TenneT B.V.

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TenneT B.V.

P.O. Box 718
Arnhem,
Netherlands
Telephone: (31) 026 373 11 11
Fax: (31) 026 373 11 12
Web site: http://www.tennet.org

State-Owned Company
Incorporated: 2001
Employees: 328
Sales: EUR 416 million ($500 million) (2004)
NAIC: 221122 Electric Power Distribution

TenneT B.V., the Transmission System Operator (TSO) formed in 1998 as part of the liberalization of The Netherlands' electricity sector, oversees the country's high-voltage power grid, providing interconnection services among the country's electricity producers and regional power grid operators, as well as connections to the European power grid network. TenneT operates 380 kV and 220 kV grids on a national scale and, since its acquisition of regional grid operator Transportnet Zuid-Holland in 2003, the 150 kV grid in South Holland. The company is responsible for guaranteeing the security and continuity of The Netherlands' power supply, as well as providing connections to the power grid to customers (primarily energy producers and distributors). TenneT is also responsible for maintaining and expanding the country's high-voltage grid infrastructure. TenneT also works in partnership with other European TSOs. The company is part of the Belpex consortium, formed in 2005 in partnership with Belgian TSO Elia, French counterpart RTE, and the APX and Powernext power exchanges. In January 2006, Belpex received authorization to apply for a license to operate the power exchange in Belgium. TenneT also has formed an interconnector partnership with Norway's Statnett to lay a 600 MW subsea power cable between Norway and The Netherlands. That cable is expected to be operational by 2007. TenneT is controlled by The Netherlands' government. In 2004, the company posted revenues of EUR 416 million ($500 million).

ORIGINS IN LIBERALIZING THE DUTCH ENERGY MARKET

In most of Europe, electrical power generation was brought under direct government oversight, if not outright control, by the early 20th century. The importance of electrical power to the development of industry and modern domestic infrastructure encouraged governments to place strict controls and regulation on its generation and transmission, and for the most part the operation of the power grids became the responsibility of the national government. In The Netherlands, however, provincial and regional governments long retained a strong counterbalance to the national government. The national government first attempted to take control of the country's growing electrical generation and transmission market in 1921, establishing a government-owned national electric utility. This effort, as well as a number of others in the years leading to World War II, failed in the face of resistance from regional and local governments, which were unwilling to relinquish control of their electrical power operations.

The need to rebuild the country's electrical infrastructure, as well as the high investment costs required to modernize the country's power distribution network, offered a new opportunity to create a central body operating on a national scale. In 1949, the country's major electrical power producers joined together to form the Samenwerkende Elektriciteitsproductiebedrijven, or SEP. This body provided representation and coordination for the country's electrical power producers. SEP's first task was to establish a national power grid, and it was granted control of the country's high-voltage power grid. SEP also took charge of the national distribution of electrical power, acting as an exchange through which excess capacity and capacity shortfalls could be balanced among the Dutch provinces. In this way, the SEP helped guarantee the continuity of electrical power and the security of the Dutch electrical infrastructure, providing a backbone for the country's industrial expansion.

With electrical power generation and distribution handled by dozens of companies throughout the country, The Netherlands' electricity market remained highly innovative. The smaller companies were hampered in their ability to invest in expanding their infrastructure. Following the formation of the SEP, the Dutch government launched a new effort to streamline the industry, with the ultimate goal of creating a single, nationally operating and state-run electricity body as found elsewhere in Europe. Into the 1970s, the government had succeeded in narrowing the field to just four regional companies, EZH in the southwest, UNA in the northwest, EPZ in the southeast, and EPON in the northeast. By the end of the decade, however, the government's efforts to streamline the industry to a single company had failed.

The 1980s marked a turning point for the European electrical power market, as new European Union directives called for the deregulation and liberalization of national markets, including the ending of government-owned monopolies and the creation of a true cross-border electrical market. Toward that end, the Dutch electrical power market took its own steps toward liberalization: In a compromise agreement made with the government in 1988, the four electric utilities agreed to divide their operations into their power generation and power distribution components. This separation was only partially carried out, however, and into the 1990s, The Netherlands continued to lack a truly competitive electricity market. The liberalization of the European electrical market, launched in the 1990s, saw the rise of a number of large-scale, internationally operating companies. In order to remain competitive on this new international market, the Dutch electrical power groups began to push for further liberalization of the Dutch market. As part of that process, however, the Dutch government insisted that it be given control of the country's high-voltage grid and infrastructure. By 1998, agreement had been reached with the electrical power producers on the transfer of the high-voltage grid to government oversight, which led to the passage of the New Electricity Act and the formation of TenneT in 1998. TenneT was then placed under the oversight of the Ministry of Economic Affairs; nonetheless, SEP retained ownership of TenneT.

NATIONAL GRID OPERATOR IN 2001

Negotiations continued between the Dutch government and SEP, leading to the passage of new legislation, the OEPS Act (for Electricity Production Sector Transition Act), in 2001. This legislation stipulated that the SEP be dissolved, transferring ownership of TenneT to the Dutch government. The act also obliged the government to purchase TenneT from its previous owners. TenneT now became an autonomously operating company, and was permitted to raise capital on the free market.

COMPANY PERSPECTIVES

Mission: TenneT is the independent and impartial market facilitator in the liberalised energy market. With its high-grade transmission grid and customised services it markets and develops a comprehensive range of transmission and system services as well as supplying services aimed at boosting the market mechanism and encouraging the development of a sustainable energy supply system. All these services are made available to the market on the basis of impartiality.

Vision: TenneT is keen to take its development as a reputable TSO in the Dutch and Northwestern European market to an even higher level so as to strengthen its market position, as this would enable TenneT to be of optimum service to Dutch society, to its shareholder and to its own staff, both now and in times to come.

With responsibility for the country's 380 kV and 220 kV power grid, TenneT also was granted authority to conduct an auction for cross-border imported power, notably from Germany and Belgium. In January 2001, TenneT created a new subsidiary, TSO Auction. That company acted as an auctioneer for the country's five cross-border interconnection points between Germany and Belgium, working with its TSO counterparts in Germany (E.ON Netz and TWE Net) and Belgium (Elia) to establish the free flow of energy allotments among the three countries.

Continuing its international objectives, TenneT founded another subsidiary, Nlink, which began negotiating to create an interconnection between The Netherlands and the United Kingdom. By May 2001, TenneT also had acquired stakes in the Amsterdam Power Exchange (APX) seen as an important complement to its TSO Auction operations. At the end of 2001, TenneT joined with France's RTE and Elia to acquire control of the Powernext Power Exchange in Paris.

The Dutch government's efforts to encourage the development and use of renewable energy sources gave TenneT a new area of operation. In May 2001, the Ministry of Economic Affairs issued a decree requiring TenneT to implement a "Green Certificate" system, awarding certificates—and tax exemptions—to producers of renewable energy. In July 2001, the company launched a new subsidiary, Groencertificatiebeheer, to govern the distribution of the certificates.

TenneT explored other areas of expansion as well. In 2001, the company formed another subsidiary, Elined, in order to exploit the extra capacity of the fiber optic network that had been deployed across its high-voltage grid. That subsidiary also became responsible for leasing space on its high-voltage pylons for telecommunications and radio transmission antennas. TenneT then began negotiations with Dutch rail track management company, Railinfrabeheer, to link their fiber optic networks. These talks led to the creation of a joint venture called Relined in 2002.

INTERNATIONAL REACH IN THE NEW CENTURY

Nlink's efforts to create an interconnection with the United Kingdom paid off in 2002, with the formation of a joint venture company, BritNed, with a subsidiary of British TSO Transco. BritNed began plans to launch construction of the interconnector, which was expected to be operational as early as 2007. In 2002, as well, TenneT expanded into the United Kingdom through APX's acquisition of its British counterpart APX UK.

New Dutch legislation passed in 2003 providing subsidies for the companies meeting environmental quality standards added a further extension to TenneT's range of operations. In response, the company added a new subsidiary, EnerQ, to oversee these operations. The legislation also expanded the role of Groencertifcatiebeheer, adding oversight to more than 2,000 combined heat and power producers. As a result, that subsidiary changed its name, to CertiQ.

KEY DATES

1949:: SEP (Samenwerkende Elektriciteitsproductiebedrijven) is created by Dutch electricity producers to install and oversee a national high-voltage grid.
1998:: As part of legislation liberalizing the Dutch electricity market, SEP transfers oversight of the high-voltage grid to the Dutch government, which forms TenneT.
2001:: The Dutch government buys TenneT and SEP is dissolved; TenneT launches subsidiaries TSO Auction, Groencertificatiebeheer, Elined, and Nlink; a stake in Powernext is acquired; the APX power exchange is acquired.
2002:: Elined sets up the Relined joint venture with ProRail to link fiber optic networks.
2003:: Subsidiary EnerQ is founded; Groencertificatiebeheer changes its name to CertiQ; Transportnet Zuid-Holland is acquired as part of effort to establish full control of the national power grid.
2004:: The company acquires EnergieKreuze, an online auction serving the power and gas markets in Belgium and The Netherlands; UKPX, the largest energy exchange in the United Kingdom, is acquired.
2005:: A joint venture is formed with Norway's Statnett to construct a subsea interconnector cable between the two companies; the Belpex joint venture is formed with Powernext and Elia.
2006:: Belpex receives permission to apply for a license to operate a power exchange in Belgium.

Into the mid-2000s, TenneT launched an effort to take full control of The Netherlands' high-voltage (50 kV and more) power grid. The company made an important step toward that goal with the acquisition in 2003 of Transportnet Zuid-Holland (TZH) for EUR 249 million. That purchase added TZH's 680 kilometers of high-voltage connections, including nearly 550 kilometers of a 150 kV lines and some 180 kilometers of 380 kV lines.

TenneT expanded its power auction operations in 2004 with the acquisition of EnergieKreuze, an online auction that served as an exchange for long-term power and gas contracts between The Netherlands and Belgium. Also that year, APX joined with partners Huberator and Endex to form a new joint venture gas exchange in Belgium. The company also acquired a second British power exchange, UKPX, then the largest in the United Kingdom. The acquisition was then merged with APX, taking on the name of APX Power Ltd.

In July 2005, TenneT expanded its exchange operations again, joining with Elia and Powernext of France to form the Belpex power exchange. By January 2006, the joint venture had been given permission to apply for a license to operate in Belgium. In the meantime, TenneT had continued to seek opportunities to expand its international interconnector business. This led the company to form a partnership with Norway's Statnett in 2005. That partnership quickly received the go-ahead to construct a 600 MW subsea cable linking The Netherlands and Norway. Completion of the project was expected for 2007. TenneT had established itself as a major partner in the creation of a Europeanwide energy market in the new century.