Suppliers in crisis and security of supply in jeopardy: surcharges should help (but will create a financial burden for end consumers)
As a result of the current (global) market situation, and particularly due to the European sanctions which were imposed because of the Russia-Ukraine war, energy prices have increased considerably in recent months, a development which has affected nearly all companies in the supply chain. This already difficult situation is being exacerbated by restrictions on gas deliveries to Germany and by the financial troubles experienced by gas suppliers. With the gas supply situation critical, the “alert level” of the German government’s “Emergency Plan for Gas” was proclaimed on 23 June. This is the second of the three escalation levels, and calls for close monitoring of the gas supply.
In an effort to mitigate the crisis and avoid bankruptcies and further uncertainty, the German government will be introducing a gas surcharge as of 1 October 2022. This surcharge is based on § 26 of the Energy Security Act and spreads the higher market prices among all end consumers, both corporations and individuals, both public sector and private. Gas consumers will also have to pay an additional charge in the form of a storage fee based on § 35e of the Energy Act.
These charges will compensate gas importers for the added cost of obtaining gas from alternative sources (by means of the gas surcharge) as well as for the cost associated with ensuring the security of supply (by means of the storage fee). The added costs will be passed on to gas consumers.
High gas prices: grounds for contractual revision?
The rise in energy costs represents a financial burden for companies in every sector. But it may not be so easy for companies to pass on or spread out these costs by revising their prices and contractual arrangements.
In accordance with the case law of the Federal Supreme Court, price adjustments can only be made in exceptional cases which are very narrowly defined. Whether gas prices doubling is enough to clear the hurdle for these exceptions to apply is unclear. But that should be the case, certainly in cases where current production costs are ruinously expensive for companies. This question depends on the circumstances of the individual case. It is important in this regard to communicate with the customer at an early date in order to prevent interruptions in supply or, in the event that gas can no longer be procured due to the high cost, so that interruptions in supply can be announced with enough lead time, giving customer the time and opportunity to take remedial measures and minimize damages. When concluding new agreements, companies would be well-advised to include price adjustment clauses for the future.
What happens when the gas stops flowing?
One possible future scenario is the rationing of gas supplies. In this case, it would be the responsibility of the Federal Network Agency to determine how much gas will be supplied to whom, and a plan is currently being developed for the prioritization and distribution of Germany’s gas stocks. Of course, rationing may apply to companies as well. The decision as to whether a company will continue to receive gas deliveries, as well as the amount of gas it will receive, will depend on a variety of factors, such as e.g. whether or not it manufactures products which are important for the general welfare. While there is no formal process by which companies can seek priority status, companies should already examine whether and to what extent they meet the criteria for priority status and then notify the Federal Network Agency.
If the supply of gas is discontinued and companies are therefore compelled to suspend production, they may be unable to perform contractual duties towards their customers. In most cases, lack of gas will make it impossible for companies to continue manufacturing their products and making deliveries. Regardless of whether such an event is classified as an event of “force majeure” based on the relevant contractual agreement, it may qualify as a case of inability in accordance with § 275 of the Civil Code. In that case, the customer would no longer be able to demand performance, or the affected company would have the right to refuse performance. In the latter case, the company would typically be required to pay damages to the customer. But since the possible disruption of the gas supply is based on a government action, the affected company would not be responsible for its failure to perform its contractual duties. Accordingly, a duty to pay damages would not apply due to the lack of negligence. However, companies would still be required to notify affected customers without delay that they will be unable to continue manufacturing and delivering their products so as to give them an opportunity to take remedial actions and minimize their damages. If they fail to do so, this alone may be viewed as a breach of contract on the part of the affected company, which may be required to pay damages.
Conclusion
The situation in the gas market is fast-changing and impossible to predict. In particular, it remains to be seen how high the gas surcharge will be, and in the event that rationing is introduced, the manner in which priorities will be assigned is still unclear. Given the uncertainty of the situation, it is important for companies to take precautions right away, which may include revising contracts (price adjustments, termination), examining existing contracts for “force majeure” clauses and staying in close contact with customers, as well as contacting the Federal Network Agency.
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