ANRE: Rate of return (RRR) of distribution and transmission operators in the field of energy – 6.94 percent

The rate of return (RRR) of energy distribution and transmission operators, for the fifth regulatory period, is 6.94 percent. This will apply from January 1, 2025. According to ANRE president George Niculescu, ANRE is not a brake on investments and that is why a principle is introduced by which distribution operators who understand the need for investments and who actually make these investments are rewarded and remunerated, by granting an extra 1 percent to stimulate investments.

Thus, the Regulatory Committee of the National Energy Regulatory Authority approved unanimously the new regulated rate of return on invested capital applied to the approval of tariffs for electricity and natural gas transmission and distribution services, for the fifth time regulatory period, which is 6.94 percent.

George Niculescu, president of ANRE, said: “The regulatory committee approved the new rate of return of 6.94 percent. In addition, we have criteria whereby, depending on the level of investment they will make, the distribution operators will receive another percentage.

It wasn’t a process that I quickly adopted before. It is the first time that the Regulatory Authority contracts on SEAP a consulting study from which we had a proposal from the consultant regarding the setting of the rate of return, taking into account the economic context in Romania, as well as in Europe.

This is the first time we have entered into an extensive debating process on the value of this rate of return with distribution operators. This order has been in transparency and public consultation twice – once for 30 days and once for 10 days. I had more than 5 or 6 meetings at the management level with the distribution operators, individually or at the level of representativeness, I mean the employers’ federation ACUE, as well as at the technical level between the consultants of the distribution operators and the specialized Directorate within the Authority of regulation.

We also had discussions with all the members of the Regulatory Committee, because we wanted that when we put this very important item on the agenda of the Regulatory Committee, everyone would be comfortable, it would be the best decision to maintain a balance between the need for investments that distribution networks have and the limit of affordability of consumers, who through the distribution tariff pay this regulated rate.

After these long debates, I want to tell you that today, unanimously, the Regulatory Committee adopted a rate of return for the 5th regulatory period in the amount of 6.94 percent. I would like to point out that the rate of return for the fourth regulatory period was 6.39 percent. We are seeing growth. Also, in the methodological principles that are currently in the process of public consultation, we have criteria by which the distribution operators, depending on the level of investment they will make in order to develop the distribution networks, will be bonused with another percentage.

If we look at the minimum investment value, which is approximately 1.6 billion lei per year of all distribution operators, we see that the rate of return approved today in the Regulatory Committee of 6.94 percent is applied to this value. If the distribution operators exceed this minimum level of investment, then they will be bonused with another percentage, the value becoming 7.94 percent for the difference.

I want to tell you right from the start that the Regulatory Authority is not a brake on the investment of distribution operators in the electricity and natural gas distribution networks. That is why we introduce this principle in public consultation by which we reward and subsidize distribution operators who have understood the need for investments and who actually make these investments.

It is a more efficient method than giving a higher WACC (no weighted average cost of capital) for the minimum amount of investments, there is a risk that at the end of the fifth regulatory period we will see that the distribution operators keep their investments at the minimum amount for which they receive an increased rate of return.

We agree that distribution networks need investment. We are willing to subsidize these investments with another percentage, but energy consumers in Romania must understand what they are paying more for. And here I am referring to certain performance indicators, which are also passed in the methodological principles that are in public debate today, and we are talking about very clear targets regarding the digitalization of distribution networks, because we, at the Authority, we want to have a greater degree of digitization of the networks, unlike the level at which they are digitized today, as well as the improvement of some indicators such as SAIDI or SAIFI related to the response to interventions in case of breakdowns, etc.

All of them are listed in the methodology that is today on the website in public consultation and about these performance indicators we are talking about an extra bonus of 0.5 percent if these performance indicators are reached. If these performance indicators are not reached, we are in discussions with the Specialized Directorate and colleagues in the Regulatory Committee to turn this bonus into a coercive measure, because we want these targets to be met, and distribution operators who do not comply with them to have a coercive measure.

According to George Niculescu, on low voltage, accumulated over 5 years, the increase in the estimated bill is 50 lei/MWh. This value can change depending on the level of investments the operators make. Distribution operators have requested an RRR of 9.42 percent. The current level of RRR is 6.39 percent.