Through its fully owned company REN - Rede Eléctrica Nacional, S.A., REN works in two regulated areas: General System Management (GGS) and Electricity Transmission (TEE). The allowed revenues from GGS and TEE activities is received by applying two regulated tariffs: the tariff for the General Use of the System (UGS) and the tariff for the Use of the Transmission Network (URT).
Both tariffs are defined annually by the Energy Services Regulatory Authority (ERSE) based on demand, costs, revenues and investments.
In 2015, a new regulatory period was started and while no changes were made to the actual regulation model, its regulatory parameters were updated. The efficiency factor applied to electricity transmission operating costs changed to 1.5% (applicable to 2016 and 2017) and the remuneration rate was indexed to the annual arithmetic mean (1 Oct n-1 to 30 Sep n) of the 10 year Portuguese Republic Treasury Bonds, with a floor of 5.65% and a cap of 9.15%.
The General System Management activity is regulated by a remuneration rate applied to the assets allocated to it, net of amortization, subsidies, plus accepted operating costs.
The Electricity Transmission activity is regulated by incentives:
- incentive to efficient investment in the transmission network;
- incentive to efficiency in operating costs by establishing a maximum limit for these costs that include a cost component based on the level of activity;
- incentive to maintain in operation equipment at the end of its working life; and
- incentive to the availability of the elements of the National Transmission System (RNT).
- The aim of the investment incentive is to reward, as additional remuneration, the efficiency obtained in investments subjected to reference costs that comply with a defined set of parameters.
The value of operating costs set for the first year of the regulatory period evolves in subsequent years in line with the variation rate of GDP Implicit Price Index , and with an efficiency target determined by ERSE, which for 2016 and 2017
was set at 1.5%. This amount is added by the change in the OPEX as a result of the annual growth in the transmission network (in kilometres of lines and in the number of panels at substations), calculated with the related incremental costs, set by ERSE.
The aim of the incentive to maintain equipment in service which has reached the end of its working life is to stimulate continuity in service of assets which are still technically viable but fully amortized, thus delaying replacement investment.
In 2016, the asset base in this condition had a gross value of approximately 590 million euros.
The electricity regulated asset base (RAB) consists of the assets net of amortizations and subsidies allocated to the activities of Electricity Transmission and General System Management.
With regard to Electricity Transmission, with the aim of promoting a more efficient behaviour by the transmission system operator in investment, a reference costs mechanism was introduced into the 2009-2011 regulatory period. This mechanism was published in September 2010 through Official Order No 14 430/2010 of 15th of September, with retroactive application to investments transferred to operation in 2009. The first update was in 2015 with the entry into force of ERSE Directive No 3/2015 of 29 January. Therefore, in 2016, the average RAB with a premium rate of 6.88%, was 1.105 billion euros, while the remaining RAB of 1.006 billion euros has the base rate of 6.13%.
In the General System Management activity , the principle of RAB valuation is based on historical costs. In this case, the remuneration rate of 6.13% is applied. In 2016, the average RAB for the activity of General Management of the System stood at 39 million Euros. Assets used in this activity also include land in the public water domain used by the hydro power plants and whose remuneration, in accordance with Ministerial Order No 301-A/2013 of 14th of October, depends on the classification allocated to the performance of the RNT concession holder. The rate may vary between -1.5% and +1.5%. For 2016, the provisional value indicated by ERSE of 0.1% was applied to a sum of 256 million Euros.
The following graph shows the RAB for the different asset groups:
EVOLUTION OF THE REGULATED ASSET BASE
The tariffs set by ERSE also reflect tariff deviations which, after two years, reconcile the forecast and real values of income and costs (to the extent they are justified and accepted by ERSE), as well as, differences in demand.
The adjustments arising from the differences are recovered or returned two years after they have occurred. This amount is remunerated at a regulated rate equal to the 12 months Euribor average seen each year, plus a spread published annually by ERSE for the year in question.
At the end of 2016, the tariff deviation’s amount was 80 million Euros, to be recovered by REN Rede Eléctrica Nacional, S.A..
REN Trading places production from non-terminated Electricity Acquisition Contracts (CAE) relating to the Tejo Energia and Turbogás thermal power plants on the market (MIBEL).
The difference between the contract cost within the scope of the CAE and the income from the market sale of power and system services supplied by the respective power plants, plus the incentives to optimise their management and the efficient management of the CO2 emission licences, is incorporated into the Global System Use tariff borne by energy users.
REN Trading income derives from incentives defined by ERSE which have an underlying sharing with electricity consumers of the benefits of the optimized management of supply these power plants. The final value of the incentives is a result of the company management, both through the optimization of energy sales from the power plants, and by minimizing acquisition costs for fuel and CO2 emission licences.
In 2016, the balance of the tariff’s deviation account from the Purchase and Sale of Electrical Power, within the scope of CAE management, was 27 million Euros to be recovered in the tariffs.