Regulatory Framework for Electricity

The regulatory framework of electricity generation is contained in by Legislative Decree No. 79 of March 16, 1999 which incorporates European Directive 96/92/CE and contains in particular the definition of rules necessary for the electricity market (the so called electric stock exchange) and for the improvement of the safety of the national electric system.

New market rules approved with a Minister Decree of December 19, 2003 and dispatching rules introduced by decision No. 168/2003 of the Authority provide for the following:

• gradual introduction of the electricity exchange from April 1, 2004, which includes the day-before-market and the adjustment market, with a price formation mechanism based on system marginal price;
• in case of congestion, application of local offers and enhancement of electricity exchanged on the day-before-market at a single price on the demand side and at (locally) varying prices on the supply side.

Until the entry into force of the electricity exchange, a transitional system of offers of sale (STOVE) was introduced by decision No. 67/2003 in force from July 1, 2003 for the supply of electricity to customers on the regulated market.

After recent black-outs a few measures were taken to increase safety and functioning of the electricity sector and to promote the construction of interconnection lines with other countries.

Legislative Decree No. 379 of December 19, 2003 introduces the remuneration of electricity generation capacity in order to guarantee that domestic demand is met with the required reserve margins. The remuneration mechanisms will be defined in 2004. For that year remuneration will be effected by subdividing among the eligible producers the present tariff revenues destined to reserve charges.

Law No. 57 of March 5, 2001, stated that after 90 days from the sale by Enel of at least 15,000 megawatts of production capacity, any customer with consumption higher than 100,000 kilowatthour in the preceding year becomes an eligible customer. Thus from April 29, 2003 the annual consumption required to access the free market became much lower than the preceding limit of 9 million kilowatthour.

The free market then went from about 35% to about 47% of total sales and, after the approval of Draft Law A.S.2421 presently under discussion at the Parliament, the eligibility limit will be further lowered to 50,000 kilowatthour.

On January 30, 2004, the Authority disseminated a consultation document on the monitoring of the electric market and the control of market power. This document suggests, among other things, the definition of indices that the Authority will use to monitor the market and of transitional measures for 2004 influencing the formation of prices (definition of a ceiling price and a bid cap).