Water

Acea Ato2

The Integrated Water Service in OTA2 Central Lazio - Rome started on 1 January 2003. The management of the OTA Municipalities took place gradually and the Municipalities currently managed are 89 compared to 113 of the entire OTA. As a result of Art. 22 of Law 233 of 29 December 2021 converting Law Decree 152 of 6 November 2021 containing “Urgent provisions on the implementation of the National Recovery and Resilience Plan (NRRP) and for the prevention of Mafia infiltration”, it was established that paragraph 2-bis of Article 147 of Legislative Decree 152/2006 would now include the following: “2-ter By 1 July 2022, the independent water service operators for which the Area Governing Body has not yet given an opinion on the meeting of the safeguarding criteria indicated in paragraph 2-bis, subparagraph b), will be included in the single management system identified by the same body. By 30 September 2022, the governing body will allocate to the single operator all the management entities not exempted under the above mentioned subparagraph 2-bis”.

For this reason there has been an acceleration of the acquisition process for the 14 municipalities in which the drinking water service was not managed: Agosta, Anguillara Sabazia, Anticoli Corrado, Ardea, Campagnano di Roma, Canale Monterano, Cerreto Laziale, Civitella San Paolo, Labico, Ladispoli, Licenza, Roviano, Sant’Angelo Romano and Trevi nel Lazio. However, not all of the Municipalities have allowed preparatory activities for the acquisition to commence. Hence, on 7 June 2022 the Lazio Region issued 4 resolutions to exercise its substitute powers pursuant to article 153, paragraphs 1 and 172, paragraph 4 of Legislative Decree 152/2006, as amended, to transfer the integrated water service to the sole manager of OTA2, by appointing an acting commissioner for the following Municipalities: Anticoli Corrado, Cerreto Laziale, Licenza, Trevi nel Lazio. In the third quarter of 2022, effective 30 September 2022, all the municipalities envisaged under Law 29 December 2021 were acquired, thereby completing the acquisition of the SII for 89 municipalities.

Hence, the overall situation was unchanged and, at 31 December 2022, can be summarised as follows:

 

Acquisition situation	No. of municipalities
Municipalities fully acquired into the Integrated Water Service	89
Municipalities partially acquired, for which Acea Ato2 provides one or more services:	17
Municipalities to be acquired	7

* Municipalities with less than 1,000 inhabitants which had the right to express their will in accordance with paragraph 5 of Legislative Decree 152/06.

 

Also for the Valmontone purification service, which was managed by the associated company Acea Molise as the protected entity, the relative transfer deed was signed, as the service was returned to the Municipality which will then transfer it to Acea Ato2 after the latter carries out revamping work on the purification plant.

Additionally, in the fourth quarter of 2022 the transfer deed for Acea Ato2 and Acea Ato5 was signed for the sewer service managed by the “Co.R.Ec.Alt.” Consortium, finally resolving a long-standing issue that had made it impossible to complete the acquisition for management of a part of the network for the Municipalities of Anguillara Sabazia and Trevi nel Lazio, as well as that of the Municipality of Piglio, in OTA5. The transfer will be completed after already planned revamping work is finished.

The Company provides the full range of drinking water distribution services (collection, abstraction, retail and wholesale distribution). Water is drawn from springs on the basis of long-term concessions.

Water sources supply drinking water to approximately 3,900,000 residents in Rome and Fiumicino and in more than 61 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.

In order to safeguard the sources of supply and implement an increasingly sustainable management of water resources, in 2022 the Company completed its study of the quantity of potential groundwater resources and the possible impacts related to the withdrawal of water, by monitoring meteorological and climate variables and implementing appropriate interpretative models. Under the Collaboration Agreement with the National Research Council’s Institute for Water Research (Italian acronym: CNR-IRSA), the Company has continued work on developing a software program to model the availability of water resources over time, and to elaborate early warning systems to identify water shortages. With reference to the distribution networks, the campaign to reduce physical and commercial losses and improve network efficiency has continued. In particular, in 2022:

• although the summer season was particularly dry, with water resources below the 25th percentile of observed historic series, the efficiency initiatives implemented by the Manager made it possible to significantly reduce withdrawals from the environment and consequently limit supply problems. In fact, only the municipality of Percile, which was also recently acquired, made use of nocturnal water shifts;
• the districting of a further 1,373 km of the water network was completed. The districting of the networks, namely the delimitation of the distribution districts (or measurement districts), has the purpose of making the network operation more efficient, controlling in detail the level of the losses in the individual districts and guiding the instrumental research activities for their reduction. Overall, at 31 December 2022, there are approximately 12,967 km of districted water pipes with continuous remote monitoring;
• the search for hidden leaks was carried out through a punctual and systematic analysis of the networks according to the anomalies emerging from the monitoring of the water districts implemented;
• pressure regulator devices have been installed in order to actively manage water pressure and reduce pipe bursts across the distribution network; one such device is the regulation hub at Colle Oppio (Rome), which has improved the efficiency of the water service across a wide area of Rome’s 1st municipal district;
• implementation of remote monitoring of meters installed at supply sources continued, with the aim of optimising the quality of process measurement and the timeliness of measurement acquisition for the purpose of preparing a correct water balance;
• actions aimed at ensuring the administrative regularisation of cases of unlawful withdrawals, supplies not reactivated, contracts not correctly transferred from previous managements, etc., continued, including with the use of new strategies.

With reference to the purification segment, at 31 December 2022, Acea Ato2 manages over 7,000 km of sewer networks (of which 6,447 mapped on GIS), 653 sewerage pumping stations - of which 178 in the Roma Capitale area - and a total of 161 waste treatment plants (of which 31 in the Roma Capitale area following the disposal of Parco della Tiburtina), for a total quantity of treated water equal to 578.2 Mmc (data referring to managed treatment plants only at 31 December 2022).

Note that Resolution 183/2022/R/idr of 26 April 2022 defined the incentive mechanism for regulation of the technical quality of the integrated water service (RQTI) for 2018-2019, which for Acea Ato2 amounted to € 23.6 million and was received during 2022.

Note that with reference to public financing envisaged in the National Recovery and Resilience Plan (NRRP), deriving from Ministerial Decree 517 of 16 December 2021, issued by the Ministry of Infrastructure and Sustainable Mobility, which calls for projects on potable water and/or irrigation supply systems to optimise and complete water infrastructure for the derivation, storage and discharge of the resource, with the am of improving climate change resilience, improving the security of existing infrastructure and reducing water waste, Acea Ato2 is identified as the Implementing Party for the 4 financed sub-projects, as reported below, for a total of € 150 million:

1. New Marcio Acquedotto – I lot for € 57 million;
2. Doubling VIII Sifone Tratto Casa Valeria – Ripoli Tunnel Exit € 41 million;
3. Monte Castellone – Colle S. Angelo (Valmontone) Pipeline € 29 million;
4. Ottavia – Trionfale Supply System € 23 million.

Acea Ato5

Acea Ato5 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 OTA 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 OTA 5 region - Southern Lazio - Frosinone involves a total of 86 Municipalities (the management of the Municipality of Paliano still remains to be acquired, while the Municipalities of Conca Casale and Rocca d’Evandro are “outside the scope”) for a total population of about 489,000 inhabitants, a population served of 455,164 inhabitants, with a service coverage equal to approximately 93% of the territory. The number of users is 200,091.

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. There are 232 sewerage pumping stations managed by the Company and 127 treatment plants, including the “inaccessible” plants and those outside the OTA (Rocca d’Evandro and Conca Casale).

In 2022, the digitisation of the networks of the managed area continued, with the inclusion of data in the GIS - Geographic Information System. According to the 2019-2022 plan for significant activities, as at 31 December 2022 the size of the water network is 6,170 total km (1,207 km supply + 4,963 km distribution).

With regard to the acquisition of the systems relating to management in the Municipality of Paliano, the SII is currently still managed by AMEA, in which the Municipality of Paliano is an investor. Relative to this management, in November 2018 the Council of State issued a definitive judgement on the appeal filed by the Municipality of Paliano against the Regional Administrative Court judgement 6/2018, which accepted the Company’s appeal relative to the Municipality, to obtain annulment of the provision with which the Municipality rejected the transfer of service. Hence, with judgement 6635/2018, the Council of State rejected the appeal presented by the Municipality of Paliano and confirmed the Latina Regional Administrative Court’s decision, noting that the protective regime in favour of AMEA was “circumscribed to a period of three years starting from the signing of the Management Agreement between OTAA 5 and Acea Ato5. This term was to expire in 2006, after which date the management by AMEA was considered without title”.

Since Acea Ato5 has so far failed to initiate compliance proceedings with a view to verifying the voluntary compliance of the Municipality, which is suitable for preventing the possible appointment of an acting commissioner as has already happened in similar cases, a series of meetings have taken place at the Operational Technical Secretariat of OTAA 5 Lazio Meridionale - Frosinone aimed at seeking an amicable settlement of the dispute and at initiating the preparatory activities for the transfer to Acea Ato5 of the management of the IWS in the Municipality of Paliano. In this perspective, the Parties – with deeds of 26 November 2018 and 29 November 2018 – performed the update of the previous survey of networks and existing plants in the Municipality of Paliano, necessary for the management of the SII, subsequently updated in 2020 and 2021, also identifying necessary projects for the work in terms of purification and sewage.

The Parties subsequently held other meetings, together with the Operational Technical Secretariat of OTA5, in order to define not only the technical scope but also the administrative and commercial scope in order to finalise the transfer of the Management of the Water Service of the Municipality of Paliano to Acea Ato5. The fact that not all required information has been received and disputes relative to the methods used to transfer the infrastructure and management of the SII have been documented in notes sent between the parties and in reports sent to the Operational Technical Secretariat and the Lazio Region, with the latter asked to begin commissioner proceedings to apply the substitute powers pursuant to article 172, paragraph 4 of Legislative Decree 152/2006, as amended.

With regard to the Municipality of Atina, whose management of the IWS has been transferred to Acea Ato5 as of 19 April 2018, it should be noted that Municipal Council Resolution no. 14 of 17 April 2019, by which the Municipality resolved to “establish the sub/optimal territorial area called Atina Territorial Area 1, with reference to optimal territorial area no. 5, for the continuity of the autonomous and direct management of the water service pursuant to art. 147, paragraph 2 bis of Italian Legislative Decree no. 152/2006, declaring the Integrated Water Service a ‘local public service without economic importance”.

OTAA 5 appealed the above resolution before the Lazio Regional Administrative Court - Latina Section - also serving the Company and the Lazio Region.

As far as Acea Ato5 is concerned, while the legal action taken by the AGB is suitable to protect the interests of the Company, it has deemed it appropriate to file suit.

On 1 June 2021 with Note no. 2241/2021 the Lazio region also expressed itself on the subject, repeating the unacceptability of the Municipality’s request for recognition of the Atina 1 Sub Area within the Optimal Territorial Area 5 Frosinone, because this would be contrary to the current national and regional legislation (Italian Legislative Decree No. 152 of 3 April 2006, and Regional Law no. 6 of 22 January 1996). The Municipality therefore continues to have the obligation to award in free concession of use to the operator of the integrated water service the water infrastructures it owns, as provided for in art. 153 paragraph 1 of Italian Legislative Decree 152/2006.

For Acea Ato5, Resolution 183/2022/R/idr of 26 April 2022 also defined the incentive mechanism for the regulation of the technical quality of the integrated water system (RQTI) for the years 2018-2019, which generated the recognition of a bonus amounting to € 0.7 million and penalties of € 0.17 million.

With regard to significant events that took place during the year, it should be noted that:

Appeal to the Lazio – Latina Regional Administrative Court (docket no. 308/2021 section I) for the annulment of Resolution no.1 of 10 March 2021

Acea Ato5 has petitioned the Latina division of the Regional Administrative Court of Lazio, requesting the application of appropriate precautions and the cancellation of Deliberation No. 1 of 10 March 2021 (published on 18 March 2021) containing the tariff decisions for 2020-2023 made pursuant to ARERA Deliberation No. 580/2019/R/idr “Approval of the Water Tariff Method for the third regulatory period MTI-3 “ as amended - in which the OTA 5 Conference of Mayors approved the IWS (integrated water services) tariff for the 2020-2023 regulatory period. Specifically, the operator challenged the part of the Deliberation that rejected the justified requests for recognition of the increased cost of adapting to the service quality standards (OpexQC), recognition of the higher costs of arrears (COmor) and the part that postponed the recognition of the adjusting payments due to the operator (RcTOTa) to future regulatory periods and to the end of the concession (on the Residual Value - RV at the end of the concession).

At the hearing on 26 May 2021, the Regional Administrative Court, recognising that the matter was highly complex and required further analysis, set the trial for 15 December 2021. On 21 December 2021, the Lazio Regional Administrative Court - Latina Section with Sentence No 691/2021 deemed the appeal inadmissible. The Company appealed to the Council of State with a hearing set for 10 March 2022, at the end of which the Board rejected the appeal and adjourned the case for a decision. The Company prepared a request for withdrawal. The date for the hearing on the merits has not yet been set.

Injunction order for payment of € 10,700,000 and counter-claim by OTAA 5 for concession fees

On 28 February 2017, sentence no. 304/2017 of the Court of Frosinone was published, related to civil judgement RG 1598/2012, pending between Acea Ato5 and the Optimal Territorial Area Authority no.5.

Indeed we recall that the Company had acted, in 2012, with the proposition of a monitory action intended for the recovery of its credit (for the amount of € 10,700,000.00) arising from the Settlement Agreement signed with the Area Authority on 27 February 2007, in implementation of the resolution of the Mayors’ Conference no.4 of 27 February 2007 relating to recognition of higher operating costs incurred in the three-year period of 2003-2005 in the start-up phase of the Concession.

The Area Authority had opposed the injunction, disputing the existence of the credit and the validity of the Transaction on the presumption that the same had been replaced by the annulment by own determination of Resolution no. 4/2007 (made as a result of subsequent Resolution of the Mayors’ Conference no. 5/2009). Furthermore, the same Area Authority had disputed the legitimacy of the Transaction, since, in its words, the same had been adopted in violation of the regulations in force pro-tempore and specifically the Normalised Method as per Italian Ministerial Decree 1.08.1996. Finally, the Area Authority – in formulating an objection to the injunction order, for the substantial reasons mentioned above – had also filed a counter-claim intended to obtain the payment from the Company of the concession fees related to the 2006-2011 period and quantified as € 28,699,699.48.

In this context, the Court of Frosinone, with sentence no. 304/2017:

• rejected the grounds for opposition formulated by the Area Authority, highlighting, on the one hand, that the annulment, by own determination, of Resolution 4/2007 (as a result of subsequent Resolution no. 5/2009) had no effect on the underlying private relationship, and therefore on the validity of the Settlement Agreement of 27 February 2007; on the other hand, that the Transaction did not violate the Normalised Method since the so-called “price cap” principle is only valid for any tariff increases;
• annulled the injunction order on the assumption of the nullity of the Resolution of the Mayors’ Conference no. 4/2007 and of the Settlement Agreement adopted by the Area Authority in violation of the public regulations requiring the identification of the financial coverage of the act itself;
• rejected the requests prepared subordinately (in the event that the Settlement Agreement had been declared invalid) by Acea Ato5 defence attorneys, intended to obtain recognition of the credit by the Area Authority;
• referred the case for pre-trial examination as regards the counter-claim formulated by the Area Authority, which, it is useful to note, in its closing briefs nevertheless recognised the successful payment, by the Operator, of a large part of its debt, describing the existence of a residual credit of approximately € 7,000,000.00. At the hearing on 17 November 2017, the following documents were filed on behalf of Acea Ato5: copy of the transfer of 31 July 2017 for € 2 million; copy of the transfer of 4 October 2017 for € 2,244,089.20 and the Acea Memo dated 16 November 2017. With reference to the latter memo, the following were highlighted:

a. the commitment of Acea Ato5 to pay € 1,370,000 by December 2017;

b. the dispute of any other indebtedness regarding concession fees.

In response to production of the above documents, the counterparty – initially convinced to recognise the sums of the transfers of 31 July 2017 and 4 October 2017 as contributing to the sums due by Acea Ato5 for the Concession Fee – acknowledged the production of the documents, declaring the requirement, including due to the content of the Memo dated 16 November 2017, to “refer” to OTAA 5. In light of the above, the Judge, having acknowledged the counterparty request, postponed the hearing to 27 February 2018. During the aforesaid hearing, documents were submitted attesting to the latest payments by Acea Ato5 in favour of OTAA5.

Consequently, the Company – through its lawyers – described that:

1. in response to the commitment to pay € 1,370,000 by December 2017 – Acea Ato5 paid:
   • € 1,287,589.00 on 5 January 2018, directly to OTAA 5;
   • € 85,261.93 on 22 November 2017 to the Consorzio Valle del Liri (as part of the larger payment of € 178,481.68 in execution of the settlement agreement of which said Area Authority is part, in which, under art.2.1, it was acknowledged that the payment of € 178,481.68 would count towards the 2010-2011-2012-2013-2016 fees); for a total of € 1,372,850.93;
2. with these latest payments, Acea Ato5 has fully paid the entire concession fee related to the 2006-2012 period: the above is also expressed by Executive Resolution of the TOS no. 88 of 8 November 2017. In particular, express recognition is given of the fact that “in response to established and/or subsequent payments of the concession fee by the Operator, it has to date paid up to the year 2012”.

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 OTAA 5, granted a postponement to 4 May 2018, inviting the parties to clarify the reasons for such discrepancies and specifying that if they could not the court would appoint an expert to do so. At this hearing there was a further postponement until 21 September 2018.

At this meeting, in light of the Conciliation Panel established on 11 September 2018 with OTAA 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, the hearing being scheduled for 15 February 2019, then postponed to 17 September 2019. At this hearing there was a postponement until 20 December 2019. The proceedings were first postponed to 17 March 2020, then automatically postponed to 11 September 2020 and then to 15 December 2020. The case was further postponed to 12 February 2021, then again to 26 March 2021. At the hearing on 27 April 2021, the Judge reserved judgement on the technical expert and, on 30 April 2021, set the date to appoint the expert for 11 May 2021 and, subsequently, the launch of the expert appraisals for 26 May 2021. The technical expert’s report was to be submitted by 10 November 2021 and the technical expert’s examination was set for the hearing on 30 November 2021. At the subsequent hearing of 15 December 2021, the Company formalised a settlement proposal, in order to settle the dispute amicably. This proposal was evaluated by the Mayors’ Conference of OTAA 5. The judge set the date of 12 April 2022 for the hearing of the final arguments and then adjourned the case to a later hearing on 31 May 2022. At that hearing, the court acknowledged the rejection by OTAA 5 of the settlement proposed by the Company and set the parties a period of time by which to file their final arguments, adjourning the matter for a decision.

In connection with these proceedings, the appeal must be considered against judgement no. 304/2017 of the Court of Frosinone that revoked the court order of € 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 proceedings were postponed to 30 June 2021. At the hearing on 30 June 2021, the Court of Appeal adjourned the matter firstly until 6 July 2022, and then until 10 May 2023.

The Company did not consider cancelling the receivable or setting aside any risk provisions for two reasons:

• the issue in question, which relates to the recognition of the amount owed by the Operator (of € 10,700,00.00) in connection with the 2007 settlement, the subject of sentence no. 304/2017 of the Court of Frosinone, appealed by Acea Ato5 to the Court of Appeal of Rome (RG no. 6227/2017), was referred to the Conciliation Board for further investigation, including legal matters;
• The legal assessments made by the lawyers illustrate, on the one hand, the validity of the appeal and, on the other hand, the fact that the nullity of the transaction does not per se determine the non-existence of the receivable.

The validity of the appeal and of the decision not to cancel the receivable were further confirmed by the conclusions of the Conciliation Board, established by the Area Authority and the Operator, in accordance with the provisions of article 36 of the Management Agreement, in order to reach a settlement of the various disputes pending between the parties.

At the hearing on 6 July 2022, the Court of Appeals adjourned the hearing ex officio to 10 May 2023.

In the Conciliation Proposal sent to the parties on 26 November 2019, previously approved by the Board of Directors of the Company on 19 December 2019 and currently being examined by the Mayors’ Conference of OTAA5, the Conciliation Board has in fact, among other things:

• ascertained the existence of significant differences between the concession fees approved in the various tariff arrangements and the amounts to be paid to the Municipalities. In the opinion of the Board, the actual existence of such differences leads one to believe that Resolution no. 4/2007 of the Area Authority was based on credible elements, also found afterwards, where it identified the “savings on the concession fees to be paid to the Municipalities” (which could constitute the financial funding to pay a loan stipulated by the Area Authority) as the financial coverage for the payment to the Operator of the sums envisaged in the settlement. This conclusion, highlighting the plausibility of the sources of coverage identified by the Area Authority to finance the settlement, confirms the validity of the appeal filed by the Company against sentence no. 304/2017, by which the Court of Frosinone declared the nullity of Resolution no. 4/2007 of the Area Authority and of the settlement agreement precisely because of the alleged failure to identify the related financial coverage in violation of the disclosure regulations, since the reference to “unspecified savings on the concession fees to be paid to Municipalities” was not considered adequate and sufficient;
• considered that there are valid and grounded reasons to grant the Operator’s request for recognition of higher operating costs incurred in the three-year period 2003-2005 to the reduced extent agreed to by the parties in the settlement, thus confirming the existence of the corresponding receivable in the Company’s financial statements.

Updating of the concession fee

With Resolution no. 1 of 26 March 2018, Conference of Mayors ordered that the payment of the instalments of loans taken out by Municipalities, from the second half of 2013 until the end of the Concession, shall be disbursed directly by the Operator. Consequently, with the tariff update ordered on 1 August 2018, by immediately implementing the provisions made by ARERA contained in the sanctioning measure DSAI/42/2018/idr, with regard, among other things, to the fees relating to unmanaged Municipalities, the mortgage component of the Concession Fee was adjusted in 2019 by adding the amount of the same specified in the annex to aforesaid Resolution no. 1 of 26 March 2018. No adjustment of the mortgage component was implemented for the years 2012-2018, as Resolution no. 1 of 26 March 2018 did not imply any change to the amount of the mortgage component approved in the various tariff provisions. In addition, any recalculation of loan costs (MTp) must be approved by the Conference of Mayors and must be included in the Economic and Financial Plan (EFP) of the next tariff update in view of the fact that, even at the time of approval of the tariff update 2018-2019, approved by the Conference of Mayors on 1 August 2018, nothing was established regarding the fees for the above years.

For the reasons set out below, the Company did not consider that the obligation to pay this difference to the Area Authority had failed, and therefore it did not reduce the provisions in its financial statements for concession fees:

• The aforementioned Resolution of the Conference of Mayors has made no provision for the difference;
• In compliance with the regulations in force, the quantification of the concession fees is the exclusive responsibility of the Area Authority and therefore any recognition of the difference (with consequent extinction of the relative obligation) can only take place following the revision of the tariffs for the years 2012-2018 and the relative Economic and Financial Plan (EFP) by the Area Authority;
• When reviewing the tariffs for the two-year period 2018-2019 and the related EFP, the Area Authority implemented the reduction in concession fees only as from 2018 (with a substantial reduction of about € 1,658 thousand in 2018), leaving those for the 2012-2018 years unchanged;
• For the 2013 financial year, the AGB had issued invoices to the Company for the difference between the concession fee resulting from the relevant tariff and the charges for the loans that the Operator had paid to the municipalities based on the aforementioned Resolution;
• The exact quantification of the concession fees for the aforementioned years and the assessment of their reallocation and treatment for tariff purposes was an open issue for both parties, so much so that it was referred to the Conciliation Board established between OTAA 5 and the Operator, in accordance with the provisions of art. 36 of the Agreement.

It should also be noted that since it is a so-called “pass-through cost” in the tariff definition, i.e. charged as a tariff without any economic return for the Operator (a sort of collection on behalf of third parties), its effect is substantially neutral in the Operator’s financial statements: it is recorded as revenue and at the same time and in equal measure as a cost. For this reason, even if the Company mistakenly did not fulfil its obligation to pay the difference and recognised out-of-period income as an adjustment to the amount due for the concession fee, it would have had to recognise out-of-period income of the same amount following a reduction in the adjustments for the years 2012-2018, with clear economic effects that are insignificant from both a statutory and fiscal point of view.

It should be noted that on 27 November 2019 the aforementioned Conciliation Board submitted to the Company and to the Area Authority a specific Conciliation Proposal, with an attached deed still to be signed. In these documents, the Conciliation Board has, among other things, put forward a proposal to reduce the tariff adjustments claimed by the Operator by the difference of € 12,798 thousand between the concession fees approved in the various tariff arrangements for the years 2012-2018 and the amounts to be paid directly to the municipalities on the basis of Resolution no. 1 of 26 March 2018. This proposal for allocation to offset existing receivables confirms the Operator’s indebtedness of this difference, corroborating the Company’s decision not to release the related liabilities in its financial statements.

Conciliation Board with OTAA 5

With regard to relations with OTAA 5, the Company has tried to reach a settlement of the various disputes pending against the Area Authority, convinced of the need to put an end to a very long season of clear conflict between the Granting Body and the Licensee Company, culminating with the resolution passed by the Conference of Mayors of OTA5 aimed at the termination of the Management Agreement that forced the Company to appeal to the Latina Regional Administrative Court that annulled the above resolution.

In this context, in recent years and especially during 2018 an enormous effort has been made – including organisational efforts – to reconstruct the relations between the Company, the Area Authority and the individual Municipal Administrations of OTA5.

Similarly, the possibility of establishing a Conciliation Board with the Area Authority has therefore become concrete, with the aim of settling the main issues still in dispute by the parties.

In this regard, on 11 September 2018 OTAA5 and the Company signed report no.1 in which the parties expressed their mutual willingness to open a Conciliation Board on the various disputes pending between them.

Also in the same minutes, the Parties shared the rules of operation of the Conciliation Board and the criteria for the appointment of that Board and, in particular, each party appointed its own member.

The Chairperson of the Conciliation Board was selected by the Prefect of Frosinone, at the joint request of the parties, and was jointly appointed on 16 May 2019. The Board officially took office on 27 May 2019, thus starting the 120-day period within which it had to arrive at a proposal for an amicable settlement of the issues submitted for its assessment. On 17 September 2019, the Conciliation Board announced that it had completed the preliminary work on all the items assigned to the roundtable. However, it noted that due to the number and complexity of the issues under examination, a considerable amount of work was required to prepare a document presenting a comprehensive and reasoned conciliation proposal. It therefore requested and obtained from the parties an extension of 30 days from 24 September 2019.

Following a detailed and in-depth investigation, the Conciliation Board prepared a draft of the Conciliation Proposal, presented to the parties’ legal counsel at the meeting held on 11 November 2019. At that meeting, the Parties invited the Board to draw up a draft of the Conciliation that would take into account the report illustrated in that meeting, as well as the proposals made by the Operator, to be submitted for examination and approval to the relevant Bodies.

On 27 November 2019, the Conciliation Board submitted the final Conciliation Proposal to the Parties together with the draft of the Conciliation Deed, which each party will be free to accept or reject, i.e. to accept it in full or even only in part. As a matter of fact, the aim and underlying criterion of the assessments of the Board include the formulation of a unified conciliation proposal, capable of creating balance between the respective positions and interests of the parties, minimising the negative impacts on users and on the service tariff and which will allow for the establishment of a more pleasant atmosphere in relations between the Operator, the Area Authority and the users of OTAA5, overcoming the previous period characterised by conflict, which also caused serious detriment to the Operator in its relations with users.

Specifically, with reference to the individual mutual claims referred for its assessment, the solutions proposed by the Conciliation Board in the aforesaid Conciliation Proposal are as follows:

• judgement pending with the Court of Frosinone, docket number 1598/2012, relating to the 2006-2011 licence fees - the Board of Arbitrators would propose recognition of the debt owed by the Manager for the requested amount of € 1,750,000; it should be noted that this amount is to be understood as an additional recognition with respect to the amount indicated in the settlement proposal made in the context of the aforementioned pending proceedings - see the description in the preceding paragraph “Injunction order for € 10,700,000 and counter-claim OTAA 5 concession fees”;
• quantification of the concession fee relative to the period 2012-2018, and the linked destination of any economies for a total of € 12,798,930.00 - the Board proposes, also taking into account the regulatory guidelines provided by ARERA, that these are taken out of the tariff adjustments in favour of the Operator;
• recognition of the amount owed by the Operator (€ 10,700,00.00) - the Board proposes recognition of this credit in favour of the Operator;
• compensation of damages suffered by Acea Ato5 against delayed delivery of services by the Municipalities of Cassino, Atina and Paliano - the Board holds the Operator’s claim to be founded but, in consideration of the difficulty in quantifying the damage suffered and with an eye to amicable settlement, proposes that the Operator renounces this claim with regards to the Area Authority;
• compensation of damages for the lack of handover of the ASI and Cosilam plants, assessed in the amount of € 2,855,000.00 - the Board holds that the requirements to dispute a deed which is now final are not met; nonetheless, the Operator will renounce the claim against recognition of the credit for € 10,700,000.00;
• recognition of penalties totalling € 10,900,000.00 applied by OTAA 5 against the Operator and annulled by the Latina Regional Administrative Court by judgement no. 638/2017; Although the Operator has substantially renounced the application of the said penalties related to the period 2014-2015, the Board proposes partial acceptance of the Area Authority’s claim for a total amount of € 4,500,000. In relation to this point, the Conciliation Proposal provides for an irrevocable commitment to make investments, in the territory of the OTA5, of an amount corresponding to the quantification made by the Conciliation Board, with no tariff recognition and therefore at the total expense of the Operator;
• recognition of interest on the delayed payment of concession fees on the part of Acea Ato5, assessed in the amount of € 650,000.00 - the Board proposes recognition of this claim;
• request for an Operator repayment plan in relation to the Area Authority for debt positions relating to the concession fee for 2013/2018 which, at 30 June 2019, amount to around € 10,167,000; the Board proposes offsetting this debt by the recognition of a credit of € 10,700,000;
• discounting of the Adjustments 2006/2011, and for 2014, 2015, 2016 and 2017, assessed in the amount of € 1,040,000.00 - the Board proposes recognition of this credit in favour of the Operator;
• non-invoicing of adjustments 2006/2011, due to the adjustment of 2012 volumes, assessed in the amount of € 1,155,000 - the Board proposes recognition of this claim in favour of the Operator.

The “Conciliation Proposal” and the draft “Conciliation Deed” were approved by the Company’s BoD at a meeting held on 19 December 2019. On 4 February 2020, the Company informed the TOS of OTAA 5, with note no. 53150/20, that on 19 December 2019 the BoD approved the Conciliation Proposal formulated by the Conciliation Board and the draft of the Conciliation Deed between OTAA 5 and Acea Ato5 and that, moreover, the Chairperson was given a mandate to sign the Conciliation Deed, confirming in particular the commitment to carry out interventions for a total amount of € 4,500,000 without any tariff recognition, in conciliation and for the reasons set out above.

However, in light of the conduct throughout the conciliation process, and in particular during the final meeting held on 11 November 2019 in which the Conciliation Board explained the Conciliation Proposal to the legal representatives of the parties and as the Company’s Board of Directors had already approved the related Conciliation Deed on 19 December 2019 and then communicated this decision to OTAA 5 on 4 February 2020, the Company believed that as at 31 December 2019 an implicit obligation had already arisen for the commitments envisaged in the Conciliation Deed, and in particular for the aforementioned commitment to carry out interventions in the territory without any tariff recognition, having already created a valid expectation in the OTAA 5 Area Authority and in the municipalities of the territory that the Company intends to honour these commitments and bear the related charges. When the Company was preparing its financial statements for 2019, based on the information available, considering the approval of the Conciliation Deed by the Conference of Mayors to be probable and consequently also considering the related implied obligation to be likely, the Company decided to allocate a provision for risks for € 4,500,000.

To date, the Conference of Mayors has not yet been scheduled for final approval of the two documents. Specifically, it should be noted that the Mayors’ Conference on 28 October 2021 resolved that the approval of the Conciliation Deed could only be considered upon the outcome of, at least, the preliminary phase of the Criminal Proceeding 2031/2016 pending before the Court of Frosinone. Subsequently, on 26 January 2022, the OTS of OTAA 5 sent the Company a letter ordering it to set up an interest-bearing escrow account within 15 days at the latest, into which the sum of € 12.8 million relating to the aforementioned savings on concession fees for the period 2012-2018, as quantified in the joint report of 29 April 2019 attached to the work of the conciliation roundtable, which - according to the OTS - was allegedly invoiced by the Manager, would be transferred. The Company acknowledged this letter on 10 February 2022, pointing out, among other things, that the Conciliation Board itself in its report, with specific reference to the savings on the 2012-2018 licence fees, had clarified that “these sums can only be considered virtually and abstractly (and not also in actual financial terms) as being available to the Manager” and that they would indeed represent a suitable financial source to cover the debt of € 10,7 million owed to the Manager or, alternatively, - as proposed in the draft conciliation agreement - to reduce the total amount of the tariff adjustments still due to the Manager, which far exceed the amount in question.

However, the Company is willing to set up a round table to discuss the matter further and find the most suitable solution to reconcile their mutual interests.

In view of the foregoing and pending the examination of the Conciliation Proposal by the Conference of Mayors of OTAA 5, the Company considers the draft Conciliation approved by the Board of Directors of Acea Ato5 at the meeting of 19 December 2019, as a still valid reference in relation to the overall composition of the issues submitted by the parties to the Conciliation Board and, therefore, considers that the same continues to represent - to the extent of the net amount of € 4.5 million to be paid to the AGB under it - an implicit obligation that can be enforced against it. Therefore, the provision for risks originally recorded in the financial statements as at 31 December 2019 is deemed to be reconfirmed when preparing the Company’s 2022 financial statements.

As further confirmation of the continuing validity of the Conciliation Proposal between the parties, it should be noted that on 1 February 2022, the AGB requested the payment of the invoices for concessionary charges issued with reference to the years 2019-2022 and not those issued with reference to the years 2012-2018, which were the subject of the Conciliation Board meeting.

The Company responded to this reminder with three separate letters sent on 3 February 2022, 17 February 2022 and, most recently, on 2 March 2022, in which, respectively, it disputed the amounts of some of the invoices requested by the AGB (the amounts of which do not match those of the invoices in its possession), it put forward a proposal for a payment by instalment plan and reiterated, however, that this instalment proposal is not an alternative to the Conciliation Board, nor does it change its content in any way, but only concerns the settlement of the portion of debts referring to the 2019-2021 period.

In a letter of 29 April 2022, the TOS repeated its claims about the concessionary charges and called a meeting for 6 May 2022. On 9 May 2022, the meeting between the parties took place, who agreed on the need to begin technical talks to analyse all the outstanding issues.

The technical panel updated the information on the economies for mortgages already identified in the context of the work of the Conciliation Board, also discounting the fees due from the Manager and reconciling invoices issued and already paid by the latter. Subsequently, with a note issued in December 2022, the Operational Technical Secretariat requested an urgent meeting to deal with the issue of concession fees not yet paid and, more generally, the amount due to the Manager from the Entity. During these meetings, held in the second half of December 2022, the Operational Technical Secretariat presented the problems deriving from the evaluation of its 2021 financial statements. In response to this note, in a note dated 23 December 2022, the Company indicated its continued situation of uncertainty due to the non-approval of tariffs by ARERA within the established schedule. At present, there are no further updates.

Criminal proceeding no. 3910/18

With regard to criminal proceeding no. 3910/18 rgnr of the Public Prosecutor in the Court of Frosinone, 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 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. Based on the aforementioned restitution order, the Company sent a formal request to the Single Justice Fund for the restitution of the sums released. To date, the restitution procedure has been resolved with the release of the sums by the Single Justice Fund. This case was combined with criminal proceeding no. 2031/16 rgnr.

At the same time, however, a court summons had been sent to a former Executive of the Company. At the hearing set for the discussion of the preliminary matters and for the opening statement of the proceedings itself, it will be recorded that the facts of the count of indictment are the same as those for which criminal proceeding rgnr 2031/2016 is pending.

The first evidentiary hearing was held on 19 October 2021. The case was adjourned until 16 November 2021, for the lifting of the reservation imposed by the court in view of the plea of lack of territorial jurisdiction made by the plaintiff’s counsel. The preliminary issue was rejected and postponed to 19 April 2022 and then until after the hearing on 27 September 2022 to examine the documents indicated in the Public Prosecutor’s list. This hearing was further postponed for the same impending to 21 February 2023 and subsequently to 19 September 2023 to examine the accused and two defence witnesses and to 3 October 2023 to complete the examination of the defence witnesses.

ARERA sanctioning measure concerning IWS tariff regulation

With determination no. DSAI/42/2018/idr of 21 May 2018, ARERA started a sanctioning procedure regarding the tariff regulation of the integrated water service, 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.

On 4 July 2019, ARERA published Resolution 253/2019/S/idr of 25 June 2019 imposing administrative fines on Acea Ato5, pursuant to article 2, paragraph 20, letter c) of Italian Law 481/95, for a total amount of € 955,000.00 for violations alleged in Determination DSAI/42/2018/idr.

On 3 October 2019 the Company filed an appeal with the Lombardy Regional Administrative Court against the aforesaid measure to have it thrown out, and to have the amount of the fine reviewed.

Moreover, following the submission of the appeal, the Company sent a specific request to the Authority asking for details of the timing of the approval procedures for the 2016-2019 tariffs, as well as the 2018-2019 update.

Regarding the appeal in question, there is no information as of today regarding the setting of the hearing. In any case, also because of the penalty payment reminder sent by ARERA on 16 October 2019, the Company paid the entire penalty imposed on it.

AGCM sanctioning measure - Proceeding PS9918

On 5 July 2018, in implementation of the Resolution adopted by the Italian Antitrust 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, paragraph 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 commercial practices, violations of consumer rights in contracts and 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 Acea Ato5 in the period January 2015 - June 2018.

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 announced that it had extended the deadline for the conclusion of the preliminary phase of procedure PS/9918 – set at 20 March 2019 – with the simultaneous clarification of the high charges 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. On 20 March 2019 the Company filed a defence brief and supporting documentation.

On 4 July 2019, the Authority notified the Company of the sanctioning measure with a pecuniary administrative sanction totalling € 1.0 million was imposed. On 3 October 2019 the Company filed an appeal with the Lazio Regional Administrative Court – registered under docket no. RG 12290/2019 section I – against the aforesaid sanctioning measure, requesting its cancellation with precautionary suspension. In the Chamber of Council of 6 November 2019 to discuss the request for precautionary suspension, the Regional Administrative Court of Lazio issued Order no. 7223 with which it rejected the application for precautionary suspension.

The decision of the Regional Administrative Court does not address the individual grounds of the appeal, which will only be ruled on at the hearing, yet to be scheduled. In particular, according to the administrative judge “with regard to the extent of the financial penalty imposed and the feared consequences on the business activity, it does not appear to be extremely serious and urgent as per art. 119, paragraph 4 of the Italian Criminal Code for the granting of the requested precautionary protection, also taking into account the fact that the claimant company is in any case entitled to file a request for payment in instalments”.

In view of the aforesaid decision, since the Company has the power to do so, on 3 December 2019 the Company submitted to the Authority a request for payment in instalments, which the Authority accepted on 21 January 2020.

On 26 February 2020, a request for information was received from the Italian Competition Authority pursuant to art. 3, paragraph 2 of the “Regulation on preliminary investigations concerning misleading and comparative advertising, unfair trade practices, violation of consumer rights in contracts, violation of the prohibition of discrimination and unfair terms” regarding the effectiveness of the measures put in place by Acea Ato5 following sanction no. 27798 of 5 June 2019, adopted at the outcome of the PS9918 preliminary investigation procedure.

In particular, with reference to the July-December 2019 and January-February 2020 periods, the Authority requested specific information about:

a. the number of claims received, distinguishing and specifying the reason for each individual claim;

b. number of claims accepted and number of claims rejected;

c. number of payment reminders and disconnection notices sent to the users;

d. number of executive procedures begun to collect overdue amounts;

e. number of water service disconnections carried out, indicating the reasons and the procedures followed.

On 17 March 2020, the Company responded to the aforementioned request, highlighting the improved pro-consumer management of the relationship with users.

In particular, the evidence submitted confirmed that:

• No requirements had been imposed by the Authority with regard to the verification referred to in Sanction Order no. 27798 of 5 June 2019. In fact, the Company had already improved its performance of the activities in question during the audit;
• The Company had for some time already implemented or modified its procedures – in compliance with current sector legislation – in order to best meet the changing needs of consumers, also to take into account the regulatory measures recently adopted by ARERA.
• In light of these considerations and taking into account the data available to date, no relevant findings emerged with regard to the requests made by the Authority. At present, there are no updates nor have additional requests been received from the Authority.

Criminal proceeding no. 2031/2016

With regard to criminal proceeding no. 2031/2016 concerning the financial years 2015, 2016 and 2017, on 4 January 2019 the current Chairperson of the Company was served with an invitation to appear in person subject to investigation and information of guarantee for alleged offences attributable to false financial statements and false corporate communications. This measure also affected the Chairpersons of the Company and the representatives of the control bodies in office in those financial years. The preliminary hearing was held on 26 October 2021, adjourned to 15 November 2021, in order to assess the admission of civil parties and then adjourned to 13 December 2021 for the same obligations and then to 10 January 2022, in order to dissolve the reservation on the admission of civil parties. After lifting the reservation, the investigating judge made an order accepting all the parties allegedly damaged by the crime in dispute, apart from Free Monte and Codici Onlus. After action was taken by several civil parties, Acea Ato5 and OTA5 Lazio Meridionale Frosinone were also summonsed in civil proceedings, for the charges ascribed to the defendants.

In light of this, the hearing was adjourned until 18 February 2022, when Acea Ato5 filed an appearance as a civil party. The judge then adjourned the case until 14 March 2022 to allow the Public Prosecutor and the civil parties to file counter-claims on the plea lack of territorial jurisdiction made by the defendants’ counsel.

In an order dated 14 March 2022 the judge rejected the plea of lack of jurisdiction and adjourned the case to a hearing on 28/03/2022, when the defendants would be called. The preliminary hearing was then adjourned until 29 April 2022 for the Public Prosecutor’s indictment and for the examination of the civil parties and the party held liable. The judge also set two other dates (23 May 2022 and 27 June 2022) for a hearing of all the defence arguments. The hearing for discussions was postponed to 19 September 2022 and then further postponed, first to 14 November 2022 and subsequently to 10 February 2023.

Following the hearing on 10 February 2023, the judge of the Court of Frosinone, accepting the Company’s requests, ruled that the case could not proceed against the directors of Acea Ato5 given a lack of grounds for the crimes of:

1. Fraud in public services (water service tariffs);
2. Impeding public tenders - Disruption of freedom in the choice of the contracting party;
3. Embezzlement.

The Judge also declared their lack of jurisdiction, referring to the Court of Rome the crimes of:

1. Fraudulent financial statements;
2. Inhibiting the exercising of the functions of the authority;
3. Tax crimes with reference to income taxes.

Civil judgment RG 4164/2013 (Opposition to the injunction of the Municipality of Fiuggi)

With Injunction No 1131/13, No rg 1966/2013, issued by the Court of Frosinone on 25 July 2013, the Municipality of Fiuggi was ordered to pay to Acea Ato5 the sum of € 185,685.00 for outstanding invoices relating to the supply of water to users attributable to the Municipality.

The Municipality of Fiuggi served a writ of summons opposing said injunction, requesting the revocation of the same and, by way of counterclaim, the condemnation of Acea to pay the Municipality of Fiuggi the sum of € 752,505.86 by way of loan instalments accrued and unpaid from 2009 to 1 August 2013, as well as subsequent accruals and maturities, plus interest until payment in full, and to order Acea Ato5 to reimburse the Municipality of Fiuggi all the expenses that, due to the lack of timely intervention by the obligated water operator, were incurred by the Municipality.

The Municipal Administration also requested that Acea Ato5 be sentenced to pay compensation to the Municipality of Fiuggi for the pecuniary and non-pecuniary damages suffered and to be suffered, leaving the quantification to a designated expert. A designated expert was therefore ordered to verify and quantify the claims of the parties.

Pending the proceedings, the parties entered into negotiations with a view to verifying the possibility of settling the dispute amicably. At present, the proposals put forward by the counterparty are not deemed acceptable, therefore, whilst not ruling out the possibility of reaching an agreement, it was deemed appropriate to reconsider the continuation of the proceedings.

Following the filing of the expert’s report, which was contested in every aspect by the Company, an additional investigation was carried out and the related activities were scheduled. The case is pending before the Court of Frosinone No 4164/2013.

At the hearing of 2 March 2021, the designated expert was examined and the Judge, lifting the reservation, adjourned the case for the definition of conclusions to the hearing of 11 March 2022.

The dispute was settled by the parties in an agreement signed on 30 December 2021. The objection to the injunction order will be suspended until the parties’ fulfilment of their commitments has been verified. The opposition proceedings will firstly be adjourned in order to allow verification of compliance, and will only be closed after the due and proper performance of the settlement agreement pursuant to Art. 309 of the Code of Civil Procedure. As a result, the Company has decided to set aside these sums in a provision for risks, in order to cover any costs deriving from the agreement. The case was thus adjourned until 17 March 2023 in order to verify compliance with the obligations of the settlement agreement.

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 “Major Risks and Uncertainties”.

Tax audit

On 7 March 2018 the Guardia di Finanza - Economic and Financial Police Unit of Frosinone - Section for the Protection of Public Finance commenced a general tax audit of the Company. The audit was concluded on 25 October 2018 with the drafting of the PVC (Audit Report) that alleged substantial violations of income taxes and IRAP by the Company in the 2013 tax year.

On 24 December 2018 the Company produced and filed with protocol no. 77899 its own Observations regarding the PVC, drawn up according to article 12, paragraph 7 of Italian Law no. 212 dated 27 July 2000.

On 3 January 2019, the Inland Revenue – Provincial Department of Frosinone – Control office, notified the Company of assessment notice no. TKO0C6M02152/2018, with which the tax return was adjusted for IRAP for the 2013 tax period for an amount payable by the company of € 591 thousand for taxes, net of fines and interest. The findings identified derive from application of articles 5 and 25 of Italian Legislative Decree 446/97 and in particular relate to an undue downward variation due to the use of a risk provision, the omitted accounting/declaration of positive income components as well as the undue deduction of negative income elements related to default interest. The Company appealed against the said assessment before the Provincial Tax Commission of Frosinone. Based on the assessments of its tax advisors, the Company has not identified any particular risk with regard to this audit.

In any case, taxes were paid on a provisional basis pending the trial, the hearing for which was held on 3 July 2019. On 23 October 2019 sentence no. 475/1/2019 was filed by the Provincial Tax Commission of Frosinone rejecting the appeal filed by the Company against the administrative fine imposed by the Revenue Agency for violations ascertained by the Guardia di Finanza for 2013. The Company challenged the aforementioned judgement and filed an appeal before the Regional Tax Commission.

It is noted that the findings for IRES purposes relating to the aforementioned tax assessment report have been the subject of a separate assessment as described below.

It should also be noted that the audit continued for the tax years 2014-2018, ending with the drafting of a further tax assessment report on 30 October 2019.

As a result of the tax audit carried out, the tax authorities found that the company had committed a series of substantial violations with regard to IRES and IRAP for the tax periods from 2014 to 2017. With reference to the findings related to the lack of jurisdiction disputed for 2015, supported by its tax advisors, having carried out the appropriate assessments of the risk profiles related to the aforementioned findings, the Company allocated a provision for tax risks for approximately € 701 thousand, whereas, with reference to the other findings, supported by the opinion of its tax advisors, the Company believes that there is a risk of losing the case in the “remote” tax proceedings.

Also in relation to the aforementioned last PVC, the Company submitted specific comments and also requested the cancellation in self-protection of what is subject to adjustment for 2013.

Nevertheless, on 31 December 2019, the following were served by the Revenue Agency:

• notice of assessment no. TKQ0E6M01680 regarding IRES for 2013, for an amount of € 3.1 million for taxes, net of penalties and interest;
• notice of assessment no. TKQ0C6M01854 regarding IRAP for 2014, for an amount of € 0.9 million for taxes, net of penalties and interest;
• notice of assessment no. TKQ0E6M01853 regarding IRES for 2014 for an amount of € 5.2 million for taxes, net of penalties and interest.

The notices of Ires assessment were served to the Parent Company Acea as consolidating company. The companies filed an appeal before the Provincial Tax Commission of Frosinone on 28 February 2020. With regard to the findings contested in said notices of assessment, supported by the opinion of their tax advisors the Companies consider the Inland Revenue’s requests to be completely groundless.

The PTC of Frosinone accepted the company’s defensive arguments and cancelled the notices related to IRES years 2013 and 2014 and IRAP year 2014 ordering the Agency to pay the costs.

The Revenues Agency lodged an appeal. The Company entered an appearance at second instance by filing counterarguments. The case is pending as a hearing is still to be fixed.

On 23 December 2021, the following were served by the Revenues Agency:

• notice of assessment no. TKQ0E6M00539 regarding IRES for 2016 for an amount of € 1.3 million for taxes, net of penalties and interest;
• notice of assessment no. TKQ0E6M00541 regarding IRAP for 2016, for an amount of € 0.2 million for taxes, net of penalties and interest;
• On 28 December 2021, the following were served by the Revenues Agency:
• notice of assessment no. TKQ0E6M00387 regarding IRES for 2015, for an amount of € 1.5 million for taxes, net of penalties and interest;
• notice of assessment no. TKQ0E6M00521 regarding IRAP for 2015 for an amount of € 0.3 million for taxes, net of penalties and interest;

The notices of Ires assessment were served to the Parent Company Acea as consolidating company.

The Company appealed the verification notice with the Provincial Tax Commission of Frosinone within the deadline of 60 days from the date of notification of the aforementioned notices of assessment, jointly and severally with the parent company Acea SpA. Supported by the opinion of its tax advisors, the Company believes that there is a risk of losing the case in the “remote” tax proceedings. The hearing relative to the aforementioned IFES rulings was set for 27 September 2022. An additional hearing has been set for 14 February 2023. The decision of the Tax Court is awaited.

AGCM feedback on purification and charge of sewerage and purification fees

On 13 March 2020, a request was received from the AGCM for information pursuant to art. 3, paragraph 2 of the “Regulation on preliminary investigations concerning misleading and comparative advertising, unfair commercial practices, violation of consumer rights in contracts, violation of the prohibition of discrimination and unfair terms”, with specific reference to the application of the tariff for purification services in the territory of the municipality of Vicalvi and the other municipalities managed by Acea Ato5.

This request stemmed from the clarification note sent by the Municipality of Vicalvi at the beginning of 2020 and recalled by the same Authority in which it was asked to justify this attribution in view of the fact that only Imhoff tanks are used in the municipal territory and there are no purification plants.

Specifically, the Authority asked to know:

• details of the municipalities in which no purification service is offered;
• the number of users residing there who are charged for the purification service;
• any initiatives taken for the activation of new and/or additional treatment plants, specifying the date of their entry into operation.

In this regard, having to deal with the exceptional operational difficulties related to the extraordinary emergency situation created following the spread of COVID-19, which inevitably affected the timing of the collection of the requested information and the preparation of the subsequent response – whose deadline was set at 2 April 2020 – it was considered appropriate to request an extension of the deadline to 30 April 2020.

On 30 April 2020 the Company responded to the request for information received from the Antitrust Authority regarding the application of the tariff for purification services in the territory of the Municipality of Vicalvi and the other municipalities managed by Acea Ato5, with note no. 0141201/20.

In particular, with regard to users residing in the municipalities not currently served by purification who are charged for the aforementioned service, equal to 387 users (out of approximately 17,028), the Company replied to the Authority that it would promptly return this charge and exempt the aforementioned users from the purification portion of the tariff. The return has been arranged automatically and regardless of any petition or request by users, and even in the absence of any report about the lack of a purification system available to the users, in accordance with the provisions of the ruling of the Constitutional Court no. 335/2008.

Subsequently, the Company acknowledged the numerous initiatives currently under way to ensure the operation of treatment plants located in the municipalities not yet served, also on the basis of specific commitments made with Optimal Territorial Area Authority no. 5 and included in the Works Programme (WP).

Finally, with specific reference to the position of the Municipality of Vicalvi, the Company has provided the necessary clarification regarding the charge made to users residing in the aforementioned municipality of the tariff relating to the purification service, specifying that this charge is legitimate due to the presence in the municipal territory of Imhoff tanks, delivered to the Company at the time of the transfer of the IWS, which are in fact, both at an operational and regulatory level, purification plants, so much so that the costs of managing them have been recognised and approved by OTAA 5 in the 2016-2019 tariff preparation.

The above demonstrates that, unlike what was stated by the Municipality of Vicalvi, the provision of a charge in the tariff for the costs of managing Imhoff tanks – through the tariff item relating to the purification service applied to users whose discharges flow into such system – is entirely lawful, and as recognised by the Operational Technical Secretariat of OTAA 5 it is consistent not only with the tariff method approved by ARERA with Resolution no. 580/2019/idr, but also and above all with the principles affirmed by the Constitutional Court with judgement no. 335 of 2008, according to which the tariff, as a contractual consideration, must “express the industrial cost of the water service represented by the integration of collection, supply, distribution, collection and purification services”. At present, there are no updates nor have additional requests been received from the Authority.

With reference to progress of the procedure for approving the water tariffs for OTAA 5, at present water tariffs for the 2012-2015 period have been approved by ARERA (Resolution 51/2016/R/Idr of 11 February 2016).

In fact, recall that the water tariffs are established by the governing bodies for the area, or by other competent entities identified in regional law, and then sent to ARERA for approval. In the case of inaction by governing bodies for the area, the Operator may take the initiative.

Regulatory period 2016 - 2019

With Resolution 664/2015/R/Idr of 28 December 2015, ARERA approved the Tariff Method for the second regulatory period “MTI-2”, defining the rules for calculating costs included in tariff recognition, as well as identifying the reference macroeconomic parameters and those associated with the division of risk in regulation of the water sector. After publication of MTI-2, the Company continued to provide the Area Authority with information and clarifications useful for preparation of the 2016-2019 tariff. Despite the sending of these documents, the Area Authority did not prepare any tariff proposals for the 2016-2019 period. Therefore, seeing the inaction of the Area Authority, on 30 May 2016 the Company sent to the OTAA 5, via certified email, cc’ing ARERA, the tariff request pursuant to art. 7, para. 7.5 of Resolution 664/2015. With a note ref. no. 19984/P of 13 July 2016, ARERA convened the Area Governing Body and the Operator for a meeting on 19 July 2016. After this meeting, and based on the tariff preparation carried out by the OTAA 5 TOS, the Conference of Mayors was convened for 29 July 2016. This Conference also did not lead to any tariff decision. Responding to the tariff request made by the Operator on 30 May 2016, ARERA sent OTAA 5, on 16 November 2016, a formal warning to take action, within 30 days, to make the tariff decisions for which it was responsible for the second regulatory period 2016 - 2019, noting that, after this deadline the Operator’s request would be understood to have been accepted and would be sent to the Authority for evaluation in the subsequent 90 days. After the warning from ARERA, on 13 December 2016 OTAA 5 approved the tariff proposal.

At present, definitive approval by ARERA is awaited.

Two-year update 2018-2019

With Resolution 918/2017/R/Idr of 27 December 2018, ARERA created regulations for the two-year update to tariffs for the integrated water service.

Implementing this regulatory framework, on 1 August 2018 the Conference of Mayors of OTAA 5 formalised approval of the tariff multiplier for the years 2018 and 2019 in the maximum amount established under the Tariff Method, 8%, through Resolution no. 7, without prejudice to the study done by ARERA for the change in the theta which determines tariff changes exceeding the limit established in MTI-2. Additionally, with Resolution 8 of 1 August 2018, the Conference of Mayors approved, pursuant to art. 3, para. 1, of Resolution ARERA of 28 September 2017, 665/2017/R/Idr, the new tariff structure (TICSI).

As described in detail below, note that on 21 May 2018, with Resolution DSAI/42/2018/IDE of 21 May 2018, ARERA began a sanctioning procedure relative to the Company, which ended with the application of a fine, in relation to a series of findings relative to tariff adjustment for the integrated water service for the years 2012-2018 (hence also regarding tariffs also approved by the Authority itself, 2012-2015).

In any case, at the time of the 2018-2019 tariff update approved by the OTAA 5 Conference of Mayors on 1 August 2018, the appropriate adjustments were made based on that indicated by the Regulatory Authority in the context of the aforementioned sanctioning procedure.

At present, approval by ARERA is awaited.

It should nonetheless be specified that article 15, para. b) of Resolution ARERA 918/2017/R/Idr of 27 December 2017 establishes that Operators are required to apply, after preparation of the two-year update by the Area Governing Bodies, and until approval by the Authority, the tariff update prepared by the Governing Bodies, in compliance with the price limit pursuant to par. 3.2 of Resolution 664/2015/R/idr.

Additionally, during October 2019, the Company sent a specific request to the Authority asking for details of the timing of the approval procedures for the 2016-2019 tariffs, as well as the 2018-2019 update.

To that end, below is that clarified by ARERA in its Communication of 5 February 2020, which states: “With reference to the two-year update proposals for the tariff structure for 2018-2019, sent to the Area Governing Bodies pursuant to Resolutions 917/2017/R/idr and 918/2017/R/idr, but not yet involved in specific approvals by the Authority, it is clarified that:

• the Authority will complete the investigations intended to ascertain the consistency of the relevant technical and tariff data, in the context of the verifications on the specific regulatory structures proposed for the third regulatory period (2020-2023), in observance of the MTI-3 water tariff method, pursuant to Resolution 580/2019/R/idr;
• for the two-year period 2018-2019 the tariff determinations adopted by the competent entities remain valid, which will be assessed by the Authority as part of the quantification of the adjustment components referred to in article 27 of MTI-3 when approving the new regulatory framework.”

Regulatory period 2020-2023

With Resolution 580/2019/R/Idr of 27 December 2019, ARERA approved the Tariff Method for the third regulatory period “MTI-3”, defining the rules for calculating costs included in tariff recognition, as well as identifying the reference macroeconomic parameters and those associated with the division of risk in regulation of the water sector. After publication of MTI-3, the Company provided the Area Authority with data, information and clarifications useful for preparation of the 2020-2023 tariff. Despite the sending of these documents, the Area Authority did not prepare the tariff proposals for the 2020-2023 period by the deadline set in the regulations in effect (31 July 2020). Therefore, seeing the inaction of the Area Authority, on 15 December 2020 the Company sent to the OTAA 5 and to ARERA, via certified email, the tariff request pursuant to art. 5, para. 5.5 of Resolution 580/2019.

On 10 March 2021, the OTAA Conference of Mayors approved the proposed tariff for 2020-2023, with resolution 1/2021.

This is in contrast with the tariff adjustment request, prepared by the Operator pursuant to art. 5, para. 5.5 of resolution ARERA 580/2019/R/idr, containing the regulatory framework for the 2020-2023 third regulatory period and showing significant differences for the 2020-2023 period, with reference to operating costs and the tariff multiplier.

With reference to operating costs note that the lack of recognition by OTAA 5 of the operating costs suffered by the Operator, documented in the requests presented during the preparatory work for the tariff structure, definitively formalised by the Operator in the tariff update request sent on 15 December 2020, was not adequately justified and technically represented in the Technical Report issued by OTAA 5 and accompanying its tariff proposal. Hence at present the Operator is not aware of the reasons these costs were excluded from the tariff recognition approved by OTAA 5 on 10 March 2021.

Following the tariff scenario approved by the aforementioned Resolution, the company has put in place two separate actions:

• an appeal against this resolution is before the Latina Regional Administrative Court (docket No. 308/2021 section 1);
• submission of the request for economic-financial rebalancing (in accordance with the provisions of Articles 9 and 10 of the Standard Agreement approved by the Regulatory Authority for Energy, Networks and Environment by resolution 656/2015/idr).

With reference to the first initiative, for more details, please see the section Appeal to the Lazio Regional Administrative Court - Latina (RG. 308/2021 section I) for the annulment of Resolution no.1 of 10 March 2021.

With reference to the request for rebalancing, containing an illustration of the causes and the extent of the economic and financial imbalance in the management of the IWS of OTA5 and the proposal of the rebalancing measures assumed, including the request for access to the financial equalisation measures, the OTAA 5 Operational Technical Secretariat responsible for transmitting the request to ARERA began the necessary checks in 2021, making use of qualified external consultants.

 

Nonetheless, OTAA5 did not approve the rebalancing request sent by the Company by the deadlines established in the regulation. With reference to the reproposal of the rebalancing request by the Company, see that described below.

Two-year update 2022-2023

With Resolution 639/2021/R/Idr of 30 December 2021, ARERA created regulations for the two-year update to tariffs for the integrated water service.

After publication of the stated resolution, the Company provided the Area Authority with data, information and clarifications useful for preparation of the tariff update 2022-2023. Despite the sending of these documents, the Area Authority did not prepare the tariff proposals for the 2022-2023 period by the deadline set in the regulations in effect (30 April 2022). Therefore, seeing the inaction of the Area Authority, on 30 November 2022 the Company sent to the OTAA 6 and to ARERA, via certified email, the tariff request pursuant to art. 6, para. 6.3 of Resolution 580/2019/R/idr.

On 22 December 2022, ARERA sent OTAA 5 a formal warning to take action, within 30 days, to make the tariff decisions for which it was responsible for the regulatory period 2020 - 2023, noting that, after this deadline the Operator’s request would be understood to have been accepted and would be sent to the Authority for evaluation in the subsequent 90 days.

The Conference of Mayors approved the tariff update for the regulatory period 2022-2023 on 11 January 2023, with resolution 1/2023.

With respect to the Company’s proposal sent to ARERA on 30 November 2022, following inaction by the Area Governing Body, note:

• non-recognition of the component covering the cost for arrears (COmor) for € 7.5 million;
• a reduction of both the Foni component of € 4.3 million and the OpMis component for around € 1.6 million.

With respect to the biennial update 2022-2023, at present an appeal has not been submitted to the Lazio Regional Administrative Court given the now well-established tendency of administrative judges regarding the internal procedural nature of the GBOTA resolutions on tariffs and the pending appeal to the Council of State.

Both for the Economic Financial Plan approved with resolution 1/2021 and that approved with resolution 1/2023 certain considerations should be reiterated.

Specifically, the stated Economic Financial Plans:

• do not set a certain date for the billing of the past tariff adjustments amounting to around € 50 million (of a total of € 124 million at 31 December 2022, which totalled € 101 million at 31 December 2021);
• call for invoicing of around € 51 million only after the start of 2023 (one year recovered with respect to the 2020-2023 EFP, which called for invoicing starting in 2024), not in a single solution, but made over time;
• do not recognise operating costs of € 3.3 million for the years 2020-2021, resulting in a financial loss for 2021 of the corresponding amount and of € 4.5 million for 2022-2023;
• sets a tariff change that is incompatible with the level of investment and operating costs over the Plan time period, as it does not take into account the financial deficit created for the operator from the previous tariff orders.

In support of the activities carried out and with a view to ensuring economic and financial sustainability, the Manager, on 14 February 2022 with note ref. 47536/2022, submitted to EGATO5 the request for valorisation of the additional component of a forecast nature (Op EE exp, a) to be included in the cost component for electricity (COEE a) pursuant to article 4, paragraph 4.3, of the ARERA resolution 639/2021/R/idr, in order to anticipate at least in part the effects of the growth trend in the cost of electricity.

Finally, on 26 July 2022, the OTS of the Area Authority sent a certified email containing the Deliberation No. 4 of the Mayors’ Conference (20 July 2022), concerning “Recognition of loan instalments for the integrated water service to be refunded to the Municipalities - Art. 13 (2) of the Management Agreement, deed no. 7205 of 27/06/2023”. In accordance with point 4) of that Deliberation, the OTS has sent a list of the instalments of the loans covered by the Area Authority, supplementing the list contained in Deliberation No. 1/2018 made by the Conference of Mayors, and indicating that the new instalments would be included in the cost component on the next available tariff update. Note that the EGA implemented this adjustment in the tariff provision approved on 11 January 2023 with resolution no. 1/2023. Additionally, on 28 July 2022 the Company thus made an application to view all the documents needed to identify the loans recognised in Deliberation 4) made by the Mayors’ Conference, as reported by the OTS, following which no response has been received.

The delayed financial coverage described above is also aggravated by the dragging out of the process by which ARERA approves the tariffs for 2016-2019 and the 2018-2019 update. Consequently, although the Mayors’ Conference has authorised the GRC for 2016-2019, 2020-2023 and 2022-2023 to cover the allowable costs (albeit for a lower amount compared to 2020-2023 and 2022-2023), the operator is exposed to the uncertainty surrounding the billing of the past adjustments, which are needed to maintain financial equilibrium over the short-term and also in the medium-long term.

In view of the restrictions imposed by ARERA’s tariff method, particularly with regard to the two-year time lag in recognising the allowable costs on the tariff, in the current tariff plan for 2020-2023 and 2022-2023 the AAT05 Mayors’ Conference has not guaranteed the funding needed in order for the operator to cover its financial commitments, specifically the plan for repayment of the debt and water service management costs deriving from OTAA 5’s previous violations of the tariff approvals.

In view of the financial imbalance created, on 16 June 2022 the parent Acea SpA authorised the capitalisation of Acea Ato5 by waiving its claims to: the non-financial items (trade and other) due as of 31 December 2021, the overdue capital portion of the interest-bearing loan and the portion of interest due as of 31 December 2021, for a total of € 96,337,589.84. It also restructured the liability on the interest-bearing shareholder loan by waiving the interest accruing from year to year and the capital line, which year on year will become due in 2022, 2023 and 2024 if the Company requests it and if the uncertain conditions remain.

The capitalisation operation performed by the parent Acea SpA is intended to re-establish financial equilibrium, thanks to the reduction in the stock of accounts payable to the parent company and to the significantly positive effects on NFP, thus freeing up financial resources to be allocated gradually to paying off prior trade payables to third-party suppliers.

Additionally, the directors of Acea Ato5 continued to adopt actions to improve the company’s financial position, including the following:

• the rescheduling of past debts through the signing of repayment plans with both third parties and intra-group counterparties that envisage payments over periods longer than 12 months;
• actions to improve efficiency in credit management with the aim of reducing collection times for utility invoices and, consequently, improving collection percentages;
• continuation of actions to contain operating costs as a consequence of the lower revenues coming from the Economic Financial Plan approved by the OTAA 5 Conference of Mayors;
• the continuation of an appeal against Deliberation No. 1 made by the Conference of Mayors, approving the tariff proposal for 2020-2023;
• continuation of dialogue with the Area Authority to define reciprocal items, by reconfirming the validity of the settlement proposal adopted by the Conciliation Board established with the Area Authority and its specific content, as well as defining a repayment plan with the OTS for the items excluded by the Conciliation Board, compatible with the current tariff situation;
• the reproposing of a new economic/financial rebalancing request as established in the regulations (based on that indicated in articles 9 and 10 of the Standard Agreement approved by the Regulatory Authority for Energy, Networks and Environment in resolution 656/2015/idr), illustrating the causes and extent of economic/financial imbalance in OTA5’s management of the IWS and the proposing of hypothesised rebalancing measures, including a request to access financial equalisation measures.

With the actions taken, the Company has succeeded in managing the financial situation already highlighted in the 2021 budget, partially mitigating the financial imbalance. Nonetheless, as a consequence of the approval of the 2022-2023 tariff update, the directors of Acea Ato5 confirmed the ongoing significant uncertainties about the subsidiary as a going concern, such as, in particular, the greater use of reverse factoring, the favourable outcome of the Technical Panel with the Area Authority intended to define the mutual items and the approval of the new request for economic/financial rebalance currently being prepared for reproposal by the company.

Nevertheless, the Directors have maintained the going-concern assumption in the preparation of the financial statements, considering that the actions to taken to preserve continuity, which have been further reinforced by the decisions of Acea SpA, will be enough to allow the ordinary management of the business. They are also confident that the tariff proceedings described above, and the ARERA tariff approvals, will be concluded as envisaged, within a reasonable period of time.

Acea Molise

Acea Molise manages the Integrated Water Service in the following multi-regional and multi-area contexts:

• Molise Region: direct management of the Integrated Water Service in the municipality of Termoli (single OTA);
• Lazio Region: the services covered are as follows:
• direct management of the Integrated Water Service of the Municipality of Campagnano di Roma (OTA 2 Lazio);
• operation of the purification plant in the Municipality of Valmontone (OTA 2 Lazio).

Water management activities carried out in the Lazio Region ended in 2022 due to the natural expiration of the relative contracts and, therefore, sub-entry and transfer procedures were begun for the Systems and networks of the Municipalities of Campagnano di Roma and Valmontone for the new manager Acea Ato2 SpA.

With regards to management of the Integrated Water Service in the Municipality of Termoli, the concession expired on 31 December 2021 but it was again assigned to the Company in 2022, following the awarding of the Project Financing tender issued by the Municipality in February, for “Assignment of execution of projects to protect the territory and water and to improve the integrated water service in the Municipality of Termoli - Public Private Partnership - Project Finance with right of preemption for the promoter (article 183, paragraph 15, Legislative Decree 50/2016)”.

Municipality of Termoli: the management of the IWS in the Municipality of Termoli has been technically extended until 30 June 2022, pending the conclusion of the call for tenders concerning the “Entrusting of the implementation of measures to protect the territory and water and to improve the integrated water service in the Municipality of Termoli - Public Private Partnership - Project Finance with right of pre-emption of the promoter (Art. 183, paragraph 15, Italian Legislative Decree No. 50/2016)”.

Despite the fact that Acea Molise was the promoter of the Project Finance with the right of pre-emption, on viewing the qualifications for the tender, the Company realised that it did not possess all of the required qualification requirements. Therefore, consideration was given to the opportunity to still participate in the tender and submit an improved offer (losing the right of pre-emption) with the pooling of TWS (Acea group) and third-party operators of Acea’s liking. In addition to broadening requirements, this solution would allow for significant group synergies.

On 29 March 2022, the Board of Directors of the parent company Acea SpA (sole shareholder of Acea Molise) gave a favourable opinion to the Company’s request to participate in the tender called by the Municipality of Termoli (with the pooling of TWS and third-party operators), and at the same time resolved on the relevant financial support, up to a maximum amount of € 5 million.

Following this, on 30 March 2022, the Board of Directors of Acea Molise, having taken note of the resolution of the partner Acea SpA, also expressed its favourable opinion to participate in the tender with the establishment of pooling.

On 31 March 2022, Acea Molise, in collaboration with the Group Tenders unit, submitted, through a platform made available by the Municipality of Termoli contracting station, an improved offer, investments side, in relation to the tender documents.

The Central Single Contracting Authority met on 19 May 2022, with a note ref. 32122, and communicated the completion of the works by the tender commission with the proposal of awarding the Project Financing in favour of Acea Molise. With Executive Resolution no. 1089 dated 20 May 2022, the contract in question was finally awarded to Acea Molise.

The award of the Project Financing tender called by the municipality of Termoli therefore allows the company to continue with good reason in the management of the integrated water service in that municipality, pending regional decisions by the single area operator.

At present, there is evidence of the approval of the Regional Area Plan in January 2022, defined by the EGAM in cooperation with Sogesid (100% held by the Ministry of Economy and Finance), updated in June 2022. Also in June 2022, representatives of the Molisani Municipalities and Azienda Speciale Molise Acque, established a limited liability consortium known as Gestione Risorse Idriche Molisane Scarl (hereafter “GRIM”) fully publicly owned and subsequently (on 29 June 2022), EGAM assigned management of the Integrated Water Service of the single OTA of Molise to GRIM.

Finally, on 26 July 2022, EGAM sent ARERA the regulatory convergence scheme to establish the 2022-2023 tariffs for GRIM and, at the same time, in the commitments plan, established that “by 2022, almost all the municipalities (134 of 135) in the provinces of Campobasso and Isernia will fall under sole management, with the exception of the municipality of Termoli, which, currently managed by Acea Molise Srl, will enter sole management at the end of 2023” (ARERA resolution of 6 September 2022 416/2022/R/idr).

Despite the establishment of the Single Manager for the Molisano Area - GRIM, on 3 August 2022 Acea Molise signed an Agreement with the Municipality of Termoli that legitimises the Company to continue full management of the Integrated Water Service in the Municipality of Termoli for an additional 15 years, until 2037, without prejudice to the possibility of early withdrawal (article 6.2 of the Agreement), if the Sole Manager in the Molisano Area identified by EGAM explicitly asks Acea Molise to sub-enter the service.

At present, GRIM has not presented a formal request to Acea Molise to sub-enter as manager of the integrated water service in the Municipality of Termoli and until the expiration of the Agreement pursuant to article 6.2, Acea Molise must comply fully and entirely with the obligations of the Agreement signed on 3 August 2022.

Nevertheless, developments are awaited regarding the decisions of the Molise Region and the EGAM regarding the operational mode of management of the integrated water service in the Molisano area: through total in-house management or with the (hoped-for) help of a private partnership.

Municipality of Campagnano di Roma: the concessionary management of the drinking water distribution service of the Municipality of Campagnano, entrusted in 1991 and extended in 2000 to the entire Integrated Water Service, expired on 31 December 2020 and has been extended until 31 December 2021, pending the ratification by the Regional Council of the move of the Municipality of Campagnano di Roma from OTA1 North Lazio-Viterbo to OTA2 Central Lazio-Rome.

On 14 July 2021, the Regional Council of the Lazio Region, by Resolution no. 10, ratified the transfer of the Municipality of Campagnano di Roma, from OTA1 North Lazio-Viterbo to OTA2 Central Lazio-Rome, an area whose single operator is the company Acea Ato2. During the second half of 2021, a series of meetings took place with the municipality and the Acea Ato2 Area Operator to define the handover of the integrated water service.

Despite the commitment of the parties involved in the management transition, on 14 December 2021, with a letter ref. 37728, the Mayor of the Municipality of Campagnano di Roma, due to the complexity of the procedural process, both administrative and technical, for joining OTA2, asked Acea Molise if it could continue the management of the integrated water service of the same Municipality, for an additional year, and therefore until 31 December 2022, as a reasonably estimated term for the conclusion of the management transition to Acea Ato2. At the same time, he asked Acea Molise for its availability, as of 1 January 2022, to also operate the municipal arsenic treatment plant (Water purifier station) upon tariff adjustment.

On 20 December 2021, with a letter ref. 24984. Acea Molise expressed its willingness both to continue the municipal integrated water service for an additional year and to expand its scope of management by taking over the Water purifier station.

In the initial months of 2022, a series of coordination meetings were immediately scheduled with the Municipality of Campagnano (Granting Body), Acea Molise (outgoing Manager), Acea Ato2 (incoming Manager), e OTAA2 (relevant Area Body). The schedule agreed upon by the Parties set 30 September 2022 as the date to transfer management.

Parallel to technical activities to return the network and plants and administrative activities required for the transfer of commercial accounts, all the preparatory activities were prepared for determination of the Residual Value to be paid by the incoming Manager (Acea Ato2) to the outgoing Manager (Acea Molise) in line with regulations.

The OTAA2 Technical Operational Secretary (TOS), at the Conference of Mayors, with Resolution 9/2022 of 29 September 2022, recognised for Acea Molise, as the residual value of the outgoing manager, solely the corresponding value of the residual RAB (investments not yet recognised in the tariff), postponing measurement of regulatory adjustments to any amendments/additions made by ARERA.

On 30 September 2022, the transfer of management for the Municipality of Campagnano di Roma from Acea Molise to Acea Ato2 was finalised, and in order to not lose the right to recognition of regulatory adjustments, the Company invited the interested parties (OTAA1 Lazio Nord-Viterbo and the Municipality of Campagnano) to promptly send the information necessary for approval of the tariff update for 2022-2023 and the relevant provisions associated with the same, so they could be promptly sent to TOS OTAA2 Rome and ARERA, as well as definition of the Residual Value, including Adjustments, for Acea Molise as the outgoing manager.

Municipality of Valmontone: the management contract for the Kennedy Treatment Plant in Valmontone expired at the end of April 2022, but the parties agreed on a three month extension, to allow the Company to complete the work associated with waste disposal. On 29 April 2022, Acea Molise and the Municipality of Valmontone signed specific Technical Regulations to govern reciprocal technical/economic relations during the three month extension. After the maintenance work agreed on was complete, management of the Kennedy Treatment Plant was returned to the Municipality of Valmontone (prov. Rome) on 31 July 2022, with the simultaneous definitive conclusion of all contractual obligations.

GORI

The Company manages the Integrated Water Service for the “Sarnese-Vesuviano” District Area of the Campania Region (which comprises 59 Municipalities of the Province of Naples and 17 Municipalities of the Province of Salerno), for a total of 76 Municipalities (however, the Municipalities of Calvanico and Roccapiemonte in the Province of Salerno are managing their water services, not having yet ensured the start of IWS management by the company). The award of the aforesaid IWS management lasting thirty years and starting from 1 October 2002 (and expiring in 2032) was finalised with the signing of a specific agreement with the granting authority Sarnese-Vesuviano Area Authority (now replaced by the Campania Water Authority as per Law 15/2015 of the Campania Region) on 30 September 2002.

Established pursuant to regional law 15/2015, the Sarnese-Vesuviano District of the Campania Region covers an area of approximately 900 square km with a population of approximately 1,411,416 inhabitants. (last Istat figure Year 2020)

A total of 5,227 km of water network is currently managed, consisting of 867 km of primary abstraction network and 4,360 km of distribution network, and a 2,697 km drainage system.

GORI currently manages 13 water sources, 114 wells, 201 tanks, 118 water pumping stations, 201 wastewater pumping stations and 12 waste treatment plants.

Operating Agreement between Campania Region, the Campania Water Authority and GORI

On 8 November 2018, an Operating Agreement was entered into between the Campania Region, the Campania Water Authority and GORI (“Operating Agreement”) aimed at the complete implementation of the Integrated Water Service in the Sarnese-Vesuviano District area within a framework of economic-financial equilibrium of the management for its entire residual duration. As a result of the Operating Agreement:

1. the Regional Works (various major IWS infrastructure falling within the territory of the Sarnese-Vesuviano District Area, managed for a long period by the Campania Region and by the latter transferred to the manager GORI from 2019-2021) were transferred to the manager GORI through a concession, based on the provisions of the current IWS Management Agreement for the OTA;
2. on 18 July 2019, a long-term loan agreement was signed with a pool of banks, with an availability period of 4 years, a ten-year term and a final maturity for repayment on 31 December 2029 and
3. to guarantee the economic and financial balance of management of the IWS for the OTA and bankability of the project, GORI and the Campania Region signed two additions to the Operating Agreement, specifically:

   1. Additional Act no. 1 of 20 November 2020, which postponed instalments of the repayment plans for the debt accrued by GORI relative to the Region for supplies of “wholesale water” and the “waste water collection and purification” service, rescheduling instalments due in 2025 (€ 1.7 million), in 2026 (€ 3.5 million) and 2027 (€ 6.7 million), respectively to 2029, 2030 and 2031;

   2. Additional Act no. 2 of 10 August 2022, which postponed until 2030 payment of the instalments of the same repayment plan for €103.0 million.

It should be specified that Additional Act no. 1 and Additional Act no. 2 were signed in consideration of the social/economic problems associated with the COVID-19 health emergency and the exceptional increases in the purchase prices of construction materials and energy products which have significant impacts on the financial requirements of operators in the water services sector.

Confirmation of the regulatory framework for 2012-2015 - Definition of previous items prior to 2012 - Update of the regulatory framework for 2022-2023

On 10 August 2022 the Executive Committee of the Campania Water Authority (CWA) definitively approved, with resolution 36/2022, the biennial update of the regulatory framework for 2022-2023 for the manager GORI, based on the criteria defined by the Authority in resolution 580/2019/R/idr, as supplemented by 639/2021/R/idr and 229/2022/R/idr; on 5 October 2022, the CWA offices sent ARERA the update of the regulatory framework using the IT procedure.

The update of the regulatory framework approved by the CWA for 2022-2023 saw an increase in the theta of 2.4 for the year 2022 and a theta of 1 for 2023, confirming for both years the values of the tariff increases approved with the previous resolution of the Executive committee, no. 35/2021, which had approved the regulatory framework for 2020-2023 pursuant to ARERA resolution 580/2019/R/idr di ARERA. This tariff update also implemented the provisions issued at the same time by the CWA in relation to “previous items” (reviewed and redetermined pursuant to the CWA Executive Committee resolution 35 of 10 August 2022) and the “tariff update” subject to a review procedure by ARERA pursuant to the Council of State decision 5309/2021 (specifically with reference to the CWA Executive Committee resolution 34 of 10 August 2022), as better indicated below, while also taking into account the provisions of the additional acts to the Operating Agreement (i.e. additional act no. 1 and additional act no. 2). In particular, in relation to the cited Executive Committee resolution 34 of 10 August 2022, relative to the “Council of State decision 5309/2021. ARERA resolution 247/2022/R/Idr. Determinations on tariff rates relative to the manger GORI SpA for the years 2012 and 2013. Sarnese Vesuviano District Council Resolution 6 of 2 August 2022”, note that, as a consequence of Council of State decision 5309/2021, it was established that ARERA had seen to the renewal of the investigation underlying the tariff decisions approved by the same Authority with resolution 104/2016/R/idr containing “Approval, for the purposes of evaluating adjustments in the context of the tariff method for the second regulatory period MTI-2, of tariff rates relative to the Sarnese-Vesuviano optimal territory area for 2012-2015”. Consequently, with resolution 373/2021/R/idr of 7 September 2021 (and other subsequent resolutions regarding the deadline for completion and other methods) the proceeding to renew the aforementioned investigation was begun and subsequent other resolutions extended the deadline for completion and provided instructions on the methods to implement the actions required of the CWA and other interested entities. Hence, as anticipated, in its cited resolution 34 of 10 August 2022, the CWA Executive Committee certified that the conditions had been met (efficacy and implementation of the Area Plan) for confirmation of that approved by the then operational Extraordinary Commissioner of the Sarnese-Vesuviano Area Authority with resolution 17/2013, relative to both years 2012 and 2013 for GORI, the tariff multipliers (theta) in the amount of 6.5% and the Operator Guaranteed Revenue Constraint (GRC) for 2012 and 2013. Consequently, with resolution 457/2022/R/idr “Conclusion of the procedure to comply with Council of State decision 5309/2021 on tariff regulation for the integrated water service”, ARERA completed the procedure begun with resolution 373/2021/R/idr on the basis of the new information, data and documents produced by the Campania Water Authority and confirmed the tariff decision made with resolution 104/2016/R/idr, thereby confirming the values of the theta multiplier and quantification of the adjustments.

Additionally, the Water Authority Executive Committee, with resolution 35 of 10 August 2022, definitively approved previous items prior to 2012 for a total of € 115,000,000; more specifically, the accuracy of the calculation of Previous Items prior to 2012 as approved by the former Extraordinary Commissioner of the Sarnese-Vesuviano Area Authority was confirmed, in the amount of € 122,495,027, then reduced to € 115,000,000 as a consequence “… of the economic/financial benefits that may derive from Additional Act no. 2, as well as other possible economic benefits deriving from possible management efficiencies for the IWS in the remaining period expiring in 2032”. To that end, note that, as anticipated, with the Additional Act no. 1 and Additional Act no. 2, the Campania Region and GORI partially amended the GORI repayment plan with reference to the Region, as established in the Operating Agreement, postponing to 2030 payment of the instalment for €103 million.

The aim was to in this way pursue the achievement of the objectives established in the Operating Agreement, specifically: i) realising the necessary scheduled investments, ii) guaranteeing economic/financial balance for the integrated water service manager, iii) ensuring and maintaining the bankability of the project.

Revenues as of 31 December 2022, which total € 254.0 million, were determined on the basis of the regulatory scheme approved by the Campania Water Authority with Resolution 36/2022, in compliance with ARERA Resolution 580/2019/R/idr, subsequently supplemented by ARERA Resolution 639/2021, with which the Authority defined the criteria for the two-year update (2022-2023) of the tariff arrangements for the Integrated Water Service.

Verification of parameters to identify the regulatory quadrant and the presence of OPnew relative to systematic changes in operator activities in the “presence of the supply of a new service (e.g. purification or sewers for an operator whose management was previously limited to aqueduct services or, in other cases, in the presence of expansion with an upstream supply chain), pursuant to article 18.2, 18.3, letter c) and 18.4 of Annex A to resolution ARERA 580/2019/R/idr as subsequently amended and integrated, determined placement in the VI regulatory quadrant. Nonetheless, as already noted, in order to guarantee the social sustainability of the tariff, while respecting economic/financial balance in managing the IWS, Campania Water Authority resolved on a tariff increase lower than the maximum limit allowed under the regulatory method MTI-3.

It should also be noted that, for the calculation of the Guaranteed Revenue Constraint (GRC) as at 31 December 2022, the constraint component relating to the Opsocial supplementary water bonus, pertaining to the year 2022, has been set equal to zero because, although it has been recognised within the regulatory framework approved by the CWA, a specific deliberative act is actually missing; while the Opsocial component related to the years 2020 and 2021 (not recognised in the respective financial statements) was considered in the calculation of the Constraint, as resolved by the Executive Committee of the Campania Water Authority in Resolution no. 2 of 05 May 2022, by which it approved the criteria for the allocation of the supplementary water bonus for the 2020-2021 two-year period.

The purely regulatory components COfanghi and COEE were also considered.

The OpexQC and OpexQT components were calculated in the amount of what was requested in the related cost recognition requests, within the limit of what was recognised in 2019.

Additionally, the component relative to the corrective factor for adjustments was calculated, pursuant to paragraph 27-bis 2 MTI-3 with application of the return rate for fixed assets Kd to adjustments recognised for years 2012 and 2013.

The OPnew included in the calculation were quantified in the same manner as in previous years, and therefore, on the basis of the full cost recovery principle, the costs effectively incurred on plants transferred at 31 December 2022 are covered, as demonstrated in the accounting documents.

At 31 December 2022, the works transferred to the Operator are: Waterworks at Mercato Palazzo with transfer in October 2016, waterworks at Boscotrecase and Cercola with transfer in March 2018, waterworks in the Nolana area with transfer in September 2018, waterworks at Campitelli and Boccia a Mauro to complete the Vesuvius area with transfer in December 2018, the Angri Wells Field with transfer in February 2019, the Nolana Area treatment plant with transfer in March 2019, the completion of the Sarnese Area with transfer in April 2019, the Medio Sarno 2 treatment plant with transfer in July 2019, the transfers relating to the Medio Sarno 3 treatment plant and the Sorrentine Peninsula water area in December 2019, the transfer of the Foce Sarno treatment plant in December 2020, and finally the transfer of the Alto Sarno treatment plant in January 2021.

External operating costs Opexend were defined based on what is established in article 17.1 of Annex A to resolution ARERA 580/2019/R/idr as subsequently amended and integrated, when measures were introduced to incentivise efficient behaviour by operators; to that end, calculation of the per capita level of operating costs incurred by GORI in 2016 placed GORI in class B1 of the regulatory matrix pursuant to article 17.1 of resolution ARERA 580/2019/R/idr, while calculation of estimated operating costs, using the statistical model found in article 17.2 of Annex A to resolution ARERA, transformed into per capita terms, placed the operator in Cluster A of the regulatory matrix. Therefore, GORI was placed in quadrant 4 of the regulatory matrix. The Opexend thus defined, adjusted by the inflation coefficient provided by the Authority as part of the 2022-2023 two-year regulatory update, amount to € 74.8 million.

The GRC was also updated pursuant to art. 27.1 of Annex A of ARERA Resolution no. 580/2019/R/idr as subsequently amended and integrated which envisages that, for the purposes of determining the GRC for the 2020-2023 regulatory period, some cost items (electricity cost, balance of payments and penalties, Authority contribution, cost of wholesale supplies, activity costs connected to the IWS due to systemic changes in the conditions of the service or to the occurrence of exceptional events) are subject to a final assessment, as adjustment components (Rc), relative to the year (a-2).

With regard to the calculation of the Constraint for the costs for wholesale water services by the Campania Region at 31 December 2022, the tariff approved by the CWA by Resolution no. 7 of 26 February 2021 was considered. This determines the 2020-2023 regulatory scheme for the proposed wholesale water tariff for the “Campania Region” operator and is equal to € 0.20452/m3, with the application, for the year 2022, of a theta equal to 1.060 (6% increase).

The pertinent cost at 31 December 2022 on the COws relating to regional water supplies, according to the principle of full cost recovery, was approximately € 6.9 million, entered for the same amount in GRC and in the related costs.

As regards the COws of the collection and purification service, here again they were calculated starting from the quantification of the recognised costs which, to determine the relevant costs at 31 December 2022, according to the full cost recovery principle, amounted to approximately € 7.4 million. Reference was made to the tariff for wastewater collection and purification services, equal to 0.310422 €/m3, (as a result of application of the ARERA 338/2015/R/idr resolution to the regional tariffs for wholesale services, recognised by the Parties within the minutes of the meeting of 4 March 2016 between the Campania Region, the Area Authority and GORI), applying it to volumes treated by the regional plants. Additionally, again with reference to the collection and purification service, adjustments were made in relation to decreases in the cost with reference to prior years for a total amount of -2 million.

Finally, it should be noted that the Government, with a series of Decree Laws, most recently Decree Law 144/2022, known as the Aid-Ter Decree, introduced a series of measures to support companies handle the energy crisis and associated cost increases.

Among the measures introduced by the Government is the establishment of a tax credit for companies for the purchase of electricity which, in the case the company is not energy intensive (the case of the Integrated Water Service Managers) is equal to 30% of the expense incurred to acquire the energy component, if the price of the same in the third quarter 2022 is more than 30% higher than the third quarter of 2019.

Quantification of the tax credit, calculated for invoices effectively incurred and relative to April-November, is equal to around € 9.2 million and was recognised at 31 December 2022 under the item “Other revenue” in the income statement.

In the relevant GRC at 31 December 2022, to avoid double coverage of the cost of electricity, the quantification of the tax credit was taken into account through an adjustment of revenue (GRC) by an equal amount (- € 9.2 million), allocated to the item “Exceptional events”.

Also note that on 13 October 2022, ARERA, with resolution 495/2022/R/idr “Reopening the terms for financial advances aimed at mitigating the effects of the growth in electricity costs on managers of the integrated water service”, called for a second window within which government entities in the area, based on a request by the relevant manager, could present a justified request to CSEA (by 30 November 2022) to activate types of financial advances, introduced with resolution 229/2022/R/idr, associated with the obtaining of resources to handle part of the expenses incurred to purchase electricity. The requirements being met, GORI presented the request to the Campania Water Authority on 8 November 2022 to request from CSEA a financial advance in the amount of € 11,842,336.80 (that is in the maximum amount, 0.35 x COEE 2022).

Based on the request presented by GORI, the Campania Water Authority Executive Committee, in resolution 76 of 29 November 2022, decided to ask CSEA to activate the financial advance methods introduced with ARERA resolution 229/2022/R/Idr, associated with obtaining resources to handle part of the expenses incurred to purchase electricity for the manager GORI SpA; on 30 November 2022, the Campania Water Authority sent CSEA the Financial Advance Request for the manager GORI SpA, in the amount requested by the Manager, specifically €11,842,336.80. As established in resolution 495/2022/R/idr, the advance was disbursed by CSEA by 31 December 2022, specifically on 27 December 2022 and the Manager must see “to the return to CSEA of the sums advanced in two instalments of equal amount (in relation to the capital portion) maturing respectively on 31 December 2023 and 31 December 2024. The instalments are increased by interest applied to the remaining capital and calculated based on the interest rate applied, equal to that obtained by CSEA for its own liquid assets held with its bank.”

A case pending before the Council of State concerning an appeal brought by the Municipalities of Angri (SA), Casalnuovo di Napoli (NA), Roccapiemonte (SA), Roccarainola (NA) and Scisciano (NA), for amendment of the sentence of the Regional Administrative Court of Lombardy, Milan office no. 1619/2018 of 29 June 2018, which rejected the appeal for the annulment of the ARERA resolution 104/2016/R/idr of 10 March 2016 approving the 2012-2015 Regulatory Framework of the Sarnese-Vesuvian District

Following Council of State decision 5309 of 13 July 2021, ARERA renewed the administrative proceeding, seeing to a new review and investigation with regards to the effective implementation of the Area Plan after 2009 for “quantification of tariffs” and adopting as a final provision for the proceeding, resolution 457/2022/R/idr “Conclusion of the proceeding to comply with the Council of State decision 5309/2021 on tariff regulation for the integrated water service”, with which it confirmed the tariff decision made in resolution 104/2016/R/idr and, therefore, confirmed the values of the theta multiplier and quantification of adjustments.

Cases pending before the Regional Administrative Court of Campania, Naples office, initiated with an appeal filed by the Municipalities of Nocera Inferiore (SA), Roccapiemonte (SA), Roccarainola (NA), Casalnuovo di Napoli (NA), Scisciano (NA) and Lettere (NA), for the annulment of the resolutions of the Extraordinary Commissioner of the Sarnese-Vesuviano Area Authority No 19/2016 of 08/08/2016 (with which the preparation of the 2016-2019 Regulatory Framework of the Sarnese-Vesuviano District area of the Campania Region was approved pursuant to ARERA Resolution 664/2015/R/idr and subsequent amendments and additions) and No 39/2018 of 17/07/2018 (with which the update of said Regulatory Framework was approved)

The Municipalities in question have appealed before the RAC of Campania, Naples office, the Resolution of the Extraordinary Commissioner of the Sarnese-Vesuviano Area Authority No 19/2016 of 08 August 2016 with which the 2016-2019 Regulatory Framework was set out and the resolution of the same Extraordinary Commissioner No 39/2018 of 17 July 2018 with which the aforesaid Regulatory Framework was updated. Both cases concerning resolution 19/2016 (RG 5192/16) and Resolution no. 39/2018 (RG 4698/18), were suspended awaiting the results of the case pending at the Council of State brought by the Municipalities of Angri (SA), Roccapiemonte (SA), Roccarainola (NA), Casalnuovo di Napoli (NA) and Scisciano (NA), for the revision of the judgement of the Lombardy RAC, Milan office, No 1619 of 29 June 2018 which confirmed the legitimacy of ARERA Resolution 104/2016/R/idr approving the 2012-2015 Regulatory Framework of the Sarnese-Vesuviano District area. To that end the Campania Regional Administrative Court, Naples, in a closed session on 12 October 2022, initially declared the appeals could not move forward, as the determinations in question had been absorbed and superseded by the new provisions illustrated above, issued on tariff regulation by the CWA and ARERA and due to the consequential need to revalue the tariffs relative to the period being examined (2016-2019).

Case pending before the Council of State regarding appeal brought by GORI for the reform of the rulings of the Regional Administrative Court of Campania, Naples office, Nos 4846/2015, 4848/2015, 4849/2015 and 4850/2015 relating to the recognition of prior year items prior to 2012 for tariff adjustments approved by the granting authority, the Sarnese-Vesuviano Area Authority (the predecessor of the Campania Water Authority)

The Company charged user accounts the 2014 tariff component, referred to as “Recovery of items prior to 2012”, in accordance with the provisions of the Resolution of the Extraordinary Commissioner of the Sarnese-Vesuviano Area Authority No 43 of 30 June 2014, as amended by Resolution No 46 of 3 July 2014 (tariff provision in turn adopted pursuant to Article 31 of Annex A of AEEGSI Resolution No 643/2013/R/idr. and on the basis of the resolution of the Assembly of Mayors of the Sarnese-Vesuvian Area Authority No 5 of 27 October 2012). Various parties, including Municipalities, associations and user accounts proposed legal action to formally request the annulment, with precautionary suspension, of the resolutions in question, while in a civil context annulment was requested of the invoices containing the adjustment amount. In particular, note that 7 appeals were filed with the Campania Regional Administrative Court, Naples, and 4 extraordinary appeals with the Head of State. Furthermore, the Federconsumatori Campania association challenged Resolution no. 14 of 29 June 2015 of the Extraordinary Commissioner of the Sarnese-Vesuviano Area Authority, and the Municipality of Angri and 11 other Municipalities of OTA 3 challenged the Resolution of the Commissioner no. 15 of 30 June 2015 with additional grounds. Section I of the Regional Administrative Court of Campania - Naples, on 15 October 2015, issued sentences 4846/2015, 4848/2015, 4849/2015 and 4850/2015, accepting the appeals presented by the Federconsumatori Campania association and by the Municipalities of Angri, Naples and Nocera Inferiore, declared annulment of commissioner Resolutions no. 43 of 30 June 2014 and no. 46 of 3 July 2014 regarding the determination and approval of tariff adjustments for the period 2003-2011 and the collection methods. Specifically, the Regional Administrative Court maintained that these resolutions were adopted in complete absence of validity, given that the Extraordinary Commissioner, from 21 July 2013 (and, therefore, six months after his appointment on 21 January 2013), would have no longer been in office and, therefore, would no longer held powers from this date. The Regional Administrative Court did not therefore comment on the legitimacy or lack thereof of the tariff adjustments, limiting itself to identifying the lack of power of the Commissioner and consequent annulment of the provisions established after 21 July 2015, on the basis of an interpretation of the regulations which was not shared by the Area Authority and GORI. In any case, with the new regional law no. 15 of 02 December 2015, any doubt regarding interpretation was eliminated, considering that art. 21, paragraph 9 clarified, also for the purposes of correct interpretation of the regulations indicated in the Regional Administrative Court judgement, that: “the powers of the Commissioners appointed for the liquidation of the abolished Area Authorities and for performance of the functions described in Italian Legislative Decree 152/2006, in compliance with the content of article 1, paragraph 137 of regional law no. 5 of 6 May 2013 (Provisions for the preparation of the 2013 annual financial statements and 2013-2015 statements of the Campania Region – 2013 regional financial law) cease to apply after six months from the date of entry into force of this law”. Furthermore, paragraph 9-bis of art. 21 established that “When this law is first implemented, the acts adopted by the Commissioners appointed for the liquidation of the abolished Area Authorities in tariff matters and tariff adjustments in implementation of AEEGSI Resolution no. 643/2013 and for which appeals before administrative courts are pending, are ineffective until the definitive decisions adopted by the Campania Water Authority to be constituted, having consulted the competent District Council”: in other words, having ascertained as a result of paragraph 9 of art. 21 the powers of the Extraordinary Commissioner of the Sarnese-Vesuviano Area Authority to have legitimately adopted the measures regarding tariff adjustments, it has nevertheless been provided that for said tariff adjustments the Campania Water Authority, as the new granting/regulatory authority and assignee of the Extraordinary Commissioner, must make new and definitive decisions. Further, as already noted above, the Campania Water Authority Executive Committee approved resolution 35 on 10 August 2022, definitively approving the previous items prior to 2012 for a total of € 115,000,000. Based on this last aspect and the fact that ARERA, in resolution 457/2022/R/idr, had confirmed the tariff decision made with resolution 104/2016/R/idr (thereby confirming the values of the theta multiplier and quantification of the adjustments), based on a request from GORI, the Council of State set the date for the discussion on the merits for 28 March 2023.

Finally, with reference to the NRRP note that 3 project proposals have been developed and submitted for financing which refer to the Nocera Superiore and Scafati area. Through a Ministerial Decree, the final list was approved for proposals eligible for financing, based on which two out of the three proposals were deemed eligible and able to be financed. With reference to the Nolana area, five projects for the Sarno Protocol were submitted for financing coming from the NRRP for sewage and water treatment.

Gesesa

Gesesa manages the Integrated Water Service in 22 Municipalities in the province of Benevento for a total resident population of 117,593 inhabitants spread over an area of about 710 square kilometres with a water infrastructure of about 1,547 km, a sewerage network of 553 km and about 332 plants managed. The total number of user accounts amounts to 57,470, for which 2022 consumption has been estimated at about 7.7 million cubic metres of water.

The sewerage service is provided to approximately 80% of users while the purification service reaches about 40% of users. Regional Law 15 of 2 December 2015, in effect as of 22 December 2015, established the Campania Water Authority (CWA), to which “all local entities must obligatorily adhere” if falling within territory of the region. CWA’s responsibilities can be summarised as follows: (i) selecting the management model, (ii) approving the tariff proposal for the integrated water service, (iii) assigning this service to “third party” manager entities, based on indications received from each district council and (iv) monitoring these operations. This is without prejudice to any substitute and supervisory powers over the activities of the CWA held by the Campania Region.

To achieve greater management efficiency and improved service quality for users, the area of the regional OTA was divided into five district areas, including Calore-Irpino, which includes all the management entities within the province of Benevento. With Regional Council resolution 434 of 3 August 2022, the Campania Regional Council acknowledged resolution 26 of 27 July 2022 of the Campania Water Authority Executive Committee and amended the composition of the single regional OTA district areas, subdividing the Calore Irpino district area into two separate district areas: Irpino and Sannita.

On 5 October 2022, with the appointment of the District Council, the district area became fully functional and at its first meeting on 25 October 2022, “selected the type of management pursuant to article 14, paragraph 1, letter b) of Regional Law 15/2015”, resolving, among other things:

• that management of the IWS in the Sannita District Area would be entrusted to a mixed public/private company, as a solution able to combine the interests of the Municipalities with the need to have private capital for the start-up phase of the new manager and to carry out the planned projects, as well as the know how of an industrial operator that already has significant experience in the integrated water service sector;
• for the purposes of the previous point, to express the guideline that the offices of the CWA prepare the planning documents for the IWS relative to the Sannita District area, taking into account the Council’s wish that the sole management of the service be entrusted to a mixed public/private capital company, reserving the relative majority for the Municipalities of the Province of Benevento, reserving for the private shareholder to be selected through a dual purpose tender, a portion of the share capital equal to a maximum of 49%, in compliance with article 17 of Legislative Decree 175/2016, and reserving for the public part an absolute majority of the shareholding structure.

At present the CWA is proceeding with activities to prepare the dual purpose call for tender to identify the private shareholder:

1. Definition of the area plan for the Sannita District;

2. Establishment of the in house company for the Municipalities of the Province of Benevento which will hold a majority of the share capital of the mixed company to be established;

3. Determination of the sub-entry value (residual value of investments + tariff adjustments to be invoiced) that the private shareholder must pay Gesesa.

After various conversations, the CWA set the end of March as the date for completing the activities above and 2023 as a deadline for completing the consequent tender. Subsequently, all tender activities will be begun, which will lead to the identification of the private shareholder and the consequential activities to arrive at the entrusting of the IWS to a new manager. The CWA will ensure that all of this is completed during 2023.

With regards to approval of the proposed tariffs in progress, note that despite the activities implemented by the company, the request made to ARERA to exercise substitute powers and the consequent formal warning sent by the Authority to the CWA to resolve the breaches associated with the same, the CWA has not yet approved the biennial proposed updates for 2018-2019 nor the update for the third regulatory period, 2020-2023. Additionally, during the year the Company prepared its final data for the years 2020 and 2021 and the Works Programme to prepare the proposed tariff revision with definition of the GRCs and Thetas for 2022-2023, revising the investment programme for 2020-2023, pursuant to ARERA resolutions 580/2019/R/idr and 639/2021/R/idr. All the documentation produced was validated by the CWA on 7 November 2022 and the proposed tariff 2022-2023 is awaiting approval by the Campania Water Authority.

As a result of the above, the items of the financial statements concerned – in particular revenues and related customer receivables – were updated and recognised in 2022 on the basis of the new Guaranteed Revenue Constraint (“GRC”) forecast for 2021 and the calculation tool prepared for the 2022-2023 biennial adjustments, awaiting approval by the relevant entities.

On 28 February 2023, the company formally asked ARERA to exercise its substitute powers to approve the 2022-2023 tariff update, sending a formal warning to the CWA to approve the regulatory scheme submitted.

In relation to proceeding 231 associated with the company, note progress in the criminal proceeding 5548/2016, with a preventive seizure of 12 water treatment plants managed by Gesesa and appointment of a Judicial Administrator.

Following the proceeding above, an independent proceeding was begun involving the position of the company relative to which action was taken with regards to certain crimes contemplated under Legislative Decree 231 of 2001.

On 15 November 2021, the Judge of the Court of Benevento issued a preventive seizure order relative to Gesesa, executed on 29 November 2021, in that the Benevento Public Prosecutor had charged Gesesa, in terms of liability pursuant to Legislative Decree 231 of 2001, all the crimes contemplated by the stated Legislative Decree, which real persons had already been charged with. That being established, with regards to the merits, based on the accusations summarised above, the Judge granted preventive seizure as requested by the Public Prosecutor, in the amount of € 78,210,529.00, relative to Gesesa. Given the unfounded nature of the accusations and the abnormality of the measures applied, through its trusted attorneys Gesesa appealed the seizure order. On 22 December 2021, the Benevento Court of Appeal granted the appeal presented by the company and fully annulled the seizure ordered by the Judge. This annulment was not appealed and, therefore, this decision became final.

On 25 January 2022, notification was received that the investigations of the Company had been completed and on 17 June 2022 notification was received by the real persons and the company of the provision requesting indictment; the date for the preliminary hearing, initially set for 23 January 2023, has been postponed to 26 June 2023 due to the absence of the relevant judge.

That being established, note that the company, pursuant to article 17 of Legislative Decree 231/2001, has begun actions to verify any risks and identify possible improvements that have allowed it to align its control system with the requirements of the law. These improvements have given rise to an action plan to revise and strengthen the internal control system.

In particular, with regards to the plants subject to preventive seizure, following a virtuous path of more than two years, with total outlays of € 891,060.34 by the Company, to implement the upgrading projects requested by the Judicial Administrator, the upgrading activities were effectively completed for the plants subject to seizure.

Following these activities, the Judicial Administrator, with a specific Report filed with the relevant Prosecutor, acknowledged the conclusion of the same with a satisfactory completion of the newly functional plants. In the light of this report, with a provision of 9 September 2022, the Public Prosecutor’s Office deemed as “ceased the requirements that gave rise to the appointment of the Judicial Administration for the operation of the purification plants”, while it did not hold the requirements for release from seizure of the same yet met, with a provision of 14 September 2022 the Judge consequently ordered termination of Judicial Administration and confirming seizure with the right to use the treatment plants by Gesesa. Four months have now passed since this provision without any major issues being identified in the management of the stated plants. Gesesa has decided to send a request to release the seizure of the purification plants in question. This will be presented no later than the end of February.

With regard to any risks concerning the final outcome of the proceedings, the Directors, also on the basis of the opinion of the appointed lawyers, according to whom it is currently not possible to formulate forecasts concerning the duration, outcome and potential risk for the Company deriving from the completion of the legal process, believe that, at the stage of the proceedings, it is not possible to make a forecast of the liabilities that could arise for the Company as a result of the development of the further stages of the aforementioned proceedings.

Finally, with reference to the sanction proceedings under DSAI/26/2018/idr, on 21 June, the Authority issued Resolution 262/2022/S/idr - Imposition of pecuniary administrative fines for violation of IWS tariff regulation, imposing a fine totalling € 83,700. The Company paid the fine in 2022.

 

Acque

The management agreement, which came into force on 1 January 2002 with a 20-year duration (expiry is now in 2031), was signed on 21 December 2001. In accordance with said agreement, the Operator took over the exclusive integrated water service of Ato2, comprising all public water collection, abstraction and distribution services for civil use, sewage systems and the treatment of wastewater. 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 Executive Council of the Tuscan Water Authority modified, with the same tariff multipliers, the composition of the 2016 and 2017 tariffs approved by AIT Resolution 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 Executive Council of the Tuscan 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. On 9 October 2018 with Resolution no. 502/2018/R/idr ARERA approved the tariff proposal.

The new Tariff plan with the end of the concession on 31 December 2031, compared to the previous plan with the end of the concession on 31 December 2026, contains the forecast of greater investments in service infrastructure and more contained tariff increases.

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 established 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. These 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 2020-2023 tariff arrangement was approved by ARERA on 28 September 2021 by Resolution no. 404/ 2021/R/idr. The Contractual and Technical Quality Macro-indicator targets for the year 2020 and 2021 and the Tariff Multiplier Values for the years 2020 - 2023 were also approved. The submission of preparatory data for the two-year tariff review is currently underway.

As is known, with Resolution 639/2021, ARERA recalculated the WACC for the years 2022 and 2023.

For the same level of investment, this will result in a decrease in the Financial and Tax Charges recognised and this decrease is partially offset by the revaluation of the RAB due to the deflator.

With Resolution no. 183/2022/R/idr of 26 April 2022, the final results from the application of the incentive mechanism for regulation of the technical quality of the IWS (RQTI) for the years 2018 - 2019 were published. The Company was granted bonuses of € 341 thousand for 2018 and € 382 thousand for 2019 for the M1 Macro-indicator, which CSEA has already paid on 2 June 2022.

Additionally with CD Resolution 14/2022 of 25 November 2022, AIT approved the biennial tariff update for 2022 and 2023. The main elements of the revision are:

• Tariffs: the thetas previously approved for years 2022 and 2023 were confirmed; slight increase in thetas for 2024-2031;
• Tariff adjustments: increase of around € 8 million with a slight anticipation in recovery of the same (by 2024 instead of by 2025);
• Plan of Works 2020-2031: increase of around € 76 million net (from € 800 million to € 875 million) and € 114 million gross, for more maintenance and replacement projects; partial rescheduling of framework agreement projects and adaptations for regional laws on EU/NRRP infractions. Also note a reduction on the part of AIT for IT projects.

For both years 2022 and 2023 the electricity anticipation component OPexp EE was inserted.

On 24 November 2022 EGA was set the request for activating types of financial advances associated with obtaining resources to handle expenses incurred to acquire electricity, in turn presented to ARERA/CSEA, pursuant to that established in ARERA resolutions ARERA 580/2019/R/idr, 639/2021/R/idr and 229/2022/R/idr. The amount requested, the maximum Acque could request, was € 5,055,080. On 29 December 2022, CSEA disbursed the advance which must be repaid in two instalments of equal amount: the first by 31 December 2023 and the second by 31 December 2024.

It should be noted that in relation to the average defined cost for electricity, the Company appears to have purchased at an average cost below the defined threshold, thus being entitled to full recognition of the adjustment.

Finally, it should be noted that as of 1 January 2022, Acque has taken over from Acque Toscane in the management of the water service in the municipalities of Montecatini and Ponte Buggianese.

Publiacqua

The management agreement, which came into force on 1 January 2002 with a twenty-year duration, was signed on 20 December 2001. In accordance with said agreement, the Operator took over the exclusive integrated water service of OTA 3, comprising all public water collection, abstraction and distribution services for civil use, sewage systems and the treatment of wastewater. 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.

Note that on 26 June 2020, the AIT approved the tariffs for the third regulatory period (2020-2023) and promptly sent the tariff proposal to ARERA. Substantially, the regulatory Economic and Financial Plan (EFP) highlights a tariff trend, and consequently a Guaranteed Revenue Constraint (GRC), that is constant over time, with application only of annual inflation.

On 16 February 2021, with Resolution No 59/2021/R/idr, ARERA approved the specific regulatory framework containing the tariff provisions for 2020-2023 pursuant to Authority Decision of 27 December 2019, 580/2019/R/idr and related Annex A, containing “2020-2023 Water Tariff Method MTI-3”. Also note that on 31 March 2021, following ARERA resolution 59/2021, the agreement which approved the extension of the concession to 31 December 2024 was signed with the AIT.

Following the start of the tariff update process for the 2022-2023 two-year period, Publiacqua sent all the data to the AIT for approval of the tariff provision. The AIT approved the same in February.

Finally, note that in Q4 2022 activities with the AIT involved various aspects of regulation. After Publiacqua sent the proposed Addendum to the Single Regulation in May, with the technical schedules and prices for services, dialogue with AIT led, as stated previously, to approval of the tariffs for 2022-2023.

Acquedotto del Fiora

Based on the agreement signed on 28 December 2001, the operator (AdF) is to supply integrated water services on an exclusive basis in OTA 6, consisting of public services covering the collection, abstraction and distribution of water for civil use, sewerage and waste water treatment. The term of the Management Agreement is 25 years from 1 January 2002 and in 2020 was extended until 2031.

With regard to provisions of interest to AdF, based on that established in the cited ARERA resolution, on 14 December 2022, based on the actual data collected referring to the years 2020 and 2021 and the Investment Plan, the Tuscan Area Governing Body (AIT) approved the tariff revision proposal, setting the GRC and the Theta for 2022-2023 and also redesigning the entire tariff profile until the end of the IWS concession (AIT Executive Council Resolution 17/2022 of 14 December 2022). This tariff proposal was then sent to ARERA for final ratification.

The revenues and GRC recognised in the 2022 financial statements are based on the cited AIT resolution, currently being verified and validated by ARERA for final ratification.

Umbra Acque

On 26 November 2007, Acea was definitively awarded the contract in the context of the tender procedure launched by the Area Authority for OTA 1 Perugia for selection of the private minority industrial partner of Umbra Acque SpA (expiry of the concession originally set for 31 December 2027 and which following the Assembly of Mayors of the AURI with resolution 10 of 30 October 2020 was extended to 31 December 2031). The entry into the capital of the company (with 40% of the shares) took place with effect from 1 January 2008. The company performed its activities in all 38 Municipalities constituting OTAs 1 and 2.

As of 31 December 2022, the rate applied to users was determined on the basis of Water Tariff Method 3 (MTI-3) under Resolution no. 36/2021/R/idr of 2 February 2021 with which ARERA approved the preparation of the 2020-2023 tariff update previously approved by the Assembly of Mayors of the AURI with Resolution no. 10 of 30 October 2020, which,for 2022, provide a theta of 1.105 and an increase of 5.24% compared to 2021, also due to the billing of GRC adjustments for 2018. This increase for 2022 was confirmed with the AURI Assembly of Mayors resolution 10 of 25 October 2022, “Updating tariff provisions for 2022-2023” and subsequently with ARERA resolution 63/2023/R/idr of 21 February 2023. The average tariff €/m3 was approximately € 3.08 at 31 December 2022. The number of users served was approximately 236 thousand units (+0.5% compared to 31 December 2021). With reference to volumes, on the basis of the estimates made, approximately 28.2 million cubic metres of water were distributed, in line with 2021. As invoicing operations were not yet complete when these final figures were compiled, cubic metres distributed but not yet invoiced were estimated and the relevant rate determined based on historic values and prospective measurements.

When assessing the revenues for GRC in 2022, the company carried out a full adjustment of electricity costs incurred, in consideration of:

• article 1.1, letter c) of ARERA resolution 229/2022/R/idr of 24 May 2022;
• ARERA resolution 64/2023/R/idr of 23/02/2023 which in its initial clauses confirms the possible repetition of that established relative to 2021 in paragraph 1.1, letter c) of the cited resolution 229/2022/R/idr;
• ARERA’s acknowledgement in resolution 63/2023/R/idr of 21 February 2023, approving the “Update of the tariff provisions for 2022-2023”, of the insertion in the 2022/2031 Tariff Profile of the estimate of the adjustment component relative to 2022 and 2023 fully covering the greater costs incurred (around € 50 million total) and EGA’s commitment to present a justified request for recognition of the additional electricity costs for 2022/2023 in the context of quantifying the adjustment component “costs (...) for the occurrence of exceptional events”.

It should be highlighted that, with Directorial Decree 1 of 10 January 2023, the General Directorate for Dams of the Ministry of Infrastructure and Transport, € 25 million was assigned to the Districting project for the distribution network, to reduce losses in the area managed by Umbra Acque, for a total value of € 52 million. Implementation of the project is planned for 2023-2025, with the final objective of achieving an overall 30% decrease in losses.

Finally, note that ARERA Resolution 183/2022/idr/R awarded the Company a bonus of € 1,532 thousand for the results achieved in Technical Quality in the 2018-2019 two-year period. The bonus was received in the month of June.

Note that in 2022 the Company was forced to incur greater costs for raw materials, in particular electricity, which reached unprecedented heights, as well as for materials for investment projects and management activities. These increases had significant negative impacts on the company’s liquidity, which consequently saw cash requirements higher than expected. In implementing all the actions useful for guaranteeing economic and financial balance and business continuity, the company utilised all the extraordinary tools and measures made available by legislators and authorities, including use of the MIMS compensation fund (requests presented for a total amount of € 1,378 thousand), a financial advance of 35% of the cost established in the current Tariff Plan for 2022 by CSEA equal to € 5,193 thousand (see ARERA resolution 229/2022/R/idr) and electricity tax credits established in the Aid Decrees, acquired in 2022 for a total of € 3,042 thousand and recovered through offsetting in the income tax declarations for payment of contributions, taxes and VAT.

Geal

The Company manages the Integrated Water Service in the Municipality of Lucca in accordance with the Management Agreements with the local authority expiring on 31 December 2025, updated during 2013 to take into account the memorandum of understanding signed with the AIT on 29 November 2011 and in 2016 pursuant to ARERA Resolution no. 656/2015.

Relative to 2020-2023, the rules defining the tariff were initially determined by ARERA resolution 580 of 27 December 2019. During 2020, implementing that resolution and based on data provided by the Company, AIT approved the tariff provision with Resolution 4 of 28 September 2020, confirmed by ARERA with its resolution 265 of 22 June 2021. This established a tariff increase of 6.2% for each year.

Relative to the biennial update of the plan, ARERA approved the revision criteria with resolution 639 of 30 December 2021, which in particular established (i) supplementation of the investment schedule documents, taking into account those in the process of being approved under the NRRP, (ii) recalculation of certain tariff components in relation to the result of disputes on the rules used to determine tariffs in previous years, and (iii) the application of a new forecasting mechanism that moves forward the recognition of greater electricity costs in the tariff that can be foreseen based on market trends. Implementing the resolution above, the Company provided ITA all the data necessary by the deadline, including management, economic and investment data, as well as data on commercial and technical quality. Subsequently, AIT approved the tariff provision for GEAL with Executive Council resolution 5 of 31 May 2022, confirming the proposed tariff increases.

ARERA is still in the process of approving the above, which were sent by AIT in June 2022.

It should be noted that ARERA, with Resolution no. 183/2022/idr/R, awarded the Company a bonus of € 2.805 million (Acea share € 1.346 million) already paid for the results achieved in Technical Quality in the 2018-2019 two-year period.

Servizio Idrico Integrato Terni ScpA

The Optimal Territorial Area Authority no. 2 Umbria (OTA Umbria 2), awarded to SII Terni ScpA from 1 January 2002, the date on which the Convention was signed, for the duration of thirty years, the management of the Integrated Water Service (water supply, sewerage and treatment, hereinafter IWS) in the 32 municipalities of the Province of Terni (today Sub-area no. 4 of the Umbria AURI). The Terni Area covers an area of 1,953 square km, 93% of which is hills and 7% mountains. With the exception of the industrial areas of Terni and Narni, the land is prevalently used for forest and agriculture. The resident population served amounts to approximately 220,000 inhabitants. Users served total around 121 thousand and the water network covers 2,602 km.

Pursuant to ARERA Resolution 639/2021 for the two-year update (2022-2023) of tariff arrangements, the Company supplied and submitted to AURI the data collection for 2020 and 2021, completed with the applications for the recognition of the Rcarc, Opmis, Opsocial and OpexQC components. At the same time, it has produced what is required to allow AURI to formulate a reasoned request to the CSEA for the activation of forms of financial advances related to the procurement of resources to meet part of the expenses incurred for the purchase of electricity in accordance with ARERA Resolution 229/2022. With resolution 12 of 25 October 2022, AURI approved the update to the tariff provision for 2022-2023, establishing full recovery of the greater cost for electricity supplies in compliance with the cap on tariff increases. This was achieved through utilisation of the adjustment component “costs (...) for the occurrence of exceptional events” which will begin to influence tariffs starting in 2024. To achieve this result, the IWS prepared and sent to EGA, in October, the energy efficiency plan prepared in accordance with the guidelines in ARERA resolution 229/22. Thanks to ARERA resolution 495/22 of 13 October, with which the Authority called for a second window within which relevant government entities, upon a request by the relevant operator, could send a justified request to CSEA to activate types of financial advances, introduced with resolution 229/2022/R/idr, associated with obtaining resources to handle expenses incurred to purchase electricity, AURI presented the relative request for disbursement of the financial advance established in the amount of 35% of the cost of electricity in the tariff for 2022. On 29 December 2022, CSEA disbursed € 2.5 million in favour of the IWS which must be repaid in two annual instalments (December 2023 and December 2024).

During 2022, the Company amended the Regulations for the drinking water distribution service and the Service Charter to accommodate the new features of ARERA Resolution 609/2021, mainly concerning the treatment of hidden leaks compared to the procedures adopted so far. This revision was approved by the Consumer Council at its meeting on 15 June 2022.

Finally, on 25 October 2022, AURI approved the 2022-2023 update. Following this approval, ARERA approved the 2022-2023 update with resolution 78/2023/R/Idr of 28 February 2023.

ASM Terni

On 6 December 2022, the closing of the initial stage of the business combination with ASM Terni was signed, following the completion public procedure initiated by ASM.

The Company operates directly or through its investees in the integrated water service sector, in electricity production and distribution, in gas distribution and environmental services. ASM Terni is part of a temporary consortium with the National Services Consortium for collection and road sweeping activities.

Progress of the procedure for approving the tariffs

The following table shows the updated situation of the procedure for approving IWS tariff provisions for Group companies relating to the 2016-2019 regulatory period, the 2018-2019 two-year tariff update, and tariff provisions for 2020-2023, as well as the two-year tariff update for 2022-2023.

 

Company	Approval status (up to MTI-2 "2016-2019")	Two-year update status (2018-2019)	Approval status MTI-3 2020-2023	Approval status two-year update 2022-2023
Acea Ato2	On 27 July 2016, the AGB 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 AGB’s proposal; quality bonus confirmed.	The Conference of Mayors approved the tariff update on 15 October 2018. On 13 November 2018, ARERA approved the 2018-2019 tariff update with Resolution 572/2018/R/idr. On 10 December 2018, the Conference of Mayors adopted the provisions of the ARERA Resolution.	On 27 November 2020, the AGB approved the tariff for the 2020-2023 regulatory period with Resolution no. 6/2020 ARERA approved the 2020-2023 tariffs on 12 May 2021 with resolution 197/2021/R/idr	Following the formal warning of 18 October 2022 sent by ARERA, the Conference of Mayors approved the 2022-2023 tariffs on 30 November 2022. ARERA approval arrived with resolution 11/23 of 17 January 2023.
Acea Ato5	Tariff proposal submitted by the Operator on 30 May 2016, with request for recognition of the Opexqc. ARERA warned the AGB 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 ARERA is awaited.	The Conference of Mayors approved the 2018-2019 tariff update on 1 August 2018. ARERA has not yet given its approval.	On 14 December 2020, the Operator submitted a tariff updated request pursuant to article 5, paragraph 5.5 of ARERA Resolution 580/2019/R/idr MTI-3 of 27 December 2019. On 10 March 2021, the OTAA Conference of Mayors approved the proposed tariff for 2020-2023, with resolution 1/2021. ARERA has not yet given its approval. The Manager appealed against this resolution to the Regional Administrative Court, which rejected the appeal. The Company appealed to the Council of State and submitted an application for economic and financial rebalancing.	Following the formal warning sent by ARERA on 29 November 2022, EGA approved the 2022-2023 tariff proposal on 11 January 2023. ARERA has not yet given its approval. Activities to update the rebalancing request are in progress.
GORI	On 1 September 2016, the Extraordinary Commissioner of the AGB approved the tariff with Opexqc as of 2017. Approval by ARERA is awaited. With Resolution 247 of 31 May 2022, ARERA ordered CWA to employ and submit - within 90 days - specific determinations regarding tariff arrangements for the years 2012 and 2013. The measure at the same time extends the deadline for the conclusion of the proceedings to 30/09/2022, for the renewal of the contradictory preliminary investigation underlying the tariff determinations in Resolution 104/2016 (2012-2013 and 2014-2015)	On 17 July 2018 the Extraordinary Commissioner of the AGB approved the 2018-2019 tariff update. ARERA has not yet given its approval.	On 18 December 2020, the Operator submitted a tariff updated request pursuant to article 5, paragraph 5.5 of ARERA Resolution 580/2019/R/idr MTI-3 of 27 December 2019. Following a warning from ARERA, the CWA (Campania Water Authority) with a resolution dated 12 August 2021, approved the 2020-2023 tariff proposal. ARERA has not yet proceeded with approval.	On 10 August 2022 with resolution no. 35 the CWA approved the two-year update 2022-2023 including the earlier items prior to 2012. Approval by ARERA is awaited.
Acque	On 5 October 2017, the AIT approved the tariff with recognition of the Opexqc. Approved by ARERA on 9 October 2018 (as part of the approval of the 2018-2019 update).	On 22 June 2018 the AIT Executive Council 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, ARERA approved the 2018-2019 tariff update.	On 18 December 2020 the Executive Council of the AIT approved the 2020-2023 tariff provisions with Resolution no. 7. ARERA approval arrived with resolution 404/2021/R/idr of 28 September 2021.	AIT approved the 2022-2023 update on 25 November 2022. Approval by ARERA is awaited.
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. 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.	On 7 December 2018 the AIT approved the 2018-2019 tariffs with the extension of the 3-year concession. ARERA approved the 2020-2023 tariff provisions and the 2018-2019 two-year update with Resolution 59/2021 of 16 February 2021.	On 26 June 2020 the Executive Council of the AIT approved the 2020-2023 tariff provisions with Resolution no. 3. ARERA approved the 2020-2023 tariff provisions with Resolution 59/2021 of 16 February 2021.	The AIT Executive Council approved the update for 2022-2023 on 22 February 2023. Approval by ARERA is awaited.
Acquedotto del Fiora	On 5 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. Pending approval by ARERA, the AIT Board of Directors also approved the application to extend the concession to 31 December 2031, submitted by the Company in April 2019 and approved by the AIT Executive Council on 1 July 2019. The updated tariff proposal was then presented to extend it to 2031, which in any case confirmed the tariff increase (theta) and the Guaranteed Revenue Constraint (GRC) for the years 2018 and 2019, already approved by the AIT with its Resolution of July 2018. ARERA approved the two-yearly update (with a small correction of the recognised OpexQC) and the extension of the concession with Resolution no. 465 of 12 November 2019.	On 26 November 2020 the Executive Council of the AIT approved the 2020-2023 tariff provisions with Resolution no. 6. ARERA provided approval with resolution 84/2021/R/idr of 2 March 2021	AIT approved the 2022-2023 update on 14 December 2022. Approval by ARERA is awaited.
Geal	On 22 July 2016, the AIT approved the tariff with recognition of the Opexqc. On 26 October 2017, with resolution 726/2017/R/idr ARERA approved the specific regulatory frameworks for the 2016-2019 period proposed by the AIT.	On 12 July 2018 ARERA approved the 2018-2019 tariff update proposed by AIT.	On 28 September 2020 the Executive Council of the AIT approved the 2020-2023 tariff provisions with Resolution no. 4, updated with Resolution nos. 13 and 14 of 30 December 2020. ARERA provided approval with resolution 265/2021/R/idr of 22 June 2021.	On 31 May 2022, the AIT, with Resolution no. 5, approved the tariff arrangement to apply for the years 2022 and 2023. Approval by ARERA is awaited.
Acea Molise	Following Resolution no. 664/2015/R/idr, both for the Municipality of Campagnano di Roma (RM) and the Municipality of Termoli (CB), Municipalities where Crea Gestioni offers the IWS, neither the Granting Body nor the Area Authority of reference submitted a tariff proposal for the regulatory period 2016-2019, so the Company independently submitted tariff proposals. Currently approval by the ARERA is still pending.	The Company has submitted the data to the competent parties/AGB in order to update the 2018-2019 tariff. For the management of the IWS in the Municipality of Campagnano di Roma (RM), given the inaction of the designated parties the Company filed an application with ARERA in early January 2019 for a tariff adjustment in 2018-2019, also revising the 2016-2019 proposal. ARERA has not yet pronounced or issued a warning to the AGB and/or to the competent parties. For the management of the IWS in the Municipality of Termoli (CB), with a Resolution dated 17 December 2019 the Municipal Council of Termoli approved the alignment of the pre-existing Agreement to the Agreement template, extending its expiry to 31 December 2021, and confirmed the tariff increase (theta) and the Guaranteed Revenue Constraint (GRC) for 2018 and 2019, also revising the 2016-2019 proposal. ARERA has not yet given its approval.	The Municipality of Termoli approved the tariff provisions for 2020-2023 on 4 February 2021. These were sent by the EGAM on 4 March 2021. For the Municipality of Campagnano, the Operator sent the tariff provisions to ARERA on 30 March 2021 in accordance with the provisions under art. 5.5 of Resolution 580/2019/R/idr.	Currently being defined with EGAM
Gesesa	On 29 March 2017 with Resolution no. 8 of the Extraordinary Commissioner the OTAA1 approved the tariff provisions for the years 2016-2019. Currently approval by the ARERA is still pending.	The Company submitted the documentation relating to the 2018-2019 tariff review to the Area Authority and the preliminary investigation by the technical offices of the competent AGB (EIC-Campania Water Authority) was completed at the end of February 2020. The final approval of the EIC Executive Committee has not yet been given.	On 29 December 2020, the Operator submitted a tariff updated request pursuant to article 5, paragraph 5.5 of ARERA Resolution 580/2019/R/idr MTI-3 of 27 December 2019. The CWA convened the District Council for 22 July 2021 (findings report on checking of the minutes of 31/7/20) following the warning from ARERA received on 2 July 2021. In February 2022, a new District Council was appointed, which has not yet expressed a position on the tariff arrangements.	Currently being defined with the CWA Executive Council.
Nuove Acque	On 22 June 2018, the AIT Executive Council approved the rates	On 16 October 2018 with Resolution 520 ARERA approved the 2018-2019 tariff update proposed by the AIT.	On 27 November 2020 the Executive Council of the AIT approved the 2020-2023 tariff provisions with Resolution no. 5. ARERA provided approval with resolution 220/2021/R/idr of 25 May 2021	With resolution 12/2022 of 29 July 2022, the AIT Executive Council approved the tariff provisions for 2022 – 2023. ARERA provided approval with resolution 535/2022 of 25 October 2022.
Umbra Acque	On 30 June 2016, the AGB approved the tariff with recognition of the Opexqc. The ARERA then approved them in Resolution 764/2016/R/idr dated 15 December 2016.	In its session of 27 July 2018, the AURI Assembly approved the 2018-2019 tariff update. The ARERA approved the 2018-2019 tariffs with Resolution no. 489 of 27 September 2018	AURI approved the 2020-2023 tariff provisions with Resolution no. 10 of 30 October 2020. ARERA approved the same with Resolution 36/2021 of 2 February 2021.	On 25 October 2022, AURI approved the 2022-2023 update. Following this approval, ARERA approved the 2022-2023 update with resolution 63 of 21 February 2023.
SII Terni ScapA	On 29 April 2016, with Resolution no. 20, AURI approved the tariff multiplier for the 2016-2019 four-year period and with determination no. 57 it approved the adjustment for previous items. ARERA approved the 2016-2019 tariff provisions with resolution 290/2016 of 31 May 2016.	With resolution of the Board of Directors of AURI no. 64 of 28-12-2018, approval was given to the 2018-2019 two-year update. ARERA approved the biennial adjustment 2018-2019 with its resolution of 20 September 2018 464/2018.	AURI approved the 2020-2023 tariff structure with the resolution by the Assembly of Mayors 12 of 30 October 2020. ARERA provided approval with resolution 553/2020 of 15 December 2020.	On 25 October 2022, AURI approved the 2022-2023 update. Following this approval, ARERA approved the 2022-2023 update with resolution 78 of 28 February 2023.

 

Revenue from the Integrated Water Service

The table below indicates for each Company in the Water Segment the amount of revenue for 2022 valued on the basis of the new MTI–3 Tariff Method. The data also include the adjustments of passing items and the FoNI component. Also note that following publication of resolution 64/2023 on “Launch of proceeding to define the water tariff method for the fourth regulatory period (MTI-4)” for 2024-2027, with reference to costs for electricity purchases incurred in 2022, the possibility to resubmit the justified request for recognition of these costs will be established for 2022 as well.

 

Company	Revenues from IWS (pro quota values in € million)	FoNI (pro quota values in € million)
Acea Ato2	692.1	FNI = 51.9 AMMFoNI = 18.1
Acea Ato5	78.9	AMMFoNI = 4.6
GORI	254.4	-
Acque	71.4	FNI = 1.3 AMMFoNI = 4.8
Publiacqua	98.3	AMMFoNI = 16.1
AdF	113.5	AMMFoNI = 13.1
Gesesa	15.4	-
Nuove Acque	8.8	AMMFoNI = 1.6
Geal	8.7	AMMFoNI = 1.3
Acea Molise	6.4	-
IWS	47.7	-
Umbra Acque	40.6	AMMFoNI = 1.7