Regulation

Resolution ARG/gas 184/09 – “Approval of part II – Regulation of tariffs for the natural gas transportation and dispatching service for regulatory period 2010-2013 (RTTG), approval of part III – Regulation of tariffs for the natural gas transportation metering service for regulatory period 2010-2013 (RMTG), provisions on the transitory fee for the gas transportation metering service for 2010 and amendments to Attachment A of Resolution 11/07”.

With Resolution ARG/gas 184/09, published on 2 December 2009, the Electricity and Ga Authority issued the criteria for defining natural gas transportation and metering tariffs on the national and regional transportation networks for the third regulatory period (1 January 2010 - 31 December 2013).

The valuation of the net capital invested (RAB) is based on the revalued historical cost method. The return rate (WACC) of net capital invested is 6.4% in real terms before taxes.

The new investment provides for a higher return compared to the variable base rate (WACC), in relation to the type of investment, from 1% to 3% and for a period from 5 to 15 years. The revenue associated with new investments is recognised from the second year following that in which the costs were incurred (“spending”) and is guaranteed regardless of the volumes transported.

The method for updating the price cap tariffs is applied only to revenue relating to operating costs and is equal to approximately 15% of the revenue in question, which is updated for inflation and reduced by an annual recovery coefficient set at 2.1%. 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).

Finally, fuel gas is treated as a pass-through cost which is payable in kind by the users and is excluded from the price-cap mechanism.

Resolution 515/2012/R/gas – “Approval of the tariff proposals for the natural gas transportation and dispatching service and the transitory fee for the gas transportation metering service for 2013.”

With this Resolution, published on 6 December 2012, the Authority approved the transportation, dispatching and metering tariffs for 2013.

The tariffs were determined on the basis of recognised core revenue, equal to €1,952 million (of which around €129 million related to the greater return in investment).

The RAB as at 31 December 2011 for transportation, dispatching and metering amounts to around €14.3 billion.

With this Resolution, the Authority initiated a process aimed at the possible recognition of charges incurred by transportation companies for implementing measures introduced by Legislative Decree 93 of 1 June 2011 concerning the certification of transportation system operators and costs arising from the implementation of Resolution ARG/gas 45/11.

Resolution 514/2013/R/gas – “Regulation criteria for natural gas transportation and dispatching tariffs for the 2014-2017 period”.

With this resolution, published on 15 November 2013, the Electricity and Gas Authority defined the regulation criteria for natural gas transportation tariffs for the 2014-2017 regulatory period.

The valuation of the net capital invested (RAB) is based on the revalued historical cost method. The return rate (WACC) of net capital invested was set at 6.3% in real terms, before taxes, for investments made up to 31 December 2013, and at 7.3% in real terms, before taxes, for investments made after that date, in order to mitigate the impact of the “regulatory lag” in the recognition of new investments made in the year n, which are incorporated into the tariff for the year n+2. A revision of the WACC will also be introduced halfway through the regulatory period via an update solely of the return from risk-free assets.

New investments made from 1 January 2014 onwards will earn a greater return that is between 1-2% higher than the variable basic rate (WACC), depending on the type of investment, for a period of 5-10 years.

The method for updating the price cap tariffs is applied only to revenue relating to operating costs, which is updated for inflation and reduced by an annual recovery coefficient set at 2.4%. 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). Amortisation and depreciation are calculated based on the useful economic and technical life of the transportation infrastructure.

The current methodology for determining the capacity/commodity split was confirmed, providing for capacity revenue to cover capital costs (return and amortisation and depreciation) and commodity revenue to cover recognised operating costs. A mechanism was introduced to guarantee commodity revenue, which provides for the adjustment of revenue that is either 4% higher or 4% lower than the base commodity revenue.

The tariff structure is based on an entry/exit model and was also confirmed for the fourth regulatory period, together with the capacity fee for the metering service.

Fuel gas is treated as a pass-through cost which is payable in kind by users.

Lastly, the Authority calculated the amount payable to the Company for higher costs incurred due to the implementation of measures introduced by Legislative Decree 93/11 and Resolution ARG/gas 45/11 as €6.5 million.

Resolution 603/2013/R/gas – “Approval of the tariff proposals for natural gas transportation and dispatching for 2014 and RTTG amendments”.

With this resolution, published on 20 December 2013, the Electricity and Gas Authority approved the natural gas transportation, dispatching and metering tariffs for 2014.

The tariffs were determined on the basis of recognised core revenue, equal to €1,969 million (of which around €135 million related to a greater return on development investments).

The RAB as at 31 December 2012 for transportation, dispatching and metering amounted to €14.8 billion.

Definitive certification of Snam Rete Gas S.p.A.

Resolution 515/2013/R/gas – “Definitive certification of Snam Rete Gas S.p.A. as a transportation system operator for natural gas under the ownership unbundling regime following an opinion issued by the European Commission on 13 September 2013, C(2013) 5961”.

With this resolution, published on 15 November 2013, the Electricity and Gas Authority adopted its final decision to certify Snam Rete Gas S.p.A. as a transportation system operator, pursuant to Article 9, paragraph 1 of Directive 2009/73/EC. The Electricity and Gas Authority’s decision certifies Snam Rete Gas’s compliance with the ownership unbundling model. Moreover, in order to introduce temporary measures to ensure a high level of transparency and prior disclosure for the Authority, the latter imposed an obligation to maintain – temporarily and as an exceptional measure – the position of Head of Compliance. In accordance with Resolution 515/2013/R/gas, at its meeting on 6 December 2013 the Board of Directors of Snam Rete Gas appointed the Head of Compliance.

Balancing service

Exploratory investigation into gas balancing service provision methods

With Resolution 282/2012/R/gas, published on 6 July 2012, the Electricity and Gas Authority began a preliminary investigation into settlement relating to balancing and action taken to safeguard the system in the period from 1 December 2011 to 31 May 2012. With Resolution 444/2012/R/gas, the Electricity and Gas Authority extended the period of the preliminary investigation until 28 October 2012. With Resolution 351/2012/R/gas, the Electricity and Gas Authority also identified measures to manage the charges presented by Snam Rete Gas, linking the calculation of the portion of the charges owing to the Balancing Supervisor to the outcome of the preliminary investigation process.

The preliminary investigation ended with Resolution 144/2013/E/gas; subsequently, with Resolution 145/2013/R/gas of 5 April 2013, the Authority launched an ad hoc procedure to calculate the portion of the charges owing to Snam Rete Gas as “total outstanding receivables” and to assess the changing situation.¹³

A communication from the Electricity and Gas Authority on the results of the investigation is pending.

Post-balance sheet events

Resolution 9/2014/S/gas – “Launch of punitive proceedings against Snam Rete Gas S.p.A. for non-compliance with Resolution 292/2013/R/gas”.

With this resolution, published on 27 January 2014, the Electricity and Gas Authority provided for the launch of punitive proceedings against Snam Rete Gas S.p.A. for non-compliance with Resolution 202/2013/R/gas. The proceedings aim to ascertain whether or not delays exist in provisions relating to the enactment of amendments to the Network Code established with Resolution 292/2013/R/gas.

The duration of the investigation has been set at 120 days, starting on the notification date of the provision, and the final provision must be adopted in the following 90 days. Snam Rete Gas will cooperative fully and provide all the elements required to demonstrate the legitimacy of its operations.