The table below shows the evolution of Elia’s yearly average RAB since 199927: RAB
Amount in billion euro
1999 2000 2001 2002 2003 2004 2005
..................................................................... ..................................................................... ..................................................................... ..................................................................... ..................................................................... ..................................................................... .....................................................................
3.260 3.271 3.293 3.323 3.345 3.329 3.439
The significant RAB increase between 2004 and 2005 (i.e., from EUR 3,311 million end of year 2004 to EUR 3,567 million end of year 2005) is mainly due to the budgeted investments and to the budgeted increase of the working capital partially caused by the anticipation of certain future recurring expenses. Remuneration Rate and Capital Structure The remuneration rate applied to Elia’s reference equity as currently determined by the CREG in year “n” is equal to the sum of (i) the risk free rate, i.e., the average yield of the Belgian 10-year OLO in year “n-2”, and (ii) a market risk premium for shares, weighted by the appropriate beta factor. Currently, the appropriate beta factor is calculated on the basis of Electrabel’s historical beta compared to the BEL 20 index, over a seven-year period and relevered according to Elia’s financial structure. At some point in the future, the computation of the fair remuneration will be set forth in forthcoming regulations. The following table shows the components of the remuneration rate since 2002: OLO 10 years (year-2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Beta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remuneration rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002
2003
2004
2005
5.40% 2.54% 1.28 8.65%
5.11% 2.54% 1.37 8.59%
4.98% 2.54% 1.18 7.98%
4.17% 2.54% 1.05 6.83%
The CREG recommends that the solvency ratio (average shareholders equity / average total assets) of Elia be as close as possible to 33%. This 33% ratio has been set by the CREG based on an average equity/debt structure taken from a sample of Belgian companies. The ratio is applied to Elia’s RAB to determine Elia’s reference equity. When applied to adjust Elia’s remuneration in function of Elia’s capital structure, the ratio is applied to Elia’s total assets according to its consolidated accounts under Belgian GAAP (see below). Deviations from reference equity are offset by the “D-Factor”. In the event Elia’s total shareholder equity exceeds reference equity, the excess portion is remunerated at a reduced remuneration rate determined by applying the following formula: [(OLO(n-2) + 70 bps) * (1 – corporate tax rate)]. In the event that Elia’s total shareholders’ equity falls short of the reference equity, the remuneration of equity equals (i) the remuneration that would apply to the reference equity less (ii) an amount corresponding to a remuneration of [(OLO(n-2) + 70 bps) * (1 – corporate tax rate)] on the shortfall. In addition, it was decided to exclude EUR 12.4 million of depreciation costs from the tariff basis (before taxes) on an annual basis between 2002 and 2011 on account of depreciation deemed excessive by the CREG in years preceding 2003. The recent amendment to the Electricity Law consolidates the fair remuneration principle. The Law requires that the remuneration rate correspond to “the yield which investors on competitive markets can expect to obtain for long-term investments with a similar risk profile, according to best practices of the international financial market”. Costs and Depreciation Actual costs are currently reflected in the tariffs if not deemed unreasonable by the CREG. The recent amendment to the Electricity Law confirms that the tariffs must allow coverage of Elia’s actual not unreasonable costs for the performance of its regulated activities, including depreciation and financial charges, subject to review by the CREG. 27
Source: 1999–2004: Reporting CREG; 2005: CREG decision tariffs 2005.
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