Electricity business

REN SA works in two regulated areas: General System Management (GGS) and Transmission of Electrical Power (TEE). The revenue allowed from GGS and TEE is received by applying two regulated tariffs: the tariff for the General System Use (UGS) and the tariff for Transmission Network Use (URT).

Both tariffs are defined annually by the Energy Services Regulatory Authority (ERSE) based on energy and economic forecasts for demand, costs, revenues and investment.

In 2012, a new regulation period was started and while no changes were made to the actual form of the regulation, the regulatory parameters were updated. The efficiency factor applied to operating costs for the TEE Power was altered to 3.5% (2013 and 2014) and the remuneration rate is now
indexed to the 5 year Portuguese Republic Credit Default Swap rating. Also introduced were limits to the remuneration base rate for the 2012-2014 period of between 7.5% and 10.5%.

 

Regulation of activities

Activity relating to the GGS is regulated by a remuneration rate applied to the assets allocated to the activity, net of depreciations, subsidies and eligible operating costs.

Activity relating to the TEE is regulated by incentives: (I) incentive to efficient investment in the transmission network; (ii) incentive to efficiency in operating costs by establishing a maximum limit for these costs plus a component based on the level of company activity; (iii) incentive to maintain equipment at the end of its service life in operation; and (iv) incentive to increase the availability of
the elements of the National Transmission Network (RNT).The aim of the investment incentive is to reward, as additional remuneration, the efficiency obtained in investment subject to reference costs and which falls within set parameters.

The value of operating costs set for the 1st year of the regulation period evolves in subsequent years in line with the variation rate of the Price Index implicit in GDP, and with an efficiency target determined by ERSE, which for 2013 and 2014 is 3.5%. Added to this amount is the change in OPEX due to the annual growth in the transmission network (in kilometres of lines and in the number of panels at substations), calculated with the corresponding incremental costs, also 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 certain assets which are at the end of their economic life but still technically viable in operational terms. For 2013, this incentive stood at 8 millions of euros.

The aim of the incentive to increase the availability of the National Electricity Transmission Grid, which was introduced in 2009, is to promote more efficient operation and maintenance of the grid’s infrastructure and is calculated based on values that have already occurred. For 2013, this incentive stood at approximately 1 millions of euros.

The regulated assets base (RAB) for electricity consists of the assets net of amortizations and subsidies allocated to the activities of TEE and GGS. As already mentioned, through the publication of ERSE Official Order No 14430/2010 of 15 September 2010, the assets base to be remunerated is based on the application of the valuation mechanism of new investment in the RNT, at reference costs with effect from 1 January 2009. Therefore, in 2013, the average RAB on which the premiumrate of 9.56% was applied, was 892 million euros, while the remaining 1 132 million euros was remunerated at a non premium rate of 8.06%.
In the activity of GGS, the principle of RAB valuation is based on historic costs. In these cases, the remuneration rate of 8.06% is applied. In 2013, the average RAB for the activity of GGS stood at 43 million euros. Moreover, part of the assets allocated to this activity is public land used for hydroelectrical purposes, the remuneration for which is calculated through the interbank swap rate with the maturity closest to the remaining lifetime of each asset, calculated on the 1st day of each period, as published by Reuters, plus 50 base points, pursuant to Implementing Order (Portaria) No 542/2010 of 21 July 2010, which in 2013 corresponded to a remuneration rate of 2.8% applied to a sum of 293 millions of euros.

The following graph shows the RAB for the different asset groups:

The tariffs set by ERSE also reflect tariff differences which, after two years, (to the extent they are justified and accepted by ERSE) reconcile the forecast and real values of income and costs and differences in demand.

The adjustments arising from the differences are recovered or returned two years after they have occurred. This sum is remunerated at a regulated rate equal to the 1 year Euribor average seen each year, plus a spread published annually by ERSE for the year in question.

The difference in 2013 of 18 million euros to be returned by REN, was mainly due to an underestimation of relative energy consumption by the asset remuneration rate regulator and the application of Implementing Order (Portaria) No 215 A/2013 of 1 July 2013 on interruptibility, which differs by one year due to the repercussions on income allowed in GGS for sums paid in accordance with this system.