Regulation

Resolution ARG/gas 159/08 – Consolidated act on the regulation of the quality and tariffs for natural gas metering and distribution services for the 2009-2012 regulatory period (TUDG): approval of part II, “Tariff regulation for gas distribution and metering services for the 2009-2012 regulatory period (RTDG). Temporary measures for 2009”.

With this resolution, published on 17 November 2008 (and subsequent amendments), the Authority defined the tariff criteria for the distribution and metering services for the third regulatory period, from 1 January 2009 to 31 December 2012. In summary, the resolution provides for:

• recognition of the net capital invested for the site by the revalued historical cost method and of the net capital invested with respect to centralised operations (non-industrial buildings and other fixed assets) by the parametric method;
• recognition of the operating costs of distribution operations on a parametric basis and differentiated depending on company size and density of the customers connected to the network;
• recognition of the operating costs of metering and sales operations using equal parametric components for all companies;
• assessment, at standard cost, starting in 2011, of all investments on the basis of a price list defined by the Authority (Modern Equivalent Asset Value (MEAV) method, based on the concept of new replacement cost);
• calculation by the Authority of the reference tariffs for each company, corresponding to the costs recognised for remunerating net capital invested, amortisation, depreciation and operating costs;
• subdivision of the national territory into six tariff areas and calculation by the Authority of the respective mandatory tariffs that distributors must apply to users of their own networks;
• introduction of an equalisation mechanism, managed by the Authority through the Electricity Equalisation Fund, to guarantee equivalence between the revenue obtained by each company by application of the mandatory tariff, which, naturally, does not reflect the specific costs of each company, and the costs recognised for such company, using the reference tariff.

The return rate (WACC) of net capital invested (RAB) is set at 7.6% in real terms before taxes for the distribution service, and at 8% in real terms before taxes for the metering service.

For the new investments relating to the modernisation of the odorisation system in the REMI cabins and the replacement of the cast-iron pipes with hemp- and lead-sealed joints, commissioned after 31 December 2008, a greater return of 2% over the base rate (WACC) was recognised for a period of eight years.

The method for updating the price cap tariffs is applied only to revenue relating to operating costs, which are indexed to inflation and reduced by a fixed annual productivity return coefficient set at 3.2% for operating costs relating to distribution and 3.6% for operating costs relating to metering.

The revenue components which are related to returns and amortisation and depreciation are determined on the basis of the annual update of net capital invested (RAB).

Resolution 315/2012/R/gas – “Amendments to the tariff regulation for the provision of natural gas and other gas distribution and metering services, in compliance with Council of State ruling 2521/2012. Redetermination of the reference tariffs and tariff options for gases other than natural gas for 2009 and 2010” and Resolution 450/2012/R/gas – “Determination of the reference tariffs and redetermination of the tariff options for gases other than natural gas for 2011 and 2012, in compliance with Council of State ruling 2521/2012”.

With these resolutions, the Authority redetermined the reference tariffs for 2009, 2010, 2011 and 2012.

With regard to the years 2009, 2010 and 2011, the Authority observed, inter alia, Council of State ruling 2521/2012, which, in particular, stated the unlawfulness of applying the “gradual”²³ mechanism on the basis of a criterion applied at national level. As a result of these resolutions, in relation to the 2009-2011 period, incremental revenues equal to €143 million were recorded for Italgas.

Resolution 436/2012/R/gas – Extension to 31 December 2013 of the period of application of the provisions set out in the “Consolidated act on the regulation of the quality and tariffs of gas distribution and metering services for the 2009-2012 regulatory period (TUDG)”. Transitional measures for 2013.

With this resolution, published on 26 October 2012, the Authority extended the current tariff criteria for natural gas distribution services for the transitional period from 1 January to 31 December 2013, in particular updating the rate of return on invested capital recognised for distribution services from 7.6% to 7.7% in pre-tax real terms and updating the components covering operating costs by applying the productivity recovery rates adopted for the determination of the 2012 tariffs, reduced by applying the staggered scale provided for by Resolution 315/2012/R/gas.

Resolution 553/2012/R/gas – “Updating of the tariffs for gas distribution and metering services for 2013”.

With this resolution, published on 24 December 2012, the Authority determined the reference tariffs and the mandatory tariffs for natural gas distribution and metering services for 2013, in compliance with the transitional provisions defined in Resolution 436/2012/R/gas.

Resolution 573/2013/R/gas – “Regulation for natural gas distribution and metering tariffs for the 2014-2019 period”.

With this resolution, published on 13 December 2013, the Authority approved the regulation of gas distribution and metering service tariffs for the 2014-2019 regulatory period.

The net capital invested (RAB) of distributing companies is broken down into two categories: capital invested for the site and centralised capital invested. For the assessment of capital invested for the site in the first three years of the regulatory period (2014-2016), the general criterion of assessment of capital invested for the site based on the revalued historical cost method has again been used. Criteria of assessment at standard costs were confirmed for investments relating to the electronic meter installation plan. The parametric method was confirmed for the assessment of centralised capital invested in relation to industrial buildings and property and to other fixed tangible and intangible assets. With regard to centralised assets relating to the remote management systems, the remote meter-reading/remote management costs and the concentrator-related costs incurred by companies will be recognised in tariffs for the first two years of the fourth regulatory period. From 2016 onwards, these costs will be recognised using output-based criteria. The Authority intends to launch a specific procedure in order to assess the possibility of modifying the criteria for assessing new investments from 2017 onwards, so as to facilitate efficient development of the service in the medium-to-long term by introducing standard costs or extending the price-cap methodology to cover capital costs.

The WACC of net capital invested (RAB) is set at 6.9% in real terms, before taxes, for the distribution service and at 7.2% in real terms, before taxes, for the metering service. A two-yearly revision of the WACC will also be introduced via an update solely of the return on risk-free activities.

The greater return on investments in the replacement of cast iron with hemp- and lead-sealed joints and in modernising odorisation plants provided for in the previous regulatory period are incorporated into the mechanisms for determining rewards and penalties relating to the security of the natural gas distribution service.

The lag in recognising investments in the third regulatory period will be absorbed by including assets realised in the year t-1 in the value of invested capital.

The revenue components which are related to returns and amortisation and depreciation are determined on the basis of the annual update of net capital invested (RAB).

The method for updating the price cap tariffs is applied solely to revenue relating to operating costs, which are indexed to inflation and reduced by an annual recovery coefficient set, with effect from the end of 2016, at 1.7% for operating costs relating to distribution and at 0% for operating costs relating to metering and marketing. The annual rates of reduction of the unitary costs recognised to cover the operating costs of the distribution, metering and marketing services will be updated by 30 November 2016 with a view to being applied from 1 January 2017 on the basis of a specific procedure to be launched in 2016.

Measures concerning area management tariff regulation will be incorporated into a subsequent provision, to be adopted by March 2014, following further examination and a consultation process.

Resolution 633/2013/R/gas – “Updating of tariffs for 2014 and other measures relating to tariffs for gas distribution and metering services”.

With this resolution, published on 27 December 2013, the Authority approved the mandatory tariffs and bi-monthly equalisation prepayment amounts for natural gas distribution and metering services for 2014.