Regulatory risk

About 96% of the Group's consolidated revenue comes from annual fees paid for the provision of services regulated by the Italian Energy Authority. Within the scope of such regulations, there are a number of variables that could have an impact on performance.

Volume effect
The revenue of Terna and TELAT attributable to the operation, functioning and development of the NTG, and to the management of dispatching activities, is regulated by tariffs set by the AEEG. The unit tariffs are applied to the overall volume of energy transmitted using the NTG. These volumes depend on factors that are beyond the control of the Group.
In view of the current economic conditions and the consequent contraction in electricity consumption, and to protect transmission revenue from marked volatility, Resolution no. ARG/elt 188/08 adopted by the AEEG has established a revenue guarantee mechanism that limits within a range of +/- 0.5% the effect of annual changes in the volume of energy transmitted. Resolution no. ARG/elt 204/09 also confirmed the use of this mechanism for the DIS component. As from 2009, Terna has opted to adopt the mechanism that shall remain effective for the whole of this regulatory period (until end 2011).
In 2011, the rules for the new regulatory period (2012-2015) will be discussed with the Authority. At this point, Terna will suggest a regulation to the Authority, which, in view of the experience of these last three years, can ensure a tariff revenue in line with the costs recognised.

Bonuses and penalties
At present, various different bonus and penalty calculation mechanisms are provided for, on the quality of transmission service and on dispatching.
More specifically, in relation to the incentives mechanism linked to the reduction of quantities supplied for services to the Ancillary Services Market, we note that by Resolution ARG/elt 213/09, a bonus/penalty system has been introduced that is applicable for 2010-2012. By this measure, the Authority intends to continue encouraging Terna to increase the efficiency of its provisions of the resources required to ensure a safe management of the system, using incentive schemes that span
several years. The mechanism entails a unitary incentive of € 11/MWh for 2010, set to decrease for subsequent years (respectively € 7 and € 3.5/MWh). In view of the three-year duration of the incentives mechanism, against a service that allowed it to reach incentive targets totalling about € 160 ml in 2010, Terna has recognised revenue of € 77 million, as the measurement of the related fair value, considering the risks mainly linked to the trend of the electrical market and regulations.