Regulatory Authority for Energy, Networks and Environment - ARERA - AEEGSI (Italy)

Regulation

Regulatory Model

The Italian Regulatory Authority for Electricity Gas and Water (AEEGSI) is the independent body which regulates, controls and monitors the electricity and gas markets and water services in Italy. Regulation by AEEGSI applies the following general principles, established by the founding law nr. 481 of 14 November 1995:

The Water Tariff Method established by AEEGSI on 27 December 2013 (Resolution 643/2013/R/idr) covers the efficient costs recognized for the delivery of the integrated water service. Since July 2014, AEEGSI received competences to regulate also district heating (Legislative Decree nr. 102 of 4 July 2014, adopting Directive 2012/27/EU on Energy Efficiency). Until 2012, before AEEGSI intervention, three methodology were in place. The new tariff method for the first regulatory period (2012-2015) is asymmetric and flexible, allowing Local Authorities to choose one out of four possible regulatory schemes, depending on the combination between objectives done by the operators and the level of investment planned by the competent Local Authority.

Regulated sectors

AEEGSI regulation applies to the following water and wastewater services (whether integrated or taken individually): abstraction services, conveyance and distribution of water for civil usage, sewerage and wastewater treatment or each of the individual services mentioned above, including services for extraction and multi-purpose conveyance and water treatment services for mixed residential and industrial usage.

Main responsibilities

  1. Regulatory functions:
    • Setting tariffs for protected markets and for the use of monopoly infrastructures (define cost components, set/update tariff methodology for tariff determination, approve tariffs)
    • Setting compulsory standards for technical and commercial quality of service, by means of incentives, penalties, refunds
    • Setting rules for administrative and accounting separation of vertically integrated companies
    • Setting minimum conditions to be included in investment programmes and economic-financial plans provided by Local Authorities, and monitor their compliance
  2. Monitoring functions: collect economic-financial data from operators, ensure compliance of regulation
  3. Enforcement functions: consumer protection, infringement procedures, dispute settlement
  4. Advising functions: providing opinions to Government and Parliament

Tariff Setting

The new Tariff Methodology in place since 27 December 2013 (Res. 643/2013/R/IDR) covers CAPEX through ex-post regulation, referring only to costs of investment that were actually realized. It applies for the 1st regulatory period (2012-15).
The competent local authorities, select 1 of the 4 regulatory schemes allowed by the AEEGSI in the tariff method and ask for AEEGSI’s approval. Once notified by the Local Authorities, AEEGSI approves or rejects the proposed tariff (if no proposal is received, AEEGSI decides on its own the tariff but with a penalty to the Local Authority).
The tariff method consists in setting a revenues limit with respect to the sum of 5 cost components defined by AEEGSI:

In 2015, AEEGSI approved tariffs for 1659 operators, referring to 43.636.247 inhabitants. These tariffs increased by 4,11% in 2014 and 4,95% in 2015, on average.

Quality of Service

AEEGSI identifies minimum levels of technical and commercial quality of water services, and monitors their compliance. Environmental quality (i.e. quality of water, aquatic ecosystems, degradation of productive land, etc.) is monitored by the Ministry of Environment.
Before 2012, quality of service was defined in specific agreements between the Local Authority and the Operator, based on the model provided by the Government. In January 2015 AEEGSI started a consultation procedure with all stakeholders in the water sector, to define minimum conditions to be included in water services supply  contracts (i.e. billing, payments, disputes with customer, etc.).
The Ministry of Environment is in charge of setting minimum quality standards for drinking water.

The Regulator

Established by the law nr. 481 of 14 November 1995, with the purpose to protect the interests of users and consumers, promote competition and ensure efficient, cost-effective and profitable nationwide services with satisfactory quality levels, AEEGSI is a multi-sector Regulator (electricity, gas, water). The Board is composed of five members (including the President) in charge for seven years (2011-2018). In 2011 (Law 214 of 22 December 2011) the same competences and powers were extended also to water services. 
AEEGSI is a strongly independent Authority, whose Board receives a mandate of 7 years duration (not renewable) from the Parliament (qualified majority vote of 2/3 of members of Industry Committees of both Chambers of the Parliament). Independence is recognized also by EU directives on energy.
AEEGSI employs 160 persons. In addition, 16 resources are available from other public authorities.
Revenues from regulated companies in the electricity, gas (0,028% of revenues of regulated companies, in 2014).
Revenues from regulated companies in water (0,025% of revenues of regulated companies, in 2014).

Contacts:
Piazza Cavour, 5  - 20121 Milano (Headquarters)
Via dei Crociferi 19 - 00187 Rome

Email: istituzionale@autorita.energia.it

Website: www.autorita.energia.it 

 

Other relevant entities

Sector

Sector Description

The Italian water sector presents a very complex landscape. Water and wastewater treatment network is very much heterogeneous, the majority of areas are fully served by drinking water directly at home but there are some areas where home water supply is not done properly and always (some poor and rural areas). Very high technology coexists with law quality water.
The sector is highly capital-intensive and pro-investment regulation is needed, although tariff alone has not been enough to cover financial needs. Since AEEGSI took over the power to regulate water services in January 2013, a more stable legal environment is in place, investments were increased and quality of services (commercial, technical) improved.
Water infrastructures are owned by Municipalities, and face problems of maintenance (network losses). Water services can be provided by private or mixed public-private companies through a tender procedure or by a direct concession to public companies (fully owned by a municipality). Currently, most operators are public companies, but the share of private companies has been increasing in the past 2 years.
Water treatment and sewerage system cover almost entirely the territory, although there are gaps across Northern and Southern Regions.

Legal and institutional framework

Water services (abstraction, conveyance and distribution of water for civil usage, sewerage and wastewater treatment) can be provided in an integrated way (by the same operator) or separately (by different operators). Water services are organized and managed by local Authorities established in the 20 Italian Regions, that entrust services to operators by means of public tendering procedures or public concession. Local Authorities also provide the tariff for water services, after choosing one of the four possible regulatory regimes established by the Regulatory Authority for Electricity Gas and Water (AEEGSI). 

Market Structure

The water industry in Italy is highly fragmented, with approximately 2700 operators providing water and sewerage services to a total population of 60 mln inhabitants. A few big multisector utilities hold more than 50% of the market. Unitary price of water per m3 widely varies across regions. Average consumption at the end of 2012 was 62,7 m3/inhab.

Ownership and management of services

Water services provided are the following 5 ones: collection, transportation and distribution of water for civil use and sewerage, wastewater treatment. Following a competitive public tendering procedure, services can be entrusted to private companies, mixed private-public companies (the private partner is chosen through a public competitive tender), or public in-house companies (100% controlled by a Municipality). Presently, around 75% of existing operators are municipalities or other public bodies (i.e. consortia of local governments, mountain communities), most of them concentrated in the north of Italy. Only a minority of operators (around 25%) provide all 5 types of water services.

Country profile

Area: 301,300 km2
Supplied population (2014): 60.80 mln inhab.
Population density: 202 inhab./ km2
Share of urban population: 68.4% of total population
Number of households (million): 25,4 (OECD 2011)
Average households’ size: 2,6 persons (OECD, 2011)
Yearly average GDP per capita (2013): €31,400

Main indicators of the water sector

Water supply network length: 303,645 km
Sewerage network length: 180,890 km
Volumes of water supplied (billed): 3,338,322,125 m2
Number of operators: approximately 2700
Population supplied with abstraction, treatment, distribution services: 319,378 inhab/operator
Population supplied with sewerage services: 290,345 inhab/operator
Population supplied with water treatment services: 399,275
Abstracted water volume (million m3): 7,600
Average consumption (litre/resident/day): 230
Non-Revenue Water (in %): 40% (Marques, 2010)
Turnover of the water industry: EUR 4,231 million
Water losses: around 30% (decreasing trend, in line with morphological characteristics and quality of local services)

Evolution

Before the start of water sector reform in Italy (law 36 of 3 February 1994), more than 13.000 undertakings (mostly public companies or municipalities) operated water and wastewater services in Italy, tariff was set at local level but it was not sufficient to cover all costs, investment were financed mainly by public funds (progressively decreasing), water supply was insufficient in some Regions (especially Southern Italy), water treatment and sewerage was largely inadequate, commercial quality was not guaranteed, management of water services was highly politicized (governed by municipalities). Following the reform in 1994, undertakings were drastically cut, responsibility to organize water services was given to Local public Authorities across Optimal Territorial Areas into which the Italian territory was divided, tariff was approved at local level with a principle of covering forecasted costs, a governmental body at national level was created to supervise local authorities. As a result, investment increased and quality of service improved, but globally results were below expectations, real investments were largely below effective needs, tariff did not allow operators to recover costs. The most recent reform by decree-law 201 of December 2011 transferred regulating powers to the Regulatory Authority for Electricity and Gas. A new governance has been set into place, whereby Local Authorities (established by Italian Regions) organize integrated water services, decide which legal form is adequate to entrust services (whether to private or mixed public-private companies, by means of a tendering procedure or to public companies by means of a direct public concession), and determine the local tariff on the basis of AEEGSI tariff methodology, which requires AEEGSI final approval. Since AEEGSI took over the regulation of the sector, additional investment have been planned by local Authorities. More specifically, operators whose tariffs have already been approved by AEEGSI (1659 operators, serving 43,6 mln population) plan to invest a total of € 5.1 bln in the next 4 years (2014 – 2017).

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