Risks and uncertainties to which Terna and the Group are exposed

Terna has always paid careful attention to the prevention of risks of all natures that could affect or limit the company’s results. This section aims to provide a clearer, more complete representation of these risks which are summarised along with the uncertainties to which the company is exposed, as indeed known to the market and shareholders, considering their presentation in the financial statements and financial prospectuses published in the past.

Regulatory risk

About 96% of the Group’s consolidated revenue comes from annual fees paid for the provision of services regulated by the Italian Energy Authority. By Resolutions nos. 199/11, 204/11 and 197/11 for the regulatory period 2012-2015, the Authority for Electricity and Gas (AEEG) has established remuneration for the supply of electricity transmission, distribution and metering services, prices for dispatching and the regulation of the quality of the transmission service for the fourth regulatory period (2012-2015), in addition to the ways in which they are updated in subsequent years.
Within the scope of such regulations, there are a number of variables that could have an impact on performance.

Volume effect

The revenue of Terna and Terna Rete Italia attributable to the operation, functioning and development of the National Transmission Grid, and to the management of dispatching activities, are regulated by tariffs set by the AEEG. The unit tariffs are applied to the overall volume of energy transmitted using the NTG. These volumes depend on factors that are beyond the control of the Group.

For 2012, the volume mitigation mechanism still applies; according to this mechanism no impact is expected from the trend of electricity demand on the Company’s revenue that is limited within a range +/-0.5%. As from 2013, with a view to stabilising revenue flows, reducing volatility connected with energy volumes, the tariff becomes binomial and will be calculated on both the net energy taken from the NTG and on the power available on interconnection points. Although this is considered to be less subject to the fluctuations in energy demand with an overall improvement for Terna, we cannot be certain that revenue flows will be stabilised, given that no historical data is available on the power available on interconnection points.

Bonuses and penalties

At present, a mechanism is also in place for the calculation of bonuses and penalties on the quality of the transmission service together with a three-year incentive mechanism linked to the reduction of the quantities provisioned on the Market for Dispatching Services, as extensively described in the 2010 Annual report, to which we would refer. 

Resolution 197/11 on the regulation of the quality of service confirms the framework of the previous regulatory period, based on a premium/penalty mechanism. Grid availability is now only monitored by the energy not supplied index. With this mechanism, the maximum potential impact is estimated for the Terna Group as ranging between -€12/+€30 million per year.

Resolution 199/11 sets the eligibility for investments under category I3, for which an extra remuneration of 2% is envisaged for 12 years, providing that Terna conforms to the incentive system to accelerate the development of investments and the related premium/penalty mechanism. The risk for Terna deriving from said adhesion is linked to the potential penalties deriving from delays in the date of entry into operation of I3 investments with respect to the expected date.


Domestic legislative risk

Laws on environmental protection

The activities of the Group are conditioned by the Italian and European environmental legislation also governing electromagnetic fields. The Group may incur additional costs to implement environmental regulations requiring preventive measures to be taken or reparations to be made on the basis of the definition of the regulation established by current legislation.

Laws on employment

More onerous regulations governing health and safety in the workplace might have an adverse effect on the economic/financial performance of the Group. Throughout the European Community, a review has begun of the Directive on worker exposure to electromagnetic fields.

Laws on the consolidated energy market

Adoption is envisaged of provisions concerning the electricity sector in implementation of Italian Legislative Decree no. 93/11 on the single market of electricity.


Operational risks: risks connected with NTG malfunction

The Terna Group’s operations are exposed to the risk of unexpected service interruptions caused by external events that are beyond Terna’s control, such as accidents, defects or breakdowns involving control systems or other equipment, deteriorating plant performance, natural disasters, terrorist attacks and other extraordinary events of this kind. Repairs to the sections of the NTG owned by the Group and any claims for compensation by third parties as a result of such events could, in principle, give rise to charges if the Group is found be responsible. Specific insurance cover has been arranged to mitigate the effect of operational risks.

Litigation risk

The Terna Group is involved, as both plaintiff and defendant, in a number of legal proceedings involving contracts, employees, the environment, regulatory matters, and public safety issues arising from normal business operations.

In addition, the Group may be involved in new litigation and/or out-of-court disputes raised by interested/entitled parties of various types (by mere and incomplete way of example: suppliers, public entities, etc.)

On this matter, please refer to paragraph “E. Commitments and risks” of the Notes to the financial statements of Terna S.p.A. and the Terna Group.

Market and financial risks

During the financial year, in going about its business, the Group is exposed to various different financial risks: market risk (namely interest rate risk and inflation risk), liquidity risk and credit risk.

As part of the policies approved by the Board of Directors, the Terna Group has defined responsibilities and operational procedures for the management of financial risk, making specific reference to the tools considered acceptable and setting clear operating limits for their use.

Terna’s risk management policies seek to identify and analyse the risks the Company is exposed to, establishing appropriate limits and controls and monitoring risks and compliance with such limits. These policies and related systems are reviewed on a regular basis in order to reflect any changes in market conditions and the activities of the Group.

On this matter, please refer to section “E. Commitments and risks” of the Notes to the financial statements of Terna S.p.A. and the Terna Group for more details.

Risks connected with financing needs

Even in current market conditions, the Group expects to maintain sufficient capacity to generate financial resources from its operating activities. However, the plan for future investments should lead to an increase in debt. Although the Group continues to enjoy the support of its banking partners for the financing of its debt, it may become necessary to arrange additional loans that, under less favourable market conditions, could result in an increase in financial expense.

Risk on non-core business in the sector of renewables

A significant part of non-core business is connected with the opportunities offered on the market of the construction and management of high voltage plants functional to the connection of production from renewable sources. Any changes to the legislative or regulatory framework may, moreover, determine a lesser appeal for investment in this sector in Italy and, consequently, a drop in the market opportunity for Terna’s non-core business.