Source - Ei Inriktning intäktsramar 2028-2031 (2025)

Presentation by Energimarknadsinspektionen (Ei), 2025. A consultation document setting out Ei’s intended direction for the revenue regulation methodology for the 2028–2031 supervisory period. Written responses invited by 15 September 2025 (to forhandsreglering_el@ei.se). Covers approximately 170 electricity grid companies subject to förhandsreglering.

This is the most direct response to the CAPEX bias problem identified in Ei R2023:05 — the concrete reform plan for intäktsramsregleringen.

Context and motivation

Förhandsreglering (advance regulation) has been applied since 2012: Ei sets maximum revenues (intäktsramar) for each DSO before each four-year supervisory period. The current period is 2024–2027 (RP4); this presentation addresses RP5 (2028–2031).

Drivers for reform:

• Ei’s ongoing obligation to continuously evaluate and develop the methodology
• The existing method has been identified as not accurately reflecting DSOs’ actual costs
• SOU 2023:64 (“Ett förändrat regelverk för framtidens el- och gasnät”) proposes that Ei develop new regulations (föreskrifter) to largely replace current law and ordinance — new legislation is a prerequisite for Ei to implement changes
• Massive energy system transformation underway: electrification, 300 TWh planning target, grid modernization needs
• International benchmarking: Ei has reviewed approaches used by other EU regulatory authorities

Four development areas

Ei identifies four areas for change:

Capital base valuation (Kapitalbasen)

The problem with the current approach

Currently, DSO assets are valued using the kapacitetsbevarande principen (capacity-preserving principle): assets are marked to a normvärdes list (replacement cost index) using a sector-specific price index (BKI, byggkostnadsindex). The discount rate (kalkylränta) is then applied as a real rate, using a general index (formerly KPIF, now KPI) to strip out inflation.

When the sector-specific index grows faster than the general index (as has occurred historically in Sweden), DSOs earn above the allowed WACC — over-return. If this reverses (possible with new technologies falling in price), DSOs would earn below WACC — under-return, potentially deterring necessary investment. This unpredictability undermines both regulatory objectives: correct cost recovery and investment enablement.

Intended direction: förmögenhetsbevarande princip

Switch to the förmögenhetsbevarande principen (wealth-preserving principle): assets valued at original acquisition cost (historiska anskaffningsvärden), adjusted for general inflation (KPI).

Advantages:

• Net present value neutrality — return matches the allowed WACC by construction (same index used for capital base and discount rate)
• Increases predictability for both DSOs and customers
• Reduces administrative burden — extensive normvärdes lists no longer needed
• Consistent with accounting practice
• Used by majority of EU regulatory authorities

Transition method: värdekonsistent

Three transition methods evaluated: metodkonsistent (recalculate entire history), värdekonsistent (carry forward existing values), and parallell (two separate methods coexisting).

Ei chooses värdekonsistent: existing assets retain their current value (market-valued under the capacity-preserving principle) at the switchover point. New assets from RP5 (2028) onward use historical acquisition cost.

Rationale: maintains predictability and stability for already-made investments; eliminates the risk of systematic over/under-return from RP5 forward; lower long-term administrative cost than the parallel method; precedent from other EU member states.

Real capital cost method with KPI

A real capital cost method continues to be used. KPI (konsumentprisindex) replaces KPIF as the inflation index, used both to adjust the capital base and to convert the nominal discount rate to real — ensuring consistency and net present value neutrality. First KPI adjustment at calculation of capital costs for H1 2028.

Discount rate (Kalkylräntan)

Methodology retained: WACC and CAPM

WACC (Weighted Average Cost of Capital) and CAPM (Capital Asset Pricing Model) retained — well-established, used by majority of EU regulators, supported by external consultant reports. Alternative methods (Fama-French, APT, DCM, DCF, risk premium method) assessed but rejected as adding complexity without resolving identified problems.

Real WACC maintained — inflation compensation given in capital base indexation, not in the rate.

Ei will communicate both nominal and real WACC for benchmarking transparency.

Key changes

Rationale for 8-year historical lookback (replacing forecast mix):

• Historical perspective used by majority of EU regulators for electricity/gas networks
• Eliminates inconsistency between parameters estimated with different time perspectives
• KI’s 9-year forecasts have historically overestimated the risk-free rate based on 10-year government bonds — removing forecast bias
• More predictable — stakeholders know what data will be used

Still under investigation (to be communicated during autumn 2025): beta parameter, peer company selection criteria.

Short-term revenue effect

On current trajectory: likely lower kalkylränta in RP5 than RP4, because the 8-year lookback period includes years of low risk-free rates and high inflation — pulling the real rate down. This is presented as a feature (correcting the overestimation from forecast-based methods) not a bug.

Connection fees (Anslutningsavgifter)

The problem

Currently, assets whose investment costs are fully or partially covered by anslutningsavgifter (connection fees paid by customers) are included in the capital base — generating return for the DSO even though the DSO invested no capital. This means customers effectively pay twice: once in the connection fee, and again in network tariffs.

Additional inconsistency: the effect varies depending on the DSO’s accounting principles (immediate revenue recognition vs. periodization), creating unequal treatment.

Intended direction: deduction from revenue frame

A deduction is made from the revenue frame for assets whose investment costs are covered by connection fees:

• Calculated using the same discount rate and depreciation periods as the capital cost calculation
• Applied to income from connection fees arising from RP5 (2028–2031) onward
• Connection fees recognized in RP5 that relate to income from before RP5 will also be deducted (but no return adjustment for pre-RP5 income)

Result: revenue frame only increases for the share of investment funded by the DSO’s own capital, not the customer-funded share. Same treatment for all companies regardless of accounting principles — no further need for regulatory periodization applications.

This is described as more consistent with other European countries’ approaches; Sweden’s current handling is “very unusual.”

Ei is also developing separate regulations on the design of connection fees, with a direction toward “shallow” connection fees as the main approach, with “deeper” fees for larger connections where justified by circumstances.

Cost efficiency incentives (Incitament för kostnadseffektivitet)

The TOTEX direction — the flexibility-critical reform

This is the most significant change for flexibility. Current method: benchmarking covers only påverkbara kostnader (controllable operating costs) with a minimum 1% annual efficiency requirement. Capital costs are not in scope. Result: CAPEX bias — DSOs are incentivized to invest (capitalize costs, include in regulated asset base) rather than procure flexibility services (treat as opex, subject to efficiency requirements). See Flexibility › The CAPEX bias problem.

Intended direction: TOTEX — Total Expenditure, including both operating costs and capital costs in a single benchmarking and efficiency incentive framework.

TOTEX achieves two goals simultaneously:

1. Rimlig kostnadspress (reasonable cost pressure) — individual companies benchmarked against peers
2. Lösningsneutralitet (solution neutrality) — the regulation incentivizes the cheapest solution regardless of whether it involves building new grid (CAPEX) or using existing infrastructure more efficiently, including through flexibility procurement (OPEX)

This is the reform that should eliminate — or significantly reduce — the CAPEX bias that Ei identified in R2023:05 as a structural barrier to flexibility market development.

Three TOTEX methods under consideration for local networks (lokalnät)

All three are TOTEX solutions; all replace historical reference period with actual TOTEX outcome:

Enstegsmetoden (One-step method)

• Relative benchmarking on historical TOTEX before the period → efficiency percentage
• Applied to historical TOTEX before the period → pre-determined revenue frame adjustment
• Company knows in advance how much revenue frame will change at the revision
• Simpler but uses historical costs, not actual period costs

Tvåstegsmetoden (Two-step method)

• Pre-period benchmarking sets an efficiency requirement (förhandskrav)
• Post-period benchmarking measures actual efficiency vs. the requirement
• Companies exceeding the requirement get higher revenue frame; those below get lower
• Revenue adjustment based on actual TOTEX during the period — stronger connection to real costs
• More complex; creates uncertainty about exact outcome

Norsksvenska metoden

• Pre-period benchmarking sets relative efficiency score
• Applied post-period to actual TOTEX outcome
• Industry is zero-sum: efficient companies gain at the expense of inefficient ones
• Borrowed from Norway’s regulation model

Final choice between methods not yet made — to be communicated autumn 2025.

Region and transmission networks

Different challenge: very few region networks (plus new wind park networks), so cross-company benchmarking is difficult. Continued investigation into whether efficiency requirements can be extended, and what key performance indicators (cost per MWh etc.) are most relevant.

Interaction with quality incentives

Three existing sub-incentives remain under review:

• Leveranssäkerhet (supply security/quality) incentive
• Effektivt nätutnyttjande (efficient network utilization) incentive — covers grid losses and even loading against overlying grid
• How these interact with the new TOTEX cost efficiency incentive

Summary of effects on revenue frames

Ei’s assessment of the combined effect:

Overall: dampening effect on DSO revenue frames — but framed as “balanced regulation enabling the energy transition.” The goal is not to cut revenues but to ensure they accurately reflect actual costs and create correct incentives.

Process and timeline

Relevance to the wiki

• Flexibility › The CAPEX bias problem: The TOTEX reform is the direct answer — solution neutrality through combined capex+opex benchmarking eliminates the structural incentive to prefer grid investment over flexibility procurement.
• Ei: Resolves the “Revenue cap methodology reform details and timeline” data gap. Most concrete reform plan to date.
• Villkorade Avtal: TOTEX makes flexibility (including market-based procurement) more economically attractive relative to grid expansion.
• Flexibility Market: Improves the business case for DSO flexibility procurement — if DSOs are no longer rewarded extra for capitalizing costs, procuring flexibility on opex terms becomes comparably attractive.
• Congestion Management: The tariff reform (time-differentiated capacity tariffs from 2027, connection fee reform from 2028) addresses implicit demand response incentives alongside the explicit flexibility reforms.