DTe: New Price Cap for Electricity Grid Managers

The Office for Energy Regulation (DTe) has set a new price cap (efficiency discount), the so-called x-factor, for electricity transmission companies. This price cap amounts to 3.2 percent per annum for all companies and applies to the period from 2001 up to and including 2003 (the first regulatory period). In addition, the x-factor of 3.2 percent will be the basis for regulating transmission companies from 2004 onwards. By means of this so-called efficiency incentive, the regulator wishes to ensure that transmission companies, which by nature are monopolies in their areas, work more efficiently and reduce their tariffs every year.

Consumers will not see this new x-factor reflected in their electricity bills because no retrospective billing will occur in respect of past transmission tariffs. As of 1 July 2003, DTe will set new transmission tariffs for the second half of 2003. At the end of 2003, consumers will have saved an average of EUR 45 on their electricity bills as a result of the price cap for the period 2001 up to and including 2003.

The x-factor was developed following consultations with the electricity grid managers. In this regard, DTe and a large number of transmission companies have also reached agreement on the main outline of regulation by DTe in the second regulatory period from 1 January 2004 up to and including 2006.

At present, the Upper House of the Dutch Parliament is debating the Electricity Production Sector (Transition) Act [Overgangswet Elektriciteitsproductiesector (OEPS-wet)], in which the original objectives stated in the Electricity Act of 1998 are clarified in relation to tariff regulation. In contrast to the present Act, this Bill stipulates that DTe will be authorised to determine the x-factors, which may differ from one grid manager to the next, with the aim of reducing monopoly profits and differences in efficiency. This would mean that DTe, after the introduction of the Electricity Production Sector (Transition) Act, will be able to impose individual caps on each transmission company from 1 January 2004 onwards.

The new price-cap system will replace the system declared null and void by the Trade and Industry Appeals Tribunal in November 2002. The court ruled that the x-factor could not be different for each company.