A2A 2016 Investor Guidebook - Regulation...2016 Investor Guidebook Utilities Sector Regulation February 2017 This information was prepared by A2A and it is not to be relied on by any

a2a2016 Investor

GuidebookUtilities SectorRegulation

February 2017

This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.

Main regulatory issues Pag. 3 Power capacity Pag. 15

The evolution from Capacity Payment to Capacity Market 4 Electricity production 16

Incentives to renewables 5 Electricity and gas sales 17

Energy Efficiency: Regulatory Framework 6 Networks & Heat 18

Efficiency targets and White Certificates regulation 7 Waste 19

Hydroelectric concessions 8 Annexes 20

Gas tenders 9 The evolution of the Ancillary Services marketsand imbalance regime

21

Network tariff regulatory framework 10 Hydroelectric concessions in Europe 22

Abolition of electricity regulated tariff 11 Gas tenders: regulation of tender notice 23

District Heating: regulatory framework definition 12 Network tariffs: allowed revenues structure 24

Waste: Legislative Decree "Reform of the local public services 13 Electricity and gas bill components 25

Local public services: Legislative Decree "Reform of the localpublic services”

14 Bill components: historical trends 26

Protection ALIKE: registered operators and bonus 27

Waste: Antitrust analysis on business value chain 28

Regulation Market mapping

DISCLAIMER - This document has been prepared by A2A for convenience purposes only and for the benefit of investors and analysts solely and is based on public information. However this document shall not give rise to any liability of A2Aor any of its subsidiaries, directors, officers, employees or consultants as per the truthfulness, accuracy, completeness and updating of such information. This document does not constitute an offer or invitation to purchase or subscribe anyshares or other securities and neither it nor any part of it shall form the basis of or be relied upon in connection with any contract or commitment whatsoever.

2

The “Investor Guidebook – utilities sector regulation”, is an in-depth document on the main topics relevant for A2A and the utilities sector – prepared with the aim topresent them in a simple and concise way for the investors. This document is updated at least on a yearly basis. On a quarterly basis, you may find further updates andintegrations on these topics in the A2A financial statements – section “Evolution of the regulation and impacts on the Business Units of the A2A Group”.Your comments and suggestions to improve the document are welcome!


Back to Index

MAIN REGULATORY ISSUES

3


CURRENT CAPACITY PAYMENTThe AEEGSI resolution determined the remuneration of the capacity availabledispatching via the Ancillary Services Market. The total amount of revenuesallowed by this mechanism has been very limited (total annual amount equal to~150 €M at system level).The remuneration is the sum of: 1) CAP1 (€/MW) - fee for capacity availability 2) S(€/MWh) - revenues integration if market prices are below a certain floor

AEEGSI Resolution n. 48/04

THE EVOLUTION FROM CAPACITY PAYMENT TOCAPACITY MARKET

4

RegulationGeneration & TradingBack to Index

CAPACITY MARKET• The initial design of capacity market was defined by AEEGSI resolution n.

ARG/elt 98/11

Proposal for anticipation• In 2015 the AEEGSI has published the new resolution to propose the capacity

market anticipation to the Ministry of Economic Development

The main topics of Terna Technical Schemes are reported in the table beside

→ The first auction is expected by the end of 2017, with delivery as of thebeginning of 2018.

AEEGSI Resolution n. 95/15/l/eel

IN PROGRESS:1) European Commission evaluation process concerning the compliance

of the Italian capacity mechanism, submitted by the Italiangovernment , with EU state aid rules

2) Ministerial Decree approving the first application of the mechanism

More in-depth, go toThe evolution of the Ancillary Services markets andimbalance regime

(1) Loss of Load Expectation (LOLE): average number of hours per annum in which, over the long-term, the load is statistically expected to exceed the available capacity. It represents a metricwhich could be used to measure security of supply as well as to set a reliability standard. Targetsgenerally range from 3 to 8 hours.

Note: in the table are reported the main characteristics of Capacity Market in accordance with TernaTechnical Scheme for the first application and the fully operative regime (consultation processfinished on 28 November 2016) and the AEEGSI consultation document n.713/2016/R/eel

AEEGSI Resolution n. ARG/elt 98/11

FLEXIBILITY SERVICES MARKET

The AEEGSI has proposed the creation of a new market of capacity dedicated tothe flexibility services necessary to cover long‐term requirements estimated byTerna, integrating the new capacity market scheme. Operational details to bedefined

AEEGSI Resolution n. 6/14/R/eel


TRANSITORY FRAMEWORK FOR GREEN CERTIFICATES AND FEED-IN PREMIUM(1)

The green certificate mechanism has been gradually eliminated through the progressive reduction of the mandatory share to 0 by 2015• For plants which entered into operation within 31st December 2012 which benefit of the right to receive green certificates, the Decree provides – for the remaining period of

incentivation after 2015 – a feed-in premium on the net power produced (in addition to the revenues for the sale of the power produced) to be calculated as follows:

I (incentive) = k * (180 – Re) * 0.78 k is the parameter established by Article 2, par. 148, of Law n. 224 of 2007 , equal to 1 for the plants entered into operation within 31/12/2007

Re is the price for the sale of the power produced as established by the Energy Authority, registered in the previous year and notified by the Authority

NEW INCENTIVES SCHEME• The plants - entered into operation from 1st January 2013, will benefit of the incentive scheme based on feed-in tariff for power plants up to 0.5 MW and a feed-in premium

for power plants higher than 0.5 MW. The feed in premium is calculated as the difference between the base incentive and the price for the sale of the power produced.

INCENTIVES TO RENEWABLES

5


Ministerial Decree of July 6, 2012

INCENTIVES TO ITALIAN RENEWABLE PRODUCTION (except from photovoltaic plants)

Ministerial Decree of June 23, 2016

(1) Hystorical prices of green certificates (€/MWh): 74.6 (2012), 83.0 (2013), 94.0 (2014), 98.3 (2015). Feed-in premium (€/MWh): 100.08 (2016)


ENERGY EFFICIENCY: REGULATORY FRAMEWORK

RegulationNetworks & HeatBack to Index

(1) 2030 Road Map not implemented yet by EU as a Directive

6


White Certificates: incentives recognized for the energy efficiency• “Energy efficiency certificates” (i.e., White Certificates, WCs) are tradable instruments following the achievement of end-use energy savings through energy efficiency initiatives and projects

• The AEEGSI sets the technical standards of the WCs (types, unit value, lifetime and trading rules), while the GSE recognizes the WCs to the operators after certifying the energy savings

• Conventional lifetime: from 5 to 8 years (depending on the type)

• The WCs issued in respect of projects filed after 3 January 2013 cannot be cumulated with other forms of support concerning electricity and gas tariffs and with other government incentives

Obligations for electricity and gas distributors under white certificates• Electricity and gas distributors with more than 50k customers are required to achieve yearly quantitative energy saving targets by obtaining the WCs through the implementation of energy

efficiency projects . As an alternative, they can also buy WCs through 1) bilateral negotiations with eligible third parties (e.g. companies active in the energy services sector, so-called «ESCO») or 2)in a specific spot market (run by the Electricity Market Operator GME and regulated by AEEGSI).

• The AEEGSI recognizes to the obliged parties a tariff contribution based on a cost-recovery mechanism.

7

ENERGY EFFICIENCY: EFFICIENCY TARGETS ANDWHITE CERTIFICATES REGULATION


District Heating at the forefrontThe white certificates may also be recognized to the district heating activity following theachievement of energy savings, in particular for1. the construction of new networks2. the development of existing networks in terms of new connections to end users3. heat production from renewable sources (e.g. energy recovery from waste)

The Italian Legislation with D.Lgs 4 July 2014 defined as efficient the district heating andcooling networks using at least a) 50% of heat from renewable sources or b) 50% of heatrecovery or c) 75% of heat from cogeneration plants or d) 50% of heat from a mix of theprevious alternatives.

(1) IN PROGRESS: new WCs Guidelines to implement the art. 7 of LegislativeDecree n.102/2014 will be released at the beginning of the 2017 and willestablish the new national energy saving target from 2017 up to 2020


RegulationGeneration & Trading

HYDROELECTRIC CONCESSIONSBack to Index

The state of artThe infraction proceedings n. 2011/2026 is still pending. In September 2013 the European Commission has raised doubts about the compatibility of some of the rules introduced in the Italianlegislation with reference to the European Law. At the end of January 2014 the Italian Government provided an initial response to the Commission’s enquiry (in detail, a future amendment to saidrules, as part of an overall regulatory reorganization of the sector.) The mentioned infraction proceedings didn’t move forward, so far. The overall reform of the sector is therefore on hold.

More in-depth, go toHydroelectric concessions in Europe

8


GAS TENDERS: FROM 6,950 TO 175 CONCESSIONS

(1) any part of distribution network owned by the local municipality has not be included. (2) new-for-old value is defined taking into account the state of the plants and applying the pricing included in the contract. (3) Afterthe approval of the Competition Bill, it won’t be anymore necessary to send to AEEGSI the document on the deviation between the VIR and the RAB if the calculation of VIR is compliant with Minister of EconomicDevelopment guidance and if the deviation is not higher than 8% at ATEM level.


More in-depth, go toGas tenders: regulation of tender notice

9


In December 2015 AEEGSI defined the WACC remuneration for theregulated energy networks, effective from 1 January 2016. Thecommon parameters are set for gas and electricity, excluding thosespecific of each sector, such as beta and D/E.

• WACC regulatory period lasts 6 years (2016-2021)

• WACC is real pre-tax allowed return.

• The cost of equity (Ke) is calculated taking into account:

a) the last 12 months nominal risk free rate based on on the return ofEuropean 10-year government bonds with AA rating – corrected forswap rate-implied inflation – and its minimum floor is 0.5%

b) a Country Risk Premium (CRP) to reflect the risk of investing in Italy

c) the Equity Risk Premium (ERP) calculated as the difference betweenlong term average Market Total Return and the Real Risk Free rate

d) an unlevered beta calculated with reference to European regulatedutilities

• The cost of debt comes from the addition of the Real Risk Free, theCountry Risk Premium and a further component DRP to account forthe specific debt risk of the regulated companies

• The gearing (D/E) is confirmed equal to 0.6 for gas and 0.8 forelectricity in 2015 and will be aligned to European benchmarks in thenext interim reviews

• The corporate tax rate (T) and the tax shield (tc) are respectivelyequal to 34.4% and 27.5%

• The new tax correction factor («F» factor) has been introduced tocorrect for the impact of inflation on the corporate taxes. The valueset by the regulator is equal to 1.7%, in line with ECB forecasts

• The interim review is fixed every 3 years for: Risk Free Rate; CountryRisk Premium(4); Inflation used to calculate “F” factor; Gearing (valuemore in line with those used by other European regulators), Tax Rateaccording to the annual Stability Law

(4) only if there is a more than 20% deviation in the average spread between 10-yeargovernment bonds of Italy and Germany vs the previous period

NETWORK TARIFF REGULATORY FRAMEWORKNETWORKS - REGULATORY SCENARIO

ELECTRICITY

5th Tariff regulatory period: 2016-2023 (8 years)• Tariff not linked to change in unit volumes consumption• Shift from input-based to output-based model as of 2016; the Totex mechanism

(optimisation of opex and capex; regulatory menu) will be applied as of 2020 (1)

• WACC: in 2016-2018, 5.6% (distribution, metering); additional remuneration relatedto innovative projects and energy efficiency improvement

• Additional remuneration for investments completed in 2012-14 recognized as a RABuplift (previously 1% on top of the base WACC)

• Regulatory lag reduction: year t-1 capex (previously year t-2) included in year t RAB• Gradual approach to the extension of asset life• Price cap: 1.9% (distribution), 1% (metering). The potential achieved extra-efficiencies

in the 3rd and 4th regulatory periods are to be shared 50-50 with the consumer by 2019• Interim reviews: some WACC parameters (3 years) - see box

GAS

4th Tariff Regulatory period: 2014-2019 (6 years)• Tariff not linked to change in unit volumes consumption• WACC: in 2014-15, 6.9% (distribution), 7.2% (metering); in 2016-18, 6.1%

(distribution), 6.6% (metering)

• WACC is applied either to RAB or to VIRAEEGSI(2) - for new ATEM’s entrants (so-called

"asymmetric regulation")• Opex differentiated by both size of operators and density of users• Price cap: 1.7% (distribution), 0% (metering). Price cap reduced to 0% in the first 2

years of ATEM’s• Interim reviews: some WACC parameters and price cap (3 years) - see box

2nd Regulatory period: 2016-2019 (4 years)• Allowed revenues based on full recovery cost subject to efficiency and capped in

terms of tariff growth• Regulatory matrix with six different tariff schemes, linked to the need for new

investments, the evolution of underlying costs due to consolidation or improvementin quality of service and Opex per capita

• Fixed annual maximum tariff increases - ranging from 5.5% to 9%, different for each ofthe six tariff schemes assigned at Local Authority Level (EGA)

• Overall return equal to 5.3%(3), with an additional 1% extra return for investmentsmade from 2014

• Introduction an X-factor equal to 0.5% to promote higher efficiency on internal Opex• Interim review: RAB and variable costs (2 years); assumptions on financial costs and

taxation can be modified every 2 years if there are "significant changes"

WATER

(1) The details of the Totex will be defined by the Energy Authority by 2019.(2) VIRAEEGSI: residual industrial value («valore industrialeresiduo») - as calculated by AEEGSI, in compliance with the guidelines set by the Ministerial Decree 226/11; (3) The figure is calculatedas the sum of cost of equity, cost of debt, gearing, recognized financial costs ("OF") and fiscal costs ("Ofisc")

ELECTRICITY GASWACC REFORM


More in-depth, go toNetwork tariffs: allowed revenues structure

10


Roadmap towards the abolition of the electricity regulated-tariff market in2018

FreeMarketUniversal

Service

2016 - POD

2017

ProtectionALIKE

1st July 2018 - POD2016 - POD

Free Market(standard offer)

FreeMarket

Safeguard/Supplier oflast resort(suppliersselected byauction)

1st July 2018 - POD

FreeMarketProtected

Market

FreeMarket

Safeguard(2)

ProtectedMarket

End of the protected market regime in the electricity and gas sector as of 1July 2018

In 2017 the customers(1) in the protected market will be allowed to either:1) remain in the protected market which will be reformed by the AEEGSI with following

resolution (the electricity supplier should still be the Single Buyer)2) opt for a semi-regulated offer (the so-called “Protection ALIKE“), transitory

mechanism for 1st January 2017-30th June 2018. The main characteristics are:- voluntary participation by customers and sellers to a centralized platform managed

by the Single Buyer- seller choice by the customers through the platform run by the Single Buyer on the

basis of the discount offered (€/client) – to be applied as one-time bonus on thefirst bill and differentiated by type of customers

- “standard offer”, characterized by specific contractual clauses that cannot bederogated. In this case, all sellers will compete only on the price level

- cap to the amount of served customers for each seller, set by AEEGSI equal to500,000, threshold that could be modified on the basis of the number of customerswill opt in this mechanism

- energy component of the tariff in line with the conditions of the reformed protectedmarket, included a component (the so-called PCR) covering the risks linked toelectricity supply on the wholesale market

- duration of the contract equal to only 1 yearIn 2018 the customers – also those have opted for Protection ALIKE, should, either:1) choose to enter the free market, where each seller will have to continue including the

above-mentioned “standard offer” among its possible offers2) remain in the reformed protected market, which will change its name to Universal

Service

ABOLITION OF ELECTRICITY REGULATED TARIFF

(3) Safeguard: special regime for some non-domestic customers ,e.g. public administration

Back to Index

RegulationEnergy Retail

AEEGSI Resolution 369/2016/R/eel

“Competition Bill”

Safeguard(3)

Safeguard(3)

More in-depth, go toElectricity and gas bill componentsBill components: historical trendsProtection ALIKE: registered operators and bonus

11(1) residential and non-residential customers (2) www.portaletutelasimile.it

• Objective: increasing competition in the retail market through more informed andproactive customers

• Mechanism: the migration of regulated tariff customers to the «free market» willdepend on the final text of the Competition Bill: possible competitive auctions basedon local areas

• The final text of the law is under discussion

IN PROGRESS “Protection ALIKE“ started on 1st January 2017: a web portal(2) has been createdto allow customers to opt for the mechanism by comparing the offers (28 registered operators)

http://www.portaletutelasimile.it/


DISTRICT HEATING: REGULATORY FRAMEWORKDEFINITION ONGOING

The priorities set out in the regulatory action plan of the AEEGSI1. Create a sector's map2. Elaborate documents and provisions related to how the network operators publicize the prices for the heating supply, connection, disconnection and

the ancillary equipment3. Determine the tariffs for the connection to the network – also in case of mandatory connection set by the concession contract, and the modes of

exercising the right of disconnection4. Monitor and regulate the security, continuity, commercial quality of the service, as well as the measurement devices and systems

Define rules for the invoicing of consumed volumes5. Set a reliable and stable framework for measurement and accounting of the consumed volumes, also by means of communication with the

competent authorities

Definition of information requirements for the operators in the district heating sectorThe main requirements are concerning:- the registration for the “Territorial Register of the district heating operators”- information about the district heating and cooling infrastructures

Data collection from district heating and cooling operators concerning1. the determination and update method of the price, in particular

- price/tariff currently applied to each contractual type/offer- determination and update method of the prices and its specific parameters (e.g. efficiency, avoided fuel cost, etc.)- comparison among different types of tariff

2. Costs and contributions requested for service connection and disconnection3. Metering and quality of service

AEEGSI Resolution 339/2015/R/tlr



District Heating is regarded by the Energy Authority as not tobe subject to tariff setting but as a sector to be kept monitored


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IN PROGRESS: AEEGSI consultation document n. 46/2017/R/tlr concerning the contractual quality of service in order to set:

1. two minimum standards of quality (specific standards linked to automatic reimbursements and general standards)

2. obligations relative to registration and communication of the operating data


WASTE: LEGISLATIVE DECREE “REFORM OF THELOCAL PUBLIC SERVICES”

Aim of thenew

responsibilities

….. guarantee• accessibility, usability and homogenous diffusion at the national level,• adequate levels of quality under the management focused on efficiency and costs control

balancing the economic and financial targets with the general ones characterized by social andenvironmental issues and sustainable use of sources

The newpowers of theARERA will be:

The article 16 of the Decree has assigned powers of regulation, control and sanction on the waste cycle (also recycling, urban andassimilated waste) to the Italian Energy and Water Authority - that will be re-nominated ARERA, “Autorità di Regolazione per Energia, Retie Ambiente”

1) issue the guidelines concerning accounting unbundling, costs evaluation, efficiency benchmarks2) define the quality levels of the service and the standard management agreement3) set and update the tariff method of the waste cycle in order to define the components covering opex,

investments and capital remuneration, on the basis of the efficient costs evaluation and the "polluter paysprinciple"

4) fix the tariff criteria to establish the WTE gate fee5) approve the tariffs6) verify the Territorial Area Plan and suggest proposals

RegulationWasteBack to Index

More in-depth, go toWaste: Antitrust analysis on business value chain

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ON HOLD: the Constitutional Court had ruled on 27 November 2016 that the LawDecrees implementing the “Madia Law” have some elements that go against theItalian Constitution. The issue concerns the necessary agreement between theState and the Regions relative to decisions about Public Administration, LocalPublic Services and subsidiaries.


RegulationLocal public servicesBack to Index

LOCAL PUBLIC SERVICES: LEGISLATIVE DECREE“REFORM OF THE LOCAL PUBLIC SERVICES”

14

ON HOLD: the Constitutional Court had ruled on 27 November 2016 that the Law Decreesimplementing the “Madia Law” have some elements that go against the Italian Constitution.The issue concerns the necessary agreement between the State and the Regions relative todecisions about Public Administration, Local Public Services and subsidiaries.


GENERATION & TRADING – POWER CAPACITY IN ITALY

Back to Index

Sources: 2015 AEEGSI Annual Report, companies websites (hydro capacity) and internal analysis (CCGT capacity). Data may differ from those communicated in theannual reports of the companies.

Market Mapping

*excluding small orcogenerativeproduction units

15


GENERATION & TRADING – ELECTRICITYPRODUCTION IN ITALY

Source: 2015 AEEGSI Annual Report. Data may differ from those communicated in the annual reports of the companies.

Back to IndexMarket Mapping

16


ENERGY RETAIL – ELECTRICITY AND GAS SALES

*Net of self-consumption

Source: 2015 AEEGSI Annual Report. Data may differ from those communicated in the annual reports of the companies.


17


NETWORKS & HEAT

Sources: 2015 AEEGSI Annual Report for electricity and gas distribution (data may differ from those communicated in the annual reports of the companies); annual and Sustainability Reportsfor Water Distribution, Heat production and Heated volumes.


18


WASTE

Sources: Annual,Sustainability Reports and websites of the companies.


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(1) Excluding third parties’ plants. Data refer to plant inflowwaste. Double counting may therefore occur.


ANNEXES

20

This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.21

THE EVOLUTION OF THE ANCILLARY SERVICESMARKETS AND IMBALANCE REGIME

Ancillary services and balancing markets today:- physical central dispatch system, managed by TSO in terms of scheduling, process and electricity volumes to be dispatched in order to ensure adequacy and

security of the system- procurement by the TSO of services for: 1) congestion management and reserve margins (dispatching); 2) real-time balance (balancing)- «energy-only» markets (no capacity remuneration)- participants: dispatchable and programmable power plants with capacity > 10 MVA. Participation is mandatory- separated dispatching for production and consumption units- TSO as a counter-party for each balancing unit- pricing: pay-as bid

And in the future:- production units with capacity < 10 MVA, non programmable units and consumption units will be eligible to participate in the ancillary services and balancing

markets (previously not eligible). The participation will be voluntary.- aggregation will be possible on a zonal basis for: 1) production units < 10 MVA; 2) all consumption units

ANCILLARY SERVICES MARKETS

• In June 2016 AEEGSI published a consultation document to enlarge the participation of units to the ancillary services market - including demand, non-programmable renewable sources and distributed generation, and to authorize the offer of aggregated production and consumption units on this market. Therules set by AEEGSI implement the first phase of the ancillary services market reform and are applicable only to the 2017-2018 transitory period

• The AEEGSI final resolution and the consultation by Terna (TSO) concerning the technical criteria are expected by the end of 2016

AEEGSI Consultation Document n. 298/2016/R/eel

IMBALANCE REGIME

• In July 2016 AEEGSI intervened modifying the imbalance regime of the electricity market in order to correct some distortions that have incentivized non-competitive behaviors from a few operators. As of August 2016 until April 2017 (the transitory period), the new regulatory framework gradually adopts asingle/dual price system(1) depending on the type of production units. Full implementation of the new rules as of May 2017.

• This new regime will have a negative impact on small traders that have taken advantage of distortions and, on the other hand, positive impacts for thoseoperators that have not implemented speculative behaviours

AEEGSI Resolutions n. 444/2016/R/eel and n. 800/2016/R/eel


(1) The single pricing system only depends on the sign of zonal aggregate imbalance while the dual pricing takes into account the sign of imbalance both at nodal and zonal level


HYDROELECTRIC CONCESSIONS IN EUROPE

Different forms of hydropower usage rights granted fordifferent durations

Sources: «Regimes for granting the right to use hydropower in Europe», Florence School of Regulation, 2015


22


GAS TENDERS: REGULATION OF TENDER NOTICE

A. Economic offer (maximum score: 28)• discount on gas distribution tariffs paid by the end customers. There is a cap on the discount level (1)

• discount on prices for other services provided by the distributor to the end customers• annual fee to be paid to municipalities awarding the concession. There is a cap on the fees level (2)

• obligation to extend the distribution network (meters of pipes per end users - implying the obligation to connect new potential end- users)• Investments for energy efficiency additional with respect to the minimum level established by the national regulation

B. Offer concerning the safety and the service quality (maximum score: 27)• network subject to inspections in order to prevent gas leaks (percentage of gas network annually checked)• performance of the emergency service• performance of the gas odorization service• improving the level of other quality standard levels set by the Authority of Electric Energy and Gas (e.g., standards for the execution of works; the

connection, disconnection and re-connection of gas supplies to customers; meter-reading; the checking of supply pressure; written complaints orrequests for information and call centre services)

C. Offer concerning the development and the maintenance of the distribution network (maximum score: 45)• suitability of the network operation analysis• investments plan for the extension and the increase of capacity of the distribution network; the evaluation criteria: the tangible benefits expected by

the investment proposed, the accuracy of the technical projects as well as the magnitude of new pipes to be made• investment plan for maintenance• technological innovation

Standards to evaluate the overall offer:A. Economic OfferB. Safety and service qualityC. Development and maintenance of the distribution network

(1) Cap on the discount level: sum of the annual amortization of the difference between the “Value of the Assets Reimbursed to the outgoing concession holder” and the “Regulatory Asset Base” and the annualexpenses to recognize to contracting Authority in the amount remunerated in tariff )

(2) Pursuant to the Ministry of Economic Development Decree n. 106 of 20 May 2015 - amended some tender criteria set by the Ministerial Decree n. 226/11, the cap on the fee level is equal to 10% (previously5%) of the portion of the allowed revenues to cover the local capital costs

Relevance of the technical offerTo win a tender, it will be crucial the formulation of a valid investments plan fordevelopment, strengthening and maintenance of the gas distribution system (technicalefficiency and sustainability from the point of view of a cost / benefit analysis)


23


NETWORK TARIFFS:ALLOWED REVENUES STRUCTURE

Allowed Revenues = OPEX + Depreciation + Return on Invested Capital +/- Incentives/Penalties

OPEX• The initial level of the allowed Opex is set by the Authority on the basis of the figures reported in the most recent Separate Financial Statement

• The cumulated extra-efficiencies achieved by the operators in the previous regulatory period are shared 50-50 with the consumers at the beginning of the newregulatory period (the so-called profit-sharing mechanism) and applied to the effective Opex

• Annual Opex reviews are then calculated on the basis of price-cap formula

where:rpi is the reference price index (inflation); X factor is the efficiency target; Y factor is an adjustment reflecting cost variations arising from unforeseeable and exceptional events, changes in regulationand changes in universal service obligations

DepreciationThe regulatory depreciation is defined taking into account the fixed assets standard useful life, as established by the Authority

Return on Invested CapitalRAB• The opening value set by the Authority at the beginning of the regulatory period using the historical revaluated cost methodology• The yearly update is based on the new net investments, the disposals and the average annual change in the gross fixed investment deflator measured by the

National Statistics Office.

Regulatory Time Lag on investments• The investments realized in the year t-1 are included in the RAB year t

WACC real pre-tax

� � � � � � � � � � � � � � � = � � � � � � � � � � � � � � � � ��

+ 50% ∗ (� � � � � � � � � � � � � � � � �� − � � � � � � � � � � � � � � � � �

� � � � � � � � �)

� � � � � � � � � = � � � � � � � � � � � ∗ ( 1 − � � � � � � � + � � � + � � � � � � � )

� � � � � � � � � � � � � � � � � � � � � � � = � � � + � � � � � � � � � � � � � � � � � ∗ � � � � � � � � � � � � � � � � � � � � �

� � � � � � � � � � � � � � � � � � � � � = � � ∗

�� + �1 − �

+ � � ∗�

� + �∗1 − � �

1 − �+ � � � � � � � � � � � � � � � � � � �


24


Back to Index

«Bill 2.0»: the new structure of the bill entered into force as of 1st January 2016 (AEEGSI Resolution 200/2015/R/COM), envisages the semplification of content and terms


25

(1) This component can be divided into 4 parts: a) procurement of resources on the Ancillary Service and Balancing Markets; b) essential units for system security; c) capacity payment mechanism; d)interruptibility services. (2) Mechanism based on the Apr component. In particular: a) Apr initial value is based on the 2010-2012 volumes provided to protected customers and sourced through take or paycontracts; b) Apr terminal value ,to be defined by October 2016, will take into account the possible downward trend of gas prices of the thermal years 2013/2014, 2014/2015 e 2015/2016

ELECTRICITY AND GAS BILL COMPONENTS


Back to Index


26

ENERGY BILL COMPONENTS: HISTORICAL TRENDS

ElectricityTariff

GasTariff

Sources: internalelaboration of AEEGSIfigures

Protected market:economic conditions for

households with an annualconsumption of 2,700 KWhand capacity of 3 kW

Protected market:economic conditions for

households with individualheating system and an annualconsumption of 1,400 cm


PROTECTION ALIKE:REGISTERED OPERATORS AND BONUS(1)

Back to Index


27

(1) Discount to be applied on the yearly supply

Source: AEEGSI www.portaletutelasimile.it

http://www.portaletutelasimile.it/


WASTE: ANTITRUST ANALYSIS ON BUSINESSVALUE CHAIN(1)

RegulationWasteBack to Index

(1) Source: Antitrust survey on the urban waste business (February 2016)

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A2A 2016 Investor Guidebook - Regulation...2016 Investor Guidebook Utilities Sector Regulation February 2017 This information was prepared by A2A and it is not to be relied on by any