DTe Publishes Consultation Document on the Regulation of Electricity Grids

The Office for Energy Regulation (DTe) today published an information and consultation document in which quality regulation is introduced for the second regulatory period, which will run at least from 1 January 2004 up to and including 31 December 2006. The managers of the electricity grids will consequently be assessed not only on the basis of a comparison with each other, in relation to the efficiency of their operations, but also in relation to the reliability of their grids.

The aim of this quality regulation is to guarantee the reliability of the electricity grids in the Netherlands. Through the methods presented, DTe aims to ensure that grid companies weigh up the costs and benefits of reliability. The additional costs incurred in realising higher levels of reliability must be weighed up against the advantages to consumers of an increase in the quality of the grid and the fact that the number of power failures decreases. In this way, the maximum desirable level of quality can be provided at the best possible price.

If investment results in an increase in reliability, the grid company will be rewarded through this method of regulation by means of an increase in the permissible turnover resulting from an increase in tariffs. On the other hand, a company which opts to invest less in its grid will achieve a higher profit in the short term. If power failures increase, however, the permissible turnover will be reduced and the grid company will be required to charge its customers lower tariffs.

In the method applied, companies will also be given an incentive to ensure that their operations are efficient, since the grid companies will be able to achieve additional profits if the efficiency improvements which they realise are greater than the average for the sector. Consumers will benefit from the improvements in efficiency because they will be charged the lowest possible tariffs. The method of quality regulation presented, possibly in combination with additional regulation, will ensure that the improvements in efficiency are not at the expense of the reliability of the grid.

On 13 November 2002, the Trade and Industry Appeals Tribunal passed a ruling on the method of efficiency discounts (price caps) applied to the grids. At present, it is still unclear what the results of this ruling will be for the timetable included in this information and consultation document. DTe will respond as soon as possible to the possible consequences of the ruling.

Grid managers may respond in writing to the method proposed by DTe before 31 January 2003.