Last checked at 17 Sep 2021 07:00
Regarding the public consultation on the methodology of the Networks segmentRegarding the public consultation on the methodology of the Networks segment for the new regulatory period
AB “Ignitis grupė” (hereinafter – the Group) informs that on 16 September 2021, National Energy Regulatory Council (hereinafter – NERC) released a draft amendment of the Methodology for determining the price ceiling for electricity transmission, distribution and public supply services (hereinafter – the Methodology) for public consultation (link to the Methodology in Lithuanian).
It must be noted that the draft amendment of the Methodology currently released for public consultation is not approved yet – NERC will be conducting public consultations with stakeholders until 23 September 2021, during which the wording of the draft amendment of the Methodology may change, thus, at this stage, the impact of the draft amendment of the Methodology to the activities of AB “Energijos skirstymo operatorius” (hereinafter – ESO), a subsidiary of Ignitis Group, described below is preliminary.
According to the Group’s preliminary assessment, the draft amendment of the Methodology potentially indicates the following important regulatory environment changes that may impact the activities of ESO:
(1) The draft amendment of the Methodology sets out to change the scope of long-run average incremental cost (hereinafter – LRAIC) model applied to the electricity sector by, in essence, bringing the model closer to the calculation of return on investments and depreciation based on historical costs of non-current assets (Paragraph 11 of the draft amendment of the Methodology). According to a preliminary assessment, this change would lead to a decrease of the regulated asset base (RAB) of ESO by EUR 350–400 million;
(2) The provisions of the draft amendment of the Methodology allows to make a preliminary assumption that, when evaluating the results of the 2016–2021 regulatory period, the return on investments and depreciation during the period calculated by ESO would have to be adjusted to the amount calculated according to the actual scope of the investments during the period, i.e., before the historical costs of assets (Paragraph 23 of the draft amendment of the Methodology). According to a preliminary assessment, the impact of such recalculation (the amount by which the revenue level of the regulated activities of ESO would be reduced) would amount to approximately EUR 160 million;
(3) Paragraph 14 of the draft amendment of the Methodology also proposes to include an additional tariff component for ensuring the necessary scope of investments into restoring the main and auxiliary network elements. According to a preliminary assessment, the additional tariff component could reduce around half of the negative impact arising from the changes described in (1) and (2).
The draft amendment of the Methodology also proposes other important changes that are not related to the LRAIC model, which will have to be assessed in detail. If there is a significant impact to the activities of ESO due to other changes, the Group will inform about it separately.
Before the end of term for the public consultation organised by NERC (23 September 2021), the Group will assess the draft amendment of the Methodology in detail and submit comments and proposals on the improvement of the draft amendment of the Methodology in order to maintain a sustainable and consistent regulatory framework, which ensures sufficient financial capacity of ESO to implement current and future projects.
After the end of the public consultation, NERC will assess the comments and proposals received and will adopt the decision on the approval of the draft amendment of the Methodology in a public meeting. In accordance with the amended Methodology, NERC shall adopt the decision on the price ceiling for electricity distribution services for the next regulatory period (2022–2026) no later than by 15 October 2021.
We note that the presentation organised by NERC for stakeholders on the provisions of the Methodology related to implementation of LRAIC methodology guidelines, the LRAIC model and the model-based results will take place on 17 September 2021, 1 p.m. (UTC +3). The presentation will be held in English. Registration is required by e-mail. lina.bartkiene@vert.lt. More information on registration can be found here (link in Lithuanian).
The Group has disclosed the risks associated with regulatory changes in the prospectus (pp. 20–21) of the initial public offering, in the financial statements notes of the Group (pp. 79, 193) and ESO (p. 35).
The Group will inform about further decisions according to the procedure set out in legal acts.
For additional information please contact:
Artūras KetleriusHead of Public Relations at Ignitis Grouparturas.ketlerius@ignitis.ltTel. +370 620 76076