The municipal utilities form the backbone of many cities and communities. With energy prices skyrocketing, the risk of payment defaults is growing. But what really happens when customers can no longer pay?

When they fail, garbage and subways stay where they are, taps run dry, swimming pools are closed, heaters are cold and the lights are off. The approximately 900 municipal utilities in Germany take care of all the essentials on site – in less turbulent times mostly unnoticed by the citizens. This is called communal services of general interest.

But what happens when the municipal utilities, which are often small to medium-sized in terms of sales but are worth billions in total, stumble? Because they, for example, like some of their customers, can no longer keep up with the ever-increasing energy prices and are suddenly confronted with payment difficulties. Would that be the precursor to the much-cited blackout – only worse?

“Of course, municipal utilities are also active with trading transactions on the energy markets and, like other large suppliers, are not immune to getting into trouble,” Mirko Schlossarczyk, partner at “enervis energy advisors”, clarifies to FOCUS online. Overall, there are still only a few who are actually in need. With Stadtwerke Leipzig, however, there is already a prominent example in Germany. Industry circles fear that other municipal utilities of this size could soon follow.

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Because the reserves in the millions, which a large part of the municipal utility company has saved over the years, have melted away in view of the energy costs. In some cases, municipal gas suppliers now have to pay twenty times what was charged on the energy markets a year ago. At the same time, according to estimates, they are threatened with a tenfold increase in payment defaults due to customers who can no longer pay their bills.

“We need a protective shield to avert payment difficulties,” says the Association of Municipal Companies (VKU), which represents the municipal utilities. The Association of Towns and Municipalities also points out that the municipalities “cannot save the municipal utilities on their own”. So the federal government should fix it. General Manager Gerd Landsberg is calling for a gas and electricity price brake based on the Czech model, i.e. a price cap for consumers, “even if it costs billions”.

“You should just do it, limited of course, and you have to keep saving, no doubt about it. But I don’t think we’ll get through this winter and, above all, the next one,” he warned on “Phoenix”. Landsberg also sees liquidity problems for the public utility if bills are no longer paid.

In the “Bild am Sonntag” the Prime Ministers of Bavaria and Lower Saxony, Markus Söder (CSU) and Stephan Weil (SPD), also advocated financial support for the municipal utilities in an emergency. “We need a rescue package like Corona, of course also for the municipal utilities,” said Söder. “Otherwise the lights will go out soon.”

Because emphasized that the municipal utilities are in a difficult position. They would have to pay more and more for the energy procurement themselves, but could only pass on the prices with a delay and would have to fear payment defaults by their customers. Translated, this means: A lot of money goes out, less comes in. This traditionally leads to liquidity bottlenecks.

N-ERGIE, a subsidiary of Stadtwerke Nürnberg, informed FOCUS online on request: “We feel that the delay in payment has increased, although from our point of view these are still the aftermath of the pandemic. We are currently unable to make any forecast as to how the situation will develop.” However, it is to be feared that there will be a further increase in receivables from energy supply. “The entire industry is expecting increased payment defaults.”

In the case of electricity in particular, the municipal utilities in Germany are also expecting a significant price increase of 60 percent in the coming year. A VKU spokesman for the Neue Osnabrücker Zeitung said a few days ago that end customers would have to pay “currently between 30 and 60 percent” more for gas than they did before the Ukraine war. But there are also municipal utilities that “have to more than double their prices, sometimes even more”. And it is foreseeable that this development will continue into the coming year “and could possibly intensify again”.

According to the statement, MVV Energie AG from Mannheim also assumes that consumers will certainly face further financial challenges in the coming months. The Stadtwerke München (SWM) says: “So far we have not felt any major payment defaults, even if we suspect that this will happen in the future. We are preparing accordingly and are emphatically encouraging our customers to adjust their advance payments now.”

Energy expert Schlossarczyk assesses the risk of insolvency for the municipal utility itself as low. The interest of politicians in supporting their municipal energy suppliers is too great, if only for reasons of municipal services of general interest. But what happens vice versa with customers if their money is no longer enough to pay the bill in the current situation? Do the municipal utilities then simply turn off electricity and gas?

Simply not – and not immediately either. “Should it be a one-off payment problem, N-ERGIE will accommodate its customers with an installment plan,” says the Nuremberg municipal utility subsidiary. However, if the payment difficulties persisted, the only alternative at the moment was to apply for appropriate support services from the job center or the responsible social authority.

“If there are any blocks, these will be carried out according to the framework conditions specified by the legislator,” N-ERGIE continues. “Basically, every blocking is preceded by a long and legally defined process.”

MVV Energie in Mannheim also offers customers installment payments and deferrals. “We see a ban as a last resort that we are trying to avoid,” the company said.

In Munich, the municipal utilities intensified their energy-saving advice for low-income households some time ago, “so as not to let things get that far in the first place”, as the company reports. This is free of charge and, in addition to well-founded energy saving advice, includes an energy saving starter package and individual tariff advice.

“We are also providing an aid fund of 20 million euros, which is intended to specifically help those people most affected by the rising prices,” says Stadtwerke München. Funds like this have meanwhile been set up by a number of other municipal utilities in Germany.

So everything good? Not at all. The municipal energy suppliers urgently warn against considering switching on the large number of recently purchased fan heaters on cold winter days in order to save on gas costs. For example, Stadtwerke München points out that direct electric heating is not only the more expensive heating option due to the electricity prices, but also harbors the risk of the power grids being overloaded and local power failures occurring as a result. “That’s why we – like many other utilities and network operators – strongly advise against using them.”