ARERA Imposes REMIT Fine in Italian Gas Market

This week ARERA, the Italian energy regulator, fined ENET Energy S.A. (“ENET”) €940,000 for allegedly sending false and misleading signals to the market using a “fictitious device” (as defined by Article 2.2.a.iii of REMIT) in the Italian gas market in breach of Article 5 of REMIT. The investigation was originally announced in July 2023.

At the core of the case, significant physical storage renominations combined with GME exchange activity (mirroring the physical renominations) on the PSV virtual trading hub were carried out by ENET for a single gas day significantly contributing, according to ARERA, to a progressive system imbalance ultimately necessitating intervention by the system operator to rebalance the system by accepting offers placed on the market by ENET.

As is commonplace with ARERA enforcement resolutions, much of the useful information is redacted making a detailed and substantial analysis challenging. Regardless, pertinent facts may be summarised as follows and contains more, if not incomplete detail, compared to the original July 2023 announcement:

• On a single gas day in 2022 (the date is redacted), ENET over-nominated withdrawal and injection volumes in order to balance its position claiming to have misunderstood the rules of the gas storage arrangement (further details below);
• These physical nominations combined with exchange activity led to a significant imbalance in the Italian gas market requiring Snam Rete Gas (SRG), the system operator, to intervene in the MI-GAS market, the GME-operated intraday gas market (see here for further information);
• As a result of SRG’s balancing actions, ENET switched from being a buyer to seller by offering to fulfill all of the volumes offered for purchase by the system operator at prices higher than current market prices. It also appears that ENET may have traded in the MGP-GAS market (the GME day ahead market) but these activities were not considered in the final penalty determination;
• According to ARERA, both the magnitude and the sudden change of sign of the over-nominations had a significant impact on the supply and demand balance in the market sending misleading signals to the market about the state of the gas system;
• The intervention of SRG impacted imbalance prices, particularly for those market participants with negative imbalances, causing financial harm to these market participants.

ENET’s Responses

• ENET claimed that it had engaged in the disputed conduct to correct the erroneous purchase of interruptible storage capacity for injections using the so-called “winter counterflow service” offered by Stogit, a subsidiary of Snam and the largest gas storage operator in Italy. This service allows firms to inject gas into storage during the winter withdrawal season;
• ENET apparently made a mistake in their understanding of the type of injection capacity that could be used with the winter counterflow service, specifically interruptible versus firm capacity. They claimed that had SRG made it clear that only firm capacity could be used for the winter counterflow service, the disputed conduct 'would certainly not have occurred';
• ENET also disputed that their conduct had resulted in higher prices and SRG’s balancing interventions “cannot in any way be attributed to the contested conduct, since that intervention had no relevance for the purposes of balancing the system” and all the transactions carried out by ENET were substantially in line with the market price;
• ENET claimed that if they had “intended to take advantage of manipulative conduct” they could have placed offers at a higher price. Much of the useful detail in this respect is redacted hence cannot be verified.

ARERA’s counter arguments and conclusions 

• ARERA rejected ENET’s contention that SRG’s rules for the winter counterflow service were unclear saying that “the User that had used injection capacity at the storage sites for the period November-December 2022 would have been able to use the same capacity in delivery in the period January-March 2023”;
• ARERA claimed ENET’s argument was “entirely misleading” saying that the error alleged by the company does not actually relate to the offence and occurred prior to the contested conduct. ENET’s need to “avoid possible economic losses” connected to their own “error” cannot be used to justify a breach of REMIT;
• ARERA also rejected the company's arguments that the high number of over-nominations in both directions (first withdrawals and then injections) was due to the risks associated with the possibility of them being cut off/interrupted (in fact, the the storage system remained in full withdrawal mode for the entirety of the disputed day). In rebutting this argument, ARERA note that firms have several other tools to support their balancing objectives under such circumstances;
• ARERA also note that ENET had managed to balance its position on the relevant gas day negating the argument over the alleged difficulties caused by the winter counterflow service but they had nonetheless continued to over-nominate quantities well in excess of its actual needs leading to a significant worsening of system imbalance leading to the SRG balancing intervention.

 RegTrail Insights

It is notable that the seldom-used “fictitious device” definition of Article 2(2)(a)(ii) of REMIT is applied in this case. The last publicised case using this definition (click here) was rejected by the French energy regulator in October 2023. This case also highlights that deference to errors or misunderstandings are seldom a successful defence in such cases.