Regulation of gas smart-metering in Italy


By Ferruccio Villa

With Resolution no. ARG/gas 155/08 of 22 October 2008, the Italian Regulatory Authority for Electricity and Gas (Autorità per l’energia elettrica e il gas, AEEG) introduced smart metering in the natural gas sector. Smart meters will fulfil minimum functional requirements set out by the AEEG and be installed on all redelivery points of all natural gas distribution networks (around 300 Distribution Network Operators in Italy, serving 99.9% of customers). They will be commissioned gradually in coming years, starting with meters with a higher hourly flow (m3/ h) and proceeding to meters for household consumers.

The AEEG announced the roll-out of smart meters for gas in July 2006. The publication of Resolution ARG/gas 155/08 was preceded by a long and controversial consultation process:

  • Two consultation documents were published (July 2007 and June 2008)
  • A Working Group (WG) was established in November 2007 with the Italian Gas Committee (Comitato Italiano Gas, CIG), the National associations of Distribution Network Operators (DNOs), retailers and meter manufacturers to identify and agree on minimum functional requirements
  • Major DNOs (serving in total around 75% of customers) were asked for information at the beginning of 2008 in order to assess the age of existing installed meters, the level of use of AMR systems and the level of use of both pressure and temperature compensation.

2008 was in any case an important year for the regulation of the metering service in general:

  • meter-reading activities have been assigned only to DNOs, in coherence with the unbundling regulations in force since 2007 (previously, retailers too could carry out meter-reading services; DNOs have always been responsible for installation and maintenance)
  • a metering tariff was introduced. This was separate from the distribution tariff (for installation and maintenance activities) and from the retail tariff component (for meter reading activities).
Gas table1

Table 1 – NPV at year 15 for different annual consumption bands [€/meter]

Since the publication of the first consultation document the AEEG has announced the objectives that it intends to pursue through the implementation of gas smart-metering systems:

  • to make it easier to eliminate any inefficiencies and discriminatory features by improving the process of recording and accounting for the natural gas withdrawn by consumers and introducing technological innovations to metering units
  • to create the functional and technological conditions for the introduction of mechanisms to develop a market system for natural gas and support the definition of the regulated market for natural gas and the new balancing service
  • to improve the quality of natural gas metering, sales and distribution services, while ensuring the same functional and service levels irrespective of the operator responsible for the metering service and at the same time fostering greater awareness of consumption levels.

The AEEG carried out a quantitative cost-benefit analysis with respect to the DNOs, which will be making investments in smart meters and meter reading activities, taking various scenarios and hypotheses into consideration. Table 1 shows the Net Present Value (NPV) at year 15, the end of smart meters’ lifespan.

Three annual consumption bands were considered: < 5,000 m3, 5,000-200,000 m3 and > 200,000 m3. The cost-benefit analysis was conducted for each band irrespective of the other two. For annual consumption up to 5,000 m3 both Automated Meter Management (AMM) and Automated Meter Reading (AMR) were analysed separately. Finally, the case where the three annual consumption bands (AMM for annual consumption up to 5,000 m3) were included simultaneously was also considered.

The findings highlighted that:

  • For annual consumption up to 5,000 m3, neither AMR nor AMM seem justifiable, regardless of the size of the DNO
  • For annual consumption up to 5,000 m3, AMM implementation is more profitable than AMR. The reason is that with similar investments, the financial benefits of AMM are higher, especially when considering supply activations and deactivations, contractual transfers, avoidable missed meter reads, and the technical and financial administration of bad payers
  • AMR implementation for annual consumption of over 5,000 m3 entails undoubted financial benefits even just a few years after the investments made, irrespective of the size of the DNO
  • For large- and medium-sized DNOs, if the three bands of annual consumption (AMM for annual consumption up to 5,000 m3) are analysed simultaneously, the NPV is once again positive; this reflects the high benefits deriving from consumption of over 5,000 m3. This is the case that best represents the distribution of customers/meters served on average by each DNO.

Ex-ante hypotheses that are worthy of note include the following:

  • To obtain the NPV shown in Table 1, no extra charges for customers were assumed
  • Costs did not include the residual depreciation of traditional meters due to be replaced by smart meters, as the intention was to continue making a tariff allowance for DNOs to compensate for this
  • The periodic replacement of the power supply batteries – once in the life-cycle of smart meters in the consumption band up to 5,000 m3/year and every two years for smart meters in the consumption band over 5,000 m3/year – was considered
  • The installation, on average, of one data concentrator every 12 smart meters was assumed (more than 95% of smart meters will be managed through data concentrators)
  • The costs needed to interface smart metering systems with billing systems were considered.

Furthermore, the cost-benefit analysis highlighted that the implementation of smart meters and AMR/AMM systems will also bring significant financial benefits to retailers, who will not be making specific investments in smart meters and AMR/AMM systems. These benefits were not included in the NPV calculation and will be considered by the AEEG in the future, as part of initiatives to benefit consumers.

Drawing also on the experience gained in the electricity sector, it seemed essential to establish minimum functional requirements. This is to ensure that smart meters and remote management centres will meet functional and performance requirements appropriate to a completely liberalised market scenario and to the aim of meeting the above objectives. They must guarantee the same functions for all customers, regardless of the DNO or whether they are in the free market or have their prices regulated by the AEEG. They must guarantee interoperability and standardisation. They must not create obstacles to innovation and technological progress or to the development of new architectural solutions. As far as possible, they have been conceived as being mainly system-oriented rather than device-oriented.

As shown in Table 2, minimum functional requirements were divided into two categories: smart meters with hourly flow < G10 and smart meters with hourly flow = G10. It must be underlined that the consultation process played a key role for the AEEG in making its final decision. The first consultation proposed that minimum requirements should be differentiated by customer category. The second, drawing also on the debate in the framework of the WG, proposed that G16 should be used as an hourly flow demarcation. Thanks to the observations submitted on the second consultation document, in particular those suggesting that AMM should be limited only to G4 and G6 meters, it was finally decided to establish two categories of requirements: AMM for smart meters < G10 and AMR for smart meters = G10. Attributing minimum requirements on the basis of the smart meters’ hourly flow is the only criterion that ensures smart meters will maintain the same requirements from installation till the end of their lifespan.

The AEEG considered these requirements to be fundamental. Failing to meet them, especially where metering is a regulated activity, as in Italy, increases the potential for local monopolies of smart meter manufacturers being created. This would cause smart meter prices to rise, with a potential negative impact on the metering tariff. The definition of a standard communication protocol between the remote management centre and smart meters or data concentrators guarantees systematic interoperability in the event of one DNO taking over from another. As far as individual devices are concerned, the definition of a standard communication protocol between smart meters and data concentrators guarantees interoperability (in addition to mechanical interoperability) of smart meters produced by different manufacturers.

The CIG received a mandate from the AEEG to develop technical standards, including standard communication protocols for each communication sub-network, as explained above.

Since the beginning of the consultation process the AEEG has highlighted the importance of having temperature and pressure compensation on smart meter devices, including those for households. This proposal caused a worried reaction from DNOs and some meter manufacturers, especially as regards pressure compensation. Considering the high cost for making the function available (technology not mature) compared with the low benefits that it could bring, the AEEG decided not to include this requirement in Resolution ARG/gas 155/08. In any case, in the European-level technical survey conducted alongside the cost-benefit analysis, the AEEG found solutions that are able to compensate both temperature and pressure on G4 and G6 meters, including automatically (mass flow solutions). For this reason, although not mandatory, the AEEG wishes this function to be adopted by DNOs.

Gas table2

Table 2

DNOs are required to commission smart meters that comply with the minimum functional requirements described in Table 2 in accordance with the schedule shown in Table 3. Column 4 shows the penalty that DNOs will have to pay for the percentages they fail to meet by the obligatory deadlines.

For reasons of transparency the AEEG introduced specific instructions for DNOs to inform final customers:

  • About the general initiative, three to nine months before the replacement (or adaptation)
  • Of the date on which the works to replace (or adapt) the meters will be carried out, with advance notice of not less than ten calendar days.

Furthermore, DNOs are required to inform final customers:

  • Of the meaning and significance of the information shown on the meter display (included the alarm showing that the meter has recorded an anomaly)
  • That the replacement (or adaptation) of the metering unit, its activation and any change in its position that may be required by the DNO, will not entail any charge on customers
  • That they may apply for pulse emitter output, and the charge for this (approved by the AEEG). This applies only to customers equipped with meters of = G10.
Gas table3

Table 3

European Directive 2006/32/EC on energy end-use efficiency and energy services was recently transposed to Italian legislation through Decree 115 of 30 May 2008. This decree envisages that information on actual time of use and energy consumption must be provided to customers both through suitable remote displays and through standard instruments already available to them (e.g. bills, the Internet, etc.). From the regulatory point of view the AEEG decided that this function will only be made available at the request of customers, who will pay a charge that has still to be defined. From the technical standpoint the AEEG decided to opt for the pulse emitter output for smart meters = G10 and for an additional communication gate (physical or logical) for smart meters < G10. In the case of smart meters < G10, as shown in Table 2, technical characteristics, access to withdrawal data and the relevant cost for the customer will be determined through a subsequent AEEG Resolution.

The following main aspects of the regulation of smart gas meters remain to be completed :

  • Definition of the regulatory framework regarding the additional physical or logical communication gate, installed at customers’ request, for customers equipped with smart meters < G10 and the cost of the pulse emitter output for customers equipped with smart meters = G10
  • Access to the low voltage distribution network for purposes related to gas AMR/AMM (the low-voltage distribution network could be used to supply data concentrators and for local data transmission; the regulation of this access will be fundamental as the service must be offered in a nondiscriminatory and transparent way even to DNOs whose industrial group does not carry out any electricity distribution activities)
  • The new meter-reading frequencies.

1 “Instructions for the obligatory commissioning of gas metering units meeting minimum functional requirements and having remote reading and remote management functions, for all redelivery points on natural gas distribution networks” available in English at

2 AMM = AMR + electrovalve on smart meter devices that cannot be opened remotely.

3 Nevertheless, the metering tariff will reflect actual costs and will be differentiated according to hourly flow categories.

4 In Italy gas distribution licenses last twelve years