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OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFT #5275/01 3521123
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O 181123Z DEC 07
FM AMCONSUL FRANKFURT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4218
INFO RHEBAAA/DEPT OF ENERGY WASHDC IMMEDIATE
RUCNMEM/EU MEMBER STATES  IMMEDIATE
RUCNFRG/FRG COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 02 FRANKFURT 005275 
 
SIPDIS 
 
DEPARTMENT FOR EUR/AGS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG SENV GM
SUBJECT: Hesse Enters Energy Debate 
 
 
ENTIRE TEXT IS SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET 
DISTRIBUTION 
 
REF: Berlin 2034 
 
¶1. SUMMARY:  The Hesse state government intends to introduce a bill 
in the upper chamber of the German federal parliament (Bundesrat) in 
early 2008 offering an alternative strategy for energy deregulation 
in Germany.  Under the plan, the federal government will be able to 
force energy suppliers to sell their power plants and other assets 
in order to create more competition in the industry.  The bill 
offers an alternative approach to both the EU's "unbundling" 
proposal and the German Federal Economic Ministry's plan to 
deregulate the energy market.  END SUMMARY. 
 
Hesse's Energy Initiative 
------------------------- 
¶2.  On December 6, ConGen Frankfurt representatives attended a 
round-table hosted by the Hesse Economic Ministry on the state's 
proposal to modify the federal law on anticompetitive practices 
(GWB).  Economic Minister Alois Rhiel (CDU) outlined his proposal, 
which would give the Federal Antitrust Agency (Bundeskartellamt) the 
power to force energy companies to sell off a designated amount of 
their power plants and other assets, but not to specify which assets 
are to be sold.  The proposal contrasts with both the current EU 
"unbundling" initiative which would force European energy companies 
to divest themselves of either their transmission networks or power 
generation assets and German Federal Economic Minister Michael 
Glos's (CSU) counter-proposal calling for more deregulation and 
network integration among EU member states (see reftel). Hesse will 
most likely bring the proposal before the Bundesrat in January 2008. 
 
 
¶3.  Rhiel and a team of legal experts argued that the Hesse proposal 
is constitutional and unlikely to be challenged successfully in 
court.  Pointing to successful earlier breakups of monopolies like 
the Deutsche Post, Rhiel said that the state clearly had the law on 
its side when it fostered more competition for the public good. 
According to Rhiel, current soaring energy prices in Germany amount 
to a "regressive tax and a limitation on competition within the 
German energy market."  Other states in Germany have shown an 
interest in Rhiel's proposal.  At the Conference of State Economic 
Ministers chaired by Rhiel in Darmstadt in November 2007, the 
ministers concluded that they needed to see if the GWB should be 
widened to include "an instrument that enables structural changes 
for the improvement of competition," meaning forced sales. 
 
Hesse's Champion of Cheaper Energy 
---------------------------------- 
¶4.  The German energy market is dominated by four big energy 
suppliers, E.on, RWE, Vattenfall and EnBW who control 80% of the 
market and are often accused of setting prices.  All four of them 
have announced price increases of at least 10% in 2008 and the price 
of energy in Germany has increased 38.5% in the last seven years, 
making German consumer energy costs the third highest in Europe. 
Rhiel has long been known as a champion of the consumer in the 
energy debate.  He gained fame in 2005 and 2006 when he banned 
increases in energy prices in Hesse.  At that time, he said that the 
state was obligated to protect its citizens from exploitation by an 
oligarchy.  Rhiel also criticized the fact that the federal 
government gave energy suppliers certificates to emit CO2, instead 
of selling them. 
 
Big Business, Big Election 
-------------------------- 
¶5.  Deputy Chief of the Frankfurt Chamber of Commerce (IHK) Johannes 
Wagner told Pol Specialist that the private sector is very skeptical 
of Rhiel's initiative and favors an EU-led solution that lowers 
energy prices simply by fostering cross-border competition and free 
trade.  Many private companies contend that forced sales are 
unconstitutional and are wary of state intervention in market 
structures.  Wagner argued that private companies opposed a 
unilateral privatization or deregulation that would hinder 
competition with state-owned energy suppliers in France and Italy. 
Minister Glos has also said Germany needs large, powerful energy 
suppliers able to compete with European counterparts. 
 
¶6.  Rhiel's proposal comes shortly before the January 27, 2008 Hesse 
state parliament election, when his job may be on the line.  The CDU 
looks set to lose its outright majority and could conceivably end up 
out of power.  If the CDU stays in power, it will most likely be in 
a coalition with the FDP, who not only are interested in taking over 
the state Economic Ministry but have also expressed support for the 
Federal Economic Ministry's proposals.  The Hesse FDP would like to 
see the state create more incentives to build power plants and more 
competition by increasing supply, not through forced sales. 
 
¶7. COMMENT:  By submitting his proposal to the Bundesrat, Rhiel will 
be challenging the approach of his own party at the federal level. 
 
FRANKFURT 00005275  002 OF 002 
 
 
The Government and German energy companies have strongly opposed the 
EU's unbundling directive and would be unlikely to support this 
proposal. The CDU/CSU currently has a majority in the Bundesrat and 
Rhiel's initiatives have enjoyed the support of other states in the 
past.  Whatever his chances of success, Rhiel has shown that while 
German politicians may be united in their opposition to the EU's 
"unbundling" proposal, there is still no consensus on a solution to 
rising energy prices in Germany.  END COMMENT. 
 
¶8.  This cable was coordinated with Embassy Berlin. 
POWELL