Regulatory risk

About 94% of the Group’s consolidated revenue comes from annual fees paid for the services regulated by the energy authority in Italy. Within the scope of such regulations, there are a number of variables that could have an impact on performance.

Volume effect

Terna’s revenue from the management, operation and development of the National Transmission Grid and from the management of ancillary services is governed by rates that are established by the Italian Authority for Electricity and Gas.
Such rates are applied to the total volume of electricity transmitted over the Italian network. The volume of electricity transmitted over the grid depends on factors that are beyond the Company’s control.
Given the current exceptional economic climate and the consequent decline in power consumption, and to protect transmission revenue from unusually high levels of risk, the Authority for Electricity and Gas has, in way of ARG/elt Resolution no. 188/08, established a guarantee mechanism for the level of revenue for the Company effective as of the beginning of 2009 through to the end of the regulatory period (December 31, 2011). Based on this mechanism:

  • if actual volumes should fall below the levels used to determine the rates for the year, the Authority will supplement Terna’s remuneration for the portion of volumes in excess of a 0.5% deductible;
  • if actual volumes should exceed the levels used to determine the rates for the year, the Authority will require Terna to refund the excess revenue for the portion of volumes in excess of a 0.5% deductible.

Terna has used this mechanism starting from 2009, and will continue to do so until the end of 2011.
ARG/elt Resolution no. 204/09 confirmed that the guarantee mechanism for the level of revenue for transmission services may be adopted for the DIS component to cover the costs of Terna operations. As from 2009 Terna has used that power.

Bonuses and penalties

There are also currently a number of mechanisms for calculating bonuses and penalties in relation to certain activities conducted by the Company:

  • in accordance with Authority Resolution no. 341/07, Terna is required to pay its portion of penalties due to surpassing the service continuity targets established by the Authority for medium-voltage customers, as well as refunds to customers connected to the medium- and low-voltage distribution networks in the event it exceeds the time limit for restoring power following prolonged interruptions of service affecting either the National Transmission Grid or the distribution networks;
  • beginning in 2009, in accordance with Resolution no. 333/07, Terna is also required to pay a specific contribution to the Exceptional Events Provision established at the Electricity Equalisation Fund based on the electricity not delivered for which Terna is responsible for the portion of outages exceeding two hours;
  • the mechanism of bonuses and penalties that was in place for 2008 and 2009 (under Resolution no. 351/07) based on Terna’s capacity to forecast demand and power output from wind facilities was maintained for 2010;
  • with ARG/elt Resolution no. 188/08, the Authority established the parameters for a bonus and penalty mechanism connected with the effective start of a number of investments to develop the National Transmission Grid, as defined by Terna and recognised by the Authority as being of strategic importance. This optional mechanism is defined in greater detail in an Authority measure to be adopted;
  • with ARG/elt Resolution no. 213/09, the Authority confirmed the incentive payment mechanism related to procuring resources for Terna’s dispatching service which was introduced on an experimental basis for 2009. This mechanism uses the level of resources procured by Terna on the Ancillary Services Market as the variable for measuring Terna’s performance, and this is valid for the period 2010-2012. Payment of the incentive is conditioned upon meeting the same conditions defined in 2009 – maintaining safety standards and effectively monitoring and revising the algorithms for selecting the bids on the Ancillary Services Market.