The amendments and clarifications are generally positive for German electricity transmission network operators, in particular TenneT TSO GmbH, owned by TenneT Holding B.V. (A3 stable) and 50Hertz Transmission GmbH, owned by Eurogrid GmbH (Baa1 stable).

The main change concerns the treatment of liabilities for damages payable by transmission network operators ("TSOs") to wind farm operators if their network connection is delayed and/or disrupted.

The updated draft introduces a distinction between negligence and gross negligence in setting a liability cap for financial losses incurred by wind farm operators due to connection delays/disruption. If a TSO has simply been negligent, it's liability is capped at EUR17.5 million per incident. Only in the case of gross negligence would the maximum liability cap apply, which has been increased to EUR110 million (previously EUR100 million) per TSO per year. However, the draft law continues to imply that if an offshore wind farm operator suffers losses due to delay and/or disruption of the network connection, the responsible TSO may have been grossly negligent.

As previously stated, Moody's believes that the introduction of a liability cap is positive for German TSOs, as it reduces their overall exposure to potential delay damages. The distinction for gross negligence is also positive, although the burden of proof that it has not been grossly negligent remains with the TSO. Overall, the draft law specifically sets out that there should be ongoing dialogue and communication between the TSO and wind farm operator with regular updates on the scheduled network connection build-out. If there are delays the German energy regulator, the Federal Network Agency (Bundesnetzagentur, BNetzA) has to be informed and a remedial plan agreed with it.

Whilst the reduction in the limit for delay damages is positive, the pass-through of remaining liabilities due to delays continues to be subject to an annual cap, which restricts the affected TSOs' ability to recover related costs in any given year. However, the updated draft law clarifies that from 1 January 2013, the TSOs will already be able to collect an additional charge on top of the usual network fees to build up a liquidity buffer for future damages. Moody's considers this clarification a clear positive as an initial liquidity buffer will limit liquidity requirements.

The second key amendment refers to the prohibition on decommissioning power plants that are considered system-critical. The draft law stipulates that plants with a capacity of 50MW or more cannot be shut down and decommissioned, if that would in all likelihood endanger the security of electricity supply. Whether a plant is regarded as system-critical is considered by the TSO, in whose area the plant is located, and needs to be approved by the BNetzA. A system-critical classification will be applied for a period of 24 months. During that time, the plant operator has to continue to maintain the plant to allow ongoing safe operation. It will be remunerated by the TSO, in whose area it is operating, to cover for such maintenance expenditure.

In addition, the draft law specifies that for gas-fired power plants that are considered system-critical, the generator is obliged to (i) provide for an alternative fuel source if this is technically feasible, or (ii) otherwise secure sufficient gas supply. Again, the costs for the fuel change will be reimbursed by the TSO.

Moody's considers it likely that additional operational and/or maintenance costs for generators to be covered by the relevant TSOs will be passed through to the end consumers. This, together with the additional levies related to renewable energy and potential offshore delay liabilities increase the risk of overburdening private consumers. The affordability question may therefore become more prominent in determining utilities' credit risk. Moody's notes, however, that the ongoing operation of power plants that would otherwise be shut-down may also reduce the potential overall increase in power prices; hence the impact of continuing to run system-critical power plants on consumer prices may be difficult to assess at this stage.

Following parliamentary approval, the Bundesrat (the representation of the German federal states) will need to pass the law, and the related debate is expected in mid-December. Given the importance of the aspects addressed in the law for the future viability of the German electricity networks to ensure ongoing investments as well as security of supply, we believe the law is likely to reach the statute books by the end of the year.

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Stefanie VoelzAsst Vice President - Analyst Infrastructure Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Andrew Blease Senior Vice President Infrastructure Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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