Other problems

ACEA Ato5 - Tariff

Due to the significant shift in actual operating costs compared to those set forth in the Area plan, in 2006, the company asked the Authority of ATO 5 - Southern Lazio - Frosinone for the recognition of higher actual costs incurred by the Company.

With Resolution 4/2007, the Area Authority partially recognised the total amount of higher operating costs incurred by the company and also heavily penalised - for 6,896,000.00 euros - the Operator for inadequate investments in 2003-2005.

After the aforementioned resolution, the enquiry launched by Co.Vi.Ri occurred, at the end of which Resolution no. 7 of 1.12.2008 was issued, providing findings on the Area Authority’s determination of the tariff. Those dual positions were then defined within the scope of a settlement deed between the A.ATO and the company, approved with resolution of 2007 and subsequently signed by the parties.

However, the complex situation of integrated water service management in ATO 5 of the Province of Frosinone did not end there given that, in response to the Co.Vi.Ri. resolution noted above, the Mayors’ Conference of the municipalities of ATO 5 decided, in Resolution no. 3 of 27.1.2009, “to not appeal to the Regional Administrative Court for the cancellation of Co.Vi.Ri. decision no. 7 of 1.12.2008” and “to immediately initiate the procedure aimed at compliance with all requirements set forth by Co.Vi.Ri”.

The aforementioned procedure concluded - after a good 12 months - with Mayor’s Conference resolution no. 5 of 21.12.2009, in which the AATO ordered “to cancel Mayor’s Conference resolution no. 4 of 27.02.2007”.

As a result, with the goal of preventing a long dispute that could have negative effects for the interests of end users and the best service management, ACEA Ato5 initiated the attempt at mediation envisaged in the Agreement, which however ended with no result since the AATO was not willing to seek out any settlement of the issue which was suitable to ensure service continuity, to protect the fair expectations of end users.

Therefore, the company - deeming the aforementioned resolution seriously and irremediably illegitimate - proceeded with challenging it before the applicable Lazio Regional Administrative Court.

Among other elements, given the inaction of the AATO with respect to the adoption of the deeds for which it is responsible, in note prot. 7269 of 31.03.2010, the company sent an express request for participation in the procedure, requesting:

  • “to be promptly informed in advance concerning the possible solutions, in order to be able to represent its interests pursuant to and with the procedures set forth by the law”;
  • “to be informed whether, to date, Presidential Resolution no. 1 of 5.03.2008 has been cancelled”;
  • “to be informed of the proposal prepared “by the competent bodies, with the support of the Operational-Technical Secretariat” relative to the “real average tariff for the years 2006, 2007, 2008 and 2009 calculated on the basis of laws and the contract (...)”;
  • “to be informed of what the Mayors’ Council had decided concerning the aforementioned proposal”;
  • “to be informed of the date, time and place of the Mayors’ Conference - which, in any case, should take place “by and not after 31 March 2010” - at which the proposal approved by the Mayors’ Council should be presented”;
  • “to be informed of the temporarily authorised tariffs which the Operator must apply for billing purposes”.

Completely disregarding the aforementioned petition, the Area Authority - with Mayors’ Conference resolution no. 3 of 8 April 2010 - set forth “for 2010, the temporary application of the real average tariff in force in 2005 and the associated tariff structure, pursuant to Presidential Resolution no. 1 of 14 March 2006, without prejudice to any subsequent adjustments to be applied non-retroactively”.

The company immediately highlighted the illegitimacy of the aforementioned resolution given that it:

  • was passed by the Area Authority in complete breach of the participation rules established by Law 241/1990 as amended and without carrying out any enquiry that could make it possible to assess the suitability of the tariff based on the individual items of the tariff and, therefore, in a manner completely inconsistent with the procedure outlined in the Standard Method;
  • the 2010 tariff based on the 2005 tariff was not even adjusted for planned inflation and, therefore, is greatly lower than that determined for 2010 during the tender.

In light of the foregoing considerations, ACEA Ato5 - without prejudice to the outcome of the dispute underway concerning the 2006-2009 tariff - sent a notice to the Area Authority warning it to promptly revise Area planning with regard to the current regulatory period and, in this context, to calculate the definitive 2010 tariff in compliance with current applicable regulations.

After all, even Co.N.Vi.R.I. highlighted the illegitimacy of the 2010 tariff, observing that “it is not correct to apply the real average tariff from the year 2005 in 2010” and requesting that the same Area Authority “adopt the applicable measures applying the real average tariff set forth in the Area Plan for the year 2010.”

Subsequently, said Co.N.Vi.Ri. - by means of resolution no. 39 of 21 July 2010 – further clarified that the Area Authority is obliged to resolve, on an annual basis, a real average tariff which, “multiplied by the volume than can be provided, determines the total revenues which ensure the Operator has the possibility of carrying out the forecast investments” with the result that "a real average tariff not in line with the Area Plan would not allow the Operator to make the forecast annual investments”.

In this context the company - although deeming the actions of the Area Authority to be seriously illegitimate - immediately reported and repeatedly highlighted, to both the Administrations involved in the issue for various reasons and the end users, that it was willing to come to an agreement on solutions, even temporary, which would ensure the regular running of the service pending the settlement of the disputes underway, committing to proceed with the relative adjustments in favour of end users if the illegitimacy of the tariff increases set forth were effectively ascertained.

In this context, the company – in the belief that a solution to the problem can no longer be put off and while awaiting a resolution of the ongoing dispute – notified all bodies and natural persons of the Area Authority (President, Operational-Technical Secretariat, Mayors) of an extra-judicial demand so that they would, within 30 days:

  • calculate the definitive 2010 tariff - correcting and updating the temporary tariff - in compliance with the applicable regulations in force;
  • conclude the Area planning review procedure for the 2011-2012-2013 regulatory period in compliance with regulations in force on the topic while also determining the 2011 tariff;
  • in the calculation indicated in the point above, take into account the damage and problems resulting from the delay in adopting this determination, therefore identifying the means and measures for remedying those damages.

The same deed was also sent to Co.N.Vi.R.I. and to the Lazio Regional Government so that, insofar as each is responsible, they could pass measures aimed at discouraging the continuation of the ongoing illegitimate situation.

At the same time, the Company assigned lawyers to assess the prospect of terminating the Agreement due to breach of the Area Authority which, in any case, would have had to be resolved on in advance by the applicable bodies of the Company and the Parent Company.

In the meantime, the President of the Area Authority called, first on 29 December 2010 and then on 10 January 2011, the Mayors’ Conference, to which it proposed (i) to make the 2005 tariff definitive for 2010, (ii) to enforce the guarantee and initiate the procedure aimed at terminating the management agreement and (iii) to take legal action to cancel the settlement deed.

The meeting did not pass a resolution due to lack of a quorum, and it was therefore called to meet again on 24 January 2011 in order to resolve on the same Agenda as in the previous meetings. Subsequently, the AATO President sent his report to all control bodies.

ACEA Ato5 then assigned the Company’s lawyers to prepare a notice to perform against the AATO President.

The appeal was promptly submitted, the hearing was held in May 2011 and, on 20 June 2011, the sentence was published whereby the Lazio Regional Administrative Court, Latina section, upheld the appeal filed by the company and "... by effect, ordered Area Authority 5, as per art. 117 of Italian Legislative Decree 104 of 02.07.2010, to conclude the proceedings for determining the integrated water service tariff by the deadline of 120 days from the notification or communication by administrative procedure of the aforementioned decision".

Furthermore, in upholding the specific request put forth by the company, the Regional Administrative Court also appointed a Commissioner for deeds - if the awarding Authority continued not to act - represented by the Chairman of Co.N.Vi.Ri., so that the procedure in question could be completed, with that Administration bearing the relative expenses.

Following the AATO’s inaction, on 9 March 2012 the measure of the Commissioner for deeds was disclosed (Decree no. F66 of 8 March 2012), on the “Determination of the integrated water service tariff applicable for 2012 in ATO 5 Southern Lazio – Frosinone” which set the Real Average Tariff for 2012 at € 1.359 m3.

On 9 May 2012, the appeal of A.ATO 5 was filed for the cancellation of said measure of the commissioner, along with a request for suspension.

At the hearing on 7 June, with Order no. 187/2012, the Regional Administrative Court rejected the appeal lodged by A.ATO 5 since “it lacks fumus boni juris in relation to the first and third grounds for appeal, while it lacks periculum in mora in relation to the second grounds (taking into consideration an item associated with the return on invested capital in calculating the tariff) [...]”.

The A.ATO appealed that Order before the Council of State which, following the hearing held on 26 September 2012, with Order no. 3831/2012, rejected the appeal, deeming that “the execution of the challenged decree of the commissioner “is not suitable to cause serious and irreparable damage pending the definition of the trial proceedings” and deeming, in particular, that “the establishment, contained in the commissioner resolution in question, of the allocation of tariff amounts collected by the operator as return on invested capital constitutes [...] a precautionary measure aimed at reconciling the interests in question so as to exclude the fulfilment of the requirement of periculum in mora”.

As part of his duties, on 28 June the Commissioner for deeds prepared a Report on the “choice of criteria, tariff verification and management for the years 2006 to 2011, estimate of the adjustments and service levels”. After reapplying the powers assigned under Sentence 529/2011 and subsequent administrative action implemented, the Commission verified (i) the real average tariff and related planning documents from 2006 and (ii) the operating performance 2006-2011. To summarise, 56.6 million euros were estimated in favour of the company, to be taken into account in defining the values for the new Area Plan and 32.7 million euros not recoverable on review, but valid for the Area Authority as a result of A.ATO Instruction no. 3/2010 in which the real average tariff for 2005 was established for 2010.

The amount recognised to the company excludes the related portion of the concession fee, the review of which by the S.T.O. of AATO 5 is not yet complete.

The A.ATO submitted an appeal on additional grounds in the proceedings under general registry no. 402/2012, pending before the Latina Regional Administrative Court, requesting the cancellation of the Report of the Commissioner for deeds on the stage of completion of works.

To date, the appeal has not yet been filed and, in any case, the suspension of the aforementioned Report has not been requested.

After the resignation of the Commissioner for deeds on 4 June 2012, the Lazio Regional Administrative Court identified the President of AEEG (or his representative) as the new Commissioner for deeds, who shall have the task of concluding the procedure, the deadline of which was set for 31 May 2013 after the Commissioner requested an extension.

Note that at 31 December 2011 ACEA Ato5 had allocated a provision for liabilities amounting to approximately 30 million euros, which could be subject to decrease following finalisation of the procedure to identify the methods and timing for recovery of the adjustments quantified by the Commissioner for deeds in the document of 28 June 2012.

 

ACEA Ato5 – Enforcement of guarantee

As regards the enforcement of the surety of 2,843,622.02 euros carried out by A.ATO 5 on 14 December 2011, having assessed the risk of future repeated, groundless and arbitrary enforcements, the company initially decided not to proceed with re-establishing the underlying guarantee, while awaiting the definitive decisions of the Commissioner for deeds. This should also be viewed in light of in-depth judicial-legal evaluations which showed that the failure and/or delay in respect of reconstitution of the aforementioned guarantee is the equivalent of the mere non-fulfilment of a contractual obligation on the part of the Integrated Water Service Operator, not entailing any penalty and not envisaged as one of the reasons for termination of the Management Agreement.

However, following repeated contacts and negotiations, Unicredit reformulated its request in a manner more favourable to the company, involving the acquisition only by the shareholder ACEA of a company back-to-back surety guarantee in the amount of 2,843,622.02 euros, so that the guarantee in favour of the A.ATO was subsequently re-established and reissued.

 

ACEA Ato5 - Injunction Order requested for credit collection on the settlement agreement of 2007

With regard to the 10.7 million euro credit for higher costs incurred in the 2003-2005 period, pursuant to the Settlement agreement of 27 February 2007, on 14 March 2012, ACEA Ato5 lodged an appeal for an injunction order concerning the credit recognised by the A.ATO to the company.

Accepting the appeal, the Court of Frosinone issued Injunction Order no. 222/2012, enforceable immediately, notice of which was served to the Area Authority on 12 April 2012.

By notice dated 22 May 2012, the AATO sent notice of its opposition to the injunction order, requesting the cancellation of the order and, as a precautionary measure, the suspension of its provisional enforcement. Moreover, as a counterclaim, it submitted a claim for the payment of concession fees totalling 28,699,699.48 euros.

ACEA Ato5 appeared before the court in the proceedings against the injunction order, challenging the adversary’s demands and in turn formulating a counterclaim for the payment of the entire amount of higher costs incurred by the Operator and originally requested, totalling 21,481,000.00 euros.

Following the hearing on 17 July 2012, the Judge - in an Order filed on 24 July - suspended the temporary enforcement of the injunction order, and postponed to a later date the discussion of the merits of the issue.

At the following hearing, the A.ATO filed a claim pursuant to art. 186-bis of the Code of Civil Procedure, for the issue in its favour of an order for the immediate payment of the amounts allegedly owed by the company which - in its opinion - ACEA Ato5 had not challenged in court, totalling 20,574,632.55 or, alternatively (subtracting the amount not due because of the inoperativity of the Atina, Cassino Centro and Paliano plants), 20,144,137.06 euros, or as a last alternative, 9,444,137.06 euros (that is, the preceding amount, minus the amount subject to the injunction order).

At the request of the company’s lawyers, the judge postponed the hearing for the discussion of the aforementioned claim and granted ACEA Ato5 the possibility of submitting its comments until ten days before the aforementioned hearing.

Subsequently, during the oral hearing the company highlighted that the sums requested by the A.ATO have always been fully contested in terms of the existence and the amount, not only in these proceedings bit also in prior disputes and more generally within the scope of the relationship with the Area Authority and, therefore, the requirement of “no challenge” needed to accept the A.ATO’s claim is not fulfilled.

In that regard, the judge rejected AATO 5’s request for the issue of an order for payment of the sums that the same Authority alleged were not challenged in court, specifying that ACEA Ato5 had contested in court the collectability of the concession fees and that, therefore, the conditions for issuing issue the requested measure were not satisfied.

 

GORI – Dispute over water supplies

The dispute with A.R.I.N. S.p.A. (ARIN) continues in relation to the cost of water supplies provided in favour of ATO 3. ARIN is the 100% subsidiary of the Municipality of Naples, in whose area it operates the water service under the in-house providing model. The Municipality of Naples forms part of the area covered by ATO 2 “Naples-Volturno” in the Campania region. ARIN - on the basis of very old concession agreements (some even dating back to the Bourbon reign) - uses its own source of supply and also purchases water from the Campania Regional Government. ARIN currently makes direct arrangements to supply water wholesale to certain municipalities, to GORI and even to the Regional Government. The anomaly found, and for which the ongoing dispute between ARIN and GORI arose, consists of the fact that ARIN applies a tariff of 0.47376 euros per cubic metre (around three times the current regional tariff) to sub-suppliers: municipalities, GORI and the Region. In fact, while the tariff applied by the Regional Government is 0.1821 €/m3, the tariff applied by ARIN to the Campania Regional Government is instead 0.47376 €/m3 (approximately triple the regional tariff in force and roughly 10 times more than the tariff of the aforementioned former agreement, if applied) with a significant margin on the exchange of the resource. Vice versa, ARIN should be applying the tariff for water distributed wholesale in compliance with the EU and national cost orientation principle, i.e. with the aim of recovering only “actual costs” incurred to distribute the water, also given the fact that ARIN is not entitled to sell water wholesale. As already mentioned, the tariff of 0.47376 euros per cubic metre is charged by ARIN also for supply to GORI, as the tariff for inter-ATO supply has not yet been established according to law (the duty of the Campania Regional Government and the Area Authority). In that regard, please note that art. 11 of Regional Law no. 14/1997 (law implementing the Galli Law) sets forth that: “Any interference between the integrated water services of different ATOs, with particular regard to the transfer of resources and the common use of infrastructures, are governed by dedicated agreements between the Area authorities on the basis of the instructions provided by the Regional council”.

However, to date, the Regional council has not yet provided instructions. It should be specified in any case that this situation obviously brings about an increase in the cost on the integrated water service tariff of ATO no. 3, with repercussions on end users in the municipalities of that ATO.

The above considerations were extensively reported and discussed at a Services Conference called for this purpose by the Sarnese Vesuviano Area Authority, during which it was considered - following the outcome of a special technical investigation - that the operating costs for abstraction works are considerably lower than the tariff applied by ARIN. In fact, the management costs of the abstracting works incurred by ARIN, would not exceed 0.1 euro/m3 in consideration of the fact that wholesale water transport/distribution takes place by gravity and, that is, without the need to incur the typical and significant costs (mostly energy costs) of “pumping” the water. Moreover, it does not appear to be justifiable that the municipality of Naples determines tariffs (applied by ARIN) which impact the end users of other municipalities and even of another ATO (ATO no. 3, precisely).

For these reasons, it is recalled, a dispute is ongoing between ARIN and GORI, which involves 9 proceedings pending before the Naples Court of Appeal, the Court of Naples and the Court of Nola.

Furthermore, the recent tariff instructions and measures adopted by the AEEG call into question the tariff system applied by ARIN (and approved by the municipality of Naples).

In relation to the dispute between the Campania Regional Government and its operator Acqua Campania S.p.A. (“Acqua Campania”), as one party, and the Area Authority and GORI as the other party, it should be remembered that this is essentially focused on the dispute regarding the exact calculation of the price of water and, in more general terms, the services provided (fresh water supply and treatment plant management) by the Campania Regional Government and/or Acqua Campania to ATO 3 and to the transfer of works/infrastructures currently managed by the Regional Government, though falling in the territory covered by ATO 3 and the responsibility of the integrated water service of that ATO. 26 proceedings are currently pending before the Court of Naples and the Court of Torre Annunziata, corresponding to claims brought by Acqua Campania to order amounts due for water supply services provided in favour of ATO 3. More recently, and for the same reasons, a writ of summons was served by Acqua Campania with a claim ordering payment of approximately 148 million euros as the amount due for the water service provided from 1 January 2005 to 31 December 2010.

Note that on 22 May 2012 Division IV of the Court of Naples issued sentences 6010/12 and 6037/12 which accepted the claims of Acqua Campania against the municipalities of Castello di Cisterna and Egidio Monte Albino, respectively, and also against GORI and the Area Authority. It therefore seems reasonable to assume that the Court considered the absence of an agreement between the Campania Regional Government and GORI to be a nullifying element for the purpose of the decision.

In any event, pending the definition of the agreement to regularise and normalise relations between the Regional Government, the Commissioner of the Sarnese Vesuviano Area Authority and GORI, note that the Memorandum of Understanding of 15 December 2006 between the Campania Regional Government, the Area Authority and GORI specifically established, amongst other things, that the Campania Regional Government, also pursuant to art. 1381 of the Italian Civil Code, must “... hold the Area Authority and GORI harmless - limited to the period following actual start-up of management of the integrated water service by GORI in each municipality - (i) in relation to any right and/or claim and/or charge, also through its operator and/or agent ACQUA CAMPANIA S.p.A., for any purpose or reason, made against the Area Authority and/or GORI S.p.A. and/or other Authority (Local or Special Entity) regarding and with respect to services provided by the Regional Government and/or ACQUA CAMPANIA S.p.A. in any manner referring to the integrated water service, and (ii) in relation to any prejudice arising from legal action brought by ACQUA CAMPANIA S.p.A. against the Area Authority and/or GORI S.p.A. and/or other Authorities (Local or Special Entity) again with regard to services provided by the Regional Government and/or ACQUA CAMPANIA S.p.A. in any manner referring to the integrated water service; 2.2. to obtain from ACQUA CAMPANIA S.p.A. the waiver of all legal action (and the waiver by special powers of attorney established of joint liability pursuant to art. 68 of the Professional Law) pending before the Court of Naples ... and before the Court of Torre Annunziata ...”.

Lastly, it should be emphasised that negotiations are at an advanced stage to overcome this dispute for the purpose of normalising relations. In fact it is expected that the respective administrative bodies approve the framework agreement governing relations between the Campania Regional Government, the Area Authority and GORI which, amongst other things, envisages the full conclusion of the aforementioned dispute.

Further details on this issue are provided in the section “Service concession arrangements”.

The signing of the aforementioned agreement, after approval from the administrative bodies of the parties involved, along with conclusion of the issue of the BIIS loan and determination of the tariffs which make it possible to obtain adequate financial resources to pay the amounts due to the Campania Regional Government through Acqua Campania, should allow GORI to guarantee its going concern assumptions.

Currently, the approval of the draft agreement is still pending, and it could be changed, in terms of some formal and substantial aspects, compared to that approved by the aforementioned General Meeting of the Area Authority.

Therefore, in order to overcome these significant uncertainties, in 2011 ACEA decided to allocate a provision for liabilities which amounts to 39.2 million euros at 31 December 2012.

 

GORI - Dispute with the Commissioner appointed for the social-economic-environmental emergency in the Sarno river water basin

On 29 March 2011, the Appointed Commissioner for the social-economic-environmental emergency in the Sarno river water basin obtained injunction order no. 371/2011 issued by the Campania Regional Administrative Court (Naples), ordering the Area Authority and GORI - as jointly liable - to pay the sum of 5.5 million euros, plus accessory costs, to the Appointed Commissioner as sums due for their part of the loan for which they were deemed liable under the terms of the Memorandum of Understanding signed on 19 March 2004 between the appointed Commissioner, the Campania Regional Government, the Area Authority and GORI. Though this was duly challenged, by sentence no. 6003 of 21 December 2011 the Campania Regional Administrative Court (Naples) confirmed injunction order no. 371/2011.

Consequently, the Area Authority and GORI filed an appeal before the Council of State, which on 24 April 2012 issued order no. 1620/12 which suspended the effects of the sentence challenged until a decision was made on the merits. Currently, the appointed Commissioner has not yet requested that a hearing be set for the discussion of the merits.

 

A.R.I.A.

In January 2013, some owners of real estate located in the region surrounding the area occupied by the San Vittore del Lazio waste-to-energy plant served the company with a writ of summons for compensation for damages, in the amount of 3.5 million euros, claiming a series of issues related to the functioning of the plant (noise emissions, violations of the right to views, night-time light pollution, excessive transit of heavy vehicles, electricity supply irregularities, bad smelling fumes, and others), requesting that the company be sentenced to compensate property and other damages, to provide fair compensation in favour of the claimants to the extent set forth, unless determined at a higher amount during the proceedings, for moral damages, as well as other damage items to be quantified during the proceedings, in addition to legal interest and inflation adjustment and with the award of costs. The hearing is set for 2 May 2013. The company is preparing the necessary defensive actions.

In January 2013, the company appealed before the Lazio Regional Administrative Court for the cancellation of Ministry of Economic Development (MSE) Decree of 20 November 2012 on “New methods for determining the avoided cost of fuel component (CEC), pursuant to measure Cip 6/92 and determining the value of the CEC adjustment for 2011”, as well as all underlying, resulting and in any case connected deeds, including the AEEG proposal adopted with resolution PAS 9/10, note prot. no. GSE/P20120233904 by the national grid operator of 21/12/2012, received on 3 January 2013, and concerning the “Updating of prices for electricity transferred to the national grid operator in 2010, 2011 and 2012 under the allocated transfer agreements pursuant to Measure CIP no. 6/92”, as well as the Procedure pursuant to art. 3, paragraph 5, of Ministry of Economic Development Decree of 20 November 2012, published by the national grid operator on 25 January 2013.

The determination of the CEC set forth in that Ministerial Decree, which caused a reduction in the energy sale price under the CIP 6/92 regime beginning in 2010, was deemed illegitimate by the company and other operators as concerns various aspects which include, inter alia, the violation of the legitimate confidence of operators in the stability of the economic conditions of CIP 6/92, also with particular reference to so-called “pre-chosen initiatives” as well as the violation of the principle of certainty of juridical and legal relations. 

With Opinion 535/2012/EEL of 13 December 2012, the AEEG sent a proposal to the Ministry of Economic Development for the definition of the methods for updating the advance and adjustment values of the Avoided Cost of Fuel (CEC), pursuant to Measure CIP 6/92, taking into account some evolutions in the gas market.

In summary, the proposal sets forth that:

  • the component relative to the value of natural gas raw materials (CECgas) is calculated on the basis of the value of gas exchanged for the purpose of balancing;
  • the component relative to the transport costs (CECtrasp) is revised net of the portion relative to transport fees incoming to the gas network and the variable prices applied to the volumes injected;
  • the component relative to the wholesale marketing margin (CECcom) is removed.

The proposal developed by the AEEG pursuant to art. 30, paragraph 15 of Law no. 99 of 20 July 2009 is not binding for the Ministry, which is responsible for the final decisions concerning the updating procedures. If the updating criteria defined in the proposal are applied already beginning from the 2012 tariff adjustment, this could cause a negative impact on 2012 revenues estimated at approximately 2.3 million euros.

During 2003, a company, acting on behalf of a consortium of municipalities, brought an action against incorporated company E.A.L.L. aiming at obtaining the payment of damages (9.9 million euros) for an alleged breach of contract by incorporated company EALL. During 2005, the Consortium, which had in the meantime been converted into a joint-stock company, brought an action supporting the claims put forward by the original plaintiff. With ruling no. 300/2010 of 27/04/2010, the Court rejected the appeal filed in by the plaintiff and the Consortium, and forced the counterparty to pay the legal costs borne by the company. The aforementioned Consortium, now a joint-stock company, challenged the aforementioned ruling. The company appeared before the court. The hearing for the presentation of closing statements at the Rome Court of Appeal has been set for June 2016.

In April 2011, the contractor of the works relating to the contract for the execution of civil works on the first line of the San Vittore del Lazio plant, signed in December 1997, submitted a request for arbitration for the recognition of the amounts relating to the reservations appended to the 9th SAL (progress report) of June 2002. The sum requested in relation to the aforementioned reservations is equal to around 1.2 million euros. The Board of Arbitration has been installed and has started its activities, ordering, inter alia, the appointment of an expert witness, whose activities are ongoing. The company, through its appointed legal representative, is preparing all necessary defence actions. The activities relating to the appointed expert witness have been completed.

In March 2011, GSE S.p.A. requested a total of 1.1 million euros plus VAT from incorporated company EALL S.r.l., deeming the final quantification of the number of green certificates issued to said company for the years 2006, 2007, 2008 and 2009 to be incorrect. In May 2011, the company submitted an appeal to the competent Regional Administrative Court, requesting cancellation of the GSE S.p.A. provision. The cost is allocated to the Group's provisions for liabilities.

 

Antitrust Authority investigation of the acquisition of Publiacqua

On 28 November 2007, ACEA was notified of the Antitrust Authority’s ruling, in which, following an enquiry which lasted around eighteen months on potential violations on the part of ACEA, Suez Environnement and Publiacqua regarding competition regulations (art. 101 EU Treaty, formerly art. 81 of Treaty of Rome - anti-competitive agreements) in relation to the joint acquisition of a 40% stake with SUEZ, in Publiacqua, ATO operator in Florence, it essentially:

  • deemed that a horizontal agreement existed between ACEA and SUEZ in the integrated water services sector, which is managed by a public-private partnership in which the private partner is selected via a tender process;
  • ruled that the parties should take actions to avoid repetition of the sanctioned behaviour, with the Authority to be notified of the nature of such actions within 90 days, and also amend the rules governing the partnership regarding the part deemed to be in violation of competition regulations;
  • ordered ACEA and SUEZ to pay fines of 8.3 million euros and 3 million euros, (the difference in the amounts derives from their respective turnovers in the relevant sector in Italy).

ACEA filed an appeal against this order before the Lazio Regional Administrative Court, which on 7 May 2008 announced the related sentence, finding in ACEA’s favour and cancelling all the rulings and the fine imposed. Details of the sentence, upholding all of the appellant’s arguments, were published at the end of June.

In the corresponding enforcement, on 11 June 2009, the Ministry of Economy and Finance ordered the return of the penalty of 8.3 million euros paid by ACEA in February 2008.

On 24 September 2012, the Council of State, to which an appeal had been submitted by the Antitrust Authority (AGCM) against the Regional Administrative Court decision which had cancelled the AGCM measure requiring ACEA (and Suez Environnement) to pay a penalty of 8.3 million euros (and 3 million euros), handed down its ruling.

The Council of State cancelled the ruling of the Regional Administrative Court, to which ACEA had appealed, and rejected the cross-appeal filed by ACEA.

ACEA paid the 8.3 million euro fine in November 2012. Fault was found with the Council of State decision on the basis of legal doctrine, due to its opposition to EU regulations on competition, and the company is assessing the means by which it can further have its claims heard.

 

ACEA Luce

By means of deed notified on 7 February 2011, the companies Manutencoop Facility Management (“MFM”) and SMAIL (formerly ACEA Luce) submitted an request for arbitration against ACEA and ARSE, pro-quota sellers of 100% of the share capital of ACEA Luce: the applicants are requesting a ruling against ACEA and ARSE due to the (alleged) non-fulfilment or negligence as regards contractual obligations and, therefore, the termination of the purchase contract and subsequent return of the sum paid (3 million euros), plus additional costs, and compensation for damages of roughly 7 million euros.

In support of the requests, MFM essentially believes that the elevated number of claims raised by said party after the transfer, due to an alleged breach of the contractual guarantees, would demonstrate actual divergence between the facts in the summary obtained and the contents of first the due diligence and later the contract.

In checking the claim notices presented by the acquiring party subsequent to the acquisition, ACEA and ARSE, have, in some cases, accepted responsibility for the facts revealed therein, by paying, or undertaking to pay at the time the associated obligation assumes a definitive nature, some amounts, although modest in said context. However, in the majority of the cases, the inferred liability was challenged and rejected.

Otherwise, the purchase contract for the equity interest envisages, on one hand, that the financial compensation constitutes the only solution actionable by the acquiring parties in the event of an incomplete or incorrect declaration and, on the other, that the associated liability of the grantors is restricted to a maximum limit of 1,250,000 euros, to be enforced in accordance with the methods and timeframes better detailed in said act. However, ACEA actioned, by way of a counterclaim, its receivables due from SMAIL for around 6.5 million euros, deriving from electricity provided and still not paid.

In September 2012, the parties signed a settlement deed aimed at settling the dispute: on the basis of that deed, SMAIL paid ACEA 5.7 million euros in October, as the difference between ACEA’s receivable for the supply of electricity and the total amount of the sums recognised for the final settlement of all claims or demands of MFM/SMAIL generated by the execution of the former Acea Luce agreement.

The arbitration award was definitively abandoned with each party bearing their respective legal costs and MFM/SMAIL waived any additional claim or demand.

 

E.ON. Produzione S.p.A. proceedings launched against ACEA, ACEA Ato2 and AceaElectrabel Produzione

These proceedings were launched by E.ON. Produzione S.p.A., as successor to ENEL regarding a number of concessions for the abstraction of public water from the Peschiera water sources for electricity production, to obtain an order against the jointly and severally liable defendants (ACEA, ACEA Ato2 and AceaElectrabel Produzione) for payment of the subtension indemnity (or compensation for damages incurred due to illegitimate subtension), which remained frozen in respect of that defendant in the 1980s, amounting to 48.8 million euros (plus the sums due for 2008 and later) or alternatively payment of the sum of 36.2 million euros.

The question of the amount and the assumptions appears to be based on dubious grounds and, in any case, the early stage of the proceedings does not allow for forecasts.

The only significant development of note is the decision of the TRAP (Regional Court of Public Waters), before which a ruling is pending regarding the matter in question, to arrange for CTU (court-appointed expert) as regards the values of subtension for branching off, and subsequent reduction in hydroelectric production, and indemnities due. The expert’s report shows a calculation according to which the claims actioned in the proceedings, even when unfounded - which is dubious, because the documents containing the metering parameters of the compensation are still deemed to be applicable and effective - would be greatly altered, substantially reducing the amount of equalisation already estimated by the company.

 

Vianini Lavori Arbitration

Vianini Lavori S.p.A. (in a temporary consortium with the French STEREAU) proposed a formal request for arbitration with reference to works to build the South Rome biofiltration plant, carried out entirely with public funds, to request that ACEA and ACEA Ato2 be ordered to pay over 8 million euros for reservations.

The request is in and of itself indefensible due to the inadmissibility and ungrounded nature of the reservations, since the counterclaim of ACEA - that filed a formal appearance before the court - will blame the temporary consortium for the significant deficiencies in the building of the plant, which decreased its functionality.

The arbitration is currently underway, and the Board has been made responsible for the critical examination of the appointed expert’s report, with the placement before the court of the notes drawn up by the expert witnesses.

 

ACEA/SASI Proceedings

In ruling 6/10, TRAP (Regional Court of Public Waters) accepted the request submitted by ACEA against the Società Abruzzese per il Servizio Integrato S.p.A. (SASI) for the compensation for damages from the illegitimate withdrawal of water from the Verde river. ACEA was awarded 9 million euros, plus interest accrued from 14 June 2001 until 30 July 2013 as compensation for damages.

The sentence, which is not temporarily executive, was appealed by SASI before the TSAP and ACEA filed a cross-appeal. The proceedings are ongoing.

 

A.S.A. – Acea Servizi Acqua

By means of summons notified in autumn 2011, ACEA was summoned to court to respond to the presumed damages that its even more strongly alleged non-compliance with unproven and inexistent obligations which are assumed to have been adopted under the shareholders’ agreement relating to subsidiary A.S.A. – Acea Servizi Acqua – would have produced for minority shareholders of the latter, and their respective shareholders. The claim appears to be manifestly devoid of merit, and inadmissible in practice. In fact, firstly, the plaintiffs are lacking legal standing, given bearers of only indirect and mediated interests; in this regard, full reading of the text of the contract invoked rules out burdening the companies in the ACEA Group with the obligation of assigning contracts and works to its subsidiary, an assignment which is, by contrast, indicated as an “objective” of the company and not the shareholders. Therefore, it is not believed that too large a claim of more than 10 million euros merits consideration.

The proceedings remain in the preliminary phase.

It should also be noted that, in the meantime, informal contacts have begun for a possible amicable resolution to the dispute, although it is still early to express an opinion on the outcome and content, and that approximately half of the ASA workers have contested before the labour court judge the de facto and legal conditions of their working relationships, requesting the recognition of the ulterior motives of the disposal of their pertinent business complex by the assignor Smeco Lazio to ASA, in place of the expected transfer to Acea ATO2; also requesting contractual standardisation and any pay differences, as well as the stabilisation of some irregular relationships. Given that the fate of these proceedings is evidently related to possibly reaching a settlement agreement on the entire ASA situation - since the agreement would give rise to the removal of the current status of liquidation, and indeed the industrial revitalisation of ASA - the workers’ requests (which indirectly affect the other workers as well) are currently subject to an internal enquiry (the hearing is set for April), based on the industrial outlook of the company. Contacts have begun with the counterparties in this regard as well.

 

Dispute with Call Centre workers (former COS)

With Resolution no. 2 of 16.1.2004, the Acea Spa Chief Executive Officer assigned Cos, Communication Services Spa the “call overflow service” of the Acea Spa Group company call centre through a negotiated procedure pursuant to art. 13, paragraph 1, letter d of Legislative Decree 158/95. On 19.1.2004 Acea Spa and Cos – Communication Services Spa signed the Service agreement governing the services of the assigned activity;

that agreement was terminated, after a nine-month extension, on 30.9.2005. A dispute arose on the nature of the aforementioned agreement between ACEA and COS and a number of the company’s workers (73) contested its legitimacy before the court, requesting the verification of the existence, or the establishment, of an employment relationship with Acea Spa, beginning from the first day of work on the contract in question. The claims had differing results: 49 of them were decided, to the detriment of the company, by ruling of Judge Delle Donne; another 21 were rejected by ruling of Judge Rosa; and finally, another two were upheld by Judge Di Paola. An appeal was submitted against all rulings. The case law trend with respect to analogous cases (besides the varying outcomes of the proceedings which directly regard the company, there are at least two other extremely similar incidents being discussed before the Roman judicial bodies, which have until now had an unfavourable outcome for the employers), together with an analysis of the operating requirements of Acea8cento and the repercussions that the pending dispute had on the latter, have led the company to seek out, more than once, an amicable agreement with the workers. At the request of the Board of Directors, numerous settlements were therefore stipulated, either on an exclusively financial basis, so the worker would waive the claims after receiving a lump-sum compensation payment, or to obtain their willingness to begin working at Acea8cento, accepting the terms and conditions of its Company Agreement. This made it possible to decrease the risk linked to the dispute (for pay and contribution differences, interest and possible penalties) to only the six “unyielding” positions on which a Court of appeal decision is expected to be issued in the coming months. Moreover, it should be recalled that ACEA SpA no longer carries out the activity subject to the contract, to which the plaintiffs would need to be assigned if successful in court.

 

Sorical dispute

The subsidiary Acea Energia was awarded a tender at the end of 2010 for the supply of electricity on the free market in favour of Sorical, a mixed public-private company that manages the wholesale water supply in the Calabria Region. The contract was regularly executed by AE, while the customer immediately began to accumulate conspicuous overdue payments, enough to cause AE to reschedule the debt already in summer 2011. Additional, subsequent payment delays led to the negotiation of a new repayment agreement, at the end of 2011, which was then repudiated by Sorical. Indeed, with evident self-serving and delaying purposes, that company called AE before the court to have it sentenced for alleged supply irregularities. AE appeared before the court and made a counterclaim for the balance of amounts billed and unpaid, totalling roughly 24 million euros, plus interest and accessory costs pursuant to the law. The judge issued an injunction order in favour of AE for approximately one-third of the sum, which went unchallenged, pending the continuation of the proceedings. In the meantime, AE disconnected its supply to Sorical, and the latter was placed under the regime subject to additional safeguards, while its shareholders resolved on its placement in liquidation. In recent months, various initiatives have been initiated for the coercive or amicable collection of AE’s receivable.

 

Alessi Costruzioni dispute

A dispute before the administrative judge brought by the company for damages resulting from its unjustified exclusion from a European tender procedure ended favourably for the company. After in-depth debates, the judge accepted the claims of the claimant on the topic of the commissioning body’s liability; but it greatly limited the extent, from the original 1.7 million euros claimed to just 57,000 euros in the effective sentence, given the assessed re-employment of the resources in the meantime.

 

Volteo Energie

ARSE submitted a claim for an injunction order against the company, to which only partially paid PV panels were supplied. The remaining exposure is approximately 2 million euros. The counterparty opposed the immediately notified claim, and also submitted claims for compensation for alleged production gaps in the supply. While the proceedings continue - and without prejudice to the fact that any faults in the panels can be charged back to the manufacturer - the judge issued the injunction order during the proceedings for approximately two-thirds of the amount ordered, which caused Volteo Energie to immediately formulate settlement offers, currently being assessed.

 

Roma Capitale dispute

A dispute on various matters between ACEA and Roma Capitale concerning different interpretations of some provisions of the regulations for street cables in force in the years from 2002 to 2009 has been pending since 2005.

The dispute concerns three topics:

  1. The application of penalties for the delay in returning the areas involved by the installation of plants
  2. The amount due for the cost to remedy deterioration
  3. The objections to the tax demands with which Roma Capitale intended to coercively collect the sums due for the application of the two previous institutions: penalties and costs.

Currently, 33 disputes have been settled (on various grounds) for a total of 6,281,974.84 euros, with no outlays for ACEA; the settlement in appeal in favour of ACEA of 6 disputes totalling 2,468,073.00 euros, for which recourse to the Supreme Court by the municipality is not expected.

 

Milano '90 dispute

This issue concerns Milano '90's failure to pay 5 million euros due for the balance of the sale price of the area in the municipality of Rome with access from via Laurentina no. 555, formalised on 28 February 2007 and with a subsequent supplementary deed of 5 November 2008. With the supplementary deed, the parties agreed to change the fee from 18 to 23 million euros, while eliminating the earn out, setting 31 March 2009 as the payment deadline.

Given the purchaser's failure to act, the procedure aimed at collecting the amounts due was initiated, by preparing a notice warning Milano '90 to pay and, through the deposit of a claim for an injunction order which, on 28 June 2012, was granted in a temporarily executive form.

Therefore, the aforementioned Injunction Order was notified on 3 September 2012 and on 23 November, it was delivered to the Judicial Officer for third-party seizures, for the coercive collection of the amounts due.

Today, the objection by Milano '90 is pending before section X of the Court of Rome. An additional proceeding within this case was established pursuant to art. 649 of the Code of Civil Procedure, aimed at suspending the temporary execution of the challenged Injunction Order. The Judge deemed it suitable to suspend the executive efficacy of the Injunction Order.

The grounds of the claim of ACEA is based on the documents provided.

 

Trifoglio dispute

This issue concerns the breach by Trifoglio of its obligation to pay the balance of the amount due (10.3 million euros), pursuant to the sale contract regarding the so-called Autoparco property, which should have been paid on 22 December 2011.

In consideration of Trifoglio's breach, a notice was served aimed at signing a deed to voluntarily terminate the sale agreement of 22 December 2010, and then to file a claim before the Court of Rome, pursuant to art. 702-bis of the Code of Civil Procedure. The hearing for the appearance of the parties before the court set for 13 November 2012 was postponed to 30 April 2013 following Trifoglio's call of a third-party to appear before the court (Piano Assetto C9 Stazione Ostiense Consortium).

In the meantime, ATAC Patrimonio filed a claim for the termination of the sale agreement of 22 December 2010 for the portion for which it is responsible.