Natural gas transportation

Results

Total revenue amounted to €1,008 million, up by €22 million, or 2.2%, compared with the first half of 2016 (€986 million). Total revenue, net of components offset in costs⁸, amounted to €918 million, up by €20 million, or 2.2%, compared with the corresponding period of the previous year.

Revenue from regulated activities (€993 million) referred to fees for the natural gas transportation service (€973 million) and €16 million related to income from natural gas sales made in order to balance the gas system⁹ and incentives paid to the Balancing Supervisor (RdB) (€4 million) following the actions implemented, as set out in resolution 554/2016/R/gas. Revenue from regulated activities, net of components that are offset in costs, amounted to €903 million, up by €22 million, equal to 2.5% compared with the first half of 2016. The increase is essentially due to higher revenues from the contribution of investments made in 2015 (+€41 million) and increased volumes of natural gas injected into the network (+€8 million). These factors are partly offset by the effects of the updating of the invested capital recognised for RAB purposes (-€30 million).

Revenue from non-regulated activities (€15 million) fell by €2 million or 11.8% compared with the first half of 2016, due mainly to lower income from the sale of gas from storage (-€2 million).

EBIT amounted to €536 million, up by €21 million, or 4.1%, compared with the first half of 2016. The above-mentioned increase is due to higher revenues (+€20 million; +2.2%) and lower operating costs (+€10 million; 7.9%), due mainly to the lower capital losses recorded in the period (+€5 million) and the lower withdrawals for sales of natural gas (+€2 million). These effects were partially offset by higher depreciation and amortisation (-€9 million, equal to 3.5%) mainly following the entry into operation of new infrastructures.

Technical investments amounted to €378 million in the first half of 2017, up by €59 million (+18.5%) compared with the corresponding period of the previous year (€319 million). The investments were classified in accordance with Resolution 514/2013/R/gas of the Electricity, Gas and Water Authority (hereinafter AEEGSI or the Authority), which identified various categories of projects with different rates of return.

The main investments for the development of new transportation capacity on the National Network to bolster import and export capacity, for which a higher return of 2.0% (€127 million) is projected, mainly concern the following:

• as part of the initiative to support the market in the north-west of the country and to make it possible to reverse the physical transportation flows at the interconnection points with northern Europe (€119 million) in the Pianura Padana area: (i) the completion of the works relating to the Zimella-Cervignano gas pipeline; (ii) the continuation of the construction works for the Cervignano-Mortara gas pipeline; (iii) the continuation of the activities relating to the supply of turbo compressors relating to the new Sergnano and Minerbio stations;
• as part of the projects to upgrade the transportation network from the entry points in southern Italy (€5 million): (i) the continuation of the additional works for the Biccari-Campochiaro gas natural pipeline, in Campania-Apulia-Molise; (ii) the continuation of the construction works for reconnecting the Massafra-Biccari natural gas pipeline.

The main investments for the development of new transportation capacity on the regional network and the national network with a higher return of 1.0% (€46 million) relate to numerous works to upgrade the network and to connect to new regional and national redelivery points, including:

• the continuation of the natural gas pipeline and connection works as part of the natural gas conversion project in Calabria (€20 million) including the Montebello Jonico and Melito di Porto Salvo diversion;
• the continuation of the additional construction works relating to the upgrading of the Gavi-Pietralavezzara pipeline in Piedmont-Liguria (€5 million);

Investments involving replacement and other investments with a basic rate of return (€205 million) concern works aimed at maintaining security and quality levels at plants (€168 million), the construction of new odourisation systems at redelivery points (€7 million) under the scope of the PDR upgrading project, the realisation of projects relating to the development of new information systems and the implementation of existing ones (€18 million), works relating to compensation for third parties (€5 million) and the acquisition of other key operating assets (€4 million), including investments for the acquisition of vehicles (€2 million).

Operating review

Injections and withdrawals of gas in the transportation network

Gas volumes are expressed in standard cubic metres (SCM) with a traditional higher heating value (HHV) of 38.1 MJ/SCM (10.572 Kwh/SCM). The basic figure is measured in energy (MJ) and obtained by multiplying the physical cubic metres actually measured by the relative heating value.

In the first half of 2017 a total of 38.08 billion cubic metres of gas was injected into the network, an increase of 4.0 billion cubic metres (+11.7%) compared with the first half of 2016. The increase is essentially attributable to higher demand for gas in Italy (+3.46 billion cubic metres; +9.6%) recorded in all segments, respectively in the thermoelectric segment (+2.14 billion cubic metres; 21.2%) mainly following a fall in the production of hydroelectric energy and the continuation of the stoppage at several French nuclear plants in the first two months of the year, industrial (+0.61 billion cubic metres; +7.3%) and residential and tertiary (+0.50 billion cubic metres; +3.0%).

Seasonally adjusted demand for gas was estimated at 39.92 billion cubic metres, an increase of 2.74 billion cubic metres (7.4%), compared with the corresponding figure for the first half of 2016 (37.18 billion cubic metres).

Injections into the network from domestic production fields or their collection and treatment centres totalled 2.57 billion cubic metres, down by 0.14 billion cubic metres (-5.2%) compared with the first half of 2016.

A total of 35.51 billion cubic metres of gas was injected into the network, an increase of 4.14 billion cubic metres (13.2%) compared with the first half of 2016. The increase was mainly due to the greater volumes injected at the Mazara del Vallo entry points (+1.38 billion cubic metres; +15.9%), Gries Pass entry point (+1.26 billion cubic metres, +47.9%) and Tarvisio entry point (+0.76 billion cubic metres, +5.3%).

Regulation

Resolution 82/2017/R/gas – “Launch of the process for the preparation of provisions on the issue of natural gas transportation tariffs and service quality, for the fifth regulatory period (5PRT)”

Through resolution 82/2017/R/gas, published on 24 February 2017, the Authority launched the process for defining the tariff regulation for the next natural gas transportation regulatory period, assuming the launch will be postponed until 2019 rather than taking place in 2018. The process launched includes the redefinition of the measuring activity organisation.

Consultation document 413/2017/R/gas – “Regulation criteria for the tariffs and service quality of the natural gas transportation service for the fifth regulatory period. General framework and areas of intervention”

Through consultation document 413/2017/R/gas, published on 12 June 2017, the AEEGSI submitted guidelines for the updating of the natural gas transportation service tariff criteria. Specifically, there was a proposal to introduce a 2-year transition period (2018 and 2019) during which the regulatory principles in force would essentially be maintained, and the start of the fifth regulatory period from 2020, expected to last 4 years.

The criteria for the transition period were the subject of a specific provision which will be adopted by next August, while the regulatory hypotheses for the fifth period will be illustrated in later consultation documents.

Other information

Resolution 608/2015/R/gas – Proceedings to determine the share of costs arising from outstanding receivables owing to the gas balancing supervisor.

By way of Resolution 145/2013/R/gas of 5 April 2013, the AEEGSI began “proceedings to determine the share of costs arising from outstanding receivables owing to the gas balancing supervisor for the period 1 December 2011-23 October 2012”. The proceedings in question were triggered by the outcome of the investigation launched through resolution 282/2012/R/gas on the procedures for regulating the economic aspects of balancing and the steps taken to protect the system relating to the period 1 December 2011-31 May 2012.

Following the process, through resolution 608/2015/R/gas of 11 December 2015, the Authority decided not to pay the share of the outstanding receivables in relation to which the specific case was the object of the investigation, for the total nominal sum of approximately €130 million.

The Company set aside a provision for impairment losses in previous years to cover expenses from the proceedings in question and, believing that the payment of the share of expenses arising from the outstanding receivables and the subject of these proceedings is not required, challenged Resolution 608/2015/R/gas before the relevant judicial authority.

The hearing took place on 17 January 2017. Through ruling 942/2017, published on 21 April 2017, the Milan Regional Administrative Court partly accepted the appeal by Snam Rete Gas deciding that with regard to several of the cases that were part of the investigation, there were the prerequisites to recognise, in full or in part, the expenses resulting from uncollected receivables totalling approximately €38 million.

Both parties have brought a partial appeal against the above ruling. A date has yet to be set for the hearing before the Council of State.

Biomethane

In 2016, through resolutions 204/2016 and 809/2016 the AEEGSI approved the proposals of the Snam Rete Gas Network Code on access conditions for the production of biomethane, opening the market to new operators which can connect to the transportation network injecting into the network. On 30 June 2017, the first biomethane was injected into the national network by Montello S.p.A., a leading company in Italy and Europe in the recovery and recycling of organic waste through separate collection (FORSU). The annual methane production at Montello will be approximately 32 million standard cubic metres, which is the equivalent quantity of biofuels for approximately 640 million kilometres for “biofuel vehicles”.

Post-balance sheet events

Appointment of Snam Rete Gas CEO

At the meeting on 24 July 2017, the Board of Directors co-opted Marco Alverà as a new member of the Board replacing Luca Schieppati who resigned on account of his position as Managing Director at Trans Adriatic Pipeline (“TAP”). The Board appointed Marco Alverà as CEO of the company; a post he will take up while remaining the CEO of Snam.