Operational risks

With regard to the EnergyArea, the main operational risks linked to the activities of the Group subsidiaries (Acea Energia S.p.A. and Acea Produzione S.p.A.) may regard material damage (damage to assets, the shortcomings of suppliers, negligence), damage due to lost output, human resources and damage deriving from external systems and events.

To mitigate these operational risks, the companies have, since they began operating, took out a series of insurance policies with leading insurance companies covering Property Damage, Business Interruption and Third Party Liability. Particular attention has been devoted by the companies to the training of their employees, as well as the definition of internal organisational procedures and the drafting of specific job descriptions.

 

The main risks falling under the Networks Area can be classified as follows:

  • risks relating to the effectiveness of the investments in replacement/renewal of grids, as regards expected effects on the improvement of service continuity indicators;
  • risks relating to quality, reliability and duration of the works carried out;
  • risks relating to the ability to meet the terms for obtaining prescribed authorisations, regarding both the construction and start-up of plants (pursuant to Regional Law 42/90 and related regulations) and the carrying out of works (authorisations of municipalities and other similar authorisations), according to the need to develop and enhance the plants in light of growing demand.

The risk relating to the effectiveness of investments arises basically from the increasingly stringent regulation of service continuity of the Italian Authority for Electricity and Gas outlined in the previous sections (the new regulations published recently by the Authority, following a consultation process, confirm said Authority’s intention to continue with the process of improvement already started in previous cycles). To tackle this risk, Acea Distribuzione S.p.A. has strengthened the tools for analysing the functioning of the networks in order to make increasingly better use of investments (e.g. ORBT project) and applied new technologies (automation of medium voltage network, smart grid, etc.).

As far as the risk linked to work quality (letter b) is concerned, Acea Distribuzione implemented operational, technical and quality control systems, including the creation of the Works Inspection Unit, which forms part of the Quality and Safety department. The results of the inspections, which are processed electronically and analysed statistically, give rise to rankings (reputational indicators) with a vendor rating system, developed in collaboration with the University of Tor Vergata (Rome). This system ranks contractors according to their reputations, scored on the basis of their ability to meet the quality and safety standards for contract work.

 

Furthermore, this system makes it possible to apply penalties to contractors if services which are not compliant with the contract or applicable regulations are detected. In serious default cases the principal may also suspend the contractor’s activities. In 2012, as a result of 935 inspections made in said period, 8 companies, covering 23 sites (compared to 33 in 2011), had their activities suspended due to non-compliance with safety measures.

During the year, additional general improvement was recorded in the reputational indicator of companies operating on behalf of Acea Distribuzione, up from 91.47% recorded in December 2011 to 91.65%.

A similar project was launched in relation to the services assigned to the external professionals involved in works planning and execution activities.

The risk relating to the ability to meet the terms arises from the number of entities which have to be addressed in the authorisation procedures and from the enormous uncertainties linked to the response times by these entities; the risk lies in the possibility of denials and/or in the technical conditions set by the above entities (such as the construction of underground rather than above-ground plants, with a subsequent increase in plant and operating costs). It should also be noted that lengthy proceedings result in higher operating costs, are difficult to deal with for operating structures (drafting and presentation of in-depth project examinations, environmental assessments, etc.) and require participation in service conferences and technical meetings at the competent offices. During these conferences and meetings, as noted, the Company participates both to provide clarifications on the project documents and to adapt them to the requirements of the Authorities called to issue the authorisation. However, a substantial risk remains, linked to the non-obtainment of authorisations, with the result being the inability to carry out activities on the network and therefore, greater risk linked to the technical performances of the service (the procedure for the construction of the new Parco dei Medici primary station as well as the procedure for redevelopment of the high voltage network in the Southern and Northern areas of Roma Capitale, as set forth in the specific Memorandum of Understanding, the update of which was signed by Acea Distribuzione, Terna and the municipality of Rome on 17/03/2010, are currently experiencing difficulties). Lengthy response times from certain administrative bodies consulted (which extend well beyond the technical times necessary) represents a particularly critical element. However, the proceedings referred to are continuously monitored by the Operational Planning Department, in order to manage emerging critical issues (for example administrative actions implemented by the Company to challenge the undue seizure of the work site for the construction of the new Malagrotta HV station, or the planning of updates/changes to HV network modernisation projects in the Southern area).

 

As regards Environment Area companies, the Terni and San Vittore del Lazio plants are involved in optimisation and revamping projects which present the risks typical of the realisation of complex industrial infrastructures. Said risks present the real possibility of delays in construction or imperfections in the execution of works commissioned, as regards the revamping activities underway.

Said risk has been mitigated by the implementation of the proper organisation of works management and monitoring aimed at controlling the times and quality of the work carried out.

By contrast, as regards the operational phase, any interruption to the waste-to-energy activities carried out at the Terni and San Vittore plants or to the waste treatment activities of SAO S.r.l., based on the fact that they are linked to the production of electricity under the CIP 6/92 regime and to the provision of public services, could have negative repercussions.

Any impact would be reflected in both the companies’ economic results and in terms of their commitments to public and private waste management customers. In this context, an unscheduled plant shutdown puts the companies’ ability to achieve their business objectives at real risk.

The waste-to-energy plants, as well as, to a lesser extent, the waste treatment plants, are highly complex from a technical point of view, requiring the companies to employ qualified personnel and organisational structures with a high level of know-how. The need to maintain the plants’ technical performance levels and to prevent personnel with specific expertise (who are difficult to recruit) leaving the companies represent real risks.

The companies in this area have mitigated these risks by implementing specific maintenance and management programmes and protocols, drawn up partly on the basis of their experience in managing the plants involved.

Moreover, the plants and the related activities are designed to handle certain types of waste. The failure of incoming material to meet the necessary specifications could lead to tangible operational problems, such as to compromise the operational continuity of the plants and give rise to risks of a legal nature.

 

For this reason, specific procedures have been adopted for monitoring and controlling incoming materials via spot checks and the analysis of samples pursuant to the legislation in force.