RTE: Financing Electricity Transmission Investments in a Regulated Environment
(4 pages of text)
Leading up to 2013, Réseau de Transport d’Électricité (RTE), a French transmission operator (TSO), was the largest TSO in Europe’s electricity network. Like all European TSOs, RTE was subject to regulatory regimes. At the end of 2013, RTE was operating under a revenue cap, which required that it seek the regulator’s approval before making capital investments. The company was poised to undertake an ambitious investment program in 2014 to replace aging assets. However, the potential for regulatory changes, the need for the regulator’s approval, and the long depreciation life of the assets made planning difficult. RTE needed to develop a financial planning model that would help it decide whether to make the investment and how to prepare for possible regulatory uncertainties.
The case was initially developed for use in the Future Grid Managers Program, an executive program at the Energy Centre of Vlerick Business School. Participants are usually senior managers with significant sector experience. However, with suitable preparation, the case can also be used by financial experts with limited knowledge of the specifics of regulated energy companies, or by those familiar with the energy sector, but with limited financial expertise. Depending on the audience, the instructor is advised to provide a refresher on the basics of financial statements and the different regulatory regimes that apply to power grid companies. After working through the case and assignment questions, students will be able to
- use financial models to analyze the impact of investment programs on the overall performance of a company;
- understand how financial performance and investment decisions can be affected by regulatory frameworks;
- appreciate the specificities of financial planning models used by regulated power grid companies; and
- highlight the importance of regulatory risk when using financial analysis models.
France, Large, 2014
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