NEST Gas: the rate of return is one parameter, the rulebook is being swapped

What NEST is

There was a concrete reason. The incentive regulation ordinance comes from a time when gas grids grew and power grids were administered. Neither holds any more.

What the Bundesnetzagentur lists as key points sounds like fine tuning at first: incentive regulation stays in place for all gas grid operators and electricity distribution operators, the regulatory period is shortened only from the period after next, inefficiencies are to be worked off over three years rather than five, and the return on equity moves to an international WACC model. Electricity distribution operators also get a revenue uplift of 1.4 percent, which the authority itself calls the NEST effect.

President Klaus Müller summed it up at the launch by saying cost regulation was being made more effective, simpler and above all less bureaucratic. Whether that holds for an individual application is decided in the review now under way.

What RAMEN Gas and GasNEF replace

Up to the fourth regulatory period, the rules for the revenue cap, the cost review and the efficiency benchmark sat in two ordinances: the incentive regulation ordinance and the gas network charges ordinance. For the fifth period they follow from two rulings of the Bundesnetzagentur.

In practice that means review questions settled over four periods are no longer answered in advance. BET Consulting puts it plainly. Under the new legal basis every cost item goes back on the table in full. Review steps and matters examined in the past are not necessarily taken over again.

Then the second observation from the same source: the room for discretion comes out noticeably smaller than before. Anyone who planned on regulation applied with a sense of proportion should take that assumption out of the model.

All of this reaches well past the rate of return. How the flat rate is derived and what the draft of 3.76 percent does to the revenue cap is covered in the article on the gas rate of return from 2028.

The base year is behind us

Base year 2025. One financial year sets the starting level for five years of revenue cap, and the reference window reaches back to 2023.

That is the uncomfortable side of this deadline. Discover it now and you discover it late.

All the 2026 deadlines have passed: fixed asset report on 31 March, cost application on 1 July in the standard procedure, 1 October in the simplified one. Whatever those files say carries the period.

Plenty remains open all the same. Follow-up questions from the authority, the quality of the reasoning in the accompanying report, the evidence behind contested items, and whether a given item is recognised as permanently non-controllable. That is where the application holds or does not.

Getting efficient faster

One key point from the NEST release deserves more attention than it got: inefficiencies are to be worked off over three years rather than five.

Arithmetically that is the same reduction in less time. An operator whose efficiency score sits below the benchmark has to close the gap faster. Annual burden up, total unchanged.

Shortening the regulatory period itself comes only from the period after next, according to the same release. For the faster efficiency path the authority states no such limitation. How both key points apply per period follows from RAMEN Gas rather than from a press release. This is the point where reading the ruling beats reading the summary.

Two readings of the change

Whether moving from ordinances to rulings is a break or a continuation gets two answers.

Both hold, depending on where you look. Look at the procedure and you see continuity. Write the cost application and you see the hole that four periods of review history leave when they no longer count.

What to do now

Some fifteen months remain until the start. The work sits in the running procedure, no longer in filing the application.

Four steps before the period starts

1. Go through your own review history

   Which cost items were recognised in past periods, and on what reasoning? Those items are the risk list, because their recognition no longer follows from the past. A company that knows its contested points can prepare them. A company that finds them in the follow-up question answers under time pressure.

2. Pull up the evidence behind those items

   Not the booking, the derivation. What prompted it, what the alternative was, why this amount.

3. Put the faster efficiency path into the medium-term plan

   If the reduction runs over three years rather than five, the annual burden shifts noticeably forward. Model both variants while the benchmark result is still open, and know the score at which it gets tight.

4. Read RAMEN Gas itself, not the summary

   The key points in the press release do not answer what applies to whom from when. That sits in the ruling, and the differences to the old ordinance are the actual work package for regulatory management.

Further reading

Frequently asked questions