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Autorità per l’energia elettrica e il gas, Direzione Mercati 1 Market Department Italian Regulatory Authority for Electricity and Gas Milan, March 4, 2010.

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Presentation on theme: "Autorità per l’energia elettrica e il gas, Direzione Mercati 1 Market Department Italian Regulatory Authority for Electricity and Gas Milan, March 4, 2010."— Presentation transcript:

1 Autorità per l’energia elettrica e il gas, Direzione Mercati 1 Market Department Italian Regulatory Authority for Electricity and Gas Milan, March 4, 2010 Retail market Retail market

2 Autorità per l’energia elettrica e il gas, Direzione Mercati 2 Agenda Introduction Introduction Electricity retail market Electricity retail market Natural gas retail market Natural gas retail market

3 Autorità per l’energia elettrica e il gas, Direzione Mercati 3 Introduction

4 Autorità per l’energia elettrica e il gas, Direzione Mercati 4 What do customers pay? (1) Tariffs for transmission, distribution and metering: cover the costs for the services are set by the regulator concern monopolistic activities Procurement and retailing price: covers procurement costs in wholesale markets (including dispatching balancing and losses) includes costs and returns for retailing activity concerns completely liberalised activities General charges are set by regulator according to specific law-provisions cover general costs (research, incentives for renewables…) The price paid by customers is the sum of several elements: Taxes are set by the State and provinces They do not depend on customer’s choice of being served by a specific retailer in the liberalised market liberalised market

5 Autorità per l’energia elettrica e il gas, Direzione Mercati 5 What do customers pay? (2) It depends on: 1) the type of customer: electricity: residential/non-residential? electricity: if non-residential, small/large? natural gas: residential, small/large? 2) the choice made by the customer: liberalised market? Procurement and retailing price: covers procurement costs in wholesale markets includes costs and returns for retailing activity concerns completely liberalized activities

6 Autorità per l’energia elettrica e il gas, Direzione Mercati 6 Electricity retail market

7 Autorità per l’energia elettrica e il gas, Direzione Mercati 7 Customers' protection (1) right to be supplied with electricity of a specified quality at reasonable, easily and clearly comparable and transparent prices [DIRECTIVE 2003/54/EC, article 3] it is intended to ensure protection for those customers with limited bargaining power it is provided to customers (residential or small customer) who don’t choose a retailer SMALL CUSTOMERS: SMALL CUSTOMERS: fewer than 50 occupied persons and a turnover or balance sheet not exceeding € 10million and connected to the grid at low voltage

8 Autorità per l’energia elettrica e il gas, Direzione Mercati 8 Customers' protection (2) Wholesale markets Customer Single buyer (SB) Public company owned by the State Distribution company/related supplier* SB procures electricity for DC/RS. DC/RS pay a price (Psb), that covers all the SB procurement costs (the SB doesn’t make profit) SB has a portfolio of contracts (bilateral, CFDs…) SB also buys electricity on the day ahead mkt and pays the TSO for dispatching services. The price charged to customers includes PP and RP, where PP covers procurement costs and RP covers retailing costs * According to Directive 2003/54/EC distribution system operator (if serving more than connected customers) shall be independent from other activities not related to distribution

9 Autorità per l’energia elettrica e il gas, Direzione Mercati 9 Customers' protection (3) % customers at reference economic conditions (year 2007)* 81,6% industrial and commercial companies 99,7% domestic sector (*) since the 1 st July 2007 all customers, including residential, can access the free market Number of customers at reference economic conditions (october 2008) Domestic sector: (95,7% of the total) Small business: (72% of the total)

10 Autorità per l’energia elettrica e il gas, Direzione Mercati 10 Procurement price (PP) PP is set out by the regulator and it is adjusted every 3 months The purpose of the regulator is to set out a price which reflects “market conditions” such that no obstacles to the customers’ choice are created

11 Autorità per l’energia elettrica e il gas, Direzione Mercati 11 Setting out PP (1) Jan MarMay Feb Feb AprJunJulAugSepOctNov Dec At the end of December Y-1 the regulator: estimates the monthly cost incurred by SB for each month of the next Y and the monthly Psbestimates the monthly cost incurred by SB for each month of the next Y and the monthly Psb sets out PP as the weighted average of Psb for the quarter Jan/Mar. Customers’ consumption is used as a weight.sets out PP as the weighted average of Psb for the quarter Jan/Mar. Customers’ consumption is used as a weight.  customers’ consumption is determined on the basis of the estimated “standard consumption” of each class of customers (residential, public lighting, business)

12 Autorità per l’energia elettrica e il gas, Direzione Mercati 12 Setting out PP (2) Jan MarMay Feb Feb AprJunJulAugSepOctNov Dec Mismatch between estimates and reality requires adjustments The same is done at the end of June for the quarter Jul/Sep and at the end of September for the quarter Oct/Dec At the end of December, the remaining money needed to cover estimation mismatch is collected through specific equalization charges not included in the PP At the end of March Y, the regulator: takes into account ex-post values of past months Psb takes into account ex-post values of past months Psb estimates the monthly cost incurred by SB for each remaining month of the Y and the monthly Psb estimates the monthly cost incurred by SB for each remaining month of the Y and the monthly Psb sets out PP as the sum of: sets out PP as the sum of: weighted average of Psb for the quarter Apr/Jun + corrections for the mismatches between estimated and effective values

13 Autorità per l’energia elettrica e il gas, Direzione Mercati 13 Setting out PP (3) Depending on the type of installed meter, final prices can be time- of-use or non time-of-use type Time-of-use prices: prices differentiated according to hourly bands This is done in order to transfer the economical signal of the different value of electricity in the wholesale market and to promote energy efficient behaviour and responsible consumption HOURLY BANDS: Peak hours Mon/Fri from 8 a.m. to 7 p.m. Mid-level hours Mon/Fri from 7 a.m. to 8 a.m. and from 7 p.m. to 11 p.m. Saturday from 7 a.m. to 11 p.m. Off-peak hours Mon/Sat from 0 a.m. to 7 a.m. and from 11 p.m. to 12 p.m. Sunday and holidays: from 0 p.m. to 12 p.m.

14 Autorità per l’energia elettrica e il gas, Direzione Mercati 14 Retailing price (RP) RP covers retailing costs: billing billing customer care customer care credit risk credit risk Until 2007: RP covered the costs incurred by incumbent distribution companies  its level used to take into account scope economies between distribution and supply new entrants Since 2008: RP reflects the cost of “new entrants” (including costs for customers acquisition) RP has been set on the basis of an analysis of the balance sheets of incumbent distribution companies and retailers operating in the liberalised market

15 Autorità per l’energia elettrica e il gas, Direzione Mercati 15 Natural gas retail market

16 Autorità per l’energia elettrica e il gas, Direzione Mercati 16 Customers' protection (1) Member States may impose on undertakings operating in the gas sector […] public service obligation which may relate to […] quality and price of supply [DIRECTIVE 2003/55/EC, article 3.2] It is intended to ensure protection for those customers: who temporarily don’t have a supplier who have not yet switched to the free market that are small residential (small = annual consumption < m3)

17 Autorità per l’energia elettrica e il gas, Direzione Mercati 17 Customers' protection (2) Small residential customers: if a small residential customer doesn’t switch to the liberalised market, he’s charged a price PP set by the regulator any supplier in the liberalised market must offer, together with its price, the price PP set by the regulator Customers who have not yet switched to the liberalised market (different from small residential customers): they keep paying the price set by the regulator until they switch to the market

18 Autorità per l’energia elettrica e il gas, Direzione Mercati 18 Customers' protection (3) Wholesale markets Customer Retail supplier (*) Each retail supplier buys natural gas in wholesale markets for all its customers The price charged to customers includes PP and RP, where PP covers procurement costs and RP covers retailing costs * According to Directive 2003/55/EC, supply is independent from any other activity related to distribution

19 Autorità per l’energia elettrica e il gas, Direzione Mercati 19 Customers' protection (4) % customers at reference economic conditions (year 2007)* 0,03% Thermoelectric uses 3,7% Industrial companies 42,9% Commercial and services companies 92% Domestic sector (*) opening of the demand side market: june 2000 for bigger costumers (basically those having an annual consumption of cubic metres or more) january 2003 for everybody

20 Autorità per l’energia elettrica e il gas, Direzione Mercati 20 Setting out PP Every 3 months (end of March, end of June, end of September and end of December) the regulator set out PP t PP t =PP t-1 +ΔPP Where ΔPP=PP 0 x(I t -I t-1 ) and I t is an index calculated on the basis of international oil prices pubblished monthly in “Platt’s Oilgram Price Report” I t = a×GASOLIO t /GASOLIO 0 +b×BTZ t /BTZ 0 +c×BRENT t /BRENT 0 (GASOLIO 0, BTZ 0, BRENT 0 and PP 0 are basis values and a=0,41 b=0,46 c=0,13)

21 Autorità per l’energia elettrica e il gas, Direzione Mercati 21 Retailing price (RP) RP covers retailing costs: billing billing customer care customer care credit risk credit risk RP covers the costs incurred by retail supplier companies RP has been set on the basis of an analysis of the balance sheets of retailers operating in the liberalised market serving small customers


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