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(Special) termination rights of energy providers – Pre-conditions and contestation options

In view of the war in Ukraine and the tense situation on the energy markets, currently, some providers in the electricity and gas segments are invoking (special) termination rights with respect to existing supply contracts with large customers. Such contracts are normally concluded for a fixed period and with fixed terms and conditions of supply. In the following section we discuss whether or not such a termination is rightful and proper.

Do changes in the purchase prices constitute good cause?

As a justification for exercising their presumed (special) termination rights, providers normally cite force majeure. They argue that this is what is preventing them from supplying energy as per the agreement because, for commercial reasons, they cannot reasonably be expected to do so at the agreed conditions. The terminations are based either on the respective clauses in the general terms and conditions of the utility companies, or on the statutory provisions of Sections 313 and 314 of the German Civil Code (interference with the basis of the transaction), which open up possibilities for termination within the scope of continuous obligations.

First of all, it should be noted that, legally speaking, the providers cannot be deemed to be prevented from carrying out the energy supply. In fact, supplying large-scale consumers at the contractually agreed fixed terms is currently simply not profitable for the utility companies. However, non-profitability on its own is not considered to be a sufficient reason for terminating a contract. In fact, on the basis of the existing supply contracts, the providers are generally obliged to continue supplying electricity and gas. 

This is because even if an extraordinary notice of termination is generally possible in the case of energy supply contracts there has to be good cause for this. In such a case, it could not reasonably be expected that the terminating party would have to continue executing the contract up to the end of the agreed period. Yet, an extraordinary notice of termination may only be based on reasons that lie in the sphere of risks of the party receiving the notice. However, the procurement cost risk and thus the economic or profitability risks do not lie in the customer’s sphere, as the party receiving the notice, but instead in the provider’s sphere, i.e. the energy supplier. 

Please note: Furthermore, these principles also apply to private customers. Although, in the case of supply agreements with private households it is more likely that the suppliers will adjust prices. This could likewise be inadmissible if the aim is to pass on the economic risk to customers. 

Recommendation on what action to take in the event of a termination of contract

(Large) customers affected by contract terminations should assert their claims against their respective providers, in writing, for continued supply under the existing terms and conditions of the contract. In the event that supply is discontinued and the points of delivery are deregistered by the previous provider then, in accordance with the German Electricity Default Supply Regulation and the German Gas Default Supply Regulation, a replacement supply provided by the default supplier would kick in – which may be cancelled at any time without prior notice – so that the energy supply is ensured. 

A claim for continued supply can then be asserted in court by way of a declaratory judgement action and prior to this, if necessary, through a preliminary (emergency) injunction. An application can be made for the court to establish that the termination is invalid and that the supply should continue until the end of the fixed period at the contractually agreed terms and conditions. 

For those customers who conclude a supply agreement with a third-party provider in order to have planning security, there is the possibility of judicial enforcement of the claims for damages against the energy provider that wrongfully terminated the supply agreement.

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