The issue of determining fair tariffs for the TSO is complicated per se. There are a number of interests to be taken into account: the TSO as an entity of public interest, the players of the relevant energy market and last but not least the consumers, that means the electricity prices. Various factors of the Greek energy market increase this complexity even further and give rise to certain regulatory risks. The Regulatory Authority for Energy (RAE) came recently forward with some proposals that might prove fruitful in this regard.
The regulatory framework in force
The main regulatory frame for the determination of network tariffs for the Greek TSO for electricity is given by Art. 15 of Law 4001/2011. RAE has once a year to approve the tariffs that the TSO (ADMIE S.A.) proposes. The decision of RAE has first of all to ensure transparent and non-discriminatory tariffs for access to networks. With reference to their quantity the tariffs have to be cost-reflective. At the same time, they shall provide the TSO with appropriate incentives for the development of the network. It should be noted that the requirement of cost-reflectivity entails a fair profit for the TSO.
In a second legislative text, the Code for the Transmission System, further details are being regulated. Notably the Code rules that the above mentioned fair profit shall correspond to a fair rate of return (RoR). The method or criteria for calculating this RoR are not indicated (differently than for the TSO for Gas), but instead regulatory practice and international experience build the relevant guidelines. Use of the WACC method should in this regard be seen as RAE’s regulatory practice.
An additional factor of some significance for determining regulatory tariffs is the so called Regulated Asset Value (RAV) of the TSO. Pursuant to the Code for the Transmission System the RAV shall be derived from a separate asset register. It should though be highlighted that the current register driven by the company does not seem to currently fulfil the requirements of such an asset register, a factor that might cause considerable uncertainty.
The proposal for an amendment by RAE
On the 27th of December 2013 RAE came up with a number of proposals for the amendment of the current regulatory framework (available under: http://www.rae.gr/site/file/system/docs/misc1/20102011/271213_1). A proposed change concerns the relevant regulatory period. This shall in future be extended to a 3 years period for the first 3 years (2015 – 2017). A longer period shall be considered for the time after 2017. As a short period of review means new uncertainty every year, the proposed change can be said to mitigate the relevant regulatory risk.
A second proposal pertains to the use of the method for calculating the rate of return. The method shall be maintained, but a premium to capex shall be adjusted to investments of national significance or those who bear wider system or market benefits. With regards to the Regulatory Asset Value RAE sticks to the currents system, with its base, the asset registry of the TSO being still unsatisfactory. Accounting standards for the determination of the relevant values shall not be decisive or even relevant. The proposal remains incomplete as to what standards shall determine the initial RAV as well as eventual revaluations and impairments.
The most significant amendment proposal concerns a new incentives mechanism which RAE wishes to link to the question of the actual revenue of the TSO. The mechanism shall take the form of a revenue cap. Its basic feature consists of the possibility for the TSO in case of capex underspends that occur during the review period to keep the difference between the real capex and the initially allowed revenue. The same shall be valid with reference to opex underspends. The duration of the review period shall initially be 2015-2017. For the time after the initial 3-years period RAE will consider shorter review periods in order to avoid leverage by the TSO between the regulatory periods.
The proposal is still under public consultation.
For further information please contact: Dr. Stavros Kitsakis – [email protected]