- The regulatory frameworks in Eastern Europe, Malta, and Greece, a cornerstone of our credit rating analysis for regulated utility companies, are not homogeneous and are skewed toward an "adequate" or "strong/adequate" assessment.
- Czech Republic is an outlier, having the strongest framework ("strong" score) while Bulgaria and Malta have the weakest assessments ("adequate/weak" and "weak" scores, respectively).
- We see a strong correlation between country risk and the frameworks' overall quality, with countries having lower country risk benefitting from a stronger regulatory framework. Country risk in Eastern Europe is skewed toward "intermediate/moderately high" in our assessment.
DUBLIN (S&P Global Ratings) Sept. 18, 2023--S&P Global Ratings views the regulatory frameworks for energy (electricity and gas) and water utilities in Eastern Europe as supportive overall, albeit with some heterogeneity as they range from strong to weak, i.e. from our most- to our least-credit supportive assessments. Regulations in most countries allow for timely recovery of operating costs and capital. We consider the majority of frameworks to be predictable and transparent, which we view as credit supportive.
Table 1
Selected Eastern European utilities regulatory framework assessments | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Strong | Strong/Adequate | Adequate | Adequate/Weak | Weak | ||||||
Czech Republic | Estonia | Croatia | Bulgaria | Malta | ||||||
Hungary | Romania | |||||||||
Latvia | Georgia | |||||||||
Lithuania | Greece | |||||||||
Slovakia | ||||||||||
Source: S&P Global Ratings |
We currently rate--directly, or indirectly through a larger group--about 20 utilities operating in Eastern Europe, Malta, and Greece. These companies' total rated debt amounts to an equivalent of about €39 billion. When assessing regulated network operators' credit quality, an analytical cornerstone is our assessment of the regulatory frameworks that govern regulated utilities. Regulatory stability, tariff-setting procedures, financial stability, and the regulator's independence underpin our analytical framework. For deeper insight into the regulatory frameworks and how we assess them, see our reports on Georgia, Hungary, Latvia, Bulgaria, Czech Republic, Estonia, Lithuania, and Slovakia (listed under "Related Research," below).
Chart 1
Assessments
Table 3
Czech Republic electricity and gas: strong | |
---|---|
Regulator | Energy Regulatory Office (ERO) since 2001 |
Key players | Electricity networks |
Transmission system operator (TSO): CEPS (100% owned by government) | |
Distribution system operators (DSOs): CEZ (65% market share); E.ON (25% share); Pražská Plynárenská (10% share) | |
Gas networks | |
TSO: Net4Gas | |
DSOs: Czech Gas Networks (more than 80% share); PP, which is 75% owned by EnBW and 22% by the city of Prague (10% share); and E.ON (5% share) | |
Tariff-setting methodology | Hybrid revenue cap as a mix of allowed costs and regulatory asset base (RAB)-based allowed profits for electricity and gas |
Annual update of RAB to reflect net investments | |
DSOs can retain higher profits if efficient, efficiency factor 1.01% | |
Pre-tax weighted average cost of capital (WACC) 2021-2025 (electricity/gas [regulatory period 5]): 6.54%/6.43% |
Table 4
Estonia electricity and gas: strong/adequate | |
---|---|
Regulator | Estonian Competition Authority (ECA) since 2008 |
Key players | Electricity networks |
TSO: Estonian Elering AS | |
DSOs: Elektrilevi OÜ (93% market share), which is owned by Eesti Energia, along with 26 other operators, the main being VKG Elektrivõrgud OÜ and Imatr Elekter AS (3% share each), which operate in eastern and western Estonia, respectively. | |
Gas networks | |
TSO: Estonian Elering AS | |
Tariff-setting methodology | No set formula to calculate tariffs since 2013, mandatory annual correction of tariffs with DSOs that can apply for tariff increases/decreases |
Network fees are based on historical actual costs and forecast additional costs. The cost model does not react to inflation, for this network operators have to apply to the ECA themselves (if there is a specific need for example procurement price change, the addition of the ECA's supervision fee, etc.). The ECA uses the consumer price index (CPI) to assess the validity of future forecasts. |
Table 5
Hungary electricity and gas: strong/adequate | |
---|---|
Regulator | Hungarian Energy and Public Utility Regulatory Authority (HEA) since 1994 |
Key players | Electricity networks |
TSO: MAVIR Zrt (owned by MVM Group) | |
DSOs: Six licensed power DSOs, of which three belong to E.ON SE, two to MVM, and one to Opus Global PLC | |
Gas networks | |
TSOs: FGSZ Földgázszállító Zrt (owned by MOL Hungarian Oil and Gas PLC) | |
DSOs: 11 total, of which two belong to E.ON and three to MVM. Tigaz, the biggest DSO in the country, was sold to Opus Holding in 2021 | |
Tariff-setting methodology | Price cap |
Weighted average cost of capital (WACC) 2021-2024 (electricity): 3.36% | |
WACC 2021-2025 (gas): 3.24% |
Table 6
Latvia electricity and gas: strong/adequate | |
---|---|
Regulator | Public Utilities Commission (PUC) since 2001 |
Key players | Electricity networks |
TSO: JSC Augstsprieguma tīkls (AST) | |
DSO: JSC Sadales tīkls (owned by Latvenergo) | |
Gas networks | |
TSO: JSC Conexus Baltic Group (68.46% owned by AST) | |
DSO: SC Gaso | |
Tariff-setting methodology | Revenue cap WACC 2021-2022 (electricity): 2.65%, 2023-2024: 2.52% |
Revenue cap WACC Jan. 2020-Sept. 2023 (gas transmission): 4.22%, 2023-nondefined: 2.63% | |
Revenue cap WACC (gas storage): 2021-2025: 2.65% |
Table 7
Lithuania electricity and gas: strong/adequate | |
---|---|
Regulator | National Energy Regulatory Council (NERC) since 1997 |
Key players | Electricity networks |
TSO: AB Litgrid (97.5% owned by EPSO-G) | |
DSOs: AB Energijos Skirstymo Operatorius and four other smaller DSOs (Achema AB, Lifosa AB, Akmenes cementas AB, and Dainavos elektra, UAB) | |
Gas networks | |
TSO: AB Amber Grid (93.58% owned by EPSO-G) | |
DSOs: AB Energijos Skirstymo Operatorius (94.68% owned by Ignitis Group) and four other smaller DSOs (Intergas, Fortum Heat Lietuva, Agrofirm Josvainiai, and SG Dujos in the city of Druskininkai) | |
Tariff-setting methodology | LRAIC (long-run average incremental cost) model, which still provides operators with allowed profits based on the RAB; and the WACC. Allowed profits are recalculated annually but the WACC is fixed for the entire regulatory period |
The cost of debt is recalculated annually | |
Pre-tax WACC 2022 (electricity/gas): 4.03%/3.94% | |
WACC 2023 (electricity/gas): 4.17%/3.99% |
Table 8
Slovakia electricity and gas: strong/adequate | ||||
---|---|---|---|---|
Regulator | Regulatory Office for Network Industries (RONI) since 2001 | |||
Key players | Electricity networks | |||
TSOs: Slovenská elektrizacná prenosová sústava (100% state owned) with a 100% market share | ||||
DSO: Stredoslovenská energetika (SSE; 49% owned by EP Infrastructure, 51% state owned) with a 30% share; Východoslovenská energetika (VSE; 49% owned by E.ON 49%, 51% state owned) with a 20% share; Zapadoslovenska Energetika (ZSE; 49% owned by E.ON, 51% state owned) with a 50% market share | ||||
Gas networks | ||||
TSO: Eustream (51% state owned and 49% ownership by EP Infrastructure) | ||||
DSO: SPP distribúcia (SPP-D) (51% state owned and 49% ownership by EP Infrastructure) | ||||
Tariff-setting methodology | Price cap (WACC on RAB), with annual WACC update at the end of June for gas and at the end of July for electricity | |||
RAB is based on IFRS value and updated annually. | ||||
Correction mechanism every two years on actual D&A compared with planned D&A. | ||||
Escalation of opex (excluding perex, i.e., about 40% of opex) by the core inflation decreased by an efficiency factor of 2% per year. Escalation of perex (about 60% of opex) by the change of the nominal salary in Slovak economy without any efficiency factor. | ||||
Pre-tax WACC for 2022, electricity: 5.09%; gas: 4.36% | ||||
For 2023, electricity: 5.18%; gas: 5.24% | ||||
D&A--Depreciation and amortization. Opex--Operating expenditure. Perex--Personnel expenses. |
Table 9
Georgia electricity and water: adequate | |
---|---|
Regulator | Georgian national energy and water supply regulatory commission (GNERC) since 1997 |
Key players | Electricity |
TSO: Georgian State Electrosystem JSC (GSE) | |
DSO: Energo-Pro Georgia | |
DSO: Telasi JSC | |
Water | |
Georgia Global Utilities JSC | |
United Water Supply Company of Georgia LLC | |
Tariff-setting methodology | RCB-based revenue cap |
Electricity pre-tax WACC: 15.39% for 2021-2025. | |
Water WACC: 14.98% for 2021-2023. |
Table 10
Greece electricity: adequate | |
---|---|
Regulator | The Regulatory Authority for Energy (RAE) since 1999 |
Key players | Electricity networks |
TSO: Independent Power Transmission Operator (IPTO) | |
DSO: Hellenic Electricity Distribution Network Operator (HEDNO), owned by Public Power Corp. | |
Gas networks | |
TSO: National Natural Gas System Operator (DESFA) | |
DSO: Public Gas Distribution Networks SA (DEDA) | |
Tariff-setting methodology | Revenue cap mechanism |
WACC on RAB | |
6.7% WACC-based remuneration over the four-year period Jan. 2021-Dec. 2024, premium for specific projects |
Table 11
Romania electricity and gas: adequate | |
---|---|
Regulator | National Electricity and Heat Regulatory Authority (ANRE) since 1998 |
Key players | Electricity networks |
TSO: Transelectrica | |
DSOs: E.ON; CEZ until mid-2021 then MIRA; Enel; Electrica | |
Gas networks | |
TSO: S.N.T.G.N. Transgaz (NR) | |
DSOs: 36 independent companies | |
Tariff-setting methodology | Revenue/price cap (WACC on RAB) |
Pre-tax WACC (electricity and gas) 6.39% |
Table 12
Bulgaria electricity: adequate/weak | |
---|---|
Regulator | The Electricity and Water Regulatory Commission (EWRC) since 1999 |
Key players | Bulgarian Energy Holding (Parent) |
TSO: Electricity System Operator EAD | |
DSOs: Energo-Pro; EVN; Eurohold Bulgaria AD; EDC Golden Sands | |
Tariff-setting methodology | TSO: Cost-plus approach (WACC on RAB) over annual one-year regulatory period from July 1 to June 30 |
DSO: Revenue cap (WACC on RAB) over two and five years, normally a three-year regulatory period; price reviews are conducted annually, with pre-tax WACC updates |
Table 13
Malta electricity: weak | |
---|---|
Regulator | Regulator for Energy and Water Services |
Key players | DSO: ENEMALTA |
Tariff-setting methodology | Fixed electricity tariff since 2014. |
Full exposure to price and volume risk remains. |
Related Criteria
- Corporate Methodology, Nov. 19, 2013
Related Research
- Bulgarian Electricity Framework: Not Very Supportive, May 30, 2023
- Georgian Electricity Framework For Distribution System Operators: Somewhat Supportive, March 27, 2023
- Georgian Water Regulatory Framework: Somewhat Supportive, Feb. 17, 2023
- Eastern Europe | Credit Resilience Despite Increasing Affordability Concerns, Jan. 12, 2023
- Eastern European Utilities Handbook 2023, Jan. 5, 2023
- Hungarian Electricity And Gas Regulatory Frameworks: Supportive, Dec. 9, 2022
- Latvian Gas And Electricity Transmission And Gas Storage Regulatory Frameworks: Mostly Supportive, Nov. 30, 2022
- Czech Republic's Electricity And Gas Regulatory Frameworks: Very Supportive, Oct. 6, 2020
- Lithuania's Electricity And Gas Regulatory Frameworks: Supportive, Oct. 6, 2020
- Estonia's Electricity And Gas Regulatory Frameworks: Supportive, Oct. 6, 2020
- Slovakia's Electricity And Gas Regulatory Framework: Supportive, Oct. 6, 2020
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