Kemfert said.

Holger Krawinkel, of the Berlin Consumer Protection Society said the current monopoly in Germany's energy sector is responsible for the high prices. One important problem is the monopoly of the electricity grid. Energy producers have to pay high prices to use the grid. A third of the net electricity cost can be attributed to fees for grid usage -- with the usage tending to get more expensive, not less.

Debate over regulation

Starting on Jan. 1, 2005, the situation is expected to improve. This past July, the German cabinet passed the Energy Economic Law, establishing a regulatory body for the sector. Similar to the regulatory body for the telecommunication and postal services (RegTP,) which it will be linked to, the new regulators should make sure there is fair competition on the German energy market.

The new body will differ from RegTP in that it will be able to retrospectively control prices if they are shown to be abusive.

Rather than celebrating the regulatory body, however, the consumer-advocate Krawinkel said it is not a good idea.

"This so-called abuse oversight didn't work in the cartel office, and it isn't used by any other country," he said.

Only when a company is forced to provides in advance paperwork showing price approvals, can you assume they are complete, he added.

"If you want to try to fine the companies after the fact, they will naturally try to talk their way out of it," Krawinkel said. "In our view, it just won't work."

Energy summit expected

Many German states demand prior examination and approval of electricity prices. It is therefore questionable whether the regulatory body can actually begin its work at the beginning of the new year, as planned. There will unquestionably be a gread deal of opposition in the Bundesrat, the legislative body that represents the different states' interests.

German Chancellor Gerhard Schröder has said he wants to hold a summit meeting with representatives from the German energy industry, Economy Minister Wolfgang Clement, and Environment Minister Jürgen Trittin, in order to discuss the announced price increases.

However, an accord with the energy industry is unlikely, since the industry itself blames the higher prices on the government. The Electricity Industry Association (VDEW) blames the situation on taxes and duties of up to 40 percent. With price increases, the company could react to increased fuel prices and costs for promoting renewable energies, a VDEW spokesperson told newspapers.