Electricity: reform of network tariffs in the bill to kick off from 2016 for 30 million customers

Milan, December 02, 2015

Italian version

To promote the spread of efficient consumption today penalized by excessive costs, to simplify and to make the bill more readable, to make what we pay fairer and actually more adhering to the costs of network services. These are the main objectives of the electricity tariffs reform of the Authority that, starting from 1 January 2016 and gradually, taking into account the experimentation results, will affect 30 million household electricity users in Italy.
The reform, introduced by the European Directive 27/2012 on energy efficiency, was implemented in Italy by the Legislative Decree No. 102/14. The decree states that it shall be implemented by the Authority, to conform to other European countries. The reform provides the gradual replacement of the current progressive structure of the network tariffs and the general system costs - i.e. with a kwh unit cost that grows for bands with increasing withdrawals - introduced approximately forty years ago as a result of the oil shocks of the seventies. In a social, economic and technological context, being radically different compared to the current one, a system of cross-subsidies is in fact defined between consumers where those consuming more energy (for example large families), at an equal cost for the service, pay something for those who consume less energy (singles or wealthy couples). A system of groups at differentiated costs that is reflected also in the complexity of our bills, which will now be simplified. At the end of the reform process, structured in 3 years, from 1 January 2018, the network tariff (i.e. costs paid for the transmission, distribution and measurement of electricity) and the system charges tariff (i.e. costs for supporting activities of general interest for the electric system), more than 40% of our bill in total, will be the same for all and for any consumption level. Each user will then fairly pay for the used services and gradualness will avoid excessive effects on those who, at low consumption, pay a little less: now they will pay the exact amount for the service used, which is no longer facilitated, but is consistent with the costs. For all others, those with high consumption, for example large families or those living in areas with no access to methane, there will be a substantial reduction of the incurred over-cost up to now.
With regard to low income families in real state of need, the Authority has also provided a 'damper' which will cancel any possible negative effect. The tool is the  social bonus, capable of intercepting those in practical difficulty. With the 2016 reform the Authority provides its automatic enhancement, so as the entitled low-income families already from the next year will bear no extra cost, at the same time they will maintain the relevant subsidy [1]. At full capacity, to neutralize any effect, the  Authority has brought to the Government and Parliament the opportunity to permanently strengthen the bonus, both in terms of intensity, by applying the discount on the bill from the present 20% up to 35% of the expenditure, and with a broadening of the entitled persons.
The tariff reform will also enable to unleash the installation potential of efficient electrical equipment (as e.g. heat pumps, electric cars or induction plates), today curbed by the excessive cost of use due to the tariff progressiveness, electric consumption that can be a substitute of those  other energy producers (gas, LPG or other), which in their nature are much less renewable, also leading to further possible overall savings [2]. Moreover these electrical devices are those that are better suited to the increase of renewable sources, accumulation systems and energy produced by them, both coming from the network - in 2015 we will almost achieve the record of approximately 45 % of national electricity production from renewable sources -  self-generated and consumed energy on the spot with the increasingly widespread of small renewable energy production plants.

The reform in detail

The tariffs reform of the Authority, provided for by legislative decree 102/14, reaches the end of an articulated path of consultation, accompanied by several reports to government and parliament. At full capacity, so by 2018, according to the reform, for network services, a non-progressive tariff structure will be defined, which is the same for all domestic customers, set on the basis of cost-relatedness of the various services: metering, marketing and distribution costs will be covered by pro-customer fixed amount (€/year) and power amount (€/kW/year), while transmission costs will be expressed in energy amount (c€/kWh). With regard to the system charges tariff a differentiation is maintained between resident customers (to which an energy amount is applied, as today, i.e. in c€ per kWh used) and non-residents (to which the tariff is applied both in fixed amount, and energy amount), so as the overall three-quarters of the revenue (for residents and non-residents together) derive anyway from energy amounts. Overall 75% of the bill will depend again from the kWh used, thus maintaining a strong incentive to virtuous behaviour on the part of the citizens. The reform for families will lead to the creation of a new 'lever' of customization, the power, for more modern energy behaviours. Precisely in order to stimulate a more attentive and conscious use of the contract demand, power levels with a denser 'rate' than the current one will be introduced so as to increase the possibility for the customer to choose the optimal level for his own requirements; at the same time there will be the transitional zeroing of the costs for the level change (which pass from 30 to 0 euros) and, to better choose, the historical data on maximum power used on a monthly basis will be made available. The Authority, to ensure the 'damper' for customers in need for 2016, on the basis of what is already provided for by the regulations in force, will update the electricity bonus in order to clear any possible effect on the people in need, achieving this without increasing the value of the As component of the bill that nourishes the bonus mechanism. The compensation amount will be such as to counterbalance completely the annual expenditure increments arising from the reform for the next year. The Authority shall then adjust during 2016 the bonus within 60 days from the entry into force of the expected ministerial decree of revision of the mechanism provided by the legislative decree 102/2014, or due to the effect of another legislative measure on the matter.

The gradual approach at the base of the reform

The gradual process provides that from 1 January 2016 changes will not affect the tariff structure for groups and that only the tariffs on network services will undergo a first intervention aimed at 'mitigating' the progressive effect of consumption and increasing the fixed quotas (per point and for power), reducing by at least 25% the amount of cross-subsidy existing today; the collection and provision to customers of data relating to the values of maximum power used has also been started. From 1 January 2017 there will be the full application of the non-progressive tariff for network services and the first intervention will also be carried out on the tariff for the system charges, so as to decrease the effect of progressiveness and limit to 2 the number of groups of annual consumption;  all the news related to the contract demand will then be introduced, with the offer of a greater number of levels to choose from. From 1 January 2018 the reform will be fully operational, by applying the full non progressive structure even to the tariff for the general system costs. In addition, in coherence with the gradual path and in parallel to the reform, the experimentation of the current voluntary tariff for heat pumps will be extended to 2016, referring to the possibility of its extension to other domestic customers, also to gather further proposals by consumer associations and environmental groups.

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[1] According to current estimates, if, over the next few years, nothing changed in the cost of the electric system, Italian families would continue to pay the same overall electric bill, but a redistribution would occur between different types of families. With regard to the 'typical customer' (with average consumption of 2700 kWh per year and a power of 3 kW) the impact of the reform - including taxes - could be estimated today in 0.9 euros per month in 2016, 0.09 euros per month in 2017 and 0.76 euros per month in 2018, for a total estimated variation between 1 January 2015 and 1 January 2018 amounting to 21 euros. The average annual expenditure would rise from 505 euros to 526 euros.
For the large families, with for example an average consumption of 3200 kWh/year, the total estimated savings in these three years would be about 46 euros, since the annual bill would fall from 668 euros to 622 euros. The single-component families 'not in need', with for example the average consumption of 1,500 kWh/year, would gradually record an impact, including taxes, of 2 euros per month in 2016, of 3,7 euros per month in 2017 and of 0.6 euros per month in 2018, with an average expenditure that would rise from 256 euros in 2015 to 334 euros in 2018.

[2] The price signal perceived by the consumer will no longer be distorted and you will have the freedom to choose the energy carrier which is most suited to the needs of the individual family, i.e. whether to choose  electricity, gas, LPG or other. Indeed those who now want, for example, to heat using an efficient heat pump are penalized by higher rates. With the reform, and then with a more strict adherence to the real costs, the customer will be able to choose whether to use the high efficiency heat pump without being penalized, perhaps saving if, looking at the entire energy balance of the family, he replaces it with gas. Similar reasoning can be done even with electric vehicles instead of the petrol or diesel ones, or the induction plates for cooking.