A stable and sustainable business model
The RTE monopoly is regulated by the French Energy Regulatory Commission (CRE). Regulating mechanisms are designed to smooth out and correct the impact of various contingencies (climatic and economic) on electricity transmission in France. They provide us with a robust long-term financial outlook, able to withstand external factors over a period of years.
Since the introduction of European sectorial legislation in the late nineteen nineties, power transmission has become a regulated activity. The transposition of those texts into French law (specifically in the Code de l’Energie or Energy Code) sets out the conditions in which RTE is expected to carry out its missions. In particular, the law clearly highlights our administrative independence with regard to our shareholder, as well as our neutrality towards all power system stakeholders.
How are RTE tariffs set?
RTE income is not linked to a market price but rather to a tariff, specifically the Public Transmission User Tariff (known in French as the TURPE). Pursuant to the French Energy Code, this tariff is set by the CRE. It is set in a transparent and non-discriminatory manner so as to:
- cover all RTE costs, insofar as they reflect the costs of an efficient system operator,
- ensure a fair return on capital employed through investment programmes.
The tariff being applied as of August 1, 2021 (TURPE 6) runs for approximately four years. It takes account of significant investment planned over the period. The CRE also approves RTE’s investment volumes and sets the company's profitability targets.
A regulated business: what does this mean for RTE?
- We draw up our annual investment programme and submit it to the CRE for approval and oversight.
- As an exception to the French Commercial Code, our Supervisory Board has limited powers. This means that decisions pertaining to grid management or development are not a matter for the Supervisory Board, whose structure has involved in September 2020 : it now comprises 2 State representatives, 6 shareholder representatives and 4 employee representatives.
Responses to public consultations by the ERC
By deliberation dated 11 January 2018, the French Energy Regulatory Commission ("CRE") maintened the certification of RTE, in compliance with the unbundling requirements of the Independent Transmission Operator model (hereafter "ITO Model"), after obtaining the opinion of the European Commission. Following the first certification obtained in 2012, the re-certification process was initiated following the change in the shareholding structure of RTE in 2017.
> Read: Deliberation of the French Energy Regulator of 26 January 2012 on certification of the RTE company (in French)
> Read: Deliberation of the French Energy Regulator of 11 January 2018 on certification of the RTE company (in French)
Network access tariff (TURPE)
Decisions on the TURPE fall within the remit of CRE. The French State has two months in which to publish CRE tariff decisions in the Bulletin Officiel (the Official Journal of the French Republic). Within this period however, it may formally ask CRE to review its decision if it believes that the initial ruling does not take sufficient account of energy policy.
With regards to power transmission, the TURPE is determined by CRE on the basis of projected projected network expenditure. Objective: covering these costs following deduction of other revenues (interconnection auction revenues, services, etc.).
The tariff covers two categories of costs :
- Operating costs (purchases, payroll, taxes and duties). Forecasts for these costs include incentives that encourage RTE to enhance its productivity.
- Capital costs (depreciation and return on capital) linked to investment spend that RTE is encouraged to better control. The return on capital employed is the product of two terms:
- Base: The Regulatory Asset Base (RAB), which is the accounting value of RTE-owned assets minus investment subsidies (subsidy for connection by users, European subsidy for the France-Spain project),
- A rate of return: WACC (Weighted Average Cost of Capital), determined by means of an evaluation model incorporating various parameters such as the risk-free rate represented by State bonds, additional compensation for a risk-free rate requested by bond investors, return on equity in view of risk sensitivity. For TURPE 6, the WACC has been set at 4.6%.
CRE has also introduced an arrangement for recovering income and expenditure that are considered to be difficult to forecast and non-controllable: the CRCP, or Income & Expenditure Regulation Account. Its purpose is to adjust for discrepancies observed between the hypotheses on which the tariff is based and actual figures for certain income and expenditure items (extractions, interconnection revenues, loss purchase, etc.). It allows these discrepancies to be passed on to transmission system users through tariff changes.
The annual revision of the TURPE 5 tariff takes account of the consumer price index and a CRCP settlement factor, calculated on the basis of the CRCP balance on 31 December of the previous year and financial clearance applied to this balance (and limited to +/-2%). The tariff can therefore rise or fall.
The TURPE 6 deliberation also provides for financial incentives to encourage the system operator to streamline its costs, enhance quality of service and carry on its R&D program.
General principles of the tariff paid by transmission system users
CRE builds the tariffs for the use of public transmission electricity grids by complying with several fundamental principles:
- pricing of network access is independent of the distance between the injection site and the withdrawal site : “stamp” pricing,
- the same tariffs for network use apply across the whole national territory : standardised tariff,
- pricing must reflect the costs generated by each user category independently of their final use of the electricity : non-discrimination / cost reflection,
- time and season variations.