Operating review

Electricity distribution

Energy report

As shown in the following table, at 31 December 2014 ACEA Distribuzione injected 10,953.6 GWh into the network, a 3.79% drop on the previous year.

GWh 2014 2013 % Increase/ (Decrease)
Source A.U. 2,852.1 3,107.6 (8.22%)
Imports 432.1 431.5 0.13%
Protected categories market 3,284.1 3,539.1 (7.20%)
Free market 7,666.5 7,844.1 (2.26%)
Underlying distributors 2.9 2.1 35.26%
General total 10,953.6 11,385.3 (3.79%)

Transport service tariffs

2014 represents the third year of application of the new tariff structure defined by AEEGSI for the 2012-2015 regulatory period.

The regulatory provisions are divided into Three Consolidated Regulations, and for the distribution service AEEGSI confirmed unbundling of the tariff applied to end customers (the compulsory tariff) from the reference tariff to determine the permitted restriction on revenue for each company (the reference tariff).

The main new element introduced since the previous regulatory period (2008-2011) is the reference tariff of 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 fourth regulatory period the new tariff recognises the following for 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 at 2010 for the HV sector and for HV-MV transformation.

AEEGSI Resolution No. 607/2013/R/eel of 19 December 2013 set the rate of return on net invested capital (wacc) for 2014 at 6.4%.

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

These costs, when calculating the company-based tariff for 2014, according to the definitions of Resolution No. 607/2013, are supplemented by flat rate connection contributions acknowledged throughout Italy, and will be considered as other grants and no longer deducted from operating costs.

Furthermore, the flat rate connection contributions of each company are deducted directly from the invested capital, considering them as equal to MV/LV assets with an acknowledged regulatory useful life of 30 years.

Another novelty of the fourth regulatory cycle relates to the breakdown of the tariff by withdrawal point (with the exception of public lighting points), unlike the previous cycle, when the reference distribution tariff depended on withdrawal points, consumption and power capacity. This choice related to the need to stabilise distribution revenue using a variable that was less subject to energy demand fluctuations.

In an official notification on 29 September 2014, AEEGSI recalculated the tariff of reference for the electricity distribution service (Resolution No. 154/2014 passed on 3 April) for 2012-2014: specifically, the 2012 and 2013 tariffs will be increased by 0.4% and 2014 tariffs by 0.55%. The College of the Authority will follow-up on this notification by 30 March 2015 when communicating the tariff of reference for 2015.

In Resolution No. 607/2013 of 19 December 2013, AEEGSI updated the tariffs for electricity transmission, distribution and metering services and the economic conditions for the provision of connection services for the year 2014, and with Resolution No. 154/2014 of 3 April, published the business-based tariff for 2014.

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 general and specific corporate equalisations.

AEEGSI 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. AEEGSI eliminated the equalisation for sales activities and envisaged the zeroing out of productivity recoverable on sales costs. The coverage of investments made is indirectly guaranteed by a two-year time lag for investments made from 2012 onwards.

With regard to the transmission tariff, AEEGSI established 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), also introducing a binomial price. 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.

On 10 April 2014 AEEGSI passed Resolution No. 169/2014 to extend the algorithm for calculating equalisation on network losses for 2013 (Resolution No. 608/2013) also to 2014 pending conclusion of the electricity networks study. This algorithm includes a 75% surplus restitution portion for companies, and limits the restitution to companies showing a deficit.

On 20 May 2014 A2A Reti Elettriche S.p.A. filed an appeal to the Administrative Court of Lombardy requesting and obtaining the annulment of a series of resolutions which, starting from Resolution 559/2012, have revised the standard loss factors and modified the calculation algorithms for offsetting excess losses. By Resolution 269/2014, AEEGSI appealed to the Regional Administrative Court of Lombardy. The Council of State upheld the appeal lodged by AEEGSI, and restored the validity of resolutions 559/2012 and 608/2013.

Pending a new review of the method for covering costs related to in-house use of electrical energy, the regulation on the equalisation of electrical energy purchased to be used in-house for transmission and distribution purposes continues to apply. The regulation governing load profiling requires electricity for customers in the protected categories market to be quantified on a residual basis, and to also include electricity consumed in-house for distribution and transmission purposes. AEEGSI also confirmed, without changes, the calculation method for equalisation of the purchase cost of electricity for distribution companies absorbed in-house for transmission and distribution purposes in accordance with the Retail Service Code.

In the new Transport Code, AEEGSI envisaged a mechanism for recognising an advance, every two months, of equalisation balances relating to the equalisation of distribution service revenue and transmission costs. In a letter from the CCSE dated 21 February 2014, ACEA Distribuzione was informed about the bi-monthly advance payments recognised for 2014 and the deadlines for the related payment.

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 subsequent 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.

With resolution 607/2013, the portion of parameters relative to revenue equalisation for the metering service regarding the year 2014 was updated.

The tariffs covering the metering service are updated, as for the distribution service, by price cap mechanisms for the part covering 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 covering invested capital and depreciation. The rate of return on metering capital is equivalent to that of the distribution service.

ACEA Distribuzione is still awaiting recognition of the value for the equalisation of metering revenues for the year 2011 and for data collection for subsequent years (2012, 2013, 2014).

With regard to the revenue supplement mechanism as per AEEGSI resolution 607/2013, ACEA Distribuzione sent the participation application within the set deadline (31 March 2014).

AEEGSI has not extended said mechanism to 2014.

The “AEEG Consolidated Code on economic terms for the provision of connection services (TIC)”, Annex C to Resolution No. ARG/Elt/199/11, governs the economic terms for the provision of connection services and specific services (transfers of network equipment requested by users, contract transfers, disconnections, etc.) to paying users, essentially in line with the previous regulatory period.

 

Energy efficiency objectives

AEEGSI Decision No. DIUC 9/2013 disclosed data on the quantity of electricity and natural gas distributed in Italy by operators obliged to meet such requirements in 2012. These data are essential for determining the portion of energy efficiency objectives each single distributor must meet for 2014, reaching at least 50% by 31 May 2015.

Resolution No. 13/2014/R/efr of 23 January 2014 defined the criteria for the quantification of the tariff contribution to cover the costs borne by electricity and gas distributors concerning TEEs - Energy Efficiency Certificates – from the compulsory year 2013; the mechanism introduces elements allowing for TEE average market prices, avoiding recognition of expenses borne by distributors on submitting an expense account.

ACEA Distribuzione's objective for 2014 is 174,316 Energy Efficiency Certificates and the estimate of the same for 2015 and 2016, defined on the basis of a criterion of the 2-year average energy distributed in the two previous years, is equal to 199,154 and 244,502 Energy Efficiency Certificates respectively.

As regards the target for 2013 - amounting to 140,938 TEEs - by communication submitted to the National Grid Operator on 30 May 2014, ACEA Distribuzione "cancelled" 92,698 TEEs, equal to 65% of the target. Concerning the valuation of cancelled TEEs, in Decision DMEG/Efr/9/2014 AEEGSI announced a tariff contribution of 110.27/TEE and an estimated tariff contribution for the year 2014 of 110.39/TEE. The remaining portion of the target imposed on ACEA Distribuzione for 2013 will be recovered in the next two-year period 2014-2015.

 

AEEGSI Supervision

In consideration of the urgent measures set forth in Provision No. 300/2013/R/eel, on 8 July 2013 AEEGSI opened penalty proceedings against ACEA Distribuzione to verify metering aggregation violations.

This derives from the fact that the Company had not fulfilled metering aggregation requirements, essential for determining the physical and economic items of the dispatching service.

There is objective evidence of a breach in the form of discrepancy, in terms of the threshold allowed by regulations, between electricity metered and electricity invoiced for transport to the utilities of dispatching users (vendors) operating in the Rome area in 2011 and 2012.

ACEA Distribuzione, in accordance with resolution 243/2012/E/com, on 17 August 2013 presented commitments for the pursuit of the interests protected by the provisions which are assumed to have been violated.

In particular, these commitments mainly consist in remedying financial costs acknowledged by the system to the above dispatching users, to prevent the socialization of a cost which would otherwise be payable by end users.

The same commitments provide for a way to make up for prejudicial behaviour - represented by the discrepancy between metering figures and invoiced amounts for 2011 and 2012 charges – by the month of October 2013, and the objective proof of the system – with reference to the 2013 charges – for the final settlement of the problems in the process that caused said discrepancies.

Further to the request for explanation from AEEGSI and to the meeting with said Authority on 25 June 2014, ACEA Distribuzione sent a communication in which it:

  • described progress made regarding the alignment of electricity metered and invoiced readings for the years 2011 and 2012, and pledged to bring values within allowed thresholds by 31 October 2014 (an objective which would go on to be achieved);
  • explained the ways of quantifying financial costs that the Company had undertook to recognise for the System;
  • proposed a further commitment – at the express request of AEEGSI – to anticipate publication of meter readings to dispatching users.

The company is awaiting a formal reply from the Authority to the Company’s proposals in this sphere.

Finally, on 20 February 2014 AEEGSI Resolution No. 62/2014/S/eel opened proceedings for the application of sanctions against the Company for violations relating to:

  • failure to meet the target for electronic meters put into service (95% at 30/06 of the year n+1 for meters installed at 31/12 of the year n);
  • the compulsory collection of data on metering registers referring to 24:00 of the final day of each month.

With this resolution, AEEGSI opened an enquiry into the violation of art. 8 bis, in Annex A of Resolution No. 292/06 setting a term of 150 days for the duration of the enquiry. On 6 May the Company submitted a written memorandum in which it proposed the achievement of the 95% objective by the end of 2014. In this case too we are waiting a formal reply from the Authority.

Finally, on 16 and 17 September of this year, AEEGSI, in collaboration with the Italian Finance Police, performed an audit on ACEA Distribuzione concerning the electricity metering service in accordance with Resolution No. 239/2014/R/eel. This audit is part of the study conducted on the metering service implemented by Resolution No. 475/2013/R/eel which finished on 18 June, concerning:

  • the operation of the system for collecting metering data on end user electricity consumption, and data on the electricity generated and injected into the network by power stations;
  • the methods used to validate, record and make metering figures available both to vendors and the national grid operator (in the second case the figures are required to provide the incentives for power stations using renewable energy sources);
  • the methods used to reconstruct missing metering data;
  • the operation of the system of metering electricity traded with other networks connected to our own network;
  • information on withdrawal points without meters, other than public lighting;
  • request for clarification on some figures provided for the study of 18 June of this year;
  • the reasons why part of the metering figures for the period 2007 - 1st quarter of 2014 concerning PV plants eligible for incentives were not sent to the national grid operator, as indicated in the Operator's report of 3 June 2014.

Following the audit, AEEGSI made no formal comment on ACEA Distribuzione's management of the metering process.

 

Public lighting

On 15 March 2011 ACEA and Roma Capitale agreed on an update to the Public Lighting Service Contract.

The key points of the renegotiation are:

  • extension of the contract to 2027, in line with the Concession, and therefore lengthening the residual duration from 4 years 5 months to 17 years,
  • review of the contractual parameters, aligning them with those of the CONSIP technical draft for the “Servizio Luce 2” tender,
  • certainty of the power to directly perform activities associated with network expansion,
  • recognition on expiry of the contract, natural or otherwise, of the non-amortised value of investments made by ACEA,
  • sterilisation of the “price risk” of electricity to power the public lighting system,
  • the inclusion of an indemnity in favour of ACEA in the event of early termination of the contract by Roma Capitale, calculated on the basis of margins discounted over the number of years to expiry (i.e. to 31 December 2027).

In 2014 797 lighting points were installed for Roma Capitale and 430 for third party customers, including those installed in Lungotevere Vittorio Gassman, Via Poggio Verde and the stations of Pigneto and Piazza dei Mirti.

Finally, it is reported that following numerous cases of theft of cables during the year, in 2014 over 30 km of new cables were laid, using a new type of electric cable, made from copper-plated aluminium which, by using less copper and combining it with aluminium, has the main advantage of making the two metals difficult to separate, if not by industrial means and processes.

 

PV power, energy saving and cogeneration

PV power

Following the transfer of the PV business unit in December 2012, ARSE owns plants with a total power capacity of just over 13 MWp. These plants recorded total output of 15.46 GWh in 2014.

The sector in question is currently being affected by a number of legislative and regulatory initiatives that point to a likely fall in revenue generated by such plants.

In particular, on 23 December 2013 Law Decree No. 145 (“Destination Italy”) was passed, and in accordance with art. 1, paragraph 2 starting from 1 January 2014, the Minimum Guaranteed Prices defined by AEEGSI to apply the dedicated withdrawal service indicated in Resolution No. 280/07, for each plant are equal to the hourly zonal price in the case in which the energy withdrawn is produced by plants benefiting from electricity tariff incentives.

Furthermore, with reference to the so-called “stretched feed-in tariff” decree, the Company has opted for letter c) of paragraph 3 of article 26 of the Law, with a maintenance of the twenty-year period of recognition and a lowering of the tariff by a percentage of the incentive recognised on the same date, for the remaining duration of the incentive period according to the following amounts:

  • 6 per cent for plants having a nominal capacity in excess of 200 kW and up to 500 kW (nominal capacity is taken to mean the sum of capacities of single sections benefiting from incentives);
  • 7 per cent for plants having a nominal capacity in excess of 500 kW and up to 900 kW (nominal capacity is taken to mean the sum of capacities of single sections benefiting from incentives);
  • 8 per cent for plants having a nominal capacity in excess of 900 kW (nominal capacity is taken to mean the sum of capacities of single sections benefiting from incentives).

 

Energy saving

Currently the initiatives of the national grid operator to acknowledge Energy Efficiency Certificates (TEEs) for the Group are above all for energy efficiency actions in line with the development programmes of each single company, such as for example, activities related to interventions in the treatment sector. Furthermore, energy efficiency interventions in the public lighting sector are being evaluated using LEDs in third party structures.