Tariff regulations³⁹

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 again used to assess 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, 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 return rate (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 higher 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 recognition of 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 unit 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.

Resolution 132/2014/R/gas – “Determination of the provisional reference tariffs for natural gas distribution and metering services, and redetermination of tariff options for other gases for 2014”

With this resolution, published on 28 March 2014, the Authority approved the provisional reference tariffs for natural gas distribution and metering services for 2014.

Resolution 310/2014/R/gas – “Provisions for determining the reimbursement amount for natural gas distribution networks”

With this resolution, published on 27 June 2014, the Authority approved measures to determine the reimbursement amount for gas distribution networks, implementing the provisions of Article 1, paragraph 16 of Decree-Law No. 145 of 23 December 2013, converted, with amendments, by Law No. 9 of 21 February 2014.

This provision stipulates that the awarding local authority shall send documentation containing detailed calculations for the reimbursement amount to the Authority for approval, if the amount is more than 10% higher than the regulatory asset base (RAB) for the area.

The Authority carries out the checks pursuant to Article 1, paragraph 16 of Decree-Law 145/2013 within 90 days of the date of receipt of the documentation by the contracting entities, ensuring priority according to the schedule provided for the publication of invitations to tender.

Resolution 367/2014/R/gas – “Tariff regulation for gas distribution and metering services for the 2014 – 2019 regulatory period for area management and other tariff-related provisions”

With this resolution, published on 25 July 2014, the Authority defined the tariff regulation for gas distribution and metering services for the 2014-2019 regulatory period, including, by way of the provisions on area management, the measures pursuant to the earlier Resolution 573/2013/R/gas on municipal and supramunicipal management. The provisions on area management are applicable from the award date established in the service agreement signed by the contracting entity and the incoming operator.

The initial value of the local fixed assets transferred for consideration to the incoming operator, as at 31 December of the year before the year in which the concession was awarded by way of a tender process, is calculated, in cases where the incoming operator is different from the outgoing operator, based on the amount mentioned in Article 5 of Decree 226/11 that is reimbursed to the outgoing operator, and, in other cases, based on the value of the local net fixed assets recognised for regulatory purposes.

The amount to be reimbursed at the end of the first area concession period is calculated as the sum of:

• the residual value of existing stock at the start of the concession period, measured for all assets transferred for consideration to the incoming operator in the second concession period in accordance with the amount mentioned in Article 5 of Decree 226/11, which is reimbursed to the outgoing operator for the first area concession, taking into account amortisation, depreciation and the disposals recognised for tariff purposes during the concession period;
• the residual value of new investments realised during the concession period and existing at the end of the period, measured using the revalued historical cost method for the period in which the final amount of the investments is recognised, as specified in Article 56 of the Gas Distribution Tariff Regulation (2013, 2014 and 2015) and as an average of the net value determined using the revalued historical cost method and the net value determined using the standard cost method for the following period.

In order to calculate the annual portion of depreciation and amortisation recognised for tariff purposes, the regulatory useful lives are extended in accordance with the values adopted in Decree 226/11 and in parallel with the awarding of area concessions by way of a tender process.

The operating costs of the distribution service in the case of area management are set by the Authority in accordance with the size and population density of the area in question. For tariff updates in the first two calendar years after the year in which the area concession was awarded by way of a tender process, the annual rate of reduction of the unit costs recognised to cover the operating costs is set at 0%. For subsequent years, the annual rate of reduction will be equal to the old municipal management rate for distribution companies serving more than 300,000 redelivery points.

As of 2014, the Authority defines and publishes: (i) by 15 December each year, the mandatory natural gas distribution and metering service tariffs to be applied in the following year; (ii) by 31 March of year t, the provisional reference tariffs for year t, calculated based on provisional balance sheet figures for year t-1; (iii) by 28 February of year t+1, the definitive reference tariffs for year t, calculated based on final balance sheet figures for year t-1 (rather than by 15 December of year t, as provided for by the earlier Resolution 573/2013).

Resolution 633/2014/R/gas – “Redetermination of the reference tariffs for gas distribution and metering services for 2009 – 2013 and of tariff options for other gases for 2014”

With this resolution, published on 19 December 2014, the Authority, inter alia, approved the 2013 reference tariffs for some areas operated by Italgas where the provision of gas began in 2012 but after 22 October 2012, the deadline set by the Authority for sending data for the purpose of calculating tariffs for 2013.

Resolution 634/2014/R/gas – “Updating of the tariffs for gas distribution and metering services for 2015”.

With this resolution, published on 29 December 2014, the Authority approved the mandatory tariffs and bi-monthly equalisation prepayment amounts for natural gas distribution and metering services for 2015.

Post-balance sheet events

Isontina Reti Gas S.p.A. and framework agreement with Acegas-Aps S.p.A.

On 17 April 2013, the Competition Authority (AGCM) blocked the acquisition of 50% of the share capital of Isontina Reti Gas S.p.A. by Italgas and the subsequent transfer to said company of some business units of Italgas and Acegas-Aps. According to the AGCM, the deal would give Isontina Reti Gas a dominant position that would eliminate or considerably reduce in the long term competition on the market for future tenders for the natural gas distribution concessions in the regions of Gorizia, Trieste, Pordenone and Padua 1.

Italgas filed an appeal against the measure with the Regional Administrative Court of Lazio. On 20 March 2014, the Court upheld the appeal presented by Italgas, thereby annulling the contested measure. With a ruling of 26 January 2015, the Council of State subsequently supported the substance of the AGCM’s measure.

Constitutional Court – Ruling 10/2015

On 9 February 2015, with Ruling 10/2015, the Constitutional Court declared the unconstitutionality of Article 81, paragraphs 16, 17 and 18 (the additional corporation tax known as the “Robin Hood Tax”) of Decree Law 112 of 25 June 2008, “Urgent provisions for economic development, simplification, competitiveness, stabilisation of the public finances and tax standardisation”, which was converted into law, with amendments, by Article 1, paragraph 1 of Law 133 of 6 August 2008, as subsequently amended. The unconstitutionality of the Article takes effect, as set forth in the ruling, from the day after its publication in the Italian Official Gazette, i.e. 12 February 2015. The effects of this measure on the Snam Group are described in the “Financial review” section.

Investigations carried out by the judicial administrators in the north-east of Italy

In March 2015, Italgas’s judicial administrators stated that they were examining documents received from the local fire service in relation to alleged operational faults at some plants in the Veneto region.

Decree Law 192 of 31 December 2014 (known as the “Mille Proroghe Decree”) extending the deadline for calls for tenders

On 28 February 2015, the Italian Official Gazette, General Series, No. 49, published Law 11/15 converting into law Decree Law 192 of 31 December 2014, which, among other things, introduces an additional amendment to the deadlines already set forth and extended several times for calls for tenders for gas distribution concessions, stipulating that:

• the deadline for publication of the call for tenders by the contracting entity and for alternative measures by the region will be extended until 11 July 2015 for the areas pertaining to the first group listed under Annex 1 to Ministerial Decree 226 of 12 November 2011;
• the aforementioned extension will not apply to areas in which at least 15% of redelivery points are located in municipalities affected by the earthquakes of 20 and 29 May 2012;
• the deadline beyond which a penalty applies to local authorities pursuant to Article 4, paragraph 5 of Decree Law 69/2013 in the event of failure to comply with the deadline for issuing calls for tenders shall be extended to 31 December 2015 for the first two groups of areas listed under Annex 1 of Ministerial Decree 226/2011.