NMa revises framework tariff regulation for energy transmission

This summer the Netherlands Competition Authority (NMa) will propose revisions to the framework within which it will set gas and electricity transmission tariffs for energy companies over the period 2008-2010. Gert Zijl, Member of the Board with the NMa: 'This revised framework will allow us to tighten the thumbscrews whenever necessary. Our recent investigation into profit levels clearly outlined that the four largest integrated energy companies were making profits beyond what we consider to be reasonable.'

As the current framework had been in force for four years, The NMa decided on looking into profit levels. The extent of profits showed the need for tightening tariff regulation for energy transmission. It should be noted, however, that it was clear from the investigation that energy companies has obtained their profit wholly within the bounds of the current statutory framework. Given the current statutory framework, early profit-taking was not an option.


Next month the NMa will commence consultation procedures for the revised framework. First of all, the draft method decision for regional gas network operators will be published, to be followed by the publication of the draft decisions for electricity a few weeks later. Zijl: 'These decisions are expected to have a price-dampening effect on gas and electricity transmission tariffs. The objective of combining a reasonable price for end-users with a guarantee for security of supply will remain our point of departure.'


The regulator feels strongly that the process be executed carefully. It calls on all interested parties to submit their response. Their opinions will be incorporated into the final method decisions and x-factor decisions, which will be published in October (forthcoming). On the basis of these documents, the NMa expects in December to determine the tariffs for 2008.


As from now, the NMa will towards the end of each regulatory period investigate the size, provenance and allocation of profits made by integrated energy companies. The outcome of this research will be the starting point for regulation and the determination of tariffs for the next regulatory period.


The NMa regulates the network operators, as these are monopolists by nature and do not have any competitive incentive for optimising the price/ quality ratio. The method decisions incite companies to operate more effectively (through the so-called price cap, referred to as 'x-factor') and look after the quality of the networks (through the quality term, referred to as 'q-factor'). Through regulation, the NMa has achieved total savings of approximately EUR 1.9 billion for the period of 2001-2007.