Significant events for the 2018 financial year
Water Operating Segment
Lazio - Campania area
Acea Ato 2
The Integrated Water Service in ATO2 Central Lazio - Rome started on 1 January 2003. The management of the ATO Municipalities took place gradually and the Municipalities currently managed are 79 compared to 112 of the entire ATO. The overall situation of the managed area is shown below.
|Acquisition situation||No. of municipalities|
|Municipalities fully acquired into the Integrated Water Service:||79|
|Municipalities partially acquired, for which Acea ATO 2 provides one or more services:||17|
|Municipalities with Protected Entity||1|
|Municipalities in which Acea Ato2 provides no services||8|
|Municipalities that declared they do not wish to be part of the Integrated Water Service*||8|
|* Municipalities with less than 1,000 inhabitants which had the right to express their will in accordance with paragraph 5 of Italian Legislative Decree 152/06.|
The Company provides the full range of drinking water distribution services (collection, abstraction, retail and wholesale distribution). Water is abstracted from sources on the basis of long-term concessions.
Water sources supply approximately 3,900,000 residents in Rome and Fiumicino and in more than 60 Municipalities in the Lazio region, via five aqueducts and a system of pressurised pipes.
Three further sources of supply provide non-drinking water used in the sprinkler system of Rome.
As at 31 December 2018, Acea Ato2 manages a total of 6,749 kilometres of sewerage network, 632 sewerage pumping stations – of which 195 in the Roma Capitale area – and a total of 167 waste treatment plants – 32 of which in the Roma Capitale area – for a total quantity of treated water equal to 569 million m3 (data referring to managed treatment plants only).
On 16 March 2018, the handover report for the municipality of Civitavecchia IWS was signed (effective 3 April 2018), only for the municipal drinking water service, while From 1 July 2018 the management of the purification and sewerage systems was acquired. The acquisition expanded the inventory of sewerage pumping stations by 35 and a treatment plant with a capacity of 86,400 inhab./eq.
The company manages the waste treatment system and pumping stations that serve the network and sewage trunk lines.
During the year the main treatment plants treated a volume of water equal to about 490 million m3, with an increase of about 4% compared to what was treated the previous year (468 million m3), attributable to the greater rainfall that affected the area.
During 2018 a critical issue emerged linked to the progressive reduction of the spaces in the treatment sites where the sludge coming from the treatment plants was to be conferred. This issue was mainly linked to the announced revision of the annexes to Italian legislative decree no. 99/92, which should unequivocally regulate the characteristics of sludge suitable for agronomic recovery.
This regulatory uncertainty has created organisational problems that have led to new conferrals, either due to the non-renewal of the authorisations or, prudently, to avoid incurring fines. The situation was made even more critical due to the particularly extraordinary meteorological events that did not allow for the continuous use of the contracted disposal companies (for example due to snow).
Discussions were established with the organisations and trade associations in order to guarantee as quickly as possible the issuing of a new regulatory decree updating legislative decree no. 99/92.
In the face of sentence no. 1782 of 20 July 2018 issued by the Regional Administrative Court of Lombardy, conferrals to the disposal plants that guaranteed up to 50% of the company's disposal spaces were blocked. To deal with this stoppage, the Company took action with targeted communications and round tables with the relevant Bodies obtaining the issuance of two ordinances that have thus allowed the management of critical issues still in place, temporarily finding a solution based on what was laid down in art. 41 of Italian Law Decree 109/2018 converted with Italian law no. 130/2018.
Given the situation described above, the production of sludge, sand and sediment for all the plants managed in 2018 amounted to around 70,000 tonnes, with a reduction of around 50,000 tonnes compared to 2017.
During 2018 there was an increase in the number of analyses performed by Acea Elabori (certified external laboratory) compared to the average in previous years. The increase in calculations and analyses is attributable to the greater presence of the managed sewage plants and the relevant sewage systems. This specific choice results in a more specific control over the managed territory.
With regard to the problem concerning the seizure of the treatment plants, the Colubro and Roma Nord plants are still under seizure. With regard to the latter, however, it is specified that in the order issued on 14 December 2018, the related criminal proceedings ordered – but have not yet executed – the release and restitution of the plant. The Carchitti plant of the Municipality of Palestrina was subjected to temporary release from seizure at the end of 2016 due to the commissioning of the plant and consequent verification of the treatment process.
The Botticelli treatment plant was subject to disruption following the commissioning of the new plant called Botticelli 2 and a request for revocation of the seizure was subsequently filed.
During the month of September 2018, the drainage of the Fonte Tonello purifier in the Municipality of Marcellina was released after having been seized with the right for use at the end of 2016.
During 2018 there were no further seizure orders.
As regards the proceedings of the Antitrust Authority started against Acea Ato2 in the spring of 2015 and ended with a monetary administrative sanction of € 1.5 million being invoked, it should be noted that the legal action taken by the Company is currently pending (awaiting the scheduling of the hearing).
Acea Ato 5
Acea Ato 5 provides integrated water services on the basis of a thirty-year agreement signed on 27 June 2003 by the company and the Frosinone Provincial Authority (representing the Authority for the ATO comprising 86 municipalities). In return for being awarded the concession, Acea Ato5 pays a fee to all the municipalities based on the date the related services are effectively acquired.
The management of the integrated water service in the Ato 5 region – Southern Lazio – Frosinone involves a total of 86 municipalities (the management of municipalities of Atina and Paliano still remain to be acquired) for a total population of about 490,000 inhabitants, a population served of 470,000 inhabitants, with a service coverage equal to approximately 97% of the territory. The number of users is 197,821.
The drinking water system comprises supply, abstraction and distribution plants and networks that use 7 main sources from which an equal number of aqueduct systems originate.
The sewerage and treatment system comprised a network of sewers and collectors connected to waste water treatment terminals.
The Company manages 209 sewage pumping plants and 108 biological waste treatment plants, as well as 14 Imhoff tanks and 2 percolating filters.
With regard to the acquisition of the plants relating to the management of the Municipality of Paliano, following the hearing of 7 December 2017 the administrative court of Latina upheld the appeal brought by the Company against the Municipality of Paliano, which for more than 10 years has unlawfully opposed the transfer of the service to the Company in order to preserve the continuation of the management of its investee company AMEA S.p.A.
Subsequently, the Company requested the immediate transfer of the service and also the Ministry of the Environment requested this fulfilment, also through the exercise of substitute powers by the Regional Administration.
However, the Mayor of the City of Paliano has communicated the will of the City of Paliano to appeal to the Council of State against the ruling of the regional administrative court, and therefore has not proceeded with the transfer of the service, waiting for the Council of State to decide on the appeal.
The Operational Technical Secretariat of the Area Authority, following the warning issued by Acea Ato5, convened the parties on 23 January 2018 to "undertake the activities related to the delivery of the infrastructure of the water service". At the aforementioned meeting, not being present either the Municipality of Paliano in the person of the Director of the Integrated Water System, or the Company AMEA S.p.A. in the person of its Legal Representative, the Operational Technical Secretariat of ATO5 Southern Lazio-Frosinone and Acea Ato5 decided to present a formal petition to the Lazio Regional Administrative Court - Latina section - to proceed with the appointment of the acting Commissioner who would act on behalf of the defaulting Municipality of Paliano and carry out the activities necessary to allow the delivery of the water service infrastructure in the Municipality of Paliano to Acea Ato5. Furthermore, Acea Ato5 immediately informed the Public Prosecutor of Frosinone and the Court of Auditors of what happened, inviting them to ascertain any responsibilities, also in relation to the evident violation - already noted by the regional administrative court in the above judgement - of art.153 of Italian Legislative Decree no.152/2006 and of the corresponding fiscal and criminal liability. At the same time, it invited all the Administrations and Supervisory Authorities to take any action necessary within their remit to restore the violated legality - repeating the request already made in previous communications to the Area Authority and the sector regulation Authority to initiate the appropriate checks on the legitimacy of the water tariffs applied until then in the Municipality of Paliano.
On 16 February 2018 the Municipality of Paliano filed an appeal against the sentence of the Latina regional administrative court no. 6/2018. On 27 September 2018 a hearing was held in the council chamber for a decision on the merits, for which the Board deferred the filing.
Pending the definition of the judgement, as well as in response to the note sent on 13 February 2018 by the Ministry of the Environment and the Protection of the Territory and the Sea with which the Operational Technical Secretariat of the AATO5 was expressly requested to put in place all the activities necessary for the transfer of the IWS to Acea Ato5 in the non-compliant Municipalities – to date only the Municipality of Paliano – and the subsequent note of the Lazio Region of 25 May 2018, the Operational Technical Secretariat convened the interested parties – Acea Ato5, the Municipality of Paliano and AMEA S.p.A. – for 4 June 2018 in order to comply with the requirements of the Ministry.
However, given the absence of both the Municipality of Paliano and AMEA S.p.A. at the aforementioned meeting, the Operational Technical Secretariat sent its report to the Lazio Region, awaiting the measures that the Regional Administration intends to take.
On 2 July 2018 the Company was notified as a counterparty of the Municipality of Paliano's appeal of the Lazio Regional Administrative Court - Latina section's provision of 27 April 2018 with which AATO 5 rejected the safeguard petition presented by the aforementioned Municipality.
Although this is a question connected to the main appeal before the Council of State filed by the Municipality of Paliano against sentence no. 6/2018 of the Latina regional administrative court which accepted the appeal filed by Acea
Ato5, in order to obtain the cancellation of the provision with which the Municipality opposed its refusal to transfer the service, the Company has deemed it appropriate to appear in court.
On 2 October 2018, pending the definition of the appeal to the Council of State, as well as following the convocation of the Operational Technical Secretariat of the AATO5 southern Lazio - Frosinone, a meeting was held between Acea Ato5, the Municipality of Paliano and Amea, aimed at supporting the activities of recognising the works and plants pertaining to the aforementioned IWS, already started in 2009, to facilitate the eventual transfer to Acea Ato5 of the IWS in the municipal area of Paliano.
In November 2018 the Council of State issued its decision on the appeal filed by the Municipality of Paliano against the sentence of the regional administrative court no. 6/2018, rejected it and, accepting all the defensive arguments formulated by Acea Ato5, ascertained the forfeiture by AMEA S.p.A. of management in the territory of the aforementioned local authority due to the start of the three-year safeguard period envisaged by the Cooperation Agreement and the consequent obligation of the Municipality of Paliano to transfer the IWS to the Area manager.
To date, preparatory activities are under way for the transfer of the management of the IWS in the territory of the Municipality of Paliano to Acea Ato5. In particular, at the end of November, the definitive report was drawn up transposing the current status of the works and installations relating to the IWS in the Municipality of Paliano.
With regard to the transfer of the management of the IWS in the territory of the Municipality of Atina, at the beginning of the year several meetings took place at the Operational Technical Secretariat of ATO5, however since the Municipality of Atina had still failed to fulfil its obligation – as ascertained by the administrative judge with sentence no. 356/2013 confirmed by the Council of State with sentence no. 2742/2014 "for the physical delivery of the works and plants belonging to the IWS" - the Operational Technical Secretariat of AATO5 Southern Lazio-Frosinone and Acea Ato5 decided in the meeting of 23 January 2018 to urge the President of the Province of Frosinone, as acting Commissioner appointed by the Lazio Regional Administrative Court – Latina section with sentence no. 356/2013 of 21 March 2013, to implement all the appropriate initiatives, activities and all appropriate and/or necessary actions to allow the conclusion of the transfer of the water and sewerage plants and facilities pertaining to the IWS in the municipal territory of Atina to Acea Ato5.
The Company immediately sent a formal request to the President of the Province of Frosinone, as acting Commissioner, to act on behalf of the defaulting Municipality of Atina to "proceed with the concession...and delivery of the works and plants pertaining to the IWS" to Acea Ato5. It simultaneously requested ARERA to initiate a procedure aimed at verifying the legitimacy of the tariffs applied by the Municipality of Atina to its users and invited the competent Supervisory Authorities - including the Public Prosecutor of Cassino and the Court of Auditors - to ascertain any criminal and/or fiscal liability of the persons specified and to take any consequent necessary actions. Subsequent to this request, on 29 March 2018 a first meeting between the parties was held at the offices of the Operational Technical Secretariat of AATO5 in order to complete the process of transferring the IWS of the municipal territory of Atina.
Specifically, the parties agreed (i) to proceed with the updating of the reconnaissance report of the works of 28 September 2017 by 10 April 2018; (ii) to update the terms established by the parties with regard to their respective obligations, as agreed in the minutes of 9 January 2018, fully confirming the content; (iii) to send to the Acting Commissioner the documentation certifying the Municipality of Atina's transmission of the database relating to the users located in the municipal territory to the Manager, the Municipality agreeing to provide for the subsequent updating of the aforementioned users according to the procedures established in the report of 9 January 2018.
The next meeting was held on 19 April 2018 to proceed with the formalisation of the transfer of the works and plants pertaining to the IWS in the Municipality of Atina, as well as for the completion of the Acting Commissioner's work, in compliance with the Decree of the President of the Province no. 27 of 2 March 2018.
In the aforementioned meeting of 19 April 2018 in the presence of the Operational Technical Secretariat of ATO5, the Municipality of Atina and Acea Ato5, the Acting Commissioner - noting that the parties had carried out the obligations referred to in points 1), 2) and 3) of the report of 29 March 2018, in compliance with the sentence of the Latina administrative court no. 356 of 23 April 2013 - transferred the works, assets and facilities pertaining to the IWS in the municipal territory to Acea Ato5.
In addition, with subsequent report signed on the same date by the Operational Technical Secretariat of AATO5, Acea Ato5 and the Municipality of Atina, the parties - reaffirming to fully confirm the contents of the minutes of 9 January 2018 - agreed to adjust the deadlines provided for in the aforementioned minutes, updating them to that day's date and extending them for 100 days.
With regard to the relevant events occurred in the year, it should be noted that:
- with regard to the merger project launched in 2015 between the Acea Ato5 S.p.A. and Acea Ato2 S.p.A., with ruling no. 638 published on 27 December 2017 the Latina administrative court upheld the appeal brought by the Company against the resolution of the Conference of Mayors which ordered the resolution, annulling the measure. To date there is no information regarding the scheduling of the hearing;
- on 9 February 2017, the Company appealed for the annulment of Resolution no. 6 of 13 December 2016 with which the Conference of Mayors of ATO 5 approved the tariff proposal for the IWS for the 2016-2019 regulatory period, providing for an amount of adjustments for the period lower than the Manager's proposal (€ 77 million vs € 35 million), as a consequence of the different quantification made by the Operational Technical Secretariat essentially on four regulatory items: i) amount of FNI (psi coefficient 0.4 instead of 0.8 proposed by the Company); ii) recognition of charges for arrears (3.8% of turnover instead of 7.1%); iii) recognition of the quality charges (Opex qc), effectively cancelled and not recognised by the Operational Technical Secretariat; iv) penalties for € 11 million. On 8 March 2018, the public hearing was held and on 22 March 2018 sentence no. 135/2018 was published with which the Latina administrative court rejected the appeal brought by Acea Ato5 against the aforementioned resolution of the Conference of Mayors no. 6 of 13 December 2016. With this ruling, the administrative court did not enter into the merits of the complaints raised by the Company, but confined itself to stating the inadmissibility of the appeal, on the assumption that the resolution of the Conference of Mayors would be a mere end-procedural act because the pricing determination process should conclude "with the definitive provision represented by the approval of the Authority for Electricity and Gas, as also reaffirmed in Resolution no. 664/2015 ARERA in point 7.4: 'Within the following 90 days, the Authority, without prejudice to the need to request further supplements, approves the tariff proposals pursuant to Article 154, paragraph 4 of Italian Legislative Decree no. 152/06'". Therefore the deliberation of the Conference of Mayors no. 6 of 13 December 2016 would not be the definitive measure for determining the tariff, but only a proposal of the Area Authority submitted for the approval of ARERA: consequently, the resolution in question would not be open to challenge. The decision of the matter remains completely open and the Company will have to await the resolution of ARERA on the tariff proposal made by AATO5. The sentence, which has become final, appears to be open to criticism. In any case, it can certainly be confirmed that the rate currently applied by Acea Ato5 remains valid and is not affected by the ruling in question. On the contrary, the acceptance of the appeal would have resulted in the obligation for the Area Authority to modify the tariff proposal by adding back the illegitimate reductions. Furthermore, as regards the topic of penalties, which resulted in a tariff reduction of over € 10 million, the administrative court recalled the previous ruling no. 638/2017 which cancelled the imposition of penalties on Acea Ato5.
On this specific matter, with the ruling in question no.135/2018 the administrative court noted that the previous judgement and the previous sentence preclude "the Panel from deciding again on the same acts on the basis of the principle - referred to in art. 2929 of the Italian Civil Code and 324 of the Code of Civil Procedure - of ne bis in idem which is also applicable to the administrative process, which presupposes the identity in the two judgements of the parties involved and the identifying elements of the proposed action and therefore that in the aforementioned judgements cancellation is requested for the same provisions, or at the most for different rulings but linked by a strict link of consequentiality to the
point of having the same relationship, on the basis of identical grounds of appeal (Council of State Section IV 23 June 2015 no. 3158)".This leads us to believe that - even independently of the possible proposition of an appeal - for the purpose of approving the final 2016-2019 tariffs both the AATO and the ARERA will have to consider:
- the previous sentence of the Latina administrative court no. 638/2017 which cancelled the penalties, with the consequence that the PEF must be increased by the amounts already reduced as penalties (over € 10 million). This aspect was reiterated by the sentence in question which underscored how the issue has already been definitively resolved by the administrative court itself;
- as well as the further investigation carried out by the AATO - in the interest of the administrative judgement - in relation to the charges incurred by Acea Ato5 so-called Opex QC (equal to 1,970,082.00) and the increase in the default rate.
Further, regarding the appeal presented by the Company (additional reasons added to appeal no. 316/2016) before the Latina administrative court with a simultaneous claim for damages against resolution no. 7 of 13 December 2016, with which the Conference of Mayors resolved to terminate the contractual relationship with Acea Ato5, with sentence no. 638 published on 27 December 2017 the Lazio Regional Administrative Court - Latina branch upheld the appeal brought by the Company against the aforementioned resolution, annulling the provision; The aforementioned appeals do not present any arguments of particular novelty or relevance with respect to what has already been submitted for the examination of the Court of First Instance, nor have the appellants proposed an application for interim relief. In any case, the Company filed the formal documents for both disputes, for which as of today there is no information regarding the scheduling of the hearing. On 26-27 June 2018 the appeals filed by the Area Authority, the Municipality of Ceccano and other Municipalities of ATO 5 were respectively served, challenging the aforementioned ruling no. 638/2017 of the Lazio Regional Administrative Court - Latina section.
- on 28 February 2017 the sentence was handed down by the Court of Frosinone revoking the injunction issued in 2012 in favour of the Company for the recovery of its receivable (amounting to € 10,700,00.00) arising from the Transactive Act signed with the Area Authority on 27 February 2007, implementing the resolution of the Mayors' Conference no. 4 of 27 February 2007. The Court of Frosinone held that the 2007 settlement agreement was void, it rejected the Acea Ato5 subordinated counterclaim request for the payment of the higher costs incurred (and originally requested) amounting to a total of € 21.5 million and ordered the remission of the case to be investigated with respect to the counterclaim request made by the Operational Technical Secretariat regarding the payment of the concession fees which in its final statement has in any case acknowledged the payment by the Manager of a large part of its debt, representing the existence of a residual balance of approximately € 7.0 million. The Judge, having acknowledged the counterparty request, postponed the hearing to 27 February 2018. At the outcome of the aforementioned hearing, the new Judge who took charge of the case, having noted the discrepancies that emerged in the respective accounts of Acea Ato5 and AATO 5, granted a postponement to 4 May 2018, inviting the parties to clarify the reasons for these discrepancies and indicating that if they cannot then a court expert would be appointed. At this hearing there was a further postponement until 21 September 2018. At that time, in the light of the Conciliation Panel established on 11 September 2018 with A.A.T.O. 5 – pursuant to art. 36 of the Management Agreement – to which the question concerning the determination of concession fees was also referred, among others – the Parties asked the Judge for a postponement, scheduling the hearing for 15 February 2019, then postponed until 17 September 2019.
Connected to said judgement one must consider the appeal contesting the Court of Frosinone’s ruling which nullified the injunctive decree for € 10,700,000 initially issued by said Court. The first hearing was automatically postponed to 11 May 2018. On this occasion the Court, having heard the respective positions of the parties, postponed the case to 20 November 2020 for the oral discussion and the ruling of the sentence pursuant to art. 281 sexies of the Code of Civil Procedure. The Company believes – also based on the authoritative opinion of its lawyers – that the affirmed nullity of the transaction will not result in the loss of the Manager's right to obtain remuneration for the higher costs incurred in its operations and not covered by the tariff.
Regarding the deliberations of the Regional Council no. 56 of 6 February 2018, no. 129 of 27 February 2018 and no. 152 of 2 March 2018 (published on BURL no. 20 of 8 March 2018), which modify the delimitation of the optimal territorial areas and against which the Company has filed an appeal before the Superior Court of Public Waters in the same Region of Lazio, last 8 May 2018, resolved:
- "to suspend the effectiveness of Regional Council Decree no. 56 of 6 February 2018 bearing Regional Law no. 5/2014 and Regional Law no. 9/2017, art. 17, paragraphs 98 and 99 - Identification of Optimal Territorial Areas of Hydrographic Basin";
- "to confirm the current organisation of the regional IWS in five regional AATOs, as defined by Regional Law 6/1996 and the related management structure of the five regional AATOs, as well as over time identified as signers of the specific Management Agreements, until their natural expiry";
- "in the following six months from the present date, delegate to the Regional Director of Water Resources and Land Defence to carry out any useful activity to arrive at a new governance model of the IWS, even through modification of the current rules that govern it, even based on qualified contributions to be found outside the regional structure in terms of: regulation system, environmental protection, consumer protection, industrial model, interregional comparison, enhancement of the participation of territories and widespread social interests".
With regard to the appeal before the Superior Court of Public Waters presented by the Company against the resolutions of the Regional Council no. 56 of 6 February 2018, no.129 of 27 February 2018 and 152 of 2 March 2018, at the hearing of 11 July 2018 the Lazio Region presented the need to have a reasonable deadline for the preliminary investigation to be carried out due to the suspension order and, in agreement with all the parties, the case was postponed for the same reasons at the hearing of 6 February 2019. It is plausible to believe that the Region wants to limit itself to confirming the structure defined in the challenged provisions, supporting them with an adequate preliminary investigation.
In this regard, the Company deemed it appropriate not to participate in the preliminary investigation, reserving the right to assess any further actions following the outcome of the measures to be taken by the Region in the future.
With the determination of 21 May 2018 DSAI/42/2018/IDR the ARERA initiated a sanctioning procedure against the Company, concerning the tariff regulation of the integrated water service. This procedure is the result of the audit carried out by the ARERA in collaboration with the Special Energy Unit and the water system of the Guardia di Finanza from 20 to 24 November 2017 at the Company's offices.
It should also be noted that on 5 July 2018, in implementation of the resolution adopted by the Italian Competition Authority on 27 June 2018, an audit took place at the registered office of the Company following the initiation of the proceeding pursuant to art. 27, para. 3 of Italian Legislative Decree no. 206 of 2005, as well as pursuant to art. 6 of the 'Regulation on preliminary investigations concerning misleading and comparative advertising, unfair trade practices, violations of consumer rights in contracts, unfair terms' (hereinafter Regulation).
The proceedings were opened in response to reports made to the Authority by the Consumer Associations CO.DI.CI. and Federconsumatori Frosinone regarding alleged incorrect and aggressive behaviour towards consumers and small businesses by the Company in the period January 2015 - June 2018.
The complaints mainly concern:
- inadequate management of consumer claims with respect to billed consumption, without suspension in the meantime of the procedures for the collection of disputed amounts, with consequent sending of payment reminders with the threat of disconnection pending complaints or mediation procedures;
- failed or late delivery of bills, with consequent impossibility to pay in instalments;
- at the time of transfer/takeover of pre-existing service or in case of new activation, requirement of payment of arrears accrued by the previous holder of the service, even when there are clear and adequate ways to demonstrate that the successor has nothing to do with the previous user.
Upon completion of the audit, the Authority acquired most of the documentation specified in the communication initiating the procedure.
On 3 August 2018 a reply was sent in response to the AGCM antitrust authority's request for information in the act initiating the proceeding – pursuant to art. 12, para. 1 of the Regulations – as well as presenting requests for confidentiality and restitution relating to the audit documentation acquired.
With regard to the aforementioned requests, with the communication of 29 August 2018, the AGCM rejected the requests for restitution and, instead, deferred the decision on the requests for confidentiality.
Furthermore, on 17 August 2018 the Company sent the Authority a form for the presentation of commitments pursuant to art. 27, paragraph 7 of the consumer code and art. 9 of the regulation, concerning which on 6 November 2018 the AGCM issued to order rejecting the proposed commitments presented by the Company.
On 21 November 2018, with the authorisation of the Authority, officials it had delegated, together with the Guardia di Finanza - Special Antitrust Unit - performed a further inspection at the headquarters of the Company, since the objective extension of the proceedings was ordered PS9918 with new and specific provisions. In particular, information and documentation were requested relating to the management of hidden losses and the failure to recognise the period of limitations. On 11 December 2018 precise feedback was provided to the request for information to supplement the communication of the initiation of the proceeding, at the same time presenting a request for a hearing, granted by the Authority and scheduled for 10 January 2019.
Finally, on 2 January 2019 a preventive seizure decree was issued on 18 December 2018 by the Judge for Preliminary Investigations at the Court of Frosinone as part of criminal proceedings no. 3910/18 rgnr, pending for the alleged violation of art. 4 of Italian Legislative Decree no. 74/2000 (inaccurate declaration). Pursuant to the aforementioned provision, the preventive seizure of financial resources in the accounts held in the name of Acea Ato5 up to a value of € 3,600,554.51 was ordered. On 11 January 2019, a request for a review was filed, whose discussion hearing was scheduled for 1 February 2019 before the Court of Frosinone, as a unified bench. At the outcome of the aforementioned hearing in the Council Chamber, the Court of Frosinone upheld the proposed re-examination request and, as a result, cancelled the preventive seizure decree, ordering the restitution to the person entitled thereto. Currently the proceedings are still pending during the investigation phase.
Lastly, on 10 January 2019 a hearing was held at the AGCM – in response to a formal request formulated at the same time as the requests for information referred to in the provision of objective extension of the proceeding.
During the aforementioned hearing, the lawyer in charge of representing and defending the Company, referring to what has already been represented in the answers to the requests for information made by the authority at the time of the start-up and objective extension of the proceeding, highlighted the constant attention shown by the Company towards its consumers, implementing for this purpose a series of measures and improvements in the procedures concerning the management of the activities disputed by the Authority.
Reaffirming what has already been fully explained in the feedback sent to the Authority, the Company provided further information and documentation regarding the activities implemented (collaboration with the OTUC, opening of the consumer counter, activities aimed at solving historical arrears) in a perspective of constant attention to consumer issues.
On 20 February 2019, the AGCM, with regard to the PS/9918 proceeding, announced that it had extended the deadline for the conclusion of the proceeding to 23 May 2019.
On 28 February 2019, the AGCM notified the communication of the conclusion of the preliminary phase of the P9918 proceeding – scheduled for 20 March 2019 – with concurrent clarification of the disputes raised against the Company.
In particular, the Authority abandoned some of the initial disputes, confirming instead that it had detected some critical issues concerning: (i) initiation of collection procedures pending complaint for the period prior to the corporate procedure of 2018; (ii) consumption limitations, for the period prior to the change made in January 2019 to the procedure implemented by the Company with regard to the limitation period; (iii) management of hidden water losses.
By the aforementioned deadline of 20 March 2019, the Company may file a defence brief and supporting documentation, which will be remitted to the Board together with the other instructing documents for the adoption of the final order.
See also the additional information contained in the paragraph “Information on services under concession” and with reference to the proceedings Italian legislative decree no. 231/2001 in the paragraph of this "Report on Major Risks and Uncertainties".
The Company manages the Integrated Water Service for the entire territory of the “Sarnese Vesuviano” District (EIC definition) of the Campania Region (74 of the 76 municipalities, given that the Municipalities of Calvanico and Roccapiemonte are managing their water services, not having yet ensured the start of IWS management by the Company) which covers an area of approximately 900 square kilometres with a population of approximately 1.46 million inhabitants.
A total of 4,574.5 km of water network is currently managed, consisting of 467.2 km of primary abstraction network and 4,107 km of distribution network, and a 2,409 km drainage system.
GORI currently manages 10 water sources, 90 wells, 170 tanks, 101 water pumping stations, 174 waste water pumping stations and 7 waste treatment plants.
The Company provides integrated water services on the basis of a thirty-year agreement signed on 30 September 2002 by the Company and the Sarnese Vesuvian Area Authority.
Relations with the Campania Region and with Acqua Campania for wholesale supply
The 2018 financial year was characterised by the definition and normalisation of relations between the Company and the Campania Region (as well as its concessionaire for collections, Acqua Campania S.p.A.) with regard to regional supplies of "wholesale water" and "wastewater collection and treatment services" for the period from 1 January 2013 to the second quarter of 2018. In particular, the Region, the EIC and the Company reached an overall agreement
aimed at the complete implementation of the Integrated Water Service in the Sarnese-Vesuvian District Area within a framework of economic-financial management for its entire residual duration and to pursue the following related objectives: (i) GORI's assumption of the management of the service and acceptance, as a concession and according to the provisions of the current IWS Management Agreement of ATO 3, of the Regional Works and their consequent efficiency improvement, including the reallocation and efficient re-utilisation of the personnel involved in IWS activities, in accordance with and in the manner prescribed by the Regulatory Scheme as well as by Regional Council Resolution 243/2016 and the relevant Framework Agreement signed between the Region and the Area Authority on 3 August 2016, implementation of the same resolution 243/2016; (ii) the approval by the Campania Region of payments in instalments of the debt accrued by the Company for wholesale supplies disbursed from 2013 onwards, and the simultaneous overcoming of the complex legal dispute before the Civil Court of Naples between the concessionaire for regional collections Acqua Campania S.p.A. and GORI (RG No. 33575/2016) relating to regional supplies of "wholesale water", on the one hand and between the Region and GORI (RG no. 3878/2017) regarding the regional services of "collections and treatment of waste water", on the other hand; (iii) the Company's access to the credit market in order to implement these objectives; (iv) the commitment of the parties to restore/maintain the economic-financial management of the IWS of ATO 3 were it to fail, also functionally to the satisfaction of the general bankability measures required to ensure the loans requested from the credit market, given the failure by ARERA until the end of 2018 to grant financing as an equalisation. In this latter regard, it should be noted that in the second half of 2018 the Company initiated a procedure to obtain total loans in the maximum amount of € 110 million from one or more banks.
Agreement with ABC
On 21 December 2018, a settlement was signed between GORI and ABC for the purpose of defining and regulating reciprocal relations and overcoming disputes arising as a result of divergent positions assumed by the parties regarding the tariff applied by ABC on water sub-supplies. The sums to be paid to ABC were therefore settled by transacting a lump sum of around € 8.3 million for the fees invoiced throughout 31 December 2015 and an amount equal to about € 1.3 million for the period from 1 January 2016 to 30 September 2018 on the basis of the tariff referred to in the resolutions of the Commissioner of ATO2 no.27 of 17 October 2017 and no. 28 of 24 October 2017.
Update of the 2016-2019 Regulatory Framework of the Sarnese-Vesuvian District of the Campania Region
Preliminarily, it is clarified that the ARERA has determined: a first transitional tariff method for the years 2012 and 2013 (which entirely replaced the previous "normalised method" referred to in Italian Ministerial Decree LL.PP. 1 August 1996), issued with resolution 585/2012/R/idr ("Transitional Tariff Method" or "MTT"); a second water tariff method for the years 2014 and 2015 issued with resolution 643/2013/R/idr ("Water Tariff Method" or "MTI"); a third and currently applicable water tariff method for the second regulatory period 2016-2019 implemented with resolution 664/2015/R/idr, as amended by subsequent resolution 918/2017/R/idr ("Water Tariff Method - 2" or "MTI-2").
Based on the tariff method implemented by the Authority, the Area Government Body is required to prepare the Regulatory Scheme for the period of reference, which is then approved by the Authority.
In fact, the Extraordinary Commissioner of the Sarnese Vesuvian Area Authority, in execution of the ARERA 664/2015/R/idr resolution, prepared the 2016-2019 Regulatory Scheme with resolution no. 19 of 8 August 2016 and then updated it, in execution of the ARERA 918/2017/R/idr resolution, with resolution no. 39 of 17 July 2018. With this last resolution: (i) the RCappr adjustment component was valued at € 216,948,037; (ii) the Operator's Revenue Constraint ("VRG") for the years 2016 was recognised (VRG: € 167,958,694); 2017 (VRG: € 183,072,979), 2018 (VRG: € 197,001,101) and 2019 (VRG: € 206,352,671) as well as the corresponding "tariff multipliers" for the 2018 financial years (ϑ 1.247505) and the 2019 financial year (ϑ 1.309880); (iii) it was decided to allocate the FoNI quota already envisaged for the year 2017 and not yet used to finance tariff reductions of a social nature; (iv) the additional Water Bonus was established with the valuation of the OPsocial cost component for the years 2018-2019; (v) table no. 2 was updated relating to accruals, amortisation and separate loans for Municipalities of ATO3. In addition, the 2016-2019 Regulatory Scheme updated with Resolution 39/2018 was prepared on the basis of a plan aimed at the full implementation of the IWS of the Sarnese-Vesuvian District that guarantees, concurrently with economic-financial equilibrium: (a) the social sustainability of the IWS tariff applied to users, (b) the investments necessary for the improvement of the service as well as (c) the recovery of accumulated tariff adjustments. For these purposes, the current ATO 3 Regulatory Scheme has established the following objectives to be achieved to ensure, as mentioned, the full implementation of the IWS: (i) the transfer and increased efficiency of the "Regional Works", and, that is, it underlines, the water infrastructure falling within ATO 3 still under the management of the Campania Region and listed in the resolution of the Regional Council 243/2016; (ii) re-employment and relocation – always with a view to making the IWS more efficient – the personnel assigned to the Regional Works in accordance with the procedures set forth in the agreements with the Trade Unions on the basis of aforementioned resolution 243/2016 and the relevant Framework Agreement of 3 August 2018 specified above; (ii) the provision of instalment plans for the debts accrued by the Company – essentially due to the inadequacy of the tariff system effectively applied until 2016 – for wholesale supplies disbursed from 2013 onwards to the Campania Region and the concurrent resolution of the complex legal dispute arising from the payment of regional supplies of "wholesale water" and services of "collection and treatment of waste water".
The 2018 financial year was characterised by the definition and normalisation of relations between the Company and the Campania Region (as well as its concessionaire for collections, Acqua Campania S.p.A.) with regard to regional supplies of "wholesale water" and "wastewater collection and treatment services" for the period from 1 January 2013 to the second quarter of 2018.
Refer to the entire contents of the paragraph “Service Concession Arrangements” also for information on the financial effects deriving from the conclusion of the recognition of equalisation measures.
Lastly, it should be noted that from 1 January 2018 the legal, administrative and tax effects of the merger by incorporation of the company GORI Servizi S.r.l. into GORI S.p.A. have already been finalised with an agreement signed on 28 December 2017.
The Company operates in ATO 1 Calore Irpino which promotes and develops the initiative for the Management of the Integrated Water Service in Municipalities in the Province of Avellino and Benevento. Currently, the Authority – governed by the Extraordinary Commissioner referred to in DGR no. 813/2012 and merged into the regional EIC at the end of 2018 – has not yet assigned the management of the Integrated Water Service (aqueduct, sewerage and treatment) to a single operator.
During 2018, the Company began to establish the foundations consistent with the resolutions of the Board for a new path of growth and development aimed at achieving strategic objectives that provide for company growth. In this regard, a capital increase operation was already approved to aggregate new operations with the direct assignment of the Integrated Water Service by new municipalities, using an instrument that is given by the regulatory provisions contained in Italian Legislative Decree 175/2016 containing the "Consolidated Law on companies in which the public administration participates". Art. 4 of the aforementioned regulation allows municipalities to acquire company shareholdings in activities producing a service of general interest, subject to the body's verification of the economic convenience of the direct or externalised management of the service entrusted to private operators.
This gives the Company the opportunity to proceed with new acquisitions of IWS and therefore to continue its development in the territory falling under ATO1, pending the identification of the single operator, implementing a management development that, upon reaching at least 25% of the population served, would establish the Company as an interlocutor able to request the direct awarding of the entire territory as Sole Manager.
Finally, it should be noted that with Determination DSAI/26-2018 the ARERA has initiated a procedure for the adoption of a sanctioning and prescriptive provision on IWS tariff regulation.
The Company submitted briefs on 7 June 2018 and also repaid the users for the improperly collected amount.
The results of the preliminary investigation are still pending.
In the meantime, the Company has remedied some anomalies found by the Authority and in the 2018-2019 biennial tariff update proposal it has taken steps to incorporate and implement in 2016-2017 some indications and findings that emerged during the audit, contained in the body of the provision to initiate the sanctioning procedure, in order to reduce any economic impact resulting from the final outcome of the audit.
Tuscany - Umbria Area
The management agreement, which came into force on 1 January 2002 with a twenty-year duration (expiry is now in 2026), was signed on 28 December 2001. In accordance with said agreement, the Operator took over the exclusive integrated water service of ATO 2, comprising all public water collection, abstraction and distribution services for civil use, sewage systems and the treatment of waste water. The Area includes 57 municipalities. In return for award of the concession, Acque pays a fee to all the municipalities, including accumulated liabilities incurred under previous concessions awarded.
With Resolution no. 6/2018 of 22 June 2018 concerning the "Update of the tariff structure 2018-2019", the Board of Directors of the Tuscany Water Authority modified, with the same tariff multipliers, the composition of the 2016 and 2017 tariffs approved by resolution AIT no. 32/2017 of 5 October 2017 providing for a remodulation of the recovery of tariff adjustments for approximately € 9.7 million in the period 2022-2023.
With the same resolution the Board of Directors of the Tuscany Water Authority approved the 2018-2019 tariff proposal, the update of the works programme, the updating of the economic and financial plan and the extension of the duration of the concession of service from the previous deadline of 31 December 2026 to the new deadline of 31 December 2031.
The new 2018-2019 tariff proposal and the attached economic and financial plan have as objectives the sustainability of the forecast of greater investments that the manager will have to implement during the period of the concession, and, in parallel, the containment of the increase in tariffs to be applied to users by extending the duration of the concession a further 5 years.
Therefore, as a result of the new tariff proposal, the 2018 tariff multiplier was equal to 5.39%, whereas in the previous AIT resolution 32/2017 it was equal to 6%.
The new 2018-2019 tariff proposal, as well as the updating of the 2016-2017 annual tariff and all the related documents (intervention programme, updating of the economic-financial plan, extension of the concession duration by a further 5 years) approved by the AIT with resolution 6/2018, were approved by the ARERA with resolution 502/2018/R/idr of 9 October 2018 with modification with respect to the AIT proposal of the OPEXqc recognised in the tariff but without changes to the tariff multiplier to be applied to the tariffs of the year.
Finally, it is noted that on 24 January 2019, with the submission of the required documentation, with the termination of the previous loan and the related hedging contracts and with the stipulation of the new interest rate hedging contracts, the suspensive conditions were met and, therefore, the new loan agreement became effective. The new loan was stipulated with a pool of banks and envisages two lines of credit: (i) Term Line of € 200.0 million disbursed in a single use and with final single maturity of 29 December 2023 and, (ii) RCF Line equal to € 25.0 million payable in one or more uses within the period of use and final maturity on 29 December 2023. This line must be used exclusively to meet the financial needs of the Company for its ordinary business.
At the same time the new loan agreements were entered into, 6 new interest rate hedging contracts were entered into. The new contracts envisage the Company's semi-annual payment of a fixed rate to the counterparties starting from 24 January 2019 and in correspondence with a payment by the counterparties to Acque of a variable rate.
The management agreement, which came into force on 1 January 2002 with a twenty-year duration, was signed on 20 December 2001. On the basis of this agreement, the Manager receives in exclusive custody the integrated water service of the ATO no. 3 made up of all the public services for the collection, supply and distribution of water for domestic uses, sewerage and waste water treatment. The Area includes 49 municipalities, of which 6 managed via agreements inherited from the previous operator, Fiorentinagas. In return for awarding the concession, the Operator pays a fee to all the Municipalities, including accumulated liabilities incurred prior to the awarding of the related contracts.
With regard to the new tariff structure, with resolution no. 29/2016 of 5 October 2016 the AIT approved the tariffs for the second 2016-2019 regulatory period (MTI-2) pursuant to the ARERA resolution no. 664/2015. With resolution 687/2017R/idr ARERA approved the tariffs proposed by the Tuscany Water Authority on 12 October 2017. Following the approval of the new tariff structure envisaged by the ARERA Resolution no. 665/2017/R/idr (TICSI), Publiacqua has billed according to the new structure since August. Finally, with resolution no. 24 of 7 December 2018 the AIT approved the 2018-2019 tariffs.
Acquedotto del Fiora
Based on the agreement signed on 28 December 2001, the operator (Acquedotto del Fiora) is to supply integrated water services on an exclusive basis in ATO 6, consisting of public services covering the collection, abstraction and distribution of water for civil use, sewerage and waste water treatment. The concession term is twenty-five years from 1 January 2002.
With regard to the update of the tariffs for the period 2018-2019, on 27 July 2018, based on the actual data collected referring to the years 2016 and 2017 and the Investment Plan, the AIT approved the tariff revision proposal, setting the VRG and the Teta of the years 2018-2019 and also redesigning the entire tariff profile until the end of the IWS concession (Deliberation of the Executive Council of the AIT no.17/2018 of 27 July 2018). Currently, this tariff proposal of the Tuscan EGA is being examined by the National Authority (ARERA) and only after its ratification will the approval process be definitively concluded.
On 26 November 2007 Acea was definitively awarded the tender called by the Area Authority of Perugia ATO 1 for selection of the minority private business partner of Umbra Acque S.p.A. (concession expiry 31 December 2027). A stake in the company (40% of the shares) was acquired on 1 January 2008.
The company performed its activities in all 38 Municipalities constituting ATOs 1 and 2.
As of 31 December 2018, the rate applied to users was determined by Resolution No. 489 2018/R/idr of 27 September 2018 with which ARERA approved the updating of tariff arrangements for the two-year period 2018-2019, previously proposed by the Assembly of Mayors of the AURI with Resolution no. 9 of 27 July 2018, which envisaged a decrease of 0.09% for the year 2018 compared to 2017.
Finally, we inform you that on 29 December 2018 the request to extend the duration of the assignment to 31 December 2031 pursuant to art. 5.2 and 5.3 of the Convention and Resolution 656/2015/R/IDR.
Progress of the procedure for approving the tariffs
The progress of the procedure for approving tariffs and the approval of the two-year update (2018 - 2019) of the IWS tariff provisions for the Group companies is shown below.
|Company||Approval status (up to MTI2 "2016 - 2019")||Biennial update status (2018 - 2019)|
|Acea Ato2||On 27 July 2016, the EGA approved the tariff inclusive of the bonus as per art. 32.1, subsection a) of Resolution 664/2015/R/idr. The ARERA then approved them in Resolution 674/2016/R/idr, with some changes compared to the EGA proposal; quality bonus confirmed.||The Mayors' Conference approved the tariff update on 15 October 2018, and at the same time postponed the approval of the TICSI (Integrated text on water fees) setting out the criteria for the rate structure to be applied. On 13 November 2018, the ARERA approved the 2018-2019 tariff update with Resolution 572.|
|Acea Ato5||Tariff proposal submitted by the Operator on 30 May 2016, with request for recognition of the Opexqc. ARERA warned the EGA on 16 November 2016 and the EGA approved the tariff proposal on 13 December 2016, rejecting, among others, the request for recognition of the Opexqc. Approval by the ARERA is awaited.||The Conference of Mayors approved the 2018-2019 tariff update on 1 August 2018. Currently approval by the ARERA is awaited.|
|GORI||On 1 September 2016, the Extraordinary Commissioner of the EGA approved the tariff with Opxqc as of 2017. Approval by the ARERA is awaited.||On 17 July 2018 the Extraordinary Commissioner of the EGA approved the 2018-2019 tariff update.|
|Acque||On 05 October 2017, the AIT approved the tariff with recognition of the Opexqc.||On 22 June 2018 the AIT Board of Directors approved the 2018-2019 tariff update and, at the same time, the request to extend the duration of the 5-year contract, that is until 31 December 2031. With resolution 502 of 9 October 2018, the ARERA approved the 2018-2019 tariff update.|
|Publiacqua||On 5 October 2016, the AIT approved the tariff with recognition of the bonus as per art. 32.1, subsection a) of Resolution 664/2015/R/idr. With resolution 687/2017/R/idr, on 12 October 2017 ARERA approved the specific regulatory frameworks for the 2016-2019 period proposed by the AIT.||On 7 December 2018 the AIT approved the 2018-2019 tariffs with the extension of the 3-year concession. Currently approval by the ARERA is awaited.|
|Acquedotto del Fiora||On 05 October 2016, the AIT approved the tariff with recognition of the Opexqc. On 12 October 2017, with resolution 687/2017/R/idr ARERA approved the specific regulatory frameworks for the 2016-2019 period proposed by the AIT.||The AIT Board of Directors approved the 2018-2019 tariff update in the session of 27 July 2018. Currently approval by the ARERA is awaited.|
|Geal||On 22 July 2016, the AIT approved the tariff with recognition of the Opexqc. With resolution 726/2017/R/idr, on 26 October 2017 ARERA approved the specific regulatory frameworks for the 2016-2019 period proposed by the AIT.||On 12 July 2018 the ARERA approved the 2018-2019 tariff update proposed by the AIT.|
|Crea Gestioni||Following Resolution 664/2015/R/idr, as neither the Municipalities where the service is provided nor the Area Authorities of reference had any tariff proposal for the 2016-2019 regulatory period, the Company submitted its own tariff proposals. Today approval by the ARERA is awaited.||The Company submitted the tariff update data to the competent/EGA parties, unless still in progress for the technical quality part. Considering the substantial inertia of the persons in charge, the Company submitted the request to the Municipalities on 21 December 2018, with a request sent to ARERA on 11 January 2019 and request for a warning to the EGA on 18 January 2019.|
|Gesesa||On 29 March 2017 with resolution no. 8 of the Extraordinary Commissioner the AATO1 approved the tariffs for the years 2016-2019. Today approval by the ARERA is awaited.||The Company sent the documentation relating to the 2018-2019 tariff review to the Area Authority and the preliminary investigation was initiated by the EGA with the expectation of reaching the approval of the tariffs by April 2019.|
|Nuove Acque||On 22 June 2018, the AIT Board of Directors approved the rates||On 16 October 2018 with Resolution 520 the ARERA approved the 2018-2019 tariff update proposed by the AIT.|
|Umbra Acque||On 30 June 2016, the AIT approved the tariff with recognition of the Opexqc. The ARERA then approved them in Resolution 764/2016/R/idr||In its session of 27 July 2018, the AURI Meeting approved the 2018-2019 tariff update. The ARERA approved the 2018-2019 tariffs with resolution no. 489 of 27 September 2018|
Pending completion of the approval process, which is still in progress, the revenues recorded are determined on the basis of the tariff schemes previously approved by ARERA or by the respective Area Government Agencies, as better represented above.
For more details on the matter, see the paragraph “Service Concession Arrangements”.
Revenues from the Integrated Water System
The table below indicates, for each Company of the Water Area, the amount of revenue for the year 2018 valued on the basis of the tariff calculations assumed by the respective EGA or ARERA. The data includes the adjustment of passing items, the Fo.NI component, the Opexqc or the award as per art. 32.1, subsection a) of resolution 664/2015/R/idr.
|Company||Revenue from the IWS (pro quota values in € million)||FONI/Bonus (pro quota values in € million)|
|Acea Ato2||574.9||FNI = 20.7 AMMFoNI = 7.9 Award = 33.6|
|Acea Ato5||71.1||FNI = 6.8 AMMFoNI = 2.5|
|Acque||71.0||AMMFoNI = 4.3|
|Publiacqua||96.8||AMMFoNI = 9.3|
|Acquedotto del Fiora||43.6||AMMFoNI = 3.5|
|Gesesa||10.9||FNI = 0.1|
|Geal||7.8||FNI = 0.7 AMMFoNI = 0.4|
|Umbra Acque||29.9||FNI = 1.6 AMMFoNI = 1.2|