Consultations on methodology determinations for electricity and gas
Klaus Müller: "Package for efficient and investment-friendly incentive regulation now complete"
Year of issue 2025
Date of issue 2025.06.30
The Bundesnetzagentur has today launched the consultation processes for the methodology determinations on the calculation of the return on capital, the determination of the productivity factor and the design of efficiency benchmarking. The drafts supplement the RAMEN electricity and RAMEN gas and the StromNEF and GasNEF determinations that were published for consultation on 18 June 2025.
"The industry now has the complete package of economically relevant draft determinations from the NEST process, in particular the rules for calculating the return on capital. Companies now have an opportunity to revisit our arguments,"
said Klaus Müller, President of the Bundesnetzagentur.
The draft determinations set out the details of the key elements of the regulatory system described in the RAMEN determinations.
Calculation of a standardised return on capital
The Bundesnetzagentur plans to continue using the established capital asset pricing model (CAPM) for determining the return on equity and historical excess returns for determining the market risk. This creates a clear and reliable framework for industry and investors.
The Bundesnetzagentur is making changes to the method for determining the risk-free base rate. The average will be based on the length of the regulatory period. This means that in future the return on equity will be adjusted more dynamically to the interest rate environment. The Bundesnetzagentur plans to base the market risk premium on the arithmetic mean only. This will lead to a noticeable increase in the rate compared with the current methodology.
The cost of debt is to be derived from market-based and index-based reference series, and it is planned to update the cost of debt for new investments each year.
The gearing ratio for the weighted average cost of capital (WACC) method is to be 40% equity to 60% debt.
Design of the general sectoral productivity factor
The general sectoral productivity factor corrects the general rate of inflation which the network operators may use from the first year of the regulatory period initially to automatically adjust their costs upwards. A correction is necessary since the structure of costs in the network industry develops differently to that in the overall economy. According to the draft, the factor will in future be derived from the established Malmquist model for overall costs and then applied solely to those costs that are not updated each year. This change will also lead to considerable simplifications in the procedure.
The Bundesnetzagentur has published an expert report on the productivity factor.
An expert dialogue on this topic is planned for 13 August 2025.
Design of efficiency benchmarking
The draft determinations for electricity and gas provide for the continued use of the established stochastic frontier analysis (SFA) and data envelopment analysis (DEA) methods. One change is that the period for reducing inefficiencies is to be shortened to three years. Another is that the efficiency score will no longer be selected using the “best of four” method. Instead, an average score is to be derived from the efficiency scores calculated using the DEA method and from the scores calculated using the SFA method. The best of these two averages is then taken as the score for the network operator.
If it emerges that the averaging method is not practicable for the gas sector, the Bundesnetzagentur will lay down other methods.
An expert dialogue on efficiency benchmarking is planned for 14 July 2025.
Next steps
All stakeholders are invited to respond to the draft determinations by 18 August 2025.
The consultation was originally set to run for six weeks but was extended to seven weeks at the request of industry representatives.
The consultation documents are available (in German) at www.bundesnetzagentur.de/gbk-aktuell.
Background
The legislature has decided that the main ordinances for the regulation of the energy sector will cease to have effect in light of the ruling by the Court of Justice of the European Union of 2 September 2021 on the Bundesnetzagentur’s independence. The Bundesnetzagentur is therefore issuing determinations to replace the ordinances. The Bundesnetzagentur takes seriously the considerable additional responsibility placed upon it. The Bundesnetzagentur’s decisions taken under the Energy Industry Act (EnWG) may be reviewed by the Higher Regional Court (OLG) of Düsseldorf and by the German Federal Court of Justice (BGH) as the court of second instance.