Regulations concerning the business segment

Relations with the regulatory authority

Over the years Snam has established a constructive relationship and effective cooperation with the Italian Regulatory Authority for Energy, Networks and the Environment – ARERA.

Temporary period regulations for 2019

Through resolution 68/208/R/gas “Start of the procedure for the definition of provisions elated to the tariffs and quality of natural gas storage service for the fifth regulatory period (5PRS) and extension of the current provisions to the year 2019”, published on 9 February 2018" the Authority extended the tariff criteria for the Storage service in force in the period 2015-2018 to cover 2019 confirming the value of the asset β parameter. The process was also launched for the revision of the criteria for the 5th regulatory period, which runs from 2020, similar to the transportation and regasification businesses, during which the opportunity of implementing a “totex” type regulatory approach will be evaluated.

The Authority also extended the regulation on the subject of the quality of the natural gas storage service for the period 2015-2018 to cover 2019.

Updating of the remuneration rate of the capital invested for regulatory purposes (WACC) for 2019

Through resolution 639/2018/R/gas, published on 6 December 2018, the Authority carried out an interim update of the basic WACC parameters, shared by all regulated infrastructure services of the electricity sectors, for the three-year period 2019-2021, and for regulated infrastructure services of the gas sector, for 2019, setting this value at 6.7% for storage activities compared with the previous figure of 6.5% (6.5% for the years 2016-2018).

For infrastructure services other than those of gas distribution and metering, the Authority set a D/E gearing level of 1, while the calculation of the Beta parameter was carried out during the tariff regulation of the individual businesses starting from 2020. The WACC for 2020 was calculated following the setting of the Beta parameter for the 5th regulatory period.

For more information on the parameter values used by the Authority for calculating the value indicated above, please refer to the section “Regulation of activity sector - Natural gas transportation” of this Report.

Tariff regulations for 2019

By means of Resolution 696/2018/R/gas, published on 20 December 2018, the Authority provisionally approved the corporate base revenue for the storage service for 2019, as per the tariff proposal presented by Stogit. This revenue of €499.5 million was later updated using the total annual increases in assets relating to 2018. Specifically, through resolution 297/2019/R/gas - the definitive calculation of the business revenues for the storage service for 2019, published on 10 July 2019, the Authority approved the revenues recognised definitively for the storage service for 2019. The recognised revenues amounted to €499 million. The RAB for storage activities was €4.0 billion.

Regulation for the fifth regulatory period 2020-2023

Through resolution 419/2019/R/gas, published on 23 October 2019, the Authority defined the criteria for calculating the revenues recognised for the storage service for the fifth regulatory period (1 January 2020-31 December 2025).

The duration of the regulatory period will be extended from 4 to 6 years. The valuation of the net capital invested (RAB) is based on the revalued historical cost method. The net invested capital remuneration rate Beta parameter (WACC) remains fixed at 0.506, with the WACC remaining unchanged at 6.7% before tax for the years 2020-2021, in line with the TIWACC framework.

Works in progress (LIC) remain excluded from the calculation of the RAV, at the same time as the recognition of financing expenses (IPCO). The operating costs recognised are calculated based on the recurring effective costs for the last available year (2018), plus the greater efficiencies achieved in the current period (50% profit sharing), with the size of the efficiency factor (X factor) designed to restore the greater efficiencies achieved in the fourth period to consumers in the fifth regulatory period.

The mechanism for hedging revenues will be extended to cover 100% of the reference revenues, also predicting the storage businesses can optionally access an updated incentive system following the remodelling of the share of revenue recognised subject to the hedge factor. The methods for recognising renewal costs are confirmed.

There are plans to recognise the costs relating to the Emission Trading System (ETS), ratifying the neutrality principle of the business in relation to the price risk and incentivising virtuous behaviour aimed at reducing CO₂ emissions.

Lastly the resolution approves the regulatory provisions for the quality of the storage service for the period 2020-2025.

Approval of 2020 revenues

By means of Resolution 535/2019/R/gas, published on 19 December 2019, the Authority approved the revenue recognised for the storage service for 2020. The recognised revenues amounted to €491 million. The RAB for storage activities was €4.0 billion.

Other provisions

Resolution 67/2019/R/gas - Regulation of access to storage services and their provision. Provisions for the allocation of storage capacities for the thermal year 2019/2020

Through this resolution, published on 27 February 2019, the Authority rationalised and integrated the provisions related to access to and the provision of storage services in a Consolidated Act (RAST). With specific reference to the methods for calculating the regulated fees, the RAST involves the sterilisation of the effects resulting from the allocation of capacities with market mechanisms at fees lower than the tariff as well as incentivisation criteria for maximising the range of storage services offers.

Specifically, the resolution involves the compensation via the CSEA of the difference in price between the storage tariff and the allocation price at auction applied to the allocated capacity, as well as the compensation of the costs for the purchase of the transportation capacity incurred by the storage businesses.