ARERA water services activities

During the period covered by this report, ARERA continued in its activity of defining the regulatory framework by issuing several significant measures. In particular, the definition of the tariff methodology for the third regulatory period 2020-2023 (MTI-3) was initiated and completed, and substantial additions were introduced to the regulation of contractual quality.

Particularly significant was also the recent issue – in July 2019, at the end of a long consultation process – of the new rules for the management of delinquency in the integrated water service in Italy with the publication of the related integrated text (REMSI). Finally, it is worth mentioning the definition of the Strategic Framework for the three-year period 2019-2021, a document in which the Authority outlines the strategic objectives and the main lines of intervention for the period in light of the evolution of the national and European sector context.

With regard to the promotion of infrastructure in the water sector, the first list of works for the aqueduct section of the National Plan for water sector projects has been drafted, for which the conditions, terms and methods for the disbursement of resources have been defined by a specific measure and financing has finally been initiated.

With regard to the guarantee fund for waterworks, the methods for its funding and management are currently being consulted.

Finally, it is worth mentioning the opening of a fact-finding survey on how sewerage sludge is managed and exploited.

The most important measures issued by ARERA during 2019 are briefly analysed below.

Tariff method - third regulatory period

Resolution 580/2019/R/IDR "Approval of the water tariff method for the third regulatory period MTI-3". 

The measure, which is highly articulated due to the extent and complexity of the issues dealt with, closes the procedure initiated by Resolution no. 34/2019/R/IDR, which also envisaged the meeting with the procedure relating to the monitoring of the implementation of planned investments, opened by Resolution no. 518/2018/R/IDR.

During the last quarter of 2019 two complex consultation documents (DCO 402/2019/R/IDR and 480/2019/R/IDR) were issued and dealt with, in which ARERA explained its orientations and involved stakeholders.

With respect to the previous MTI-2, the new method outlined at the end of the year essentially confirms the configuration, general mechanism and methods for approving tariffs for the four-year period 2020-2023, but with the introduction of several significant changes.

First of all, the operator's positioning criterion in the matrix of regulatory schemes was changed, no longer depending on the interaction between average operating cost and the ratio of investment needs to RAB, but on the operator's Guaranteed Revenue Constraint (GRC) and investment needs to RAB. The new rule involves a reduction in the maximum annual tariff increase in all the schemes of the matrix with variations from a minimum of 5.2% (scheme I) to a maximum of 8.5% (scheme VI), while in the four-year period 2016-2019 the range of variation was from 6% to 9%. Acea Ato 2 and Acea Ato 5 are in regulatory scheme V, with a maximum annual limit of 6.2%.

The application of the new parameters introduced for the calculation of financial and fiscal charges leads to a reduction of the WACC from 5.31% in MTI-2 to 5.24% in MTI-3, while the introduction of a differentiation of financial charges on "ordinary" assets under construction (i.e. not related to strategic projects) leads to the application of a lower and decreasing WACC during the 4 years of tariff recognition. Strategic Works, i.e. infrastructural projects whose completion – considered as a priority by the government – structurally requires multi-year deadlines due to their technical complexity, are included in the Strategic Works Plan (SWP), which is an integral part of the Works Programme. With regard to assets, starting in 2020 the new method revises the classification of useful life (confirming the use of financial depreciation) in order to bring infrastructure back to the relevant IWS activity and identify a correspondence between the category of assets and the quality objectives.

Another important element is the introduction of an operating cost efficiency mechanism through the use of an econometric model for estimating the total cost boundary, determined according to the output level and the prices of inputs. The mechanism rewards those operators that achieve lower operating costs per capita than those estimated by the model, while in the opposite case the deducted portion of the margin between recognised endogenous operating costs and efficient operating cost will feed into an allocative tool additional to the UI2 equalisation tariff component, designed to support the bonus for technical and commercial quality.

Also in terms of operating costs, MTI-3 reduces the parametric recognition of the cost per delinquency for operators in Central Italy (from 3.8% to 3%) and in Northern Italy (from 2.1% to 2%), recognises under certain conditions (first of all achievement of the M5 technical quality objective - sludge disposal in landfills) the extra cost for the disposal of sewerage sludge (in view of the difficulties encountered by operators since 2018) and envisages forms of promoting environmental sustainability through the promotion of measures like the containment of electricity consumption, the reduction of the use of plastic, the recovery of energy and material, the reuse of purified water for agricultural and industrial purposes.

Finally, the new method offers tools and control phases aimed at verifying the actual implementation of the investments planned in the previous four-year period 2016-2019 in order to ensure the correct allocation in the regulatory schemes and the consistency between the priority objectives set for subsequent years and the economic-financial sustainability of the operation. In the case of underinvestment and failure to achieve technical or contractual quality objectives, additional forms of penalties are established.

The deadline for the submission of the tariff application by the AGB is 30 April 2020. The approval by ARERA is expected within the next 90 days, unless other information is necessary. The infra-period review is expected by the deadline of 30 April 2022. We are waiting for the measure, soon to be issued, with which the Authority will define the procedures for the presentation of data, as well as the minimum contents and the procedures for drafting the acts that constitute the tariff proposal.

Regulation of contractual quality

Resolution 547/2019/R/IDR "Updating of the current regulations on the regulation of the contractual quality of the integrated water service and provisions for the strengthening of safeguards for the benefit of end users in cases of invoicing of amounts relating to consumption dating back more than two years". 

Following the monitoring launched by ARERA with resolution 571/2018/R/IDR, aimed at verifying the correct application of the contractual quality regulation and the updating of the current regulations, in October 2019 a consultation on the subject was opened with DCO 422/2019/R/IDR, aimed at illustrating the main lines of action set out by the ARERA and collecting comments from interested parties.

The final measure includes the regulation of the contractual quality of the integrated water service, as defined by Resolution no. 655/2015/R/IDR (RQSII), in order to strengthen the protection of users' interests and guarantee adequate levels of performance by operators. Moreover, in light of the provisions introduced by Italian Law no. 205/17, it introduces certain measures to strengthen protection for end users in cases of invoicing amounts for consumption dating back more than two years, with particular reference to the disclosure obligations placed on water service operators.

In summary, with the new provisions relating to contractual quality, an incentive mechanism was introduced similar to the one envisaged for the regulation of technical quality, based on the construction of 2 macro-indicators obtained from the 42 simple indicators already envisaged by Resolution 655/2015/R/IDR:

• MC1 "Initiation and termination of the contractual relationship" composed of simple indicators relating to estimates, the execution of connections and works and the activation and deactivation of services;
• MC2 "Management of the contractual relationship and accessibility to the service" composed of simple indicators relating to appointments, invoicing, meter and pressure level checks, responses to written requests and the management of contact points with users.

The macro-indicators are calculated as the average of the relevant simple indicators, weighted according to the number of services provided. Based on the initial performance levels related to each macro-indicator, three classes of annual targets are identified: Class A (maintaining the starting level), Class B (with improvement of 1%), Class C (with improvement of 3%). Rewards and penalties with respect to the objective set based on the starting level are determined through a multi-stage assessment broken down into base level and level of excellence.

Prizes and penalties will be quantified from 2022 onwards based on performance in each of the two previous years (just for the first year of the performance evaluation, 2020, the starting level is defined on the basis of the simple indicators recorded in 2018).

A further important addition to the previous regulatory framework in terms of contractual quality is the provision to extend the protections also to non-contractual entities that require the performance of services preparatory to the conclusion of the supply contract. If a contractual relationship is established for the supply of the water service, the operator is required to provide automatic compensation under Title X of the RQSII in the first subsequent invoice. A minimum billing frequency of not less than one month is then introduced, and details are provided on the standards for services whose execution time depends on the work of third parties (reading meters in joint consultation with chambers of commerce, in accordance with Italian Ministerial Decree 93/2017, and complex works for which works to be carried out by the user are necessary or which deeds like concessions, authorisations or easements must be requested for).

With regard to the methods of data registration and disclosure, the obligation to disclose data to the Authority was also extended to operators serving up to 50,000 inhabitants (who in any case already had to keep records of services). The annual deadline for the disclosure of contractual quality data to the Authority was also moved up to 15 March.

The above provisions apply from 1 January 2020, with the specification that in any case by 1 July 2020 operators will be required to adjust the methods of recording information and data concerning services subject to specific and general levels of contractual quality. In any case, it is possible to submit a reasoned request for a waiver in cases of ongoing management aggregation processes and for operators in territories affected by earthquakes.

Attachment B of Resolution no. 547/2019 contains provisions on the subject of disclosure obligations in the event of a two-year limitation period as per the amendments introduced by the Italian 2018 Budget Law no. 205/2017. The operator's entitlement to the fee owed by domestic users, micro-enterprises and professionals for the supply of water is reduced from five to two years for invoices due after 1 January 2020 and only if the failure or erroneous collection of consumption data does not result from the user's proven responsibility. ARERA defines the disclosure obligations towards the user, specifying the information to be provided in the bill for both the operator's responsibility and the end user's responsibility.

Arrears

Resolution 311/2019/R/IDR "Regulation of arrears in the Integrated Water Service". 

With the enactment of the final measure, including the attached REMSI (Regulation of arrears in the integrated water service), the directives for the management of arrears in the integrated water service in the national territory were adopted, thus concluding – after broad consultation (DCO 603/2017/R/IDR, 80/2018/R/IDR and 158/2019/R/IDR) – the process started in November 2016 with the opening of the procedure (Resolution 638/2016/R/IDR).

Specifically, Resolution no. 311/2019/R/IDR, which is expected to be applied from 1 January 2020:

• defines the end users that cannot be disconnected, identified as the beneficiaries of the social water bonus and the users for "Public use that cannot be disconnected" referred to in Resolution 665/2017/R/IDR (TICSI);
• regulates the formal notice procedure, requiring the operator to send an amicable payment reminder prior to the formal notice; defining the timing of the process, including the final payment deadline;
• regulates the procedures for restriction, suspension and deactivation and supply, defining their conditions, methods and timing. In particular, for resident domestic users, a phase of restriction of the supply with guarantee of the minimum vital quantity (50 litres/inhabitant/day) is foreseen before suspension. For this type of user, deactivation cannot be carried out except in the event of tampering with seals/flow limiters and failure to comply with the obligations for the recovery of past arrears in the previous 24 months;
• lays down specific rules for condominium accounts, providing that no restriction/suspension/deactivation may be made against partial payments, provided that they are made in a single instalment within the deadline specified in the formal notice and equal to at least half of the amount due. If the condominium does not pay the balance within 6 months of the partial payment, the operator may restrict, suspend or deactivate the supply;
• sets out the situations in which the operator is required to ensure the payment in instalments of the amount in arrears and the arrangements for such payment;
• finally, it provides for automatic compensation in the event of non-compliance with the requirements.

National plan of projects in the water sector

Aqueducts Section

Resolution 51/2019/R/IDR - "Initiation of the proceeding concerning the necessary and urgent interventions for the water sector for the definition of the "Aqueducts" section of the National Plan, referred to in article 1, paragraph 516 of Italian Law 205/2017".

The measure supplements and renews the procedure set out in Resolution no. 25/2018/R/IDR on the necessary and urgent measures for the water sector for the purposes of defining the "aqueducts" section of the National Plan (referred to in article 1, paragraph 516 of Italian Law no. 205/17), providing that it take due account of the recent provisions introduced by article 1, paragraph 153-155 of Italian Law no. 145/18 (Italian Budget Law 2019). In particular, ARERA considers it necessary to:

• without prejudice to the investigative activities already carried out, define the most suitable methods for identifying synergies between the interventions to be included in the various parts of the National Plan, in particular continuing the coordination between the administrations involved to adopt consistent selection criteria based on the guarantees regarding the effectiveness and speed of execution of the interventions to be financed (paragraph 153, art.1 of Italian Law 145/18);
• conduct further assessments in light of the renewed and strengthened focus that laws have placed on containing water loss (paragraph 153, art. 1 of Italian Law 145/18);
• supplement the activities aimed at defining the "aqueducts" section of the National Plan with sensitivity analyses regarding tariffs in light of the completion of operations for the planned financing instruments;
• taking into account the characteristics of the potential beneficiaries of public resources, assess the most suitable measures to ensure the management capacity of the operator to whom the management of the works financed by the National Plan will be entrusted, as a prerequisite for an effective use of the resources granted.

Resolution 252/2019/I/IDR - "First list of the necessary and urgent interventions for the water sector for the definition of the 'aqueducts' section of the National Plan, referred to in article 1, paragraph 516 of Italian Law 205/2017".

For the purposes of defining a first excerpt of the "aqueducts" section of the National Plan referred to in article 1, paragraph 516 of Italian Law 205/2017, as subsequently supplemented by the provisions of Italian Law 145/2018, ARERA provided an initial cluster of projects that updated and integrated the list presented in Reports 268/2018/I/IDR and 538/2018/I/IDR. These projects were identified by the competent territorial entities as necessary and urgent for the achievement of the priority objectives of achieving adequate levels of technical quality, recovery and expansion of the water tightness and transport of water resources, dissemination of tools aimed at saving water in agricultural, industrial and civil uses.

The list contains 26 projects for a total of € 80 million over the two-year period 2019-2020. Projects not selected for this first cluster, other projects that will emerge as priorities, as well as the continuation of the activities of the selected projects may be evaluated both for the inclusion in subsequent clusters of the "aqueducts" section of the National Plan and for the use of the Water Works Guarantee Fund referred to in article 58 of Italian Law no. 221 of 28 December 2015.

As far as the Acea Group is concerned, the only project in the list (and already included in previous versions) is that of Acea Ato 5 for the replacement of the adductive water pipeline - Supino and Morolo for a total in the two-year period of 4,400,000.

Resolution 425/2019/R/IDR "Regulation of the procedures for the disbursement of resources for the completion of the projects contained in Annex 1 to the Decree of the President of the Council of Ministers of 1 August 2019, concerning the 'adoption of the first excerpt of the national plan of projects in the water sector - aqueducts section', adopted pursuant to article 1, paragraph 516 of Italian Law 205/2017". 

With the measure ARERA regulates the conditions, terms and methods of disbursement of the resources allocated for the completion of the projects referred to in the first excerpt of the National Plan for projects in the water sector - aqueducts section.

The resolution provides for the establishment at CSEA of the Account for the financing of the projects of the National Plan, aqueducts section, with the aim of supporting the planning and completion of the projects. The subsequent CSEA Circular 37/2019/IDR provides the reference body and the implementing entity with the operating instructions and the related forms for the disbursement of the advance payment for the projects.

Resolution 512/2019/R/IDR "Start of the disbursement of resources for the completion of the projects referred to in Annex 1 of Italian Prime Ministerial Decree dated 1 August 2019 concerning "Adoption of the first excerpt of the National Plan of projects in the water sector - aqueducts section". The resolution authorises CSEA to pay the first instalment of financing (advance payment of 40% of the total) for the construction of the works listed in the measure itself (23 out of the 26 works included in the first part of the plan). For the remaining works in the Plan excerpt the authorisation for the payment of the first instalment is postponed to the verification of the complete fulfilment of the obligations envisaged. The total amount to be disbursed as the first tranche is € 14.5 million for 18 operators, including Acea Ato 5 for an amount of € 880,000.

Reservoir Section

Opinion 160/2019/I/IDR "Opinion to the Minister of Infrastructure and Transport on the proposed decree of the President of the Council of Ministers for the adoption of the first section of the National Plan of interventions in the water sector, relating to the 'reservoirs' section, referred to in article 1, paragraph 516, of Italian Law 205/2017". With this measure, pursuant to art. 1, paragraph 516 of Italian Law 205/17, ARERA offered a favourable opinion with comments on the proposal for a decree sent by the MIT, pointing out, however, that the proposal does not refer to the provision of Italian Law 205/17 for which the AGBs (and the other parties responsible for carrying out the measures), within 60 days of the date of entry into force of the decree itself, adjust their planning and programming in line with the measures envisaged in the National Plan, as well as the fact that the agreements (referred to in the proposed decree) do not include – for critical cases in the planning and management of the integrated water service – specific conditions aimed at balancing the need to quickly start financing the projects of the National Plan with that of ensuring their effective and sustainable implementation.

Water works guarantee fund 

Resolution 353/2019/R/IDR "Initiation of proceedings to define the procedures for the supply and management of the Guarantee Fund for water works, referred to in article 58 of Italian Law 221/2015, consistent with the criteria set out in the Italian Prime Ministerial Decree of 30 May 2019". ARERA started to define the procedures for the supply and management of the Guarantee Fund for water works, referred to in article 58 of Italian Law 221/15 in line with the criteria set out in the Italian Prime Ministerial Decree of 30 May 2019, envisaging in a first phase:

• the identification of the needs related to the new project financing operations;
• the quantification of the tariff equalisation component, to be established under MTI-3, intended to feed into the fund;
• the definition of the general elements necessary to govern the way the fund is managed;
• the setting up of the Risk Assessment Committee at the CSEA, which is responsible for giving its opinion on the Fund's operating procedures and on the proposals for projects to be covered by the guarantee.

At a later stage, the procedures and terms for issuing guarantees, assessing individual applications and monitoring and verifying the development of the projects eligible for guarantees will have to be defined.

DCO 368/2019/R/IDR "Definition of the arrangements for the supply and management of the Guarantee Fund for water works. General framework and first lines of action". In the ARERA measure, in addition to illustrating the recognition of the needs connected to the new financing operations of the projects included in the categories listed in the Prime Ministerial Decree, it proposes uses and sources of financing of the Fund, defining the amount of the guarantees and the quantification of the tariff equalisation component aimed at financing it, foreseeing its establishment within the MTI-3. At first, the guarantees will be granted to cover needs requiring an effective increase in spending capacity compared to what had been planned. The amount of the guarantees given (of separate amounts depending on whether or not the beneficiary is subject to the regulation of ARERA) will depend on the rate of completion of the planned measures, the degree of capitalisation of the subject, the cost of recourse to debt, the operator's local institutional structure and the strategic importance of the operation to be financed. ARERA foresees the calculation of a cost for the guarantee that the requesting operator will pay to CSEA and that, for regulated operators, will be included in the tariff. As already mentioned above, in order to pay into the Fund and cover its operating costs, Resolution 580/19 (MTI-3) established an equalisation component equal to 0.4 cents/€ per cubic metre. The end of the measure includes a number of procedural elements relating to the subjective requirements of applicants for eligibility for the Fund's guarantees, the financial transactions accepted as collateral, the cases of termination of the credit line for which payment of the recognised take-over value must be provided and the related settlement procedures and the procedures for applying for the guarantee. Finally, the measure includes a schematic representation of the Fund's operation and the organisational relations between ARERA and CSEA.

2019-2021 strategic framework Resolution 242/2019/A "ARERA 2019-2021 strategic framework". The measure adopts the Authority's Strategic Framework for the three-year period 2019-2021, taking into account the results of the consultation, including the information that emerged from the periodic hearings of 8-9 May 2019.

The document's inspiring principles include: a more central role for the consumer, the use of innovation in technology and processes, a particular attention to uniform development in the different areas of the country, to which principles of asymmetric regulation will be applied in order to make the level of public services more uniform. With specific reference to the integrated water service, the main changes in the Strategic Objectives (SOs) are the following:

• SO 2 ("Consumer Awareness and Transparency for a better evaluation of the service"): periodic publication of performance indicators for each operator accompanied by some useful information to describe the management of reference, with the aim of monitoring and improving the available information and users' willingness to pay, also with benefits in terms of containment of arrears;
• SO 4 ("Supporting innovation through experimentation and research"): extension to the IWS of the objective of developing innovative projects to strengthen metering, assessing its economic and environmental impacts;
• SO 7 ("Expansion and updating of uniform rules on the national territory for the management of relations between operators and users in the water sector"): in-depth study of the subject of plant transformation aimed at installing consumption metering devices for each individual building unit;
• SO 10 ("Effective planning and implementation of investments for a quality water service"): in the field of technical quality, rather than envisaging the extension of the initial set of indicators ARERA intends to "complete – also based on the results achieved in the first application phase – the set of indicators introduced";
• SO 11 ("Cost-efficient cost recognition in the integrated water service"): introduction of the reference to ARERA's action to promote, among other things, the implementation of projects aiming at the recovery of energy and matter from sewerage sludge.

Apartment buildings - Study of meter reading and billing

Resolution 295/2019/E/IDR "Launch of a fact-finding survey of the performance of integrated water service operators with respect to meter reading and billing for individual units in apartment buildings". Expected to be completed by 31 March 2020, pending the definition of a framework of common rules aimed at aggregate users the procedure is intended to pursue "the aim of ensuring the effective application of the provisions introduced by the regulation for all end consumers (including those underlying aggregate users)", evaluating the activities already carried out by operators and then "reconsider the general scope of services and related regulatory requirements".

From the first information acquired by ARERA (also through reports received), in cases of aggregate accounts having divisional meters there are different situations in the territory:

• in some areas the internal metering of apartment buildings is carried out by accounting companies which, delegated by the same apartment complexes, perform the reading of the divisional meters, the distribution of the bill, the collection, the reminder of users in arrears and the payment of the bill to the operator;
• in other areas, the service of reading, distribution, billing and related collection for divisional meters inside the apartments of each building is carried out directly by the operator or administrator of the complex;
• Finally, in some cases, innovative methods of communication have been adopted, including using applications on mobile devices capable of informing and raising awareness of consumption among the individual owners of the units in the complex.

ARERA intends to carry out its own in-depth analysis starting from the information communicated by the operators with specific regard to "other water activities" (referring to the "construction and/or maintenance of the systems downstream of the meters, the reading of divisional meters inside the apartment complexes and billing").

Treatment sludge

Resolution 20/2019/R/IDR "Launch of a fact-finding study of the methods for managing and exploiting treatment sludge". A fact-finding study was launched into the methods for recovering and disposing of sewage sludge, providing for specific in-depth actions aimed at encouraging the adoption of further measures to accompany the transition to a circular economy in the wastewater treatment sector. The purpose of the survey is to collect data and information on the technologies currently available for the containment/use of the total quantity of sludge and on its transport, recovery and disposal costs. In addition, further details are planned regarding the third parties involved in the management of the sludge until its final destination, as well as any extra-regional or international movements. The study will end on 31 December 2019.

Resolution no. 580/19 (MTI-3) introduced a new component aimed at recognising the higher cost of sludge disposal, with an exemption equal to 2% of the allowed cost.

Memorandum 179/2019/I/com "Hearing of the Regulation Authority for Energy Networks and the Environment on the draft law "Delegation of powers to the government for the transposition of European directives and the implementation of other acts of the European Union - European delegation law 2018 (AS 944)". During the hearing held on 7 May 2019 before the 14th Commission (EU Policies) that examined the Draft European Delegation Law 2018 (for the delegation to the government of the transposition of 24 European directives and other EU acts), ARERA reiterated its willingness to be involved in matters that fall within its area of responsibility. In particular, ARERA wishes to be informed both of the planned reform of the system of criteria for the acceptance of waste in landfills and the new organic rules on the use of sludge, which will amend the provisions of Italian Legislative Decree no. 99 of 27 January 1992 (use of purification sludge in agriculture). For both regulations, this is the implementation of Directive 2018/850, which is part of the so-called Package of measures on the circular economy. In this regard, ARERA agrees with the indications provided by the draft law, specifying:

• that it recently launched a fact-finding exercise on the subject with Resolution 20/2019/R/IDR, with a view to promoting the dissemination of innovative technologies and the transition to a circular economy in the wastewater treatment sector;
• with the introduction of Technical Quality regulations (Resolution 917/72017/R/IDR), to have introduced a specific indicator (M5 - Disposal of sludge in landfills) aimed at minimising the environmental impact deriving from the conveyance of wastewater.

Based on these elements, ARERA suggests considering its involvement, both in the review of the system of criteria for the acceptance of waste at landfills and in the review of the rules set out in Italian Legislative Decree 99/1992.

Social water bonus

Resolution no. 165/2019/R/COM "Amendments to the integrated text of the implementing rules for compensation schemes for the costs incurred by disadvantaged domestic customers for the supply of electricity and natural gas (TIBEG) and the integrated text of the implementing rules for the social water bonus for the supply of water to economically disadvantaged domestic customers (TIBSI) in accordance with article 5, paragraph 7 of Italian Decree Law no. 4 of 28 January 2019, converted with amendments into Italian Law no. 26 of 28 March 2019". In accordance with article 5, paragraph 7 of Italian Decree Law 4/19 containing urgent provisions on universal basic income and pensions, ARERA has supplemented/amended the regulations on bonuses for services regulated in compliance with the new regulations. In particular, in the TIBSI the references to "Retail Card" and "ReI Card" have been removed, while it is established that beneficiaries of universal basic income and pensions can apply for bonuses from 20 May 2019.

As a result, appropriate changes were made to the application/renewal forms (Determination 1/2019 - DACU). Moreover, following application problems that emerged during the initial implementation phase, the detailed procedures for the validation of social water bonus requests and the procedures for the recognition of the one-off quota were further developed (Determination 4/2019 - DACU).

Report 280/2019/I/COM "Report to parliament and government on social bonuses for electricity, gas and water". With this document, ARERA submitted to parliament and the government some considerations regarding social bonuses for the supply of electricity, natural gas and water, proposing a procedure to guarantee their automatic use to all potential beneficiaries. In fact, the data show that despite the efforts made to disseminate knowledge of these programmes, their use is not particularly widespread among those entitled to them. ARERA also called for the extension of the social water bonus to the recipients of universal basic income and its reparametrisation, so as to include also the expenses related to sewerage and purification services.

Resolution 499/2019/R/COM "Update of the ISEE threshold value for qualifying for social bonuses from 1 January 2020, pursuant to the decree of the Italian Minister of Economic Development of 29 December 2016". In accordance with the provisions issued by the decree of the Minister of Economic Development of 29 December 2016, the measure updates the value of the ISEE threshold for qualifying for social bonuses from € 8,107.50 to € 8,265. The update will be effective from 1 January 2020. Subsequent updates will take place every three years. ARERA estimates that with this adjustment the social water, electricity and gas bonus will be extended to 200,000 new families.

Consumer protection

Resolution 142/2019/E/IDR "Implementation in the water sector of the protection system for complaints and disputes of customers and end users of regulated sectors". With this measure, ARERA implemented a gradual transition to the fully operational system by means of further updates to the transitional rules (Resolution 55/2018), establishing:

• for operators serving at least 300,000 residents, the obligation to participate from 1 July 2019 in the procedures voluntarily filed by end users before the Conciliation Service;
• for end users served by the operators referred to in the previous point the exclusivity of the Conciliation Service, as a voluntary second-level instrument of the protection system. Only disputes regarding the social water bonus can be escalated to the Branch, without prejudice to any compensation.

Annex A to the resolution lists the 44 operators required to participate in the Conciliation Service (for the Acea Group: Acea Ato 2, Acea Ato 5, AdF, Publiacqua, Acque, Gori and Umbra Acque). The list may be progressively amended in the event of changes in the population served or if there are other operators voluntarily entering into a participatory commitment of at least two years' duration. Operators that are obliged to (or that have made a voluntarily commitment) must clearly specify in a manner that is easily understood on their website, in new contracts and in responses that do not resolve the complaints of an issue raised by the user at least:

a) how to initiate the Authority's Conciliation Service;

b) the methods for engaging any other out-of-court dispute resolution bodies they agree to participate in and whose procedure is free of charge.

ARERA confirms that conciliation in the IWS is not yet a procedural condition for access to ordinary justice by postponing the deadline to an undetermined date. The ability to choose either the Conciliation Service or another conciliation procedure for the same dispute is confirmed.

Inspections

Resolution 253/2019/S/IDR "Imposition of administrative fines for violations of the integrated water service tariff regulation". With the measure in question, ARERA imposed a fine of € 955,000 on Acea Ato 5 - Frosinone.

The sanctioning procedure was initiated by DSAI 42/2018 following an inspection in November 2017 with reference to possible violations of the provisions relating to the definition of the IWS tariffs. The main violation by the company refers to a misinterpretation of the regulations on tax deductibility, which led the company not to include among the items adjusting production costs (in particular, among the provisions in excess of the application of tax regulations, which are not deductible for tax purposes), the allocation to the "provision for risks and charges" recorded in the financial statements in 2011, thus overestimating the improvable operating costs recognisable in tariffs for the years 2012-2017. On 16 October 2019, the Company paid the entire penalty ascribed to it and in any case corrected the error in the 2018-2019 tariff revision process, showing that it incurred efficient operating costs that were even higher than those recognised in the tariff prior to the application of the limitations. The Company filed an appeal against the measure in October 2019.

Tariff framework and document updates for Acea Ato 2 Lazio Central-Rome and Acea Ato 5 - Southern Lazio - Frosinone

Acea Ato 2

ARERA approved the tariff proposal valid for the year 2019 with resolution 572/2018/R/IDR.

On 9 January 2019, after having submitted to the OTS on 13 November 2018 a request to update the tariff structure as envisaged by ARERA Resolution 665/2017, Acea Ato 2 asked ARERA to instruct the Ato 2 Conference of Mayors to comply with the adoption of the new tariff structure not approved by the Conference of Mayors (of 15 October and 13 December 2018).

Pending the adoption of the new tariff structure, with effect from 1 January 2019 Acea Ato 2 is applying the tariff increase of 5.96%, as approved by ARERA with resolution 674/2016, confirmed by resolution 572/2018.

Moreover, note the approval of the Implementation Regulations for the 2019 supplementary water bonus of Ato 2 Central Lazio - Rome by resolution no. 2-19 of the Conference of Mayors of 15 April 2019". Those entitled are direct users (holders of a resident household account) and indirect users (household users in an apartment complex) who must meet certain requirements.

Under their own responsibility and based on specific certification by the relevant offices, the Municipal Administrations have the power to authorise the supply for individual users in situations of proven particular economic/social hardship, increasing the ISEE threshold for admission for this specific case. With the new regulation, the amount of the "local" bonus, consisting of the payment of a one-off annual contribution recognised in the bill (in the case of indirect users in the apartment building utility bill), is calculated as the expenditure corresponding to the fixed and variable fees for water, sewerage and purification for a consumption of up to 40 cubic meters per year for each member of the household, for direct and indirect users with ISEE up to € 8,107.50 and 20 cubic metres per year for each member of the household for other eligible users. The bonus is valid for one year and is paid in a single payment, normally within 6 months from the date of submission of the application (which must be submitted by 31 December 2019).

With reference to the other significant elements that emerged at the OTA level, it should also be noted that at the Conference of Mayors held on 24 July 2019 the new Ato 2 Central Lazio - Rome user regulations were approved. In this document, ARERA provisions considered particularly relevant to the regulation of the IWS were incorporated, including those concerning technical quality, contractual quality, social water bonus and regulation of the measure. At the same Conference of Mayors, in agreement with the operator Acea Ato 2 the OTS was asked to update both the User Regulations and the Integrated Water Service Charter in order to bring the texts into line with the provisions contained in the very recent ARERA resolution no. 311/2019 on arrears.

Finally, with resolution no. 4/2019 approved by the Conference of Mayors at its meeting of 11 November 2019, the new tariff structure defined in application of ARERA resolution no. 665/2017/R/idr (TICSI) was approved. The application will start in March 2020.

Acea Ato 5

In implementation of the regulatory framework in force on 1 August 2018, the Conference of Mayors of Ato 5, by resolution no. 7, approved the approval of the tariff multiplier for the 2018 and 2019 years in the maximum amount provisionally envisaged by the tariff method of 8%, it being understood that with regard to the maximum theta values that determine tariff variations exceeding the limit provided for by the MTI-2 an investigation will be carried out by the ARERA.

With regard to sewerage and purification, it should be noted that a limited part of the territory is managed by the Industrial Development Consortium of Frosinone (ASI). Resolution no. 664/2015 imposes on the AATO the obligation to determine the fees for the performance of public utility services, including those relating to sewerage and purification. In particular, Annex A of the aforementioned Resolution defines the shared use (Common Carriage) of an infrastructure managed by a non-regulated entity other than the wholesaler to provide water and/or sewerage and purification services also to other types of non-member users. Where the wholesale supplier provides the service to the IWS Operator in the context of a Common Carriage activity, for the purpose of ensuring the supply the cost charged to the IWS Manager must be calculated on the basis of the marginal cost of the service provided, as set out in article 26.3 of the Resolution. For these reasons, the OTS has proposed a way of calculating the total costs for the provision of services by the ASI, attributable to each plant, as the sum of the variable direct costs, the fixed direct costs and the indirect costs of the plant itself. This method of calculation was approved during the meeting of 26 March 2018 by the Conference of Mayors with resolution no. 3/2018. The aforesaid costs will be accounted for by the Operator for the years 2018 and 2019 for an amount of € 1,466,000 and € 1,455,000 respectively, and were included in resolution no. 7 of the Conference of Mayors of 1 August 2018.

By resolution no. 8 of 1 August 2018, the Conference of Mayors approved, pursuant to art. 3, paragraph 1 of ARERA Resolution no. 665/2017/r/idr of 28 September 2017, the new tariff structure (TICSI).

Update on appeals against the ARERA tariff regulation

In 2013 Acea Ato 2 filed an appeal against Resolution 585/2012 (MTT) and subsequent resolutions that amended and supplemented the contents (Resolutions 88/2013, 73/2013 and 459/2013). The appeal was partially upheld by the regional administrative court of Lombardy 2528/2014, against which both Acea Ato 2 and ARERA have appealed.

In the public hearing held on 29 September 2015, the suspension of the pending judgement and the postponement of the decision to a later date following the outcome of the technical office consultancy arranged for the appeals proposed in 2014 by Codacons and the associations Acqua Bene Comune and Federconsumatori, considering the existence of a relationship of dependence-consequentiality between the decision of the appeal by ARERA and the decision on appeals promoted by the Consumer Associations, focusing in particular on the tariff component relating to the financial charges of the IWS manager, i.e. on the formulas and parameters implemented in art. 18 of Annex A of Resolution ARERA no. 585/2012 of 28 December 2012 (MTT), considered as a reintroduction of the criterion of "adequacy of invested capital" that had been eliminated by the outcome of the 2011 referendum.

The expert committee, appointed in October 2015, filed the report on 15 June 2016, concluding that the formulas and parameters aimed at calculating the interest rate of reference are considered reliable and reasonable in terms of national and international regulations and the component of risk coverage considered in the Resolution.

On 15 December 2016 the final hearing of the proceedings was held and on 26 May 2017 sentence no. 2481/2017 was published with which the Council of State, accepting the conclusions of the panel of experts, reaffirmed the full legitimacy of the tariff methodology adopted by ARERA. As a result, it rejected the Codacons and Acqua Bene Comune/Federconsumatori appeals mentioned above, with consequent confirmation of the contested sentences. The subsequent hearing before the Council of State was set for 20 September 2018.

Following the hearing, held as planned on the scheduled date, the Council postponed the discussion of the judgement, inviting the parties to file some briefs (to be presented by 19 December 2018) to make sure that there were no delays in resuming the appeal proceedings. At the hearing in question, however, the judge had not set the date of referral, which was instead established only in the early days of 2019. At the hearing held on 13 June 2019, part of the grounds for appeal were waived and the Council of State ordered the acquisition of the expert's report submitted by the aforementioned parties (Codacons, Acqua Bene Comune, Federconsumatori) in order to submit it to the parties for oral arguments. The next hearing was set for 2 April 2020.

As of the date of this report, in addition to the appeal to the Council of State mentioned above, the other appeals filed by Acea Ato 2 before the Lombardy TAR against Resolution no. 643/2013/R/IDR (MTI) and Resolution no. 664/2015/R/IDR (MTI-2) are still pending.

With regard to Resolution 643/2013, it should be noted that on 8 May 2014 additional grounds were presented for the cancellation of ARERA decisions no. 2 and no. 3. On 9 December 2014 additional grounds were presented for the cancellation of Resolution 463/2014/R/IDR. Pending the scheduling of the hearing, in April 2019 the notice of the hearing was received (the administrative process was cancelled due to the inactivity of the party). Following this communication, on 20 June 2019 Acea Ato 2 presented the request for the scheduling of the hearing together with the new power of attorney signed by the Chairman.

With regard to Resolution no. 664/2015, it should be noted that in February 2018 Acea Ato 2 extended the appeal originally proposed, submitting additional grounds of appeal against ARERA Resolution no. 918/2017/R/Idr (biennial update of the tariff arrangements for the integrated water service) and against Annex A of Resolution no. 664/2015, as amended by the aforementioned Resolution no. 918/2017. As of today we are waiting for the hearing on the merits to be scheduled.

It should be noted that Acea Ato 2 and Acea Ato 5 (as well as other Group companies) have appealed to the Regional Administrative Court against Resolution no. 311/2019/R/idr of 16 July 2019 concerning the "Regulation of arrears in the integrated water service". A hearing on the merits is still pending.

With regard to Resolutions no. 547/2019 (RQSII Update) and no. 580/2019 (new MTI-3 tariff method), it should be noted that in February 2020 Acea Ato 2 and Acea Ato 5 (in addition to other Group companies) filed an appeal against these resolutions with the Lombardy Regional Administrative Court and we are waiting for the hearings on the merits to be scheduled.

The regulatory activity of the Lazio Region in terms of territorial planning and governance of the Integrated Water Service

With regard to the redefinition of the ATOBI (River Basin Optimal Territorial Areas) envisaged by Lazio Regional Decree 218/18, the Regional Councillor for Public Works, Land Protection and Mobility with note no. 048127 of 2 August 2018 had proposed the establishment of an Institutional Consultation Committee, composed among others of two parties identified by the Conference of Mayors and with the task of analysing the following aspects, to be ensured with the new structure: (i) the regulatory system; (ii) environmental protection; (iii) consumer protection; (iv) the industrial model; and (v) interregional comparison.

At its meeting of 13 December 2018, by way of derogation from the aforementioned note the Conference of Mayors of the Ato 2 had asked the Councillor for Public Works and Territorial Protection, Mobility to accept a number of representatives of the Ato 2 equal to five or seven. With note prot. no. 29855 of 15 January 2019, communicated to the Mayors of Ato 2 with note prot. no. 192 of 17 January 2019, the same Councillor consented the appointment by Ato 2 of five representatives to the Institutional Consultation Committee. At the last Conference of Mayors on 11 November 2019, the fifth representative for the southeast quadrant was appointed. Previously the Conference of Mayors had identified the four representatives for the Rome, north, east and northeast quadrants.

With regard to the mandatory Agreement for the management of hydraulic interference of the Peschiera-Le Capore aqueduct system signed on 2 February 2018, during the Conference of Mayors of 15 April 2019 some amendments were approved which do not substantially change its contents but were necessary to fully implement the Agreement itself (payment terms, adjustment of reporting obligations, etc.). The agreement was signed on 14 May 2019 by representatives of the Ato 2 Central Lazio - Rome and Ato 3 Central Lazio - Rieti.

With regard to the derivation concessions, it is important to note that on 10 July 2019 representatives of the Lazio Region, Roma Capitale and Acea Ato 2 signed the specifications for the renewal of the Peschiera - Le Capore derivation concession, which feeds the Peschiera - Le Capore aqueduct, the capital's main water supply infrastructure. The renewed concession, which will expire in September 2031, is the preparatory act for the construction of the new upper section of the Peschiera, necessary to safeguard and strengthen this work of great strategic importance, which the management of the Acea Group has decided to include in the 2019-2022 Business Plan. On the other hand, the appeal by Acea and Roma Capitale against the regional measure regulating the stop to use of water from Lake Bracciano was rejected as unfounded, with sentence 167/2019 issued on 6 September 2019 by the Superior Court of Public Waters. The applicants had in fact challenged the Regional Measure of December 2017, subsequent to the orders to stop the use, which reaffirmed the role of the lake as a "mere strategic water reserve", making any future reactivation of use subject to authorisation by the Region, only in the event of an actual emergency and in compliance with ecological balances.

Also worthy of note is the establishment of a permanent technical roundtable on diffuse pollution coordinated by the Lazio Region and composed among others of Acea Ato 2, Arpa Lazio, ASL, Città Metropolitana di Roma Capitale, Pomezia and Istituto Superiore di Sanità. In 2016, in the Municipalities of Pomezia, Ardea and Roma Capitale, extensive groundwater contamination by chlorinated substances of non-natural origin was found in some drinking water supply wells. The water from these wells was promptly mixed and distributed to the population in full compliance with drinking water regulatory requirements. From the roundtable it was found that the contamination dates back about 15 years and it is presumed to have been caused by illegal disposal of chlorinated substances directly underground, with one or more sources of contamination, at the moment still unknown.

Moreover, from the same roundtable arose the need to start the preparation of a regional policy plan for the management of diffuse pollution, as established by art. 239, paragraph 3 of the Environmental Consolidation Act. This plan could be a useful and essential tool for the management of individual cases of diffuse pollution in the region, including through the definition of agreements with the competent territorial administrations and technical research and control bodies. With Council Resolution no. 130 of 12 March 2019, published in BURL no. 24 of 21 March 2019, the Lazio Region started the procedures for the preparation of the aforementioned Plan, establishing that it would be drawn up by the Regional Environmental Policies and Waste Cycle Directorate based on the guidelines contained in ISPRA document no. 146/2017 "Criteria for the preparation of diffuse pollution management plans".

Finally, note also the semi-annual report on the management of the IWS in the Lazio Region - H2 2018, prepared by the Regional Authority for the Integrated Water Service and published in BURL no. 11 of 5 February 2019. The document is divided into two parts. The first part deals with legislative and regulatory changes and the main relevant issues in H2 2018, while the second part provides a brief overview of the implementation of the IWS in the Lazio Region. At the date of this report, the Report for H1 2019 has not yet been published.

Events after the end of the 2019 financial year

Resolution 3/2020/R/IDR of 14 January 2020 "Amendments to the integrated text on the methods for applying the social water bonus for the supply of water to economically disadvantaged domestic users (TIBSI) in accordance with article 57-bis of Italian Decree Law no. 124 of 26 October 2019, converted with amendments by Italian Law no. 157 of 19 December 2019". The measure amends and supplements the TIBSI - Integrated text on the methods for applying the social water bonus for the supply of water to economically disadvantaged domestic users (Resolution 897/2017/R/IDR) in accordance with article 57-bis of Italian Law no. 157 of 19 December 2019 (so-called tax decree).

The social water bonus will therefore also be granted to resident domestic users benefiting from Universal Basic Income or Pensions, in addition to those undergoing economic and social hardship for which it was already provided. It will also be applied to the variable share of sewerage and purification services, again with reference to the essential amount of water equal to 50 litres/inhabitant/day. As a result, the related UI3 tariff equalisation component, until now applied only to aqueduct volumes, will also be added to the aqueduct, sewerage and purification fees.

The new provisions will apply as of 1 January 2020 and those receiving universal basic income and pensions will be able to apply for admission from 1 February 2020.

Communication of 9 January 2020 "Integrated water service contract quality data". With this press release, ARERA announced the publication of IWS operator performance data on its website, which the operators submitted for the first two years (2017 and 2018) of full application of the contractual quality regulation introduced by resolution 655/2015/R/IDR, consistent with the lines of action outlined in its 2019-2021 Strategic Framework (resolution 242/2019/A). The publication of the data, aimed at strengthening consumer awareness of the services offered by the various operators, is based on 28 specific standards and 14 general standards of RQSII related to the following aspects: initiation and termination of the contractual relationship; management of the contractual relationship; billing; management of complaints and written requests; management of branches and telephone services.

Resolution 8/2020/R/IDR of 21 January 2020 "Definition of the arrangements for managing the Guarantee Fund for water works". The measure regulates the management and use of the Water Works Guarantee Fund, in line with the Italian Prime Ministerial Decree of 30 May 2019, also taking into account the provisions of the MEF Ministerial Decree of 19 November 2019 concerning the State's guarantee of last resort. The requirements and conditions for gaining access to the guarantee and the related reporting, communication and monitoring obligations in connection with the issue of the guarantee are specified.