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German electricity utilities face long legal battle over nuclear tax

15 Nov 2011 16:14:07 | edem

German utilities face a protracted legal battle to offset the damage to their balance sheets from the government's plan to phase out nuclear electricity, legal experts suggest.

On Monday, E.ON filed a lawsuit at Germany's constitutional court seeking compensation from the government for the decision to phase out nuclear generation prematurely, a company spokesperson confirmed. Germany's largest utility considers the nuclear phaseout to violate its property rights and its freedom to exercise its profession without being compensated for the financial loss.

Already, E.ON and RWE are engaged in a legal dispute with the government regarding the nuclear fuels tax, which both stated as one of the main reasons, apart from the moratorium, for heavy falls in their Q3 '11 profits, announced last week. E.ON said that the nuclear moratorium and the nuclear fuels tax reduced earnings by €2.3bn. RWE also reported a negative impact of €1bn as a result of these factors.

"It's a whole bunch of claims on a national level and on an EU level," Mathias Lang, German energy expert at lawyers Bird & Bird, told ICIS Heren. He pointed to national elections for the lower house of the German parliament in 2013, predicting: "The current government will not be around long enough to see the end of those lawsuits."

Nuclear moratorium challenge

E.ON and RWE's chief executives had both warned the companies would at least consider legal challenges against the government's decision in March to phase out nuclear power generation by 2022, and to stop seven of Germany's oldest nuclear plants immediately following the nuclear accident in Fukushima, Japan (see EDEM 15 March 2011).

E.ON sees the financial damage to be "a high one digit billion euros sum", a spokesperson confirmed. RWE's CFO Rolf Pohlig stated at a press conference announcing the Q3 '11 results that there were "many good reasons" for his company to join the lawsuit, but stressed that the final decision has not been taken yet (see EDEM 10 November 2011).

Fuels tax battle

Despite Germany's moratorium on nuclear generation, the government still chosen to levy a tax on nuclear fuel, sparking outrage among nuclear plant operators and a further round of lawsuits. The tax was initially introduced as compensation for extending the lifespan of the nuclear reactors, to be levied when old nuclear fuel rods will be replaced by new ones at the nuclear plant.

When the finance ministry tried to levy the tax for recent replacements at two nuclear plants run by E.ON and RWE, both utilities filed a lawsuit against it.

In late October, two regional finance courts ruled in favour of the two utilities challenging the government's right to levy the tax (see EDEM 25 October 2011). The ruling paves the way for a court case at the national tax court, Lang said. However, as neither party is likely to back down, he suggested the case might eventually end up at the country's constitutional court or even the European court.

"The nuclear fuels tax contravened Germany's constitution and EU law" said E.ON said in its earnings report, last week Wednesday. RWE's CEO said one day later that "a final decision on the tax will be made by the German constitutional court or the European court."

On the other hand, the government is expected to appeal against the regional courts rulings, according to Lang.

The German finance ministry had not returned calls seeking comment as ICIS Heren went to press.

E.ON alone would have to pay about €700m/year in nuclear fuels tax, according to Rodger Rinke, credit analyst at LBBW. Rinke believed an out-of-court settlement is unlikely, as the government faces huge public pressure not to appear to be striking a deal with the companies.

Vattenfall does not consider taking legal action against the nuclear fuels tax since their two German nuclear power plants, Brunsbüttel and Krümmel, have not been in operation when the tax was introduced, and they will not come back into operation, according to the German decision on the nuclear phase-out, a press officer said.

EnBW followed E.ON and RWE and filed a lawsuit against the tax in July but they said that they expect a final legal decision to be several years away (see EDEM 11 November 2011). MD

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