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Gas distribution

2011 is the third year of the third regulatory period (2009-2012) of tariffs for gas distribution and metering. The reference framework for the four years was introduced by AEEG Resolution ARG/gas 159/08 of November 2008 and was in many respects highly innovative compared with the methods previously in force.

The introduction of the tariffs outlined in 159/08 ensures that each operator obtains the “permitted revenue” determined by the Authority on the basis of the recognised costs reflected in the “reference tariffs” and the number of delivery points served, thereby making company revenue independent of the volumes distributed. This can be done by using tariff equalisation mechanisms which allow operators to use the Electricity Equalisation Fund to settle differences between their own permitted revenues and the revenue generated by invoicing the sales companies. These latter revenues arise from the “compulsory tariffs” determined by the AEEG on the basis of macro-regional size.

Although in 2009 and 2010 the AEEG approved both the compulsory tariffs and the reference tariffs, only the compulsory tariffs have currently been approved for 2011, whereas the reference tariffs, based on each operator’s permitted revenues, have not been defined, even provisionally. Following rulings by the Regional Administrative Court of Lombardy in October 2010 which partially cancelled the RTDG, the AEEG has, by Resolution ARG/gas 235/10 of December 2010, formally begun a process aimed at evaluating the possible consequential changes to tariff regulations, which could lead to regulatory powers being exercised again and to the consequential, if only partial, review of the RTDG. Until this review, the Authority has effectively suspended the approval of reference tariffs for the year 2011 and has declared as provisional the previous approvals from 2009 and 2010. It must however be stressed that the partial cancellation of RTDG, in addition to referring to judgements at first instance on which the Authority has appealed to the Council of State, is specifically concerned with the regulatory system, whereby any changes to the AEEG study would, in all probability, produce an essentially neutral effect, if not an improvement, for Hera, compared with the previously approved tariff levels. In any event, it now seems clear that any revisions to the RTDG will be made by the Authority only after publication of the final judgement of the Council of State.

For these reasons, Hera S.p.A.’s gas metering and distribution revenues for 2011 are the result of appropriate estimates of the reference tariffs, on the assumption of regulatory continuity in the tariff formula compared with the approvals in previous years. In particular, the tariffs for 2011 were estimated taking into account the principle of “graduality” when recognising capital costs, which was introduced by the AEEG with a view to spreading over the four-year regulatory period the convergence of the values in force under the previous methodology towards those defined by the RTDG. As a secondary factor in terms of economic impact, the tariff adjustment in 2011 also takes into account changes in net invested capital which took place in 2009 and updates to operating costs recognised according to the standard price cap rule, by applying an annual productivity recovery rate of 3.2% for Hera. The definition of the tariff is normally also affected by an adjustment for inflation but the specific update between 2010 and 2011 is a result of a particularly mild impact, compared with the variation parameters published by the Authority, of -0.1% for the cost of capital and +0.8% for operating costs.

Finally, during 2011, a process was implemented for the Equalisation Fund which involved recording the data used in the calculation of the equalisation of tariffs pertaining to 2010 and the 2009 revisions. At this time the Equalisation Fund has not yet determined these amounts, from which, however, the appropriate estimates in the financial statements at 31 December 2010 have been made.

In this context, Hera S.p.A.’s operating revenue from the activities of distributing and metering gas totalled €153.3 million, compared with distributed volumes of 2,230 million cubic meters and a corresponding average per unit revenue of €6.87 cents/cubic metre. These results include new areas under management acquired during 2011 and, in particular, the management of the CIMAF consortium of three municipalities, following the acquisition of the related business line and the management of the municipality of Formignana (FE), the contract for which was awarded to Hera following an openly public process.

Gas metering and distribution – Regulated revenues 2010 2011% change
Hera S.p.A.      
 Revenues (€ million)149.20153.302.7%
 Volume (m3 million)2,3302,230-4.3%
Average per unit revenue (€ cent/m3)6.406.877.4%

There are different reasons for the €4.1 million growth in revenue compared with 2010. First of all, between 2010 and 2011 there was an increase of €5.1 million in recognised capital costs, related largely to the release of the third “graduality” instalment and secondly, the recognition of the return on the investments made in 2009. This increase was however offset by a reduction of €1.5 million in the level of recognised operating costs, due mainly to the recovery of productivity put in place by the tariff system. The residual increase of + €0.5 million ultimately comes from different items, also as offsetting entries, specifically tied to the dynamics of the delivery points, to adjustments pertaining to earlier periods recorded in the 31 December 2010 financial statements, and, finally, to the new areas under management mentioned above.

The extent of consolidation for the year 2011 also includes Marche Multiservizi S.p.A. The Hera Group’s consolidated revenues from gas distribution and metering, its distributed volumes and its average revenue per unit are shown below.

Gas metering and distribution – Regulated revenues 2010 2011% change
Consolidated Hera Group      
 Revenues (€ million)163.20166.902.3%
Volume (m3 million)2,5042,389-4.6%
Average per unit revenue (€ cent/m3)6.526.997.2%

Finally, the value, for regulatory purposes, of the Net Invested Capital for gas distribution and metering which is the basis for the operating revenue shown for the Hera Group in 2011, is estimated at €903 million.