Information on Networks Methodology update: sustainable regulation ensured

2021 October 20

AB “Energijos skirstymo operatorius” (hereinafter – ESO) informs that, pursuant to the new wording of the Methodology for determining the price caps for electricity transmission, distribution and public supply services (hereinafter – the Methodology) (link in Lithuanian), on 15 October 2021 National Energy Regulatory Council (hereinafter – NERC) adopted the resolution on the price caps for electricity distribution services of ESO for the following regulatory period (hereinafter – the Resolution) (link in Lithuanian).

It is reminded, that in order to evaluate the ultimate impact to the financial results and the sustainability of the activities of ESO and AB “Ignitis grupė” (hereinafter – the Group), the Group submitted questions to NERC to specify certain aspects of the Resolution and its leading documents (link). Based on NERC’s response, the Group informs about the final assessment of Methodology’s and Resolution’s impact to its activities, which, including Methodology update changes in depth, will address during the presentation on 20 September 2021 (link)Presentations slides are available on the Group’s website (link).

Despite the Methodology update, the Group‘s Adjusted EBITDA guidance for 2021 (EUR 300–310 million) and 2024 target (EUR 350–390 million), dividend policy and investments detailed in Strategic Plan 2021–2024 remain unchanged.

Key Methodology update effects reflected in the Resolution:

  1. NERC included an additional tariff component, which will be calculated for network expansion, maintenance and other CAPEX, set out in the 10-year investment plans of ESO. It will amount to EUR 28 million per annum for the regulatory period of 2022–2026 (or to EUR 140 million in total over 2022–2026 regulatory period). The additional component of the tariff is calculated to ensure the sustainable leverage level of ESO (Paragraph 14 of the Methodology), which according to the Group’s expectations should be under 6.5x Net debt / EBITDA ratio;
  2. Regulated Asset Base (RAB) is recalculated, which compared to 2021 decreased by EUR 317 million (from EUR 1,414 million to EUR 1,097 million);
  3. Recalculated difference of ROI and D&A for 2018-2021, approximately amounting to EUR 160 million, is expected in large (96 %) to be repaid over the period of 2032-2036. It is expected that the repayment schedule, subject to NERC consent, may be adjusted to ensure ESO sustainable leverage level, (Paragraphs 23.8, 25.2, 25.3 of the Methodology), which according to Group expectations should be under 6.5x Net debt / EBITDA ratio.

To point out, the additional tariff component (under point 1) significantly offsets the negative impact arising from the changes described above (under 2 and 3 points) ensuring sustainable regulatory framework.

The draft Methodology, public consultation regarding it and its potential impact to the activities of ESO was disclosed by the Group in the material event notification of 17 September 2021 (link), the potential impact of the amended Methodology was disclosed by the Group in the material event notification of 1 October 2021 (link) and the initial assessment the Resolution’s impact was disclosed by the Group in the material event notification of 18 October 2021 (link).


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