The economic position of grid operators is largely determined by the regulation of grid fees in the electricity and gas businesses. Fee reductions and the future development in revenue caps represent a major challenge. Alongside the guaranteeing of secure, high-quality grid operations, revenue and cost management are thus becoming ever more significant.

Incentive regulation has been in effect since 1 January 2009. Based on the last cost approval round and individually calculated efficiency figures, the Federal Networks Agency has set revenue caps, initially for four years (gas) and five years (electricity), for each grid operator. The revenue caps form the basis for grid utilisation fees.

Individual inefficiencies identified at the respective grid operators on the basis of the grid operator efficiency comparison now have to be eliminated by 2019. For the grid companies at the MVV Energie Group, the revenue cap for 2009 more or less corresponds to the 2008 revenue cap. Court appeals have been filed against assessment notices in some cases, as MVV Energie does not believe that the authorities have correctly accounted for individual circumstances in all cases.

According to a verdict passed by the Federal Court of Justice (BGH) on 14 August 2008, electricity and gas grid operators should offset the additional revenues generated in the period between submission of their applications and the taking effect of the first grid fee approvals in subsequent periods. The regulatory authorities are expected to start offsetting these additional revenues against the revenue cap from 1 January 2010 onwards. The current legal status means that no provisions may be recognised for this item in the IFRS consolidated financial statements of the MVV Energie Group.

Some questions concerning cost recognition are still unsolved within incentive regulation. Discrepancies between regulatory practice at different state authorities concerning the absorption of additional revenues present grid operators with differing scales of challenge. The Federal Networks Agency has set a standard maximum price for energy system losses across the sector (Euro 44/MWh) which is not based on the relevant level of market prices. Cost-covering procurement is thus not possible. We believe that costs incurred for energy system losses should be recognised in full within incentive regulation.

Furthermore, distribution grid operators are dependent on the Federal Networks Agency approving the costs of upstream grids punctually and deciding on investment budgets in good time, so that these costs can be accounted for in revenue caps for distribution grid operators. Discussions are still underway concerning the specific structure of quality regulation due to apply from the second regulation period (2014 for electricity and most likely 2013 for gas).