NMa publishes tightened regulatory framework for gas transmission

The Netherlands Competition Authority (NMa) has today submitted its proposal for a tightened regulatory framework for regional gas network operators. The document, referred to as 'draft method decision', outlines the NMa's calculation method for gas transmission tariffs over the period 2008-2010. If the decision were to pass unamended, the revenues of gas network operators should drop annually by 6 per cent on average. In the two previous regulatory periods, the price cap was set at approximately 3.7 per cent. Gert Zijl, member of the Board of the NMa: 'Our investigation into the profits of energy companies [link] found that the price cap may be set at a higher level without endangering the quality of the networks. The network operators have more than sufficient means at their disposal for investments in their networks.'

Tightening the regulatory framework will prevent a substantial discrepancy between reasonable profits and realised profits. The draft method decision is available on the website of the Office of Energy Regulation (DTe) with the NMa. The regulator calls on parties in the energy sector to respond to its proposal for a tightened regulatory framework before 28 August 2007. When finalising the method decision coming autumn, the NMa will consider the reactions submitted. The exact level of the price cap will then be announced. The effects on transmission tariffs will be announced upon adopting the tariff decisions in December later this year.

Within the current statutory framework, the NMa does not consider it feasible to rule out surplus profits altogether. Neither will the coming into force of the Independent Network Operation Act [Wet onafhankelijk netbeheer (Won)], with respect to unbundling integrated energy companies, solve the problem. Therefore, the NMa takes the view that statutory amendments are required in this regard. The NMa recently sent a letter to the Minister of Economic Affairs on this subject.

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. Well over EUR 700 million of this amount would otherwise have formed part of the revenues of gas network operators.