After the bankruptcy of a cut-price energy provider, Germany will introduce a nationwide energy consumer watchdog to protect customers from dubious business practices, Handelsblatt has exclusively learned. In the third failure of a low-cost energy retailer in six years, the Care Energy Group filed for bankruptcy this weekend, leaving the fate of its tens of thousands of customers uncertain.
Soon retail energy customers will have a new advocate: a dedicated energy market watchdog. The Federation of German Consumer Organizations, or VZBV, will be tasked by the German government to monitor the market for malpractice and other problems. They will bring any concerns to the relevant official bodies, including the Federal Network Agency and the Federal Cartel Office, as well as other state and federal authorities.
“The energy market will soon get its own market monitor,” confirmed Ingmar Streese, head of the VZBV’s market policy unit. Two years ago, the VZBV established similar quasi-official monitoring bodies for the financial and digital markets. Consumer advocates have been pushing for several years for a similar body to cover retail energy.
The market monitor will be an early warning system, supporting effective, realistic, and coordinated consumer protection. Ulrich Kelber, German deputy minister for justice and consumer protection
Six years ago, the cheap energy provider Teldafax collapsed, followed two years later by Flexstrom, a similar firm. Teldafax left 750,000 customers in the lurch, while Flexstrom had 550,000 customers when it went bankrupt. Total losses associated with the bankruptcies came to over half a billion euros, around $530 million.
The two companies’ demise did nothing to stop shady practices in the German energy market, with consumer agencies receiving thousands of complaints monthly. In recent years, Care Energy has been the focus of many of these complaints.
Now Care Energy has also gone under, with three companies in the group beginning bankruptcy proceedings on Friday. The company had long-standing problems. It described itself as an energy services company rather than an electricity supplier, claiming this exempted it from charging the mandatory energy levy that helps pay for Germany’s long-term conversion to sustainable energy. Federal agencies ruled against the company in 2013, and network operators launched lawsuits against it, severely damaging its low-price business model. Its customer base dwindled.
“We will soon submit a project proposal, and are confident that the justice and consumer protection ministry will approve it quickly,” said Mr. Streese. Money has already been set aside in the federal budget, and preliminary talks with the justice ministry are under way. “We want to start as quickly as possible,” he added.
The ministry confirmed the plans, saying it was undertaking legal preliminaries to ensure the watchdog “was established in line with funding regulations.” Ulrich Kelber, the deputy minister, told Handelsblatt he had high expectations: “The energy market monitor will be an early warning system, as in the financial and digital markets. This will support effective, realistic, and coordinated consumer protection policy.”
Initial funding for the new body is just €1.5 million, less than its equivalents in financial and digital oversight, which enjoy budgets of €5 million. The sum is also less than the €10 million the VZBV proposed three years ago in a position paper. However, the new monitor can build on extensive work already done by regional consumer organizations, which have scrutinized the market for many years.
The new monitors will gather and evaluate all complaints about the retail energy market, detecting irregularities among suppliers and structural problems in the market and reporting them to authorities. In effect, the new body will unify and systematize work hitherto done on a regional level, combining the grassroots knowledge of consumer organizations with the legal authority of state bodies. Contacts with scientific organizations are also planned. “The brief will be the same as for other market monitors: detect, inform, act,” said Mr. Streese.
Consumer associations have functioned well as an early warning system: from early on, they received complaints about Teldafax, Flexstrom, and Care Energy. Failure occurred at a higher level of oversight: right up until Teldafax’s bankruptcy, the Federal Network Agency continued to allow the company to amass new customers with below-cost pricing, despite having been warned three and a half years previously. The authorities are legally allowed to suspend a company’s operations if they suspect “failings in personnel, or technical or economic performance.” Care Energy was investigated, but not stopped.
According to Mr. Streese, there are still “some black sheep among energy companies.” Every year, around 100,000 cases are brought to consumer protection organizations, many of which are official complaints. “Companies are constantly thinking up new business models, which need to be critically investigated,” added Mr. Streese.
One ongoing problem is companies failing to pay signing-up bonuses promised to consumers. Sometimes advance payments to one supplier are not repaid to consumers when they switch providers. Frequently, customers are attracted with cheap offers, only to see prices hiked after they sign up. The new coordination through market monitors may make it easier to spot serious problems and systematic deceit.
The plans for oversight are less popular in the retail energy sector. “The BDEW thinks there is no need for another market oversight body,” said a spokesperson for the Federal Association of the Energy and Water Industry, or BDEW, the association representing suppliers. He said the energy market was already transparent, and was closely watched by the Federal Network Agency and the Federal Cartel Office. For retail customers, there was much information available through the comparison sites and other online resources. Customers could also turn to a “independent, neutral body: the Energy Arbitration Board,” said the spokesperson.
The arbitration board was established in 2011, and is jointly run by the VZBV and energy industry associations. But it is explicitly meant only to mediate in individual disputes.
In response to industry reservations on the new body, Mr. Streese said that “We’ve known since the failures of Teldafax and Flexstrom that current oversight structures are not adequate.”
Jürgen Flauger covers the energy market for Handelsblatt. Franz Hubik covers renewable energy for Handelsblatt in Düsseldorf. Sönke Iwersen leads Handelsblatt’s team of investigative reporters. To contact the authors: [email protected], [email protected], [email protected].