Your challenge, our solution

The grid operators face the major challenge of helping to shape the heating transition, which will be an extreme achievement, particularly in terms of feasibility and financial viability. The framework conditions for this will be set by the Federal Network Agency, which, due to its strengthened role, will issue new regulations that will significantly influence the coming base years 2025 and 2026 and thus the results of the 5th regulatory period.

The current process is being closely monitored not only by domestic and foreign investors. Municipal owners are affected as well. And: the last public consultation showed that there can also be “losers”.

The “GasNEV” (German Gas Grid Charges Ordinance) and “StromNEV” (German Electricity Grid Charges Ordinance) will expire by the end of 2027 and 2028, respectively, whereupon new nationwide specifications by the Federal Network Agency will come into force in accordance with Art. 54 (3) sentence 3 EnWG (German Energy Industry Act). The Federal Network Agency has summarized its initial considerations in a White Paper and published it on January 18, 2024. Numerous comments were collected on the White Paper “Grids. Efficient. Secure. Transformed.” (“NEST”), which led to the development of this White Paper, which specifies and expands the methodology for determining the starting level for electricity and gas network operators.

Regulatory scope and principles

The specifications aim to structure the regulations for determining a revenue cap. This includes basic cost assessment methods for fee approval procedures in accordance with Art. 23a EnWG. The regulations must take into account the “transformation regulation” conditions in the gas sector, such as shortened economic useful lives and provisions for decommissioning costs.
Against this backdrop, we recommend that network operators evaluate the new regulations economically and strategically.
 

Our services

Preparation for the upcoming cost audit:

  • In cooperation with our auditors, we offer
    • Balance sheet optimization (equity ratio, capital adjustment items, etc.)
    • Review of the divisional logic and the key system
  • Taking future (re-)investments into account, we use scenarios to calculate the new revenue caps for the 5th regulatory period. The calculation can also serve as a basis for controlling purposes.
  • In particular, we analyze the areas reviewed by the Federal Network Agency in sensitivities:
    • Gas depreciation calculation: Which is the best depreciation method according to KANU 2.0?
    • Calculation of financial deviations when switching from the current value approach to real capital maintenance
  • Determination of the financing framework in cooperation with our financing experts

Operational regulatory management:

  • Determination of the capital cost surcharge
  • Calculation of gas and electricity network charges
  • Management of the regulatory account
  • Metering point operation
  • Calculation of avoided network charges
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Cost-type accounting

The initial level is determined by means of a historical cost review. Planned costs are not recognized and the costs of a completed financial year are reviewed. The starting level only takes into account operationally necessary and efficient costs.

1.    Costs incurred by lessors and service providers: The review of the costs incurred by lessors and service providers is based on the actual costs incurred for grid operation. A clearer and more practical regulation is being sought, with the previous minimum adjustment possibly being dropped.
2.    Equalized cost items: The efficiency principle continues to be applied. Costs that do not arise from the operation of the grid are not eligible. The aim is to clarify which items are not eligible a priori, such as VAT, EEG (Renewable Energies Act), KWKG (Combined Heat and Power Act), levies, excess and reduced quantities and concession fees.
3.    Capital maintenance concept: The previous mixed system of net asset maintenance and real capital maintenance is to be replaced by a pure real capital maintenance system. This includes a valuation of existing assets at the actual replacement value at the time of conversion.
4.    Imputed depreciation: For electricity grid operators, simplification proposals are made by streamlining the asset groups and standardizing the useful lives. Imputed depreciation is to be made on a uniform basis.
5.    Determination of the working capital: The current assets required for operations are recognized at a flat rate of 1/24 of the respective base year’s network costs. Inventories required for operations are recognized separately and in full.
6.    Imputed return on capital: a “simple” WACC approach is introduced. The interest basis comprises working capital less subsidies. This regulation is intended to create greater transparency and comparability and provide an incentive for efficient financing.
7.    Trade tax: In future, the actual trade tax attributable to network operation is to be taken into account. This regulation is intended to ensure that only trade tax actually incurred is recognized.
8.    Cost-reducing revenues and income: The previous catalog of cost-reducing revenues and income is continued and supplemented by investment grants. Building cost subsidies, grid connection cost contributions and investment grants are amortized on a straight-line basis over 20 years and recognized as a reduction in grid costs.

Outlook
The White Paper serves as an interim conclusion and basis for further specification procedures. Comments can be submitted until August 30, 2024. Based on the comments, the Grand Ruling Chamber for Energy plans to submit draft specifications for consultation in the fourth quarter of 2024.

Conclusion
With these specifications, the German Federal Network Agency is aiming for a practical and efficient methodology for determining the starting level for electricity and gas grid operators in order to ensure stable and future-proof grid fee regulation.

The draft specification for KANU 2.0 makes the depreciation modalities for gas network operators considerably more flexible. The aim is to achieve balanced customer charges and refinancing by 2045 (or 2035). To this end, network operators will be able to choose between three depreciation modalities in future: Status quo, straight-line until 2045/2035 or declining-balance depreciation. The new regulations are to be applied to the formation of grid fees from 2025.