Method decision 2022 - 2026
In September, the Netherlands Authority for Consumers & Markets (ACM) established new regulatory methods for regional electricity and gas network operators. The law stipulates that the ACM must periodically establish a regulatory method, valid for a minimum of three and a maximum of five years, which is used to determine permitted income and tariffs for the corresponding period. The method must make it possible for network operators to achieve a reasonable return if they manage their activities efficiently.
The ACM has made adjustments in anticipation of the upcoming energy transition in both method decisions.
In the regulatory method for the regional gas network operators, the ACM has introduced measures in line with the expectation that no new customers will be connected to the existing gas infrastructure in the coming decades, and that many customers will in fact switch to a different form of heating. Without these adjustments, the customers remaining on the grid would risk being burdened with excessive bills and network operators might end up with unrecoverable assets. For gas, the ACM is moving to a nominal system for compensating the legally defined reasonable return, which means that returns can no longer be pushed back in time. In addition, the ACM will switch from straight-line depreciation to degressive depreciation for assets. The third important measure is that divestments in connections and networks will be charged directly to the regulatory result. This package ensures that fewer costs are pushed back in time, which is consistent with the goal of not overburdening future generations.
In the regulatory method for the regional electricity network operators, the ACM has made several adjustments based on the opposite development compared to gas, namely that the infrastructure needs to be expanded substantially, which could lead to financial difficulties for the network operators if no adjustments were made. The ACM method ensures that the coverage in the tariffs for purchase costs charged by TenneT run parallel with the expected actual costs. This avoids significant pre-financing of these purchase costs. In addition, the ACM takes into account the exponential increase in the number of connections for decentralised renewable production. Where initially the increase was processed once per regulatory period, there is now provision for structural retrospective costing based on the last known actual data, i.e., for a delay of no more than two years. With regard to the reasonable return system, the ACM has decided to use an average of the real and nominal values. In the case of electricity, there is also a package of measures whereby fewer costs are pushed back in time.
Furthermore, for both gas and electricity, the level of the legally defined reasonable return has been adjusted to reflect the recent market trend, with a decrease due to the effect of the historically low interest rates at present. In addition, the ACM decided to recalculate the reasonable return annually based on the actual level of the risk-free interest rate. This means greater financial uncertainty, but will be advantageous once interest rates start to rise again.
The conclusion of Liander and the other network operators is that the ACM has established a regulatory method for regional electricity network management for the years 2022 to 2026 that does not take sufficient account of the energy transition and will therefore lead to development in revenue that lags far behind the unavoidable increases in expenditure. The main reason for this is that in its forecasts, the ACM has not allowed for the sharp break relative to the previous trend in respect of expenditure associated with the energy transition. For example, it does not take into account the additional costs resulting from the much higher level of investment, more than double, nor does it make provision for compensation of the new, and potentially very high, costs of congestion management.
In respect of regional gas network management, the network operators conclude that the ACM has generally taken sufficient account of the consequences of the energy transition in the adjustments to the method.
Based on the above, the collective network operators submitted appeals to the Dutch Trade and Industry Appeals Tribunal (CBb) in December 2021.