Transport Service Tariffs

2012 represents the first year of application of the new tariff structure defined by the Italian Authority for Electricity and Gas (AEEG) for the 2012-2015 regulatory period. The regulatory provisions are divided into three consolidated regulations: The “AEEG Consolidated Code on electricity distribution and transmission services (TIT)”, Annex A to Resolution ARG/elt/199/11, the “AEEG Consolidated Code on the electricity metering service (TIME)”, Annex B to Resolution ARG/elt/199/11, and the “AEEG Consolidated Code on economic terms for provision of the connection service (TIC)”, Annex C to Resolution ARG/elt/199/11 published on 29 December 2011.

For the distribution service the AEEG confirmed unbundling of the tariff applied to end customers (the compulsory tariff) from the reference tariff for determination of the restriction on revenue permitted to each company (the reference tariff).

The main new element introduced since the previous regulatory period (2008-2011) is the reference tariff for the distribution service for business, which replaces the previous mechanism for calculating permitted revenue, based on the national average tariff integrated with general equalisations on HV, HV/MV and LV distribution and specific corporate equalisation.

For the first year of the fourth regulatory period the new tariff recognises the following to each company:

  • net invested capital of the MV and LV sector reapplied to 2007 using a parameterised criterion and actual invested capital from 2008;
  • actual net invested capital as at 2010 for the HV sector and for HV-MV transformation.

The rate of return on net invested capital (WACC) is envisaged at 7.6% for the distribution service on investments made up to 31 December 2011 and at 8.6% on investments made thereafter. The 1% increase is associated with the AEEG objective of offsetting the time lag between implementing the investment and tariff coverage of the cost (the regulatory lag). In relation to the extraordinary economic and financial scenario, the AEEG has introduced a WACC review mechanism mid-way through the regulatory period, based on updating of the parameter relating to the rate on risk-free assets.

In terms of operating costs, the new company-based tariff covers the specific costs by means of a national average cost adjustment coefficient, calculated by the AEEG on the basis of actual company costs recorded in the separate annual accounts and recognised in the specific corporate equalisation of 2010 and based on scale variables in reference to 2010.

Another new element introduced from the fourth regulatory cycle concerns the tariff broken down by withdrawal point (except for the public lighting-related tariff), unlike in the previous cycle when the reference distribution tariff was broken down not only by withdrawal point, but also by consumption and capacity. This decision is justified by the need to stabilise distribution revenue through a variable less subject to fluctuations in energy demand.

By Resolution 157/2012 of 26 April the AEEG approved the reference tariff for Acea Distribuzione, which nevertheless is still of a provisional nature: in fact, final approval is linked to completion of the asset certification process which requires AEEG Offices to send accurate layering reports of infrastructures becoming operative after 31 December 2007 and used to calculate the reference tariffs, in order that distributors can verify that the figures match accounting records. The resolution envisages that any recalculation of the tariff must be in good time for calculation of the 2012 equalisation amounts and in any event by the deadline envisaged in the TIT for setting the reference tariffs for 2013 (March 2013).

In July 2012, AEEG disclosed the layering of financial increases relative to land, HV distribution lines and HV/MV transformation stations which began operating until 31 December 2007, used to calculate the 2012 reference tariffs. ACEA Distribuzione detected some inconsistencies and, as set forth in resolution 157/2012, it submitted the proper petition for the purpose of adjusting/supplementing the data.

Updating of the distribution reference tariff after the first year will be individual and based on financial increases reported by the companies on the RAB databases. The updating criterion envisages that:

  • the portion of the tariff covering operating costs is updated using the price cap mechanism (with a productivity recovery target of 2.8%);
  • the part intended to provide a return on invested capital, will be updated on the basis of the gross fixed investment deflator, movements in the volume of services provided, gross investments started up and differentiated according to the voltage level and the rate of variation linked to increased returns designed to provide incentives for investments;
  • the part intended to cover depreciation has been updated, using the gross fixed investment deflator, movements in the volume of services provided and the rate of variation linked to the reduction in gross invested capital as a result of disposal, discontinuation and end of life and the rate of variation associated with gross investments that have become operational.

Introduction of the company tariff simplifies the equalisation system as the new tariff encompasses part of the general and the specific corporate equalisations.

The AEEG confirms the mechanism - already introduced in the third regulatory cycle - of a higher return on certain investment categories, expanding the cases concerned and, in addition to smart grid projects, envisages a higher return on renewal and upgrading of the MV networks in historical centres.

The tariff covering sales costs is based on standard national costs, differentiated according to provision of the sales service subject to additional safeguards in integrated format or as a separate distribution service. The AEEG has eliminated the equalisation for sales activities and has envisaged the zeroing out of productivity recoverable on sales costs. The coverage of investments made is directly guaranteed through equalisation of sales up to 2011, and indirectly and with a two-year time lag for investments made from 2012 onwards.

With regard to the transmission tariff, the AEEG envisages the introduction of a binomial tariff (capacity and consumption) for HV customers, and changes to the cost tariff structure for the transmission service to Terna (CTR), introducing a binomial price also. The review of the two tariffs has led to the introduction of a new equalisation mechanism.

The general equalisation mechanisms for distribution costs and revenue for the new regulatory cycle are:

  • equalisation of distribution service revenue;
  • equalisation of revenue from the supply of electricity to domestic customers;
  • equalisation of transmission costs;
  • equalisation of the difference between actual and standard losses;

The equalisation of distribution service revenue aims to equalise the yield deriving from comparison of revenue billed to end users through the compulsory tariff and permitted distributor revenue calculated using the company reference tariff.

The equalisation of revenue from supplying electrical energy to domestic customers aims to equalise the yield deriving from comparison of the compulsory tariffs billed to domestic customers and the revenue valued in the reference tariff.

The equalisation of transmission costs aims to make the transmission service cost recognised to Terna (CTR) as pass-through for the distributor in relation to that paid by end customers via the compulsory transmission tariff (TRAS).

The equalisation of the difference between actual and standard losses, governed by the Consolidated Regulations on Sales (TIV), Resolution 156/07, allows equalisation of the difference between actual losses recorded on the distribution network and the standard losses defined by the AEEG.

In this respect, by Resolution 196/11 the AEEG envisaged lowering of the standard losses on MV and LV networks and the temporary review of MV/LV standard losses resulting from transformation to HV/EHV, with the aim of further study in 2012 to define new equalisation calculation methods that take into account the area diversification of operators. Resolution 175/2012/r/eel lengthened the time required for the consultation process, deferring further review of the standard loss factors applicable to electrical energy drawn from MV and LV networks to instructions to be issued by 30 September 2013.

With resolution 559/2012, AEEG adopted a mechanism for the equalisation of the difference between actual and standard losses between distribution companies, to be applied temporarily in 2012 and the review of the standard loss factor in the MV sector beginning in 2013.

For 2012 only, pending a later review of the method for covering costs related to in-house use of electrical energy, the regulation on equalisation of electrical energy purchased for in-house transmission and distribution use continues to apply. The regulation governing load profiling requires electricity for customers subject to additional safeguards to be quantified on a residual basis, and to also include electricity consumed for distribution and transmission purposes. The Authority also confirmed, without changes, the calculation method for equalisation of the purchase cost of electrical energy for distribution companies and absorbed by in-house transmission and distribution use in accordance with the Retail Service Code. 

In the new Transport Code the Authority envisaged a mechanism for recognising an advance, every two months, of equalisation balances relating to the equalisation of distribution service revenue and transmission costs. Resolution 157/2012 extended the AEEG deadline for finalising the equalisation mechanism operating methods with the CCSE from 30 April 2012 to 30 April 2013.

At the end of 2012, part of the receivables due from CCSE relative to the equalisation of distribution revenues for the year 2012 was transferred to Unicredit Factoring.

The Metering Code (TIME) governs tariffs for the metering service, divided into meter installation and maintenance, taking meter readings, and confirming and recording readings. The Consolidated Code envisages transfer to Terna of the meter reading, confirmation and recording service for interconnection points between distribution company networks and the national grid. This change will become operative through later regulatory provisions, and therefore at present the distribution company is still responsible for the entire metering service.

The price structure remains unchanged from the previous cycle except for the introduction of a tariff component to cover the residual non-depreciated value of the electromechanical meters replaced prior to the end of their useful lives with electronic meters, or MIS (RES), to be billed to LV end users. The Metering Code envisages the option of a lump-sum advance of the yield deriving from this tariff integration.

Acea Distribuzione requested, and obtained at the end of May, the lump-sum advance of the yield deriving from the MIS (RES) tariff integration.

The AEEG confirmed the criterion for calculating metering service tariffs on the basis of national costs, and therefore also retained the metering equalisation for the fourth regulatory cycle. The equalisation mechanism aims to guarantee that returns on investments in meters and electronic meter reading systems is attributed to the distribution companies that have actually made such investments, in accordance with deadlines given for replacement of the meter stock.

With resolution 565/2012, the portion of parameters relative to revenue equalisation for the metering service regarding the year 2012 was corrected.

The tariffs covering the metering service are updated, as for the distribution service, by price cap mechanisms for the part to cover operating costs (with a productivity recovery target of 7.1%) and by the deflator, change in invested capital and rate of change in volumes for the part to cover invested capital and amortisation. The rate of return on metering capital is equivalent to that of the distribution service.

The “AEEG Consolidated Code on economic terms for provision of the connection service (TIC)”, Annex C to Resolution ARG/elt/199/11, governs the economic terms for provision of the connection service and specific services (transfers of network equipment requested by users, contract transfers, disconnections, etc.) for paying users, essentially continuing from the previous regulatory period.