In a decision that could have far-reaching consequences, the Federal Court of Justice in Karlsruhe decided that price adjustment clauses used by many companies were invalid because they unfairly disadvantaged customers.
Under the clauses, companies use the price of fuel oil as a benchmark for gas prices and adjust accordingly what they charge customers.
But the court decided companies could absorb rising gas supply prices through cost cuts in other areas, such as the grid, and sales and market, yet enjoy greater profit margins when the supply price dropped.
Therefore the provider could “obtain extra profit” in illegitimate ways, the court ruled.
A court spokesman said the ruling applied to a “large part” of the market for private gas customers in Germany.
The court accepted the legitimate right of gas providers to pass on gas supply cost rises onto their customers during the period of a contract. But it said illegal profits could be made if gas prices were automatically adjusted with the price of extra light fuel oil as “the only variable.”
That gas prices in many instances shifted in parallel to the price of light oil depended “not on market forces, but on the fact that the oil price connection conformed to the gas price as fixed practice,” the court said.
For the delivery of gas from the grid to the end user, there was “in the absence of an effective competition still no market price,” it said.
The court therefore deemed the price adjustment regulations in natural gas contracts to be invalid. It was ruling on two separate actions – one by the Federation of Energy Consumers against the Cologne provider RheinEnergie, the other by 36 gas customers against a price rise by the state utility company of the city of Dreieich in Hesse.
The providers argued the relevant clauses were clear enough. Because of the mathematically exact link between natural gas prices and the fuel oil price index, there was no danger of either uncontrollable or arbitrary price rises, they said.
There was not a “danger of enhancement of profit margins,” with these energy clauses, the lawyer for RheinEnergie told the court.
The lawyer for the Federation of Energy Consumers, Ekkehart Schott, said: “As these clauses seem to be very widespread, the ruling has very great ramifications.”
But Greens politician Bärbel Höhn said real price cuts for gas customers would only be realistic "if we also end the international tie to the price of oil on imports."
The cost of natural gas and oil have a historic, if arbitrary, link that has been widely assailed as hindering competition and outdated.