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New 2016-2023 tariff system

During December, the Regulatory Authority set the tariff regulation for the 2016–2023

During December, with Resolutions No. 583/15/R/com, No. 653/15/R/eel, No. 654/15/R/eel and No. 658/15/R/eel, the Regulatory Authority for Electricity, Gas and Water (hereinafter AEEGSI) set the tariff regulation for the 2016–2023 regulation period for electricity transmission, distribution, measurement and dispatching and the regulation regarding the quality of the transmission service.
The fifth period or new regulatory period (NPR) extends over eight years and is subdivided into two sub- periods identified as NPR1 (2016–2019) and NPR2 (2020–2023), each lasting four years: the first (NPR1), essentially continues the methodology of the past; while the second (NPR2) introduces a new methodology approach, based on the recognition of costs in relation to the total spend, intended as the sum of operating expenses and investments - i.e. TOTEX (Total Expenditure) - the details of which will be determined according to a business plan that will be set out under a new provision issued by the Authority.
As far as the base remuneration rate for recognized invested capital (WACC) is concerned, the AEEGSI introduced an appropriate six year regulatory period (i.e. WACC or PWACC Regulatory Period), extending from 2016 to 2021. The PWACC is subdivided into two sub-periods of three-years each, and sets the base WACC parameter levels applied to all infrastructure services in the electricity and gas sectors, excluding the specific parameters that refer to an individual service. The WACC for the 2016–2018 period is set at 5.3%, and is expected to be updated on the basis of pre-set rules, with effect from the second three-year period (2019–2021).
Based on the decisions taken, Terna conducted a preliminary estimate of the net invested capital recognized for regulatory purposes (RAB 2016) that stands at approximately € 13.8 billion, excluding the assets acquired from the Ferrovie dello Stato Group.
With regard to incentivized investments, Resolution 654/15/R/eel confirmed the effects of the incentive regulations from prior regulatory periods for all investments that came into operation at 31/12/2015. For investments that will become operational as from 1/1/2016, relating both to development works approved by the AEEGSI not included among the I3 investments and approved under Resolution 40/13 (O-NPR1), as well as to certain I3 investments approved under Resolution 40/2013 (I-NPR1), a 1% increase in the WACC is recognized for 12 years, subject to specific conditions set out in Annex A to Resolution 654/15/R/eel being adhered to.
Resolution 517/15/R/eel referring to the “Definition of the remuneration of the high- and very-high voltage electricity grids owned by the company Ferrovie dello Stato Italiane S.p.A. to be included in the National Transmission Grid (hereinafter NTG)” also stipulated the remuneration recognized for the portion of the non-NTG HV/VHV electricity grids - owned by FSI S.p.A. - in the event that this was acquired by Terna, and consequently became part of the NTG.
The regulation outlined the criteria for calculating and updating various components of the underlying recognized cost to said remuneration, which can be summarized extremely briefly as follows: the figure for the net invested capital recognized for tariff purposes (NIC) for HV and VHV electricity grids, to be included in the NTG stands at € 674 million. An extra remuneration of 1% is added to a portion of €149 million of this figure; the NIC remuneration will be recognized in the tariffs with effect from the 2017 tariffs; initial operating expenses recognized for tariff purposes are set at € 42.1 million, which include once-off costs identified on a flat-rate basis for € 2 million, with these costs recognized as from 2016; furthermore, as from the second year in which operating expenses are recognized, the once-off costs will be excluded (€ 2 million) and specific annual productivity recoveries will be applied.
Finally, one the main features introduced by the new regulatory framework is the reduction, with reference only to the remuneration of invested capital, in the delay with which the tariff remunerates investments made (i.e. time lag): the tariffs for year n will consider the remuneration on investment capital up until year (n-1) and the amortization of investments up until year (n-2). The 1% extra remuneration to offset the time lag will therefore be limited to investments from 2012–2014, and abolished in relation to investments in subsequent years.

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