New rate framework in the Energy Decree for “closed distribution grids”

Closed distribution grids are networks for the distribution of electricity or natural gas within a certain geographically delineated industrial or commercial location. The owner or manager of a closed distribution grid uses the electricity or the natural gas from the grid either itself, or this is distributed via the grid to different users who are technologically or economically associated with one another.

The Energy Decree contains special provisions (article 4.6.1. et seq.) for building and managing closed distribution grids. These provisions generally provide more flexible rules than those that apply for the ordinary grid managers. For example, the owners of a closed distribution grid are not obliged to submit their rates and conditions in advance to the competent regulator, i.e. VREG, the Flemish regulator of the electricity and gas market. Ordinary grid managers are required to do so.

Despite this more flexible regime, on 18 November 2015 the Flemish Parliament nevertheless issued several guidelines that the managers of a closed distribution grid must take into account when setting their rates.

The new article 4.6.10 of the Energy Decree prescribes that:

(i) the rates may not be discriminatory and must be based on the costs and a reasonable profit margin;

(ii) the rates have to be transparent for the user of a closed distribution grid;

(iii) the rate must include the costs for connection, use and support services, as well as (where appropriate) the costs that relate to the extra charges which the closed distribution grid must bear in order to use the transmission or distribution grid or the local transport grid for electricity to which it is connected;

(iv) the manager of the closed distribution grid chooses the depreciation periods, as well as the profit margins, selected within the margins between the values that he applies in his most important business sector and the margins that are applied in the distribution grids;

(v) the rates, with regard to the connection, the reinforcement thereof and the renewal of the equipment of the grid, depend on the degree of socialisation or individualisation of the investments that are specific to the location, taking into account the number of users of the closed distribution grid.

Although the new article has not yet been published in the Official Journal, you can consult the text of the approved amendment decree via the following link (page 10/17).

For more information on this topic, you can consult Kristof Hectors and Gwen Bevers (authors).