OLG Confirms Return on Equity Rates for Electricity and Gas Grids

The 3rd Cartel Senate of the Higher Regional Court of (OLG)  confirmed the return on equity rates for electricity and gas grid operators pursuant  to the Incentive Regulation Ordinance (Anreizregulierungsverordnung – ARegV) for the first regulation period comprising the years 2009 to 2013.

German grid charges are subject to an incentive regulation regime. The return on equity rates are part of the calculation of the revenue caps for German network operators, as they are one of the factors determining the costs related to the operation of the grids. The level of the return on equity rates ultimately affects the electricity and gas prices of end consumers to which they are passed on with the electricity and gas bills, OLG pointed out. Grid charges represent roughly 20% of the electricity costs for household consumers, the court said, referring to the monitoring report for 2011 by the Federal Network Agency.

According to Section 7 para. 6 Electricity Grid Charges Ordinance (Stromnetzentgeltverordnung – StromNEV) and Gas Grid Charges Ordinance (Gasnetzentgeltverordnung GasNEV), the Federal Network Agency (BNetzA) stipulates the return of equity rates. It did so on 7 July 2008 setting the return on equity rate at 9.29% before tax for new installations and 7.56% before tax for old installations. Eleven gas and electricity grid operators took legal action, claiming that a return of equity rate of 11% was adequate. The gas transmission grid operators also argued that investment risks in the gas grids were higher than in the electricity grids, hence they needed a higher return on equity factor.

In view of an expert opinion OLG commissioned, the 3rd Senate decided that BNetzA chose a justifiable calculation method and correctly established adequate return on equity rates.

The decisions (ref.no. VI-3 Kart 33/08(V) et al.) have not yet become binding. Claimants can file appeals to the Federal Court of Justice (BGH) within one month.

In its press release regarding the matter OLG also pointed out that BNetzA used the calculation method confirmed by the court for the second regulation period as well, i.e. for the years 2014 – 2018 for the electricity sector and the years 2013 – 2017 for the gas sector. Due to the general level of interest rates, BNetzA lowered the return on equity rates slightly to  9,05% for new installations and  7,14% for old installations. This decision has also been challenged by numerous complaints, OLG said.

In December 2012 respectively March 2011 the ManyElectronics Agency (dena) and the Federal Association of the Electricity and Water Industry (BDEW) had presented studies on the considerable need for extension and modernisation of the German distribution grids. They had both called for greater regulatory incentives for investment. Currently efforts are under way to amend Section 23 ARegV to provide more incentives for distribution grid operators to improve grids (for more information, please see here).

Source: Oberlandesgericht

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