Success and growth? They also come from regulation

Q. Attorney Marta Moreno, let's start with current events and the amendment to the Milleproroghe decree that postponed the end of the regime of greater protection in the natural gas and electricity sectors to 1 July 2020 (it should have been in 2019). In this regard, the Undersecretary for Economic Development with responsibility for Energy, Davide Crippa, justified the decision with the need to have "a little more time to avoid starting a change that is not democratic and that does not take into account the different needs of the interested parties". What do you think?

The debate rightly focused on the risks of market concentration in the hands of large players. In particular, it is requested that the Ministry and ARERA – the Regulatory Authority – act to ensure that customers in the protected segment are not forced to migrate to companies that are already dominant in the Italian energy market. The measure – as explained by the Undersecretary – has become indispensable, because the necessary guarantees of information for consumers on the market, competitiveness and transparency do not exist.

The Government is committed to working with industry operators and consumers to achieve the fundamental objective of ensuring an efficient, sustainable and transparent energy market for the community.

Q. What is important to do?

We should first understand whether the market configuration is suitable to guarantee the existence of a sufficient number of sellers to promote competition. Or whether, instead, we are opening a market that will inevitably see few sellers.

Q. What is Audax Energia's position with respect to the emerging market?

Audax Energia, in its growth and consolidation process in the Italian market, has decided to pay particular attention to reviewing its commercial chain and the processes of interaction with its customers, in particular with consumers, in order to undertake a process of seeking positioning in the Italian market in full compliance with sector regulations, avoiding adopting abusive and disrespectful behavior towards the customer.

Q. From a market and regulatory perspective, could we say: “grow, yes, but above all do things well”?

In a certain sense, yes. Although the energy sales sector is experiencing strong development, both in terms of billing and the number of players involved, we must not forget its dependence on constant regulatory updates and the variability of policies to be implemented.

Q. What are the possible critical issues to take into consideration?

One of the main ones, which affects all companies in the sector, concerns the consequences of non-payment of energy bills by end customers. A criticality - unfortunately on the rise in recent years - whose repercussions are entirely on sellers and which, with the economic crisis that both companies and Italian families have suffered, has only worsened. Furthermore, the current rules require that sellers - in addition to managing the lost revenue directly linked to their activity (raw material and marketing costs) - must advance the payment of other items on the bill, the weight of which has grown disproportionately.

 D. We imagine that these are huge figures...

Every year, this amounts to billions of euros. Energy sales companies must pay distributors and transporters the share to cover the related transport or distribution costs, in the bill paid by consumers, in addition to paying the general system charges, regardless of whether or not these have been paid by the end customer. These obligations, which are independent of the actual collection of the sellers, determine potential imbalances between what is (not) collected and what is obliged to pay. Furthermore, the increase in the risk of non-payment of bills has pushed the Authority to ask sellers to provide extensive guarantees to distributors and transporters: today a guarantee equal to three months of charges must be given, calculated on the basis of the volumes of each customer. However, to limit the immobilization by sellers of financial resources used to meet the guarantees requested, ARERA has also provided for the possibility of replacing them with a credit rating, which can also be borrowed from the group to which the seller eventually belongs.

D. For medium-small sized players (and there are quite a few) the situation will not be so simple...

Given the market context and the forecasts for the coming years, the current market design risks leading to an increase in concentration in the sales segment, with the disappearance of independents. Liberalization must therefore be seen as a guarantee of plurality within the market.

Q. And how does Audax position itself with respect to this scenario?

In this respect, Audax Energia has the support of a solid, strong parent company with a credit quality that provides the leverage to address the growth of the company in Italy.

Q. Let's go back to the topic of the risk related to customer default, what measures can be taken to resolve it or at least mitigate it?

This is a problem that is not easy to solve. Legislators and regulators should ask themselves who is the entity that can most appropriately support it and study risk sharing mechanisms that are more efficient than the current ones. According to Unirec (the national association of debt collectors), in 2015 alone, the value of unpaid bills in Italy amounted to 6.4 billion. In 2017, Eni, EON and Sorgenia were forced to cede to “bill hunter” funds 500 million euros of unpaid credits relating to electricity and gas bills not paid by families, self-employed workers and small or medium-sized businesses in Italy, with an aging of between 700 days and 5 years (“Corriere della Sera”).

D. These are numbers that paint a far from simple picture...

Some data to better outline the situation. Although the first quarter of 2018 saw positive results from Italian companies and a decrease in serious delays by companies in payments to suppliers (compared to a year ago, payments over 30 days late, one of the main indicators of the health of companies, have in fact decreased by 10.8%), we come from a period of severe crisis both in Italian companies and in families, and from a subsequent recession that is still being felt in the payment trends and habits of end customers. However, only one company in three respects the terms agreed with suppliers: in March 2018, 37.2% of companies pay on time, 52.1% within the month of delay, while the percentage of serious delays is 10.7%. A percentage, the latter, which has reached its historical minimum from 2012 to today, even if compared to 2010 it is still higher than 94.5%. The crisis of companies operating in the retail sector continues; in fact, only 26.5% of companies in the sector have paid their suppliers regularly, compared to 16.1% of companies that have accumulated significant delays in payments and a large number of companies (57.4%) that have registered delays of up to 30 days (Cribis). 

D. The difficulty of the companies, in a cascading mechanism, also becomes your difficulty...

Yes, and the consistency of the phenomenon of users' failure to comply with their obligations to pay for the supply of gas and electricity has, in the last decade, forced the regulator to intervene on the matter. However, the conflicting interests that ARERA has been called upon to reconcile are not easy to resolve: on the one hand, it must be considered that users are "consumers" of essential services; on the other hand, suppliers must have ordinary tools available to react to non-compliance in contracts for reciprocal performance. In making the interests of consumers and sellers coexist, ARERA has adopted some caution by limiting the possibilities of self-protection of suppliers who cannot adopt "drastic remedies" such as interrupting the service without following precise rules and sometimes long timeframes that protect the consumer (perhaps in the case in which the end customer does not pay because he disputes the calculation criteria adopted in the invoice). Added to this is the reduction of the limitation period from 5 to 2 years for credits relating to the sale of energy and gas introduced by the 2018 Budget Law.

Q. What actions does Audax Energia plan to take to address this situation?

To address this contingency of the Italian market, Audax Energia has decided to invest in the development and improvement of the efficiency of both credit management and recovery processes, as well as credit risk assessment and scoring, also by taking advantage of the new avenues that the 2017 Competition Bill has opened up for companies in the utility sector to use and consult SIC, or Credit Information Systems, during the potential customer assessment phase.

(In fact, all the data relating to the credit request/relationship are recorded within the SIC, describing the type of contract, the amount, the reimbursement methods and the status of the request or execution of the contract; furthermore, there is information relating to the periodic progress of payments, any debt collection activities carried out and any disputes present. All this information, once processed, gives rise to a sort of financial reliability scoring).