Revenue Application

On 31 August 2004, TenneT submitted a formal application to the Dutch Office of Energy Regulation (DTe) for permission to finance the NorNed cable using regulated grid tariff revenues, under Section 31(6) of the Electricity Act 1998. The NorNed interconnector had been awarded to ABB in 2000 under a contract worth approximately $270 million covering HVDC converter stations and the majority of the submarine cables, but the project could not proceed because Dutch law required regulatory approval before TenneT could commit grid users' funds to finance the ~EUR 600 million project. The 4-year gap between the 2000 contract award and this formal application was consumed by extensive pre-application preparation, including independent economic viability studies commissioned by DTe from The Brattle Group ('The Viability of a NorNed Cable' and 'The Cost of Capital for the Nor-Ned Cable'), cost-of-capital assessments by TCA, and consultations between TenneT, DTe, and the Norwegian authorities. DTe's central concern was that under the regulatory system it was ultimately grid users, not TenneT shareholders, who would bear the economic risk of the cable project, requiring robust evidence of viability before approval could be granted. TenneT requested permission to finance both the cost of capital and operating costs of the NorNed project from the proceeds of capacity auctions on the cable.