Significant events for the 2019 financial year

Energy Management

Acea Energia carries out the necessary "Energy Management" activities for the Group's operations, with particular regard to sales and production activities. The Company also liaises with the Energy Market Operators(GME) and with TERNA. In relation to the institutional entity Terna, the Company is the input Dispatch User for Acea Produzione and other companies in the Group. It performed the following main activities in the period:

• the optimisation and assignment of electricity produced by the Tor di Valle and Montemartini thermoelectric plants and by the S. Angelo hydroelectric plant,
• the negotiation of fuel procurement contracts for the power generating plants,
• the procurement of natural gas and electricity for the sales company to sell to end customers,
• the optimisation of the supply portfolio for the procurement of electricity and management of the Energy segment companies' risk profile.

In 2019 Acea Energia purchased electricity from the market for a total of 8,673 GWh, of which 6,751 GWh through bilateral contracts and 1,921 GWh through Borsa, for resale to end customers of the free market and for the optimisation of energy flows and the purchasing portfolio.

Electricity distribution

As far as the sales market is concerned, the retail portfolio continues to grow and the quality of service improved.

In 2019, Acea Energia sold electricity on the standard market for a total of 2,197 GWh, with a 6.3% reduction on a trend basis. The number of withdrawal points totalled 774,823 (832,719 at 31 December 2018). The sale of electricity on the free market amounted to 3,826 GWh for Acea Energia and 409 GWh for Umbria Energy, for a total of 4,235 GWh, with an increase compared to last year of 14.9%, primarily related to the B2B segment.

In addition, Acea Energia and the other sales companies of the Group sold 139.8 million Sm³ of gas to end customers and wholesalers which involved 192,107 re-delivery points, while at 31 December 2018 they were 172,755.

With regard to the proceedings started by the Antitrust Authority, the main updates are described below:

Proceeding PS9815 of the AGCM antitrust authority for unsolicited activations: the Court of Justice suspended the discussion of the judgement in question, pending the definition of the preliminary questions raised by the Council of State in a different ruling, with reference to the application of the Directive on unfair commercial practices in the electronic communications sector.

The Court of Justice has not accepted the request of the Lazio Regional Administrative Court to implement an "accelerated" procedure for the settlement of the preliminary question.

On 15 May 2019 the EU Court of Justice ruled on the preliminary ruling of the Lazio Regional Administrative Court, stating that: (i) there is no conflict between the directives on unfair commercial practices and on remote contracts (29/2005 and 83/2011) and the sectoral directives (72/2009 and 73/2009); (ii) in the energy sector it is also possible to apply the general discipline for the protection of consumers (with consequent competence of the AGCM, pursuant to art. 27, paragraph 1bis, of the Consumer Code). In accordance with Directives 2009/72 and 2009/73, it follows that ARERA is not competent to sanction such conduct.

AGCM proceeding PS9354 for unfair commercial practices: on 26 November 2018 the Authority sent a communication of compliance with the measure adopted on 13 June 2016, also requesting confirmation of the entry into operation of the function relating to the automatic blocking of the collection of consumption for which the five-year prescription had been reached for free-market customers.

On 17 December 2018, Acea Energia verified the above communication, representing that the function went into operation on 11 December 2018.

AGCM proceeding A513 for abuse of a dominant position: on 8 January 2019 AGCM notified the company of the concluding provision of Proceeding A/513. In this order, the Authority ruled that Acea SpA, Acea Energia SpA and areti SpA had committed an abuse of a dominant position – qualified as very serious and of duration quantified in 3 years and 9 months – consisting in the adoption of a broad exclusionary strategy realised through the illegitimate use of a series of prerogatives possessed solely by virtue of its position as an integrated operator in distribution, in order to compete with its competitors in the acquisition of electricity sales contracts in free market conditions.

In view of the gravity and duration of the infringement, the Authority ordered Acea SpA, Acea Energia SpA and areti SpA to pay an overall pecuniary administrative fine of € 16,199,879.09.

In consideration of the fact that in the Sanctioning Measure the Authority considered the contested conduct to be part of a strategic plan defined by the parent company Acea SpA as well as the fact that Acea SpA exercises management and coordination over both Acea Energia SpA and areti SpA, and finally the fact that the Authority has jointly and severally imposed on Acea SpA, Acea Energia SpA and areti SpA said pecuniary administrative sanction without quantifying the amount thereof for each company, the entire amount of said sanction was recorded in the financial statements of the Parent Company Acea SpA, which has relieved the company by waiving recourse to shares or claims.

On 8 March 2009 Acea Energia filed an appeal with the Regional Administrative Court of Lazio and on 22 March 2009 it filed an expert's report with the court containing the consent reports it received concerning the customer base.

On 27 March 2019, the Council Chamber was held to discuss the application for interim measures, and at that meeting it was asked for the merits of the application for interim measures to be combined with those of the application for interim measures and, on 28 March 2019, filed a request for relief in order to ask the Regional Administrative Court to set up a hearing on the merits as soon as possible.

On 10 May 2019 the AGCM sent a request for information on compliance with measure no. 27496 of 20 December 2018, with particular reference to the issue relating to the collection of privacy consent for commercial purposes.

On 20 May 2019 Acea Energia verified the above communication, noting that the lists of SMT users who have directly given consent to Acea Energia for commercial purposes on the free market for the sale of electricity are not used and that the Company continues to collect the aforementioned consent when stipulating and managing the supply contract.

On 13 June 2019, the Authority expressed the need to set up a hearing with the Companies themselves in order to obtain clarifications regarding the decision to collect privacy consents separately (for the companies of the Acea Group and for third parties).

On 3 July 2019, a hearing was held at the offices of the Authority with representatives of the companies, during which it was reiterated, as already represented in the compliance report and in the reply to the request for information of 10 May 2019, that the consent given by protected users are not used for marketing purposes.

A brief was filed on 21 September 2019 in response to the Authority's defence. It insisted that the appeal be accepted and the contested measures voided, or, in the alternative, partial annulment and elimination, or in any event reduction of the fine imposed.

Then, on 2 October 2019, before the Lazio Regional Administrative Court, a hearing was held during which the case was discussed and judgement was deferred.

On 17 October 2019 the Lazio Regional Administrative Court issued sentence no. 03306/19 which upheld the appeal brought by the companies and as a result annulled sanction measure no. 27496 of 20 December 2018 that found that the companies had abused their dominant position in violation of art. 102 of the TFEU, which had led to the imposition of an administrative fine of € 16,199,879.09.

On 17 January 2020 the notice of appeal was served by the Antitrust Authority, represented and defended by the Attorney General's Office, asking the Council of State to annul and/or overturn sentence no. 11960/2019 handed down by the Lazio Regional Administrative Court, and as a result reject the companies' request. in 1st instance.

AGCM proceeding PS9974 for unfair business practices: The Authority decided to dismiss the requests for action because the activities put in place by the company, as represented in its reply sent to the authority on 2 July 2018, are considered sufficient to eliminate any commercial improprieties of the type under investigation.

Determination DSAI/5/2020/EEL: initiation of two sanction proceedings for violations of the regulation of the economic items relating to electricity destined for Vatican City State: Pursuant to resolution 58/2019/E/eel, on 20 March 2019 the Authority initiated a fact-finding investigation against Acea Energia with the aim of acquiring information and useful data concerning the management of the financial items relating to electricity destined for Vatican City State (hereinafter VCS).

In accordance with this resolution and pending the conclusion of the aforementioned investigation, the Authority has specified to the CSEA that it should proceed on a transitional basis and subject to adjustment to equalise the costs of purchasing and dispatching electricity for protected customers as incurred by Acea Energia in 2017.

Conversely, on 13 November 2019, pending the conclusion of the same investigation, the Authority asked the CSEA to suspend – on a temporary basis and subject to adjustment – any disbursements relating to the equalisation of the costs incurred by Acea Energia for 2018 for the purchase and dispatching of electricity intended for protected customers.

With Resolution no. 491/2019/E/eel the Authority closed the preliminary investigation by instructing Acea Energia and areti on the actions to be taken by the end of 2019. On 20 December 2019, Acea Energia informed the Authority that it had complied with the requirements.

In particular, as part of the investigation it emerged that Acea Energia applied the dispatching fees and the tariff components to cover general system charges to the users in VCS. However, ARERA specified that these components are not applied to foreign users. "As a result, Acea Energia was charged more for a quantity of electricity equal to that transferred to VCS" (see page 13 of Annex A to Resolution 491/2019/E/eel).

On the other hand, this happened because Acea Energia had not associated the electricity actually destined for the VCS with the export dispatching point, which was instead taken from another dispatching point referred to in the contract for withdrawal dispatching in force between Terna and Acea Energia used for customers supplied on the free market.

This conduct ceased as of 1 December 2019 as Acea Energia associated the corresponding withdrawal programmes to the export dispatching point at the electricity border with VCS.

Since at the same time the electricity withdrawn from the export dispatching point corresponding to the VCS Virtual Consumption Unit was destined to Italian protected customers, the Authority found that in the period 2009-2018 Acea Energia did not purchase from the Single Buyer the entire quantity of electricity destined for the protected service, the protected service being in part served from the export dispatching point corresponding to the VCS Virtual Consumption Unit. This conduct ceased on 1 January 2019.

Therefore resolution 491/2019/E/eel mandated:

• Terna, the relevant distribution companies and CSEA to recalculate the charges for the withdrawals by VCS by applying the criteria highlighted in the preliminary findings attached to the same resolution,
• the Director of the Sanctions and Commitments Department of the Authority to produce the documents resulting from the evidence found.

As a result of this, two sanctioning proceedings were initiated against Acea Energia and areti.

Pursuant to resolution 243/2012/E/com, following the postponements communicated by ARERA Acea Energia must submit its commitments by 9 June 2020. According to the aforementioned resolution, the approval of the commitments closes the sanction procedure without establishing an infringement.

In the unlikely event that the Authority intends not to approve the commitments and continue with the penalty procedure, based on the information available today the Company does not see any economic impact since it is believed that any penalty for the conduct identified in the aforementioned investigation would be offset by the amount owed by Acea Energia to the system by virtue of the application of dispatching fees and tariff components to cover general system costs. This receivable is expressly recognised by ARERA in Appendix A to resolution 491/2019/E/eel, as mentioned above.