With effect from 1 January 2006, parameter Ct will be abolished insofar as it is by now obsolete and no longer representative of the variable unit cost of electricity produced by thermoelectric plants using fossil fuels. However, given that parameter Ct is used to set the charges for a number of administered price components, the values to be used in its place have been adjusted as follows: 1) for setting unit revenues for non-renewable, non-cogeneration plants with a power of less than 10 MVA; for the withdrawal of surplus production by self-production plants with power greater than 10 MVA; and for plants selling their electricity in accordance with Resolution 108/97, with sole regard to new, up-graded or renovated plants, parameter Ct will be replaced each month by the arithmetic average of the hourly values of the National Single Price (NSP, as set forth in Art. 19 of Annex A to Resolution 168/03) recorded in that month in off-peak periods only; and 2) for the quarterly indexation of special consumption tariffs as set forth in Art. 73 of the Service Quality Code, parameter Ct will be replaced with parameter RS, which corresponds to the arithmetic average of the hourly values of the SNP in off-peak periods, as recorded in the six months prior to the month preceding the adjustment. With regard to the first point, and with sole regard to the first six months of 2006, an additional, gradually decreasing component is envisaged, to be added to the NSP with the aim of ensuring a gradual changeover from the old to the new parameter.

The Authority has adjusted the electricity tariff parameters for the period January-March 2006. The increases in fuel prices in recent months have had repercussions on the tariff component for the cost of purchasing electricity in 2006 and the component for the recovery of costs incurred by the Single Buyer but not allowed for in the tariff in 2005. To this should be added the upward adjustment of system charges, which in the last quarter of 2005 had been temporarily reduced. Consequently, with effect from January 2006 the electricity tariff before tax will increase by 2.5% for the average household, resulting in a higher annual expenditure of around

In the light of the Council of State order suspending as a precautionary measure the effect of the TAR (Regional Administrative Court) ruling annulling Resolution 248/04 reforming the procedures for the indexation of the raw material component of the economic terms for the supply of natural gas, the Authority has adjusted the parameters applicable for the first quarter of 2006 on the basis of that Resolution, by setting an increase of 0.2974 eurocents/m3 for supplies of natural gas with a heating power of more than 38.52 MJ/m3.

With this resolution the AEEG has begun the process of establishing specific incentive mechanisms to increase the amount of further interruptible natural gas supplies on offer. The resources available for these incentives will be raised through a corresponding increase in the transport tariffs paid to transport companies by users of the service. More specifically, as of 1 January 2006 the capacity component of the transport tariff (Cpe, Cpu e CPr), metering charges (CM) and volume charges (CV e CVp), as defined by Resolution 166/05 (transport tariffs for the second period of regulation), will be increased by 3.7%. This additional percentage will be paid into a special account in the Electricity Equalisation Fund (CCSE) for the promotion of interruptibility in the gas system. The AEEG will define in subsequent provisions the specific incentive mechanisms for the interruptibility of natural gas supplies, as well as the procedures for managing the sum set aside in the CCSE.

With Resolution 296/05 the Authority has adjusted the reference parameters whereby combined heat and power production (CHP) is accorded cogeneration status. These parameters were established in Resolution 42/02 and will apply throughout the two-year period 2006-2007. The most significant adjustments concern the parameters for the electricity output of power stations using natural gas, liquefied petroleum gas (LPG) and gasoil. For these types of plant, parameter LTmin, which indicates in percentage terms the minimum quantity of heat that the plant is required to produce to quality as cogeneration, has also been differentiated by plant size.

The Authority has amended the provisions of Resolution 168/03, specifying which activities will remain with the GRTN and which will be transferred to Terna. The Resolution also adopts in full the rules, initially applicable in 2005 only, governing consumption unit imbalances, by lowering the exemption threshold from 10% to the 7% envisaged in the definitive programme. The resolution has also extended to 2006 the operation of the platform for making changes to the preliminary withdrawal programmes and the possibility for Terna to operate on the exchange where necessary. Lastly, the resolution envisages subsequent amendments to Resolution 168/03, introducing amendments to the system for the registration of purchases and sales on the forward market.

Following the consultation document of 22 November 2005, the Authority has adjusted the hourly bands for 2006 by making the necessary calendar adjustment and applying the amendments suggested by Terna to take into account operational circumstances and any critical situations expected in 2006.

The AEEG has opened a procedure for the quantification of tariff charges for the operation of Terna S.p.A. (national transmission grid) for 2006, under the .rebundling. of the ownership and operation of the grid, and for the Transmission System Operator, GRTN S.p.A, for the remuneration of those functions remaining with it after the transfer of transmission and dispatch activities to Terna. It should be noted in this respect that on 1 November 2005 Terna began operating as national transmission grid operator in accordance with Art. 3 of Legislative Decree 79/99, and also took over functions and obligations formerly under the responsibility of the GRTN. It should also be noted that in Resolution 226/05 the AEEG defined all the public transmission and dispatching service functions subsequently transferred to Terna.

This resolution follows on from the consultation document of 5 December 2005, which set out the Authority.s proposals regarding the recognition of costs for the purpose of setting tariffs for smaller electricity companies (SECs) that did not transfer to Enel during the nationalisation process and have electricity networks interconnected, in some cases indirectly, to the national transmission grid. Pending the procedure opened with the consultation document, the Authority has provided that the current rules governing tariff supplements should continue to apply, without prejudice to any subsequent adjustment. Furthermore, from the two-month period March-April 2006 onwards, the part of the tariff supplement component paid on account to each SEC in respect of the higher cost of fuel purchases for electricity generation (the fuel component) will be adjusted on a bimonthly basis by the Electricity Equalisation Fund. The percentage change recorded in the Giem ?? index in the previous two-month period will be applied in cases where this change diverges by more than 2% from the value of the same index taken previously as reference.

With this Resolution the Authority for Electricity and Gas has approved the basic and special tariff options for 2006, as proposed by electricity distribution companies by 31 October 2005, as they conform to the tariff constraints defined by the Service Quality Code for electricity tariffs for the second period of regulation. The domestic tariff options submitted by the company ASMEA for 2006 were, however, rejected since they do not comply with the principles set forth in the Quality Code. The two distribution companies which did not submit tariff options by 31 October 2005 and did not apply to follow the simplified tariff scheme proposed by the Authority . Azienda Elettrica Abfalterer Paul C. S.n.c. and Ahrntaler Bauindustrie S.r.l. . will apply the charges envisaged by tariff TV2 (Art. 10 of the Quality Code), subject to its compliance with tariff constraint V1. A formal inquiry has also been opened into the above-mentioned distributors with a view, if appropriate, to imposing a penalty on them for failure to meet the terms imposed by the Quality Code for submitting distribution tariff proposals for 2006.

From January 2006 onwards, the Electricity Equalisation Fund (CCSE) will allow for a compensatory component for companies benefiting from special tariff schemes, without awaiting the conclusion of the notification procedure as defined by Art. 88 of the EU Treaty (Official Journal C 325/2002). For 2006 this component is determined by applying an increase equivalent to 4% of the special tariffs as applicable at 1 January 2005 on the basis of the tariff conditions in force on 31 December 2004. For further details on special tariff schemes, see Resolution 217/05.

The tariffs for gas other than natural gas have been increased by 0.195237 euros/m3 for the quarter January-March 2006 as the Jt index recorded a variation of more than 5% (+28.5%) with respect to the value defined in Authority Resolution 199/05. The variation in the Jt index implies an increase of around 10% in the average tariff of liquefied petroleum gas (net of VAT) for the quarter January-March 2006: for households with annual consumption equal to 286 m3, the increase in the annual average expenditure is 67 euros (gross of taxes).

The Authority has approved the proposal put forward by Terna for a revised subdivision of the network into zones. The changes concern the reconfiguration of the Monfalcone and Rossano limited production hubs, the introduction of a new limited production hub in the Foggia area, the introduction of two new virtual zones outside Italy and the closure of the Piombino limited production hub.

The AEEG has defined new economic terms and conditions for the connection to electricity networks (with voltage higher than 1kV) of generating plants using either renewable or conventional sources. The resolution also renews the current procedures for the connection of generation plants to electricity networks, setting the connection procedures which Terna and distributors must follow, including the setting of connection charges for generation plants. Connection charges are determined on the basis of plant connection costs, as set forth in the detailed project design, and are correlated to operations which are strictly necessary for connection, thus avoiding the danger of imposing inappropriate charges on companies applying for connection. Lastly, the resolution establishes specific provisions to the benefit of plants using renewable sources.

The Authority has amended a number of expenditure headings in the current Outline accounts contained in the Accounting Regulations approved through Resolution 245/04. It has also up-dated the Statement of delegated spending limits in order to bring it into line with the amendments and additions to the items included in the Outline accounts. Lastly, it has reduced from four to three years the duration of the mandate of the President and Members of the board of auditors, with the possibility of the mandate being renewed in the future.

The Authority has decided to open a procedure to establish a single compulsory national standard for communications between gas distribution and sales companies in the performance of the services envisaged by Authority Resolution 168/04 (safety and continuity of the distribution service, commercial quality of the distribution service, commercial quality of the sales service, checking and monitoring of data regarding the quality of the gas service). This standard would also apply in the event of a vendor being replaced.

The Authority has approved a number of amendments and additions to Authority Resolution 152 of 12 December 2003, through which it had established the arrangements for insuring civil consumers of gas distributed over local pipelines. More specifically, the amendments and additions are intended to: a) adopt the provisions of the Ministry for Productive Activities (MPA) Decree of 29 September 2005, which extended to regional transport companies the provisions already envisaged by the Authority for gas distributors; b) extend the provisions of Resolution 152/03 to national transport companies, in those cases where civil consumers are supplied directly through the national transport network; c) supplement the informational requirements envisaged by Resolution 152/03 with the aim of ensuring that all civil consumers receive information that is complete, easy to understand and uniform, in accordance with Resolution 152/03 itself.

The AEEG has approved the proposed up-dates submitted by Snam Rete Gas for its Network Code. The main changes concern: proposal no. 66) setting of costs incurred by users of the alternative transport service and refundable by Snam Rete Gas. The costs of this service, duly documented, refer to the allocated daily capacity and to the volume of gas needed to maintain supplies during the operation, based on the period of interruption indicated by Snam Rete Gas. Costs which are not connected to the alternative service continue to be payable by users; proposal no. 69) the presence of the owner of the metering installation involved in the closure of an existing re-delivery point; proposal no. 72) the possibility of access by Snam Rete Gas at any time to the new regulation and metering station, in cases where independent access is not possible; and proposal no. 84) up-dating the procedures for setting connection charges. Revenue from the new investment will be calculated as set forth in Art. 4 of Resolution 166/05, replacing Resolution 120/01.

This resolution amends the outline agreement annexed to Resolution 34/05, making it possible for producers to send GRTN the necessary certification required to obtain cogeneration status on a year-end basis even after the deadline of 31 March but not later than 31 December. The amendment also envisages that during their first period of operation plants will be remunerated at Ct, without prejudice to the possibility of obtaining an adjustment if they are subsequently recognised as qualifying for cogeneration status.

The AEEG has decided to amend and supplement Resolution 138/04, which establishes guarantees of access to the natural gas distribution service as well as rules for drawing up distribution network codes. More specifically, the amendments concern procedures for the determination and transmission of the data sent by distribution companies to transport companies concerning the quantities of gas involved in the allocation procedure for users of the distribution service. The resolution also establishes transitional arrangements for thermal year 2005-2006 for distribution companies to determine the data for transmission to the transport companies. Lastly, it is envisaged that transport companies will amend their own network codes in accordance with these provisions.

With Resolution 243/05 the AEEG has completed the regulations governing safety in the distribution of natural gas through the introduction of a system of incentives scheme. These reward reductions in the number of gas leaks, increases in the number of checks on gas odourisation levels, and a reduction in gas-related accidents at distribution plants. For the period 2006-2008 participation by distributors in the incentive scheme is voluntary. From 2009 the scheme will become compulsory, albeit with the necessary degree of graduality, and alongside the incentives will also envisage penalties on operators failing to meet the compulsory annual improvement targets. Gas distribution safety has until now been governed mainly by establishing safety requirements such as the minimum percentage of the network to be inspected every year, or the minimum number of checks on the gas odourisation level to be carried out each year. Under the current regulations incentives are only available to companies who satisfy the following stringent requirements for the entire year for which they are applying: 1) accuracy and reliability in the emergency call service, with prompt and unmodifiable recording of all telephone calls; and 2) the definition and implementation of company procedures for each of the safety-related activities listed in the provision. The incentive scheme envisages two components, the first regarding odourisation (there are rewards for odourisation levels exceeding the minimum annual level set by the Authority), and the second regarding leaks (with rewards for reductions in leaks located following reports by third parties). In the case of leaks, an annual rate of improvement is to be set for each plant, taking the average for the period 2003-2004 as starting level, with incentives being awarded where this rate is exceeded. The incentives will be awarded to all distribution plants satisfying the eligibility criteria as defined by the Authority and from 2007 will be calculated with reference to the previous year. This means that the plants of any given distributor who satisfies the criteria and therefore qualifies for the incentives, may have some plants that qualify for one of the two incentive components, or for both, or for neither. The provision divides distribution plants on the basis of the concentration of consumers connected to the network. For each of the three types (high, medium and low concentration), .target levels., to be reached by 2016, and .benchmark. (high quality) levels, above which incentives are not awarded, are set for the leak-detection component of the incentives. These target and benchmark levels will be assessed and if necessary revised at the end of the three-year period 2006-2008, on the basis of improvements actually achieved. In the event of a gas-related incident for which the distributor is liable occurring on a given distribution network, the distributor will incur a penalty equal in amount to the incentive applicable to that network. The provision, however, also sets a ceiling on the incentives granted, equal to 2% of the distribution revenue constraint approved by the Authority.