Integrated Reporting: Connecting the elements

Terna is a company that mainly operates (approximately 95% of revenues) in the Italian electricity system. In the sector supply chain - generation, distribution and sale of electricity – Terna manages the transmission segment, in the role of Italian TSO (Transmission System Operator). Terna is the largest independent grid operator for electricity transmission in Europe, and the sixth globally, in terms of kilometers of lines operated.

Terna guarantees transmission services that are essential for providing the electricity service to the community, through its subsidiary Terna Rete Italia, which is in charge of ensuring electricity dispatching activities (governance of flows on the transmission grid in order to maintain a balance between generation and consumption at all times), developing and maintaining the electricity transmission infrastructure as well as guaranteeing operators have equal conditions for access to the transmission grid. These activities are carried out under a legal monopoly based on a government concession, and are regulated by the Authority for Electricity and Gas and the instructions of the Ministry of Economic Development. Specifically, ministerial authorization is required for the investment plans that Terna draws up to meet requirements of efficiency and safety of the electricity service.

Transmission activity in Italy is supplemented by the search for other business opportunities in Italy and abroad. In the future, as envisaged in the 2013 – 2017 Strategic Plan, this second component of the business – whose development is assigned to the subsidiary Terna Plus - is bound to show significant growth in value creation, while remaining complementary to the Italian TSO activities.

Terna will continue on this twofold strategic path, pursuing efficiency, safety and lower costs of the electricity system, to the benefit of businesses and individuals, and the creation of shareholder value. The dividend policy reflects the two components of value creation.

The majority shares are held by Cassa Depositi e Prestiti (29.85% of capital as at 31-12-2012). The governance of Terna – based on a traditional control model and inspired by best practices - is focused on creating shareholder value, in the awareness of the social importance of the business the Group operates in.

Transmission System Operator Activities

The main objectives, which are the primary purposes of the concession, are the safety, continuity, quality and low cost of the service.

Given the regulatory context, the conditions and tariffs established by the Electricity and Gas Authority to compensate Terna's activities, increased operational efficiency - including procurement management - the timely realization of investments and financial management optimization are the levers to be used to combine these objectives with value creation. Good performance in response to specific incentive schemes can further improve results.

Though it guarantees an essential service to the community, Terna conducts business-to-business activities that do not involve a commercial relationship with end-users; relations with sector operators are accurately governed by a Grid Code approved by the Authority for Electricity and Gas.

More generally, contextual risks and opportunities emerge in Terna's relationship with its stakeholders. Respect for the environment and relationships with the region impact Terna's ability to realize those investments envisaged in the Development Plan. The sustainability policies and initiatives relate primarily to these areas, as well as to worker safety and the development of the technical skills required to maintain, over time, a high level of professional excellence.

Focusing on stakeholders, and maintaining a relationship of trust with them helps to ensure the stability of the business model in the medium and long term.

Compliance with the obligations of the monopoly is a precondition of Terna’s operations. For this reason, operational risks in running the grid - risk of disruption - have always been handled with the utmost care and employing procedures and techniques which are continually updated. In transmission activities, operating as a monopoly reduces market-related risks: it is the regulatory framework which determines risk and opportunities. The other risks - e.g. financial risk - are identified and continuously monitored and managed.

Development of new business operations 

While TSO activities remain fundamental in the Group's business model, over the long-term their value creation reaches a natural limit in the scope of the Italian monopoly. The Group's growth strategy involves the search for business opportunities in non-traditional areas, which offer the possibility to create value, complementing the traditional activities, with risk conditions compatible with such activities.

The areas for development take account of the large trends in the sector, such as the growth in generation from renewable sources and the integration of European grids, also in relation to Italy's geographic position in the Mediterranean basin – near the Balkans and North Africa.

These activities leverage the skills acquired through transmission activities, which are important to maintain and develop also for the purposes of developing non traditional activities.