Getting to grips with Robin Tax

After few months from the introduction of the highly-disputed “Robin Tax” (a windfall profits tax on energy companies), which has compelled major energy undertakings to allocate huge funds towards (covering the cost of) an unexpected tax, it is still unclear how the Italian Energy Regulator (Autorità per l’Energia Elettrica e il Gas) will exercise its control powers, as per Decree 112/2008, in relation to the potential impact of the tax levy on final prices.

The attribution to a public authority, even if qualified as an “independent authority”, of the power to judge (and, eventually, to fine) the price policy of undertakings competing in a free market, rises, from several points of view, a number of concerns both in relation to the compatibility of such measure with the dynamics of a competitive market and the
effectiveness of the measure at stake in relation to the alleged noble purpose of protecting final consumers.

In this respect, the Italian Energy Regulator has launched a first consultation with market operators aiming at the definition of the evaluation criteria to be used to establish, on the basis of companies’ accounts, if the increase in the tax levy has passed on to final prices (consultation document no. DCO 31/08 of 25 September 2008).

Actually, the consultation document only outlines the instruments through which the Italian Energy Regulator, like a modern Robin Hood, will first identify the suspected “robbers”, i.e. those undertakings found to have passed the higher tax burden on to retail prices.

The consultation will first lead to the definition of a “first level indicator”, corresponding to the so-called “gross operational margin per unit” (GOMu), i.e. the difference between the industrial price and industrial cost of each product unit (excluding the components relating to provisions and depreciation).

Any potential infringement of such first level indicator will trigger a more in-depth review by the Italian Energy Regulator based on a “second level indicator” to be defined through a second consultation process.

The above-mentioned, apparently straightforward, monitoring system on the one hand gives rise to a number of practical issues (allocation of industrial costs in case of undertakings producing and/or marketing more than one product, reference time-span for the reconstruction of the indicator, adequate valorisation of costs and revenues corresponding to inter-group transactions) which the Italian Energy Regulator is trying to address through the above mentioned consultation.

 

On the other hand, there is growing concern as to the consequences of Italian Energy Regulator’s massive intrusion into corporate affairs (rectius accounts). In light of the above, it is understandable that the concerned undertakings will never appear ready to be subject to such a deep form of control; this also in consideration of the significant organisational impact that it will have on corporate account-keeping.

 

A clear sign of this attitude of the concerned undertakings is the number of appeals filed against a resolution issued on July (ARG/Com 91/08) by the Italian Energy Regulator requiring the concerned undertakings to provide some preliminary sensitive information on the margins for product units and on productive efficiency.

Those trade associations (Assoelettrica, Unione Petrolifera and Anigas) participating in the consultation (closed on 20 October) criticised the methodology and criteria proposed by the Italian Energy Regulator to ensure compliance with the prohibition to pass the tax on to retail prices, and highlighted the following:

 

(i) it is impossible to determine, with certainty, if the tax levy is passed on to final prices through a unit margin growth process of control, as there are a number of factors that may determine a margin increase;

 

(ii) the proposed mechanism of control exceed the task assigned to the Italian Energy Regulator by Decree no. 112/2008, which only introduces a control over retail prices not extended to other book values;

 

(iii) the proposed mechanism of control is unlawful as it is based on the shifting of the onus probandi (burden of proof) on the concerned companies;

 

(iv) the information duties imposed by the Italian Energy Regulator would result in additional and not remunerated costs for the concerned companies;

 

(v) a mechanism of control involving the regulation of business margins would discourage any form of competition on the market also penalising efficiency and investment policies.

The above scenario raises some doubts about the possible outcome of the consultation as well as uncertainty about how the Italian Energy Regulator will exercise its supervising powers, even in sectors (e.g. fuel sector) that do not fall within its institutional regulatory ambit.

Rosaria Arancio is a lawyer at Macchi di Cellere-Gangemi.