District heating supply contract for the Graz metropolitan area: arbitration court decides

9/10/2015Vienna, Graz

No obligation for VERBUND Thermal Power to provide an additional heating outage reserve

The Lower Austrian Chamber of Commerce arbitration court dealing with the question as to whether an outage reserve must be kept available has decided that VERBUND Thermal Power has no obligation at all to the provision of such an outage reserve. The arbitration court thus unconditionally confirmed the legal opinion of VERBUND.

The unconditional necessity of providing such an outage reserve for the heat supply of the city of Graz and the surrounding areas was asserted by Energie Steiermark Wärme GmbH in an injunction obtained by the firm. The responsibility for providing an outage reserve such as Energie Steiermark claimed necessary can thus only lie with Energie Steiermark, if at all. In any case, VERBUND is and has always been available for the corresponding discussions about a sustainable, economically and environmentally sensible use of the Mellach facility for the provision of district heating for Graz and its surroundings.

"VERBUND has always fulfilled its contractual pledge to supply up to 230 MWth of heat and will continue to do so until its contract is complete," emphasised Günther Rabensteiner, head of generation at VERBUND. "Beyond that, VERBUND endeavours to promote the development of a sustainable concept for a middle- to long-term low-emissions district heating supply for the population of the Graz metropolitan area by finding an efficient use for the Mellach facility."

History

The heating supply contract for the greater Graz area was arranged among Energie Steiermark's then affiliate companies as early as 2000 and was transferred from Energie Steiermark to the newly founded joint enterprise VERBUND Thermal Power along with the power plants at the Mellach site. In December 2013, Energie Steiermark withdrew from the joint enterprise, not wanting to back the venture's losses, which were generated above all from the Mellach district heating site. VERBUND had to take over the considerable 2013 annual losses of the thermal power subsidiary, as well as its long-term obligations (from the heating supply contract, for example), and thus also ensure the operation of the thermal power plant in Mellach, without its partner, Energie Steiermark. Over the course of the withdrawal, the duration of the heating supply contract was reduced to a maximum of 230 MWth of thermal power and annual terminability agreed upon as effective from 30.06.2020. Energie Steiermark categorically rejected any fair adjustment of the price of heating to the actual heat production costs, which would have been compliant with the terms of the heating supply contract from the Energie Steiermark past. Thus, it became necessary to initiate the process of liquidation of VERBUND Thermal Power.

As a result of the material losses suffered by its thermal power subsidiary, VERBUND was forced to make far-reaching decisions in the interest of loss reduction. On 14 May 2014, VERBUND announced the planned mothballing of the Mellach gas combined-cycle power plant (with the possibility of a further sale to a third party) and the final closure of the Dürnrohr coal-fired power plant, as well as of the Neudorf/Werndorf II oil district heating power plant. VERBUND simultaneously made public that the Mellach coal-fired power plant would remain in operation for the supply of up to a maximum of 230 MWth of district heating for the Graz metropolitan area.

Under the pretext of preventing imminent, irreparable damage in the case of the discontinuation of the outage reserve - that was, however, never contractually guaranteed, Energie Steiermark obtained an injunction from the Western Graz district court, which was delivered on 11 September 2014. As a consequence of this injunction, the mothballing of the Mellach gas combined-cycle power plant (with the possibility of further sale to a third party) could not be carried out. According to the now public arbitration decision, neither VERBUND nor VERBUND Thermal Power has any obligation to provide an outage reserve. The arbitration court has thus unconditionally confirmed the legal opinion of VERBUND. As a result, VERBUND will obtain with this arbitration decision the revocation of the injunction from the West Graz district court.
Ingun Metelko Ingun Metelko

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