ENTSOG Tariff NC - Implementation Document 2nd Edition

Introduction

LINK BETWEEN REVENUE, ALLOCATION OF COSTS, REVENUE RECOVERY

Responsibility: RPM determination is subject to consultation per Article 26(1) by TSO/NRA, as NRA decides; subject to decision by NRA

The choice of RPM is a key decision for a TSO or NRA, and is a central topic of the TAR NC. The RPM determines how to allocate the TSO’s costs among entry and exit points, how the TSO recovers its revenue, and how to charge network users. The TAR NC contemplates an initial NRA decision on a RPM, and a required consultation at least every five years thereafter. As explained above, the collection of transmission services revenue must be based primarily on capacity charges in accordance with Article 4(3). Figure 12 shows how the RPM fits within a series of several required analytical steps, which together lead to the determination of a TSO’s revenue recovery. \\ The TAR NC does not restrict the choice of RPM, since a TSO/NRA can consid- er any methodology as long as the assessment involves a comparison to the CWD counterfactual in the final consultation document. The TAR NC does not in fact detail any possible RPM except for the CWD counterfactual. \\ Only the requirements of Article 7 limit the free selection of parameters and assumptions for the RPM.

Allowed/Target Revenue Setting \\ Per regulatory regime, NRAs set an allowed/ target revenue stream which gives a TSO a set of allowed/target revenues to be earned over a defined period of time

Cost Allocation \\ The transmission services revenue is allocat- ed to individual entry and exit points or clusters of entry or exit points via reference price methodologies, which may also include adjustments

Reference Price Determination \\ Once the transmission services revenue has been allocated, cost drivers are considered to calculate the reference prices \\ The reference prices are used as the basis for setting all capacity-based transmission tariffs

Revenue Recovery \\ Collection of the revenues by the TSOs via the application of the approved entry and exit tariffs \\ Determination of potential revenue gaps that need to be reconciled in the following year(s)

Figure 12: Link between revenue reconciliation, cost allocation, reference price determination and revenue recovery

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