Annual Report - EDP

notes to the consolidated EDP and - Energias company de Portugal, financial S.A. statementsfor the Notes years to the ended Consolidated 31 december and Company 2012 Financial and Statements 2011for the years ended 31 December 2012 and 2011DistributionElectricity distribution is carried out through the National Distribution Network (RND) and consists of a medium and high-tension network and a low-tension distributionnetwork, exclusively under public service concessions.The distribution of electricity in medium and high-tension has been licensed to EDP Distribuição by the Portuguese Government for a period of 35 years, from 25February 2009.In accordance with specific legislation (Decree-law 344-B/82), the right to distribute low-tension electricity in Portugal is attributed to the municipalities (localauthorities). However, Service Concession Arrangements were celebrated generally with a 20 year term between each of mainland Portugal municipalities and EDPDistribuição. These concessions are in return for payment of a rent to the respective municipalities, determined in accordance with Decree-Law 230/2008 of 27November.SupplyThe Electricity supply market is open to competition, subject only to a licensing regime. Suppliers have the right of access to the national transmission and distributionnetworks upon payment of the access charges set by ERSE. The activity of free supply is developed by EDP Comercial, S.A. The activity of supply of last resort (CUR),including universal public service obligations, is guaranteed by EDP Serviço Universal, S.A., a company wholly owned by EDP Distribuição S.A.Electric Energy Price RegimeIn the non-regulated market, electricity tariffs are defined by an agreement between each supplier and its customers. In the regulated market the tariffs charged bythe Supplier of Last Resort are defined by ERSE.The Decree-Law 104/2010 of 29 September, establishes the end of regulated tariffs for very high, high, medium and low-tension customers from 1 January 2011. Forthe low-voltage segment, the Decree-Law 75/2012 of 26 March, establishes the extinction of the regulated tariffs for sale to final customers from 1 July 2012 forcustomers with contracted power higher or equal to 10.35 kVA, and from 1 January 2013, for customers with contracted power less than 10.35 kVA. This law alsoestablishes a system of transitional rates set by ERSE, as well as for economically vulnerable customers the right to join the contract on the open market or choose tokeep the supply by the supplier of last resort, benefiting, in any case from discounts in the price of access provided by law.Public Domain AssetsIn Portugal some fixed assets relating to electricity generation and distribution in the regulated market are subject to the public domain regime. These assets aredirectly related with the Group's activity, which can freely manage them, but cannot dispose of them for private commercial purposes while they are related with thepublic domain regime.GasThe National Natural Gas System (SNGN) basis of organization and operation, were established by the Decree-Law 30/2006 of 15 February. This DL was developed bythe DL 140/2006 of 26 July , that established the general basis applicable to the SNGN activities. The DL 231/2012 of 26 October, proceeds to the third amendment tothe DL 140/2006, changed by the DL 65/2008 of 9 April and by the DL 66/2010 of 11 June, incorporating essentially the principles of the European Parliament andCouncil’s Directive 2009/73/CE of 13 July, establishing common rules for the natural gas internal market.In the distribution activity for natural gas, EDP Group develops its activity in Portugal through its subsidiary Portgás, S.A. EDP Group is present in the commercializationof natural gas, either in the regulated market (EDP Gás Serviço Universal) or the free market (EDP Gás.com and EDP Comercial). EDP Gás.com and EDP Comercial, witha trading license in the free market since 2008 and 2010, respectively, have operated in the market since the start of 2009. Additionally, the Group develops the supplybusiness of propane gas, through EDP Gás GPL,S.A.On 15 June 2012, the tariffs set by ERSE were published for the years 2012-2013. The income allowed for Portgás S.A. include the initial revaluation of its assets (withreference to 31 December 2007), approved by the Finance Ministry.Activity in the energy sector in SpainElectricityIn Spain, Hidroeléctrica del Cantábrico (HC Energia) is the parent company of an industrial group that operates in the electricity and gas sectors. In the electricity sector,HC Energia generates, distributes and supplies electricity. Production is based essentially on traditional coal thermal power plants and, on a smaller scale, onhydroelectric and nuclear power plants.Electric Sector RegulationOn 27 November 1997 the Electric Sector's Law 54/1997 was approved, which (i) implements the principles included in the Protocol signed on 11 December 1996between the Ministry of Industry and Energy and the major electric power companies regarding greater liberalization and competition in the electricity sector and (ii)incorporates into Spanish law the provisions contained in Directive 96/92/EC on common rules for the internal electricity market. Additionally, on 6 July 2007 the Law17/2007 of 4 July came into force, amending the Law 54/1997, to adapt it to the Directive 2003/54/EC of the European Council and Parliament of 26 June 2003 oncommon rules for the internal market of electricity. Law 54/1997 was updated by the Royal Decree 13/2012 of 30 March, incorporating the principals of the EuropeanParliament and Council’s Directive 2009/72/CE of 13 July which came to repeal the Directive 2003/54/CE.172A World Full Of Energy