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Regulatory framework

Regulatory framework

1. Reference scenario: energy and environment

The new European directives impose increasingly challenging objectives on the Member States with respect to the promotion of energy from renewable sources and energy efficiency in order to limit dependence on fossil fuels and the greenhouse gas emissions. In order to comply with national obligations as set out in the national renewable energy action plan (PAN), the Government approved two important provisions with significant impacts on the Hera Group.

1.      Legislative decree no. 56 of 29 March 2010, amending decree no. 115 of 30 May 2008, implementing directive 2006/32/EC regarding energy end-use efficiency and energy services.  The provision raises the maximum threshold of power defining an Efficient User System (EUS) from 10 to 20 electric megawatt hours, characterised by the presence of both a plant for consumption by one end consumer only and an electricity production plant, powered by renewable sources, or a high yield cogeneration plant. The new decree limits definition of the EUS to private connections, without the obligation for third parties to connect to the electricity network. The Italian Authority for Electricity and Natural Gas (AEEG) must regulate the EUSs to ensure that the transmission and distribution tariffs, and the despatching and general system charges covering expenses will be exclusively applied to the electricity taken from the connection point.

2.      The legislative decree implements the Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 (Government Act no. 302), approved definitively by the Council of Ministers on 3 March 2011 after approval in Joint Conference and the Parliamentary Commissions, and reforms the entire regulatory structure supporting renewable sources.

  • The negotiable green certificate system is replaced by a differential system in accordance with the power of the plant. Plants with power of less than 5 Megawatts will have a feed-in-tariff for the energy produced, differentiated by source and power class Plants with power of more than 5 Megawatt will have the right to an incentive that will be assigned through a descending price bidding mechanism managed by the Electricity Services Operator (GSE). The procedures for implementing the new incentive mechanisms will be governed by the upcoming ministerial decrees within 6 months of approving the definitive text of the Legislative Decree by the Council of Ministers.
  • The portion of electricity from renewable sources that the producers and importers of energy must put into the national electricity grid, in accordance with legislative decree no. 99 of 16 March 1999, will be progressively reduced starting from the value assigned in 2012, until cancellation in 2015. The GSE will be responsible for collecting the green certificates for the excess production with respect to the obligatory amounts, for the years from 2011 to 2015, at a price equal to 78% of the value expressed by table 3 of Law 244/07 (reference price equal to Euro 180/MWh less average annual PUN).
  • As regards the plants that enter into operation by 31 December 2012, the all-inclusive tariffs and reference values of the green certificates will be frozen at the values established by 2008 Finance Bill, and the certificate multiplication factors will also remain fixed at the values provided under this provision and the 2007 Finance Bill.
  • The decree also governs energy efficiency, defining two significant macro-instruments: review of the system promoting small scale energy saving activities that will be carried out after 31 December 2012 and the support for the white certificates offer. The ENEA (national agency for new technology, energy and sustainable economic development) will draft fifteen new standardised schedules for the quantification of energy savings in certain specific sectors, a reduction of the time-frames to obtain the certificates, extension of the saving validity times for more capital intensive projects and a single interface for the issue of white certificates (which will be the GSE).
  • An increase in the compensation of the invested capital for modernising the networks in accordance with the "intelligent network" concept will be provided to promote the infrastructural development within the scope of electricity distribution. A fund has been established with the Equalisation Fund for the Electricity sector to support the creation of the district heating networks, funded by an amount applied to methane gas consumption and equal to 0.05 eurocents per standard cubic metre, paid for by the end consumers.
  • In order to increase the number of biomethane production plants, new regulations will be established by the AEEG in order to define the technical and economic conditions for the allocation of the connection service of these plants to the natural gas distribution networks.
 

Note also, with respect to renewable sources, the directive of the Minister of Economic Development to realise the commitment taken on by the Government in converting the “energy law decree” 2010, no. 105, into law no. 129 of 13 August 2010 (Order of Business no. G/2266-B/1/10). The directive aims at clearly and definitively recognising the vested incentive rights of the plants that went into operation in 2007 in accordance with Law no. 296, article 1, paragraphs 1117 and 1118 of 27 December 2006; if necessary the Energy Service Manager will be authorised to quickly identify the plants entitled to the incentive law previously in force, and to therefore give, following the necessary agreements.  

The Ministers in charge and the State-Regional Conference approved, but have not yet published, the main element of reform in the bidding mechanism for the gas distribution service provided under the Letta decree, known as the “Areas decree”. The call for tenders for the service will no longer be carried out by the Municipalities, but by groups of Municipalities in areas, for a total of 177 (a higher number than that suggested by the AEEG studies and initially proposed by the Government). Completing the frame of reference of the area tenders, decrees are expected regarding the prompt definition of the municipalities that make up the individual areas, and the issue of two decrees regarding establishment of the tender rules (also approved by the Joint Conference) and the employment protection measures for the outgoing and incoming managers.

2. Regulations

The term of office of the AEEG who had entered office in 2003 terminated in 2010 and the new Board was appointed, comprising five members as provided under the Marzano law. The delay in appointing the new Board, for which the qualified majority vote of the Parliamentary Commissions called on to express the agreement of the Members chosen by the Government was required, resulted in the need to extend the term of office of the outgoing Board, which remained in office for the final part of 2010 to carry out the “current administration” functions.

The newest regulatory developments in 2010 occurred in the gas sector:

  • by resolution ARG/gas 7/10, the Authority defined a method used to estimate natural gas consumption following ascertained malfunction of metering units, effectively completing the regulatory process started by resolution ARG/gas 51/08 regarding the inspection of gas metering units upon request by end consumers
  • the procedure, initiated by resolution ARG/gas 47/10, to estimate the final prices for protected customers using a method aimed at giving more weight to market developments, characterised by excess supply and a short-term liquidity increase, was completed. The calculation formula of the component to cover the procurement costs of the raw materials (QE) was modified by the ARG/gas 89/10 resolution, which actually reduced, starting from 1 October 2010, the previous level of the permitted component value by 7.5%. As with the other precedents, the provision was challenged by the operators; in the meantime, the Regional Court cancelled the previously existing regulation (resolution 79/07) of the final protected prices. The continued dispute and intervention on this matter by the EU (which approved precedence being given to the criteria of reasonableness, proportionality and the provisional character of the legitimate interventions made on the protected consumer prices) would suggest that a complete review of the approach should be made, both in terms of possibly restricting the field of protection (with the establishment of a regulated market as for the electricity sector), and in terms of the reference price fixing mechanisms, which are difficult to calculate in the fully deregulated market.
  • An important consultation was initiated (DCO 25/10) on the overall reform of the gas system, aimed at developing the wholesale and retail gas market, starting by introduction of a balancing system based on market criteria; similarly, the DCO 45/10 and 46/10 consultations have been initiated, containing proposals regarding how the balancing market will operate, and the resulting and necessary reform of the settlement system, with a redefinition of the times and attributions of responsibility to distributors and transporters.
 

The main news in the electricity sector can be summarised as follows: 

  • resolution ARG/elt 13/10 regarding the communication standards between distributors and sellers of electricity for the services regarding the commercial quality regulated by the Consolidated Electric Quality Act, provides that, from 1 October 2010, distributors with more than 100,000 end consumers will be equipped with a modern communication instrument (known as the web portal) to manage the commercial services requested by the sellers
  • by resolution ARG/elt 52/10 and ARG/elt 66/10, required by legal provision 99/09 (provisions regarding energy and competition) the Authority implemented the reorganisation of the internal user grids (the RIUs identified by the Authorities also include those of Herambiente regarding the waste-to-energy plants in Forlì and Ferrara)
  • by resolution ARG/elt 125/10, the Consolidated Active Connections Act (TICA) was reviewed in order to simplify the connection procedures for the renewable source production plants, thereby encouraging development of widespread generation, and at the same time introducing instruments to monitor the requests and discourage speculative behaviour regarding the capacity in use on the distribution networks
  • initiating an “innovative” regulation phase for the electricity networks, the Authorities implemented an experiment involving public recharging of electric vehicles (resolution ARG/elt 242/10), aimed at acquiring the information necessary for subsequent provisions. Special introductory incentive-giving tariffs will be provided for six pilot projects to be selected by April 2011
  • finally, the consultation process for institution of the 2012 – 2015 period of electricity distribution tariff regulation has begun, where relative simplification of the current complex equalisation regimes is expected, in addition to consideration of the “complex network regulation” issues regarding the increasingly “active” nature of distribution networks.
 

As regards transversal provisions, it is important to note resolution ARG/com 104/10 which approved the Commercial Code of Conduct for the sale of electricity and natural gas to end consumers; the Code will enter into force starting from 1 January 2011. It is particularly important to note the introduction of automatic compensation to end consumers, which the seller must provide in the event of failure to comply with the specific standards defined by the Authority. Further news involves establishment of an integrated information system with the Sole Purchaser, aimed at constructing a standard, tendentially unified platform for the exchange and circulation of information that is relevant for relations between distributors and sellers on the deregulated market.