Regulated revenue

The Company’s regulated revenue is generated by different rate components – the most important of which is the payment for transmission – paid to Ternai by different categories of companies in the electricity industry (distributors, wholesalers) in proportion to the quantity of energy transported (withdrawn or dispatched) on the grid owned by Terna.
  
The AEEG determines annually the unit sum of the rate components on the basis of rules established at the beginning of every four-year regulatory period. The contributing factors are, on the one hand, Terna’s recognized costs, including margins, and on the other, the volume of electric power transported. The cost components considered in the determination of transmission rates belong mainly to three categories: 

  • remuneration of the RAB. The value of the RAB (regulated asset base) is revalued annually on the basis of the Istat number on the change in the gross-fixed-investment deflator and updated on the basis of Terna’s net investment. This investment is for both the construction of electric infrastructure to renovate or develop the grid and the enhancement of managerial instruments. The RAB is remunerated by the AEEG at a rate of return linked to the market one, which was established 6.9% for the third regulatory period 2008-20011). This rate is increased by 2 or 3 percentage points for a limited number of years for categories of development investment that are considered to be of particular strategic importance. In 2010 remuneration of the RAB constituted about 44% of Terna’s recognized costs.     
  • depreciation and amortization. Provision is made for the annual adjustment of the depreciation and amortization recorded because of the effect of new investment, divestments, the termination of the useful life of assets, and the revaluation based on the change in the deflator of gross fixed investment. It is estimated that the share of depreciation and amortization remuneration constitutes about 26% of the total costs recognized.
  • operating costs. These are the costs regarding the activities of transmission, dispatching, and metering: in general, the costs of labor and the procurement of goods and services that do not constitute investment. The component covering these costs, which in 2010 amount to about one-third of the total costs recognized (AEEG data), is subject to a price-cap mechanism. It is revalued annually on the basis of inflation and reduced by an efficiency factor amounting to 2.3% for transmission activities and 1.1% for dispatching.

Once the unit sums of the different rate components have been established, Terna’s revenue depends on actual consumption of electricity. In effect, because of the volume effect, it can turn out to be higher or lower than foreseen. The sharp business contraction that began in the second half of 2008 made the demand for energy more uncertain and led the AEEG, with its Resolution ARG/Elt 188/08, to introduce an optional mechanism to partially neutralize the volume effect for the remaining part of the regulatory period (2009-2011). Terna decided to agree to the mechanism, which provides for the AEEG to:  

  • supplement Terna’s remuneration regarding the volume share exceeding an exemption of 0.5% if the final volume is smaller than the one used for the 2009 rates
  • require Terna to return the increased earnings regarding the volume share exceeding an exemption of 0.5% if the final volume is larger than the one used for the 2009 rates.  

With the activation of the mechanism ensuring the level of revenue recognized for the three-year period 2009-2011, it can be said that the transmission industry has gone from a price-cap regime, in which the revenue level also depends on the volume of energy transported on the NTG, to a revenue-cap one, in which the revenue level is in practice pre-established and can vary with respect to the one used to set the annual rates by +/- 0.5%.


The cost of transmission on the final user’s bill

In accordance with current regulations, much of Terna’s recognized costs are billed to end customers of the electricity service by the distribution companies through the TRAS component. According to AEEG data, this component accounts for less than 3% of the average user’s bill.