I'll work through this step-by-step for Terna S.p.A., which is Italy's national electricity transmission grid operator.

## Step 1: Identify the Relevant Industry

Terna S.p.A. operates Italy's national electricity transmission network. This is a **regulated utility** - specifically an electricity transmission company. The company is subject to comprehensive regulation by ARERA (Italian Regulatory Authority for Energy, Networks and Environment). This falls under the "Regulated Utilities" methodology, specifically "Electricity National" subsector.

Key characteristics confirming this:
- Provides essential infrastructure service (electricity transmission)
- Shielded from competition (natural monopoly)
- Subject to comprehensive regulation
- Revenue comes from regulated tariff framework

## Step 2: Estimate Adjusted_EBITDA

First, let me reconstruct EBITDA from the available data.

From the income statement data for 2022:
- Revenue: 2,898,100,000 EUR
- Revenue and Operating Income: 2,964,500,000 EUR (this includes other revenue)
- Expense By Nature: 1,631,000,000 EUR
- Profit Loss From Operating Activities (EBIT): 1,333,500,000 EUR

Let me verify: Revenue and Operating Income (2,964,500,000) - Expense By Nature (1,631,000,000) = 1,333,500,000 EUR EBIT. This checks out.

To get EBITDA, I need to add back depreciation and amortization:
- Depreciation Amortisation And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss: 725,700,000 EUR

**EBITDA = EBIT + Depreciation & Amortization = 1,333,500,000 + 725,700,000 = 2,059,200,000 EUR**

Now, let me check for adjustments needed per S&P regulated utilities methodology:

**Leases:** Looking through the data, I don't see explicit lease liabilities or right-of-use assets. The expense by nature includes services but no explicit lease expense breakout. Given the capital-intensive nature and that property plant and equipment is the dominant asset class, I'll assume minimal operating leases. No adjustment.

**Nonrecurring items:** Looking at the data:
- Profit Loss From Discontinued Operations: -20,300,000 EUR (this is a loss, so it's already excluded from continuing operations/EBIT)
- No obvious nonrecurring gains/losses explicitly stated in operating items

Looking more carefully at cash flow adjustments:
- Adjustments For Gain Loss On Disposals Property Plant And Equipment: -6,900,000 EUR (gain, so subtract from EBITDA if we want to normalize)
- Cash Flows From Other Non Cash Movements: -24,100,000 EUR

Actually, let me reconsider. The EBITDA I calculated (2,059,200,000) includes the gain on disposals in the EBIT already. Looking at the cash flow statement, the gain on disposal of 6,900,000 is added back in the reconciliation from profit to cash flows, meaning it was deducted to get to operating cash flow. This suggests it was included in EBIT. So for Adjusted EBITDA, I should subtract this nonrecurring gain.

Wait - let me re-read. "Adjustments For Gain Loss On Disposals Property Plant And Equipment" = -6,900,000. In cash flow statements, gains are subtracted (negative adjustment), losses are added. So -6,900,000 means subtracting a gain of 6,900,000. This confirms there was a gain of 6,900,000 included in profit.

**Nonrecurring gain to subtract: 6,900,000 EUR**

**Pension adjustments:** Looking at the data:
- Noncurrent Provisions For Employee Benefits: 48,400,000 EUR (2023), 60,800,000 EUR (2022)
- No explicit pension deficit mentioned. The defined benefit plan remeasurements in OCI are -10,400,000 EUR (loss), but this is actuarial remeasurement, not a service cost.

For regulated utilities, S&P typically doesn't make significant pension adjustments unless there's a material deficit. The employee benefits expense includes gross and capitalized personnel expenses, suggesting defined benefit costs are already in operating expenses. No clear pension deficit to add.

**Joint ventures:** Share Of Profit Loss Of Associates And Joint Ventures = -1,000,000 EUR (loss). This is already below EBIT line, so not in EBITDA.

**Other normalization:** Looking at the cash flow adjustments:
- Accruals To Provisions Including Provisions For Employee Benefits And Impairment Losses: 51,700,000 EUR
- This is a non-cash charge that was likely in EBIT. But wait - this is already in the reconciliation from profit to cash flow, not necessarily in EBIT.

Actually, let me recalculate more carefully. The "Expense By Nature" of 1,631,000,000 EUR includes all operating expenses. The depreciation of 725,700,000 is part of this. Let me verify:

Expense By Nature components:
- Raw Materials And Consumables Used: 247,800,000
- Services Expense: 276,900,000
- Employee Benefits Expense: 348,100,000
- Depreciation Amortisation And Impairment: 725,700,000
- Other Expense By Nature: 32,500,000
Total: 1,631,000,000 EUR ✓

So EBITDA = Revenue and Operating Income - (Expense By Nature - Depreciation) = 2,964,500,000 - (1,631,000,000 - 725,700,000) = 2,964,500,000 - 905,300,000 = 2,059,200,000 EUR

Or: EBIT 1,333,500,000 + D&A 725,700,000 = 2,059,200,000 EUR ✓

For regulated utilities, S&P may also consider if there are any regulatory accounting adjustments, but the methodology states "We do not adjust GAAP earnings or balance-sheet figures to remove the effects of regulatory accounting." Terna uses IFRS, not US GAAP regulatory accounting.

Let me check for any other items. The "Other Revenue" of 66,400,000 EUR - is this recurring? It's small and likely recurring (ancillary services, etc.).

Looking at related party transactions: Revenue From Sale Of Goods Related Party Transactions is 1,718,700,000 out of 2,898,100,000 revenue. This is likely revenue from grid services to related parties - this is normal for a regulated transmission operator.

**Adjusted_EBITDA = 2,059,200,000 - 6,900,000 (nonrecurring gain on disposal) = 2,052,300,000 EUR**

Wait - I need to reconsider. Is the gain on disposal really nonrecurring and should it be excluded? For infrastructure companies, asset disposals can be somewhat routine (replacing old equipment). However, S&P typically normalizes for gains/losses on disposals. Let me be conservative and subtract it.

Actually, re-reading S&P methodology more carefully - they say "nonrecurring losses" are added back and "nonrecurring gains" are subtracted. The gain on PPE disposal of 6,900,000 seems nonrecurring.

But let me also check: the cash flow shows "Proceeds From Disposals Of Property Plant And Equipment" of 15,600,000. The gain was 6,900,000, so book value was 8,700,000. This is small relative to total PPE of 16.2 billion.

**Adjusted_EBITDA = 2,052,300,000 EUR**

## Step 3: Estimate FFO

For regulated utilities, the baseline formula is:
**FFO = Adjusted_EBITDA - cash_interest - cash_taxes**

From the cash flow statement:
- Interest Paid Classified As Operating Activities: 154,800,000 EUR
- Interest Received Classified As Operating Activities: 64,200,000 EUR
- Income Taxes Paid Refund Classified As Operating Activities: 380,100,000 EUR

Net cash interest = Interest Paid - Interest Received = 154,800,000 - 64,200,000 = 90,600,000 EUR

Cash taxes = 380,100,000 EUR

**FFO = 2,052,300,000 - 90,600,000 - 380,100,000 = 1,581,600,000 EUR**

Let me cross-check with the cash flow from operations:
Cash Flows From Used In Operating Activities: 2,323,700,000 EUR

This includes working capital changes and other items. The reconciliation shows:
Cash Flows From Used In Operations Before Changes In Working Capital: 2,072,700,000 EUR

This should equal: EBIT + D&A + other non-cash items - net interest - taxes... wait, let me check.

Actually, 2,072,700,000 = Profit before tax (1,233,400,000) + D&A (736,100,000 - note this includes 725.7M + other amortization) + other adjustments.

Looking at the adjustments listed:
- Adjustments For Depreciation And Amortisation: 736,100,000
- Accruals To Provisions: 51,700,000
- Gain On Disposals: -6,900,000
- Finance Income Cost: 101,500,000 (this is net finance costs, not cash interest)
- Income Tax Expenses: 356,700,000
- Other Non Cash Movements: -24,100,000

Sum: 1,233,400,000 + 736,100,000 + 51,700,000 - 6,900,000 + 101,500,000 + 356,700,000 - 24,100,000 = 2,548,400,000? That doesn't equal 2,072,700,000.

Wait, I think "Finance Income Cost" of 101,500,000 is the net finance cost (121,800,000 costs - 22,700,000 income = 99,100,000... close but not exact). Actually 121,800,000 - 22,700,000 = 99,100,000, not 101,500,000. Hmm, let me check: 22,700,000 is "Finance Income Cost" which seems to be net. But "Finance Costs" is 121,800,000. So Finance Income = 22,700,000 - 121,800,000 = -99,100,000 net cost. But adjustment is 101,500,000. Close enough, maybe includes other items.

Actually let me recalculate: 1,233,400,000 (profit before tax) + 736,100,000 + 51,700,000 - 6,900,000 + 101,500,000 + 356,700,000 - 24,100,000 = 2,548,400,000. This is way off from 2,072,700,000.

I think I misread. The "Cash Flows From Used In Operations Before Changes In Working Capital" might start from a different base. Let me re-read: "Profit Loss Before Tax" is 1,233,400,000, but this includes finance costs. Actually, the standard reconciliation starts from profit before tax and adds back non-cash items and finance costs.

Wait - 2,072,700,000 vs my calc of 2,548,400,000. Difference is 475,700,000. Let me check if "Profit Loss Before Tax" should be something else.

Actually, looking more carefully: "Profit Loss From Operating Activities" is 1,333,500,000 (this is EBIT). Then "Finance Income Cost" is 22,700,000 (net), "Finance Costs" is 121,800,000, so PBT = 1,333,500,000 - 121,800,000 + 22,700,000 = 1,234,400,000? But stated PBT is 1,233,400,000. Close enough, rounding.

Actually: 1,333,500,000 + 22,700,000 - 121,800,000 = 1,234,400,000. But PBT is 1,233,400,000. Difference of 1,000,000 - maybe the -1,000,000 share of JV loss? 1,234,400,000 - 1,000,000 = 1,233,400,000. Yes! So PBT = EBIT + Finance Income - Finance Costs + Share of JV loss = 1,333,500,000 + 22,700,000 - 121,800,000 - 1,000,000 = 1,233,400,000.

Now for CFO before working capital: Starting from PBT 1,233,400,000:
+ D&A 736,100,000
+ Provisions 51,700,000
- Gain on disposal 6,900,000
+ Finance costs (net) 99,100,000? Or + Finance Income Cost adjustment 101,500,000
+ Income tax expense 356,700,000
+ Other non-cash -24,100,000

= 1,233,400,000 + 736,100,000 + 51,700,000 - 6,900,000 + 101,500,000 + 356,700,000 - 24,100,000 = 2,548,400,000? Still wrong.

Hmm, let me try starting from Profit Loss (net income): 857,700,000
+ D&A 736,100,000
+ Provisions 51,700,000
- Gain 6,900,000
+ Finance costs net 101,500,000? 
+ Income tax 355,400,000? (actual tax expense, not paid)
+ Other -24,100,000
= 857,700,000 + 736,100,000 + 51,700,000 - 6,900,000 + 101,500,000 + 355,400,000 - 24,100,000 = 2,071,400,000 ≈ 2,072,700,000! Close!

So the reconciliation starts from net profit, not PBT. The difference is 1,300,000 which might be non-controlling interests or rounding.

Anyway, back to FFO. My calculation:
Adjusted_EBITDA = 2,052,300,000
Cash interest paid = 154,800,000
Cash interest received = 64,200,000
Net cash interest = 90,600,000
Cash taxes paid = 380,100,000

FFO = 2,052,300,000 - 90,600,000 - 380,100,000 = 1,581,600,000 EUR

But wait - should I use gross or net interest? S&P typically uses cash interest paid, not net of interest received. Let me re-check methodology.

Actually, looking at standard S&P methodology: "cash interest" typically means interest paid, and interest received is usually not subtracted (it's part of FFO if from operations, or treated as non-operating). For regulated utilities, interest received might be considered operating if it's from regulatory balances.

However, in the cash flow statement, interest received is classified as operating activities. This suggests it's operating in nature. But for FFO calculation, S&P usually uses "cash interest paid" or "cash interest" which could mean net.

Let me check: In many S&P formulas, FFO = Funds from operations = net income + D&A + deferred taxes + other non-cash items - working capital changes... actually no, that's more like CFO.

Standard S&P FFO definition: FFO = net income + depreciation & amortization + deferred income taxes + other non-cash items - extraordinary gains/losses + adjustments for unconsolidated subsidiaries.

But the prompt gives: FFO = Adjusted_EBITDA - cash_interest - cash_taxes

So I should use "cash interest" - which from the cash flow is "Interest Paid Classified As Operating Activities" = 154,800,000. The interest received might be considered a separate operating item not in EBITDA.

Actually, EBITDA includes EBIT which is before any interest. So EBITDA doesn't include interest income or expense. Then FFO = EBITDA - cash interest paid - cash taxes. Interest received would be additional FFO if we consider it operating.

But the formula says "cash_interest" not "net cash interest". Let me interpret as cash interest paid = 154,800,000.

FFO = 2,052,300,000 - 154,800,000 - 380,100,000 = 1,517,400,000 EUR

Hmm, but this seems low. Let me cross-check with actual CFO: 2,323,700,000. This includes working capital benefits and interest received.

CFO = FFO + working capital changes + interest received + other items
2,323,700,000 = 1,517,400,000 + (-36,900,000 provisions + -20,700,000 inventories + 285,900,000 receivables + 604,800,000 payables + -126,100,000 other non-current liabilities + 14,700,000 other non-current assets + 64,200,000 interest received)

= 1,517,400,000 + 821,900,000 = 2,339,300,000? Close to 2,323,700,000, difference of 15,600,000 maybe other items.

Actually let me recalculate working capital total:
- Provisions: -36,900,000
- Inventories: -20,700,000
- Receivables: +285,900,000
- Payables: +604,800,000
- Other non-current liabilities: -126,100,000
- Other non-current assets: +14,700,000
- Interest received: +64,200,000
Total working capital and other: +821,900,000

1,517,400,000 + 821,900,000 = 2,339,300,000. But actual CFO is 2,323,700,000. Difference is 15,600,000. Hmm, maybe I missed something.

Actually, the "Cash Flows From Used In Operations Before Changes In Working Capital" is 2,072,700,000. Then:
+ Decrease in provisions? No, "Adjustments For Increase Decrease In Provisions" = -36,900,000 (so decrease in provisions, cash outflow?)
Wait, in IFRS cash flow statements, increases in provisions are positive (add back), decreases are negative. But here it's "Adjustments For Increase Decrease In Provisions" = -36,900,000. This means provisions decreased, which is a use of cash (negative adjustment).

Let me recalculate from 2,072,700,000:
- Provisions decrease: -36,900,000
- Inventory increase: -20,700,000
- Receivables decrease: +285,900,000
- Payables increase: +604,800,000
- Other non-current liabilities decrease: -126,100,000
- Other non-current assets decrease: +14,700,000
- Interest received: +64,200,000
- Interest paid: -154,800,000
- Taxes paid: -380,100,000

= 2,072,700,000 - 36,900,000 - 20,700,000 + 285,900,000 + 604,800,000 - 126,100,000 + 14,700,000 + 64,200,000 - 154,800,000 - 380,100,000
= 2,072,700,000 + 251,000,000 = 2,323,700,000 ✓

So CFO before interest and taxes = 2,072,700,000. Then after interest paid and taxes paid, we get 2,323,700,000? That can't be right because 2,072,700,000 - 154,800,000 - 380,100,000 = 1,537,800,000, then plus interest received 64,200,000 = 1,602,000,000, then plus working capital changes 251,000,000 = 1,853,000,000? No wait...

Let me recalculate: 2,072,700,000 is "before changes in working capital". This should already include interest and tax accruals, not cash paid. Then we add working capital changes and subtract actual interest paid and taxes paid.

Actually, in standard IFRS direct method, CFO = collections - payments. In indirect method, we start from profit and adjust for non-cash items and working capital.

The line "Cash Flows From Used In Operations Before Changes In Working Capital" of 2,072,700,000 likely equals: Net income + non-cash items (D&A, provisions, etc.) ± other adjustments. This is essentially "operating cash flow before working capital changes".

Then working capital changes are applied, and then interest and taxes paid are shown separately? No, in the standard format, interest and taxes paid are part of the operating cash flow.

Actually looking at the structure: "Cash Flows From Used In Operations Before Changes In Working Capital" (2,072,700,000) then various working capital adjustments, then "Interest Received" (64,200,000), "Interest Paid" (-154,800,000), "Income Taxes Paid" (-380,100,000), total CFO = 2,323,700,000.

Wait, that means: 2,072,700,000 + working capital adjustments + 64,200,000 - 154,800,000 - 380,100,000 = 2,323,700,000

So working capital adjustments = 2,323,700,000 - 2,072,700,000 - 64,200,000 + 154,800,000 + 380,100,000 = 721,700,000? But I calculated 251,000,000 earlier. Let me recheck.

Actually I think "Cash Flows From Used In Operations Before Changes In Working Capital" might already include interest received/paid on accrual basis, and then the separate lines are for... no, that doesn't make sense.

Let me just use the explicit formula given: FFO = Adjusted_EBITDA - cash_interest - cash_taxes

Where cash_interest = interest paid = 154,800,000 and cash_taxes = 380,100,000.

But wait - should interest received be added? The formula doesn't include it. And in EBITDA, we didn't include interest income. So FFO = 2,052,300,000 - 154,800,000 - 380,100,000 = 1,517,400,000.

However, I want to verify if "cash_interest" should be net. In some S&P methodologies, they use "cash interest" meaning interest paid less interest received if the latter is operating in nature. For a utility, interest received might be from regulatory balances.

Let me check: Interest Received Classified As Operating Activities = 64,200,000. This is operating. If we use net cash interest = 154,800,000 - 64,200,000 = 90,600,000.

FFO = 2,052,300,000 - 90,600,000 - 380,100,000 = 1,581,600,000.

I'll use **FFO = 1,581,600,000 EUR** with net cash interest, as this is more standard for utilities where interest received is operating in nature (from regulatory asset balances, etc.).

Actually, let me reconsider once more. Looking at S&P's typical utility formula, they often use "cash interest" as a line item which is typically interest expense paid, not net. But for companies where interest income is material and operating, they might net it.

Given the formula explicitly says "cash_interest" not "net cash interest", I'll use gross: 154,800,000.

FFO = 2,052,300,000 - 154,800,000 - 380,100,000 = **1,517,400,000 EUR**

But this seems conservative. Let me check if there's another interpretation.

Actually, re-reading: "FFO = Adjusted_EBITDA - cash_interest - cash_taxes". In S&P methodology, "cash interest" typically refers to cash interest paid (gross), and interest received is either part of FFO or treated separately. Since the formula doesn't mention interest received, and EBITDA doesn't include it, FFO would exclude interest received unless we add it back.

However, in practice, S&P's FFO for utilities often includes interest income as part of operations. Let me use the more comprehensive approach: FFO = Adjusted_EBITDA - net cash interest - cash_taxes + interest received... no that's double counting.

I think the safest interpretation is: cash_interest means cash interest paid, and interest received is a separate operating cash flow item that should be included in FFO. So:

FFO = Adjusted_EBITDA - cash_interest_paid + cash_interest_received - cash_taxes
= 2,052,300,000 - 154,800,000 + 64,200,000 - 380,100,000
= 1,581,600,000 EUR

Or equivalently: Adjusted_EBITDA - net_cash_interest - cash_taxes = 2,052,300,000 - 90,600,000 - 380,100,000 = 1,581,600,000.

I'll use **FFO = 1,581,600,000 EUR**.

## Step 4: Estimate Adjusted_Debt

Baseline formula: Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash

**Reported debt:**
- Longterm Borrowings: 8,416,700,000 (2023), 8,835,000,000 (2022)
- Shortterm Borrowings: 444,100,000 (2023), 1,947,000,000 (2022)
- Current Portion Of Longterm Borrowings: 1,909,300,000 (2023), 1,640,000,000 (2022)

For 2022 year-end debt (which is the fiscal year 2022, reported as 2023-01-01):
- Longterm Borrowings: 8,416,700,000
- Shortterm Borrowings: 444,100,000
- Current Portion Of Longterm Borrowings: 1,909,300,000

Wait, I need to be careful. The fiscal year ended Dec 31, 2022. The balance sheet dates are 2023-01-01 (which is Dec 31, 2022 end of day) and 2022-01-01 (Dec 31, 2021).

For 2022 fiscal year-end (2023-01-01):
Total reported debt = 8,416,700,000 + 444,100,000 + 1,909,300,000 = 10,770,100,000 EUR

For 2021 fiscal year-end (2022-01-01):
Total reported debt = 8,835,000,000 + 1,947,000,000 + 1,640,000,000 = 12,422,000,000 EUR

Average debt might be used for ratios, but S&P typically uses year-end or average depending on the ratio. For FFO/debt, they typically use average debt or year-end debt. Let me use year-end 2022 debt = 10,770,100,000.

**Leases:** Looking through the data, I don't see explicit lease liabilities. Under IFRS 16, leases would be in borrowings or separately disclosed. Given no explicit lease liability, I'll assume 0 or minimal.

**Pension deficit:** 
- Noncurrent Provisions For Employee Benefits: 48,400,000 (2023), 60,800,000 (2022)
- Employee Benefits Expense includes gross and capitalized, but no defined benefit plan deficit explicitly stated.

The OCI shows "Other Comprehensive Income Net Of Tax Gains Losses On Remeasurements Of Defined Benefit Plans" = -10,400,000 (loss). This is an actuarial loss, suggesting the plan might be underfunded. But the provision is relatively small (60.8M then 48.4M).

For S&P purposes, pension deficit = plan liabilities - plan assets. We don't have this breakdown. The provision of 48,400,000 might include pension obligations. Given the small size relative to total debt (~0.4%), I'll assume no material pension deficit to add, or use the provision as a proxy if it's unfunded.

Actually, "Noncurrent Provisions For Employee Benefits" likely includes defined benefit obligations net of plan assets. If this is already a net liability, it might already be in debt-like items. But it's likely already in "provisions" not in "debt". S&P adds pension deficits to debt.

Given we can't determine the exact pension deficit, and the provision is small, I'll add it: +48,400,000 (but this is already in noncurrent liabilities, not necessarily a deficit).

Actually, looking more carefully: the provision decreased from 60,800,000 to 48,400,000, suggesting payments or remeasurements. Without knowing plan assets, I'll assume the provision represents the net liability and add it as debt-like: +48,400,000.

But wait - this might already be captured if we're being comprehensive. Let me check if provisions are in "Other Longterm Provisions" or separate. "Other Longterm Provisions" is 140,800,000. "Noncurrent Provisions For Employee Benefits" is 48,400,000. These are separate from borrowings.

For S&P, pension deficit is added to debt. If the 48,400,000 is the net pension liability (which it likely is under IAS 19), then this is the deficit. I'll add it.

**Hybrid debt portion:**
Looking at equity: "Equity Instruments Perpetual Hybrid Bonds" = 989,000,000 EUR in equity!

This is hybrid capital that S&P typically treats as 50% debt-like for investment grade companies, or 100% for sub-investment grade. Terna is investment grade (typically BBB+ or similar). S&P usually treats hybrid bonds as 50% equity, 50% debt for investment grade utilities, or may include a portion as debt-like.

Actually, looking at S&P methodology for hybrids: they typically include 50% of hybrid equity in adjusted debt for investment grade issuers. But sometimes they use the full amount or a sliding scale.

The "Equity Instruments Perpetual Hybrid Bonds" of 989,000,000 is classified in equity. S&P would likely treat this as 50% debt-like for a BBB-type credit: +494,500,000.

However, some methodologies treat it differently. Let me check if there's explicit guidance. For regulated utilities, S&P says "We deconsolidate securitized debt" but nothing specific on hybrids.

Actually, looking at the equity section: "Capital Instruments Bonds Hybrid Perpetual" = 989,000,000. This is clearly hybrid capital. S&P's standard approach is to treat 50% as debt for investment grade, increasing to 100% for lower ratings. Terna is typically rated in the BBB range. I'll use 50%: +494,500,000.

But wait - the coupon on hybrid bonds is treated as interest-like. The "Coupon Payable To Holders Of Hybrid Bonds" = 21,100,000 is charged against retained earnings. This suggests it's treated as equity distribution, not interest expense. S&P would add this back to FFO (since it's like interest but not in P&L as interest).

Actually, I need to reconsider FFO. If the hybrid coupon is not in EBITDA (it's below the line as equity distribution), then our EBITDA is correct. But for FFO, S&P typically adds back hybrid coupons since they're like interest. However, the formula given is FFO = Adjusted_EBITDA - cash_interest - cash_taxes. It doesn't mention hybrid coupons.

Hmm, but in standard S&P FFO, hybrid dividends are often added back. Let me check if this is needed. The coupon of 21,100,000 was paid in 2022 (charged to retained earnings). If we add this back, FFO increases.

Actually, looking at the cash flow: "Dividends Paid Classified As Financing Activities" = 595,800,000. This includes ordinary dividends and possibly hybrid coupons. The hybrid coupon might be part of this.

Given the complexity and the explicit formula provided, I'll stick with the formula: FFO = Adjusted_EBITDA - cash_interest - cash_taxes = 1,581,600,000 (with net interest interpretation) or 1,517,400,000 (with gross).

But let me reconsider: if we use gross interest paid and add back interest received, we get the same as net. Actually no - the formula doesn't include interest received. So using gross interest gives lower FFO.

Let me use a hybrid approach: FFO = 1,581,600,000 (netting interest received against interest paid, as both are operating cash flows for a utility).

Now for Adjusted_Debt, let me also consider if hybrid should be added. The formula says "hybrid_debt_portion". So yes, add a portion.

**Guarantees:** No explicit guarantees disclosed. 0.

**Other debt-like items:**
- Noncurrent Financial Liabilities: 247,200,000 (2023), 83,700,000 (2022)
- Current Financial Liabilities: 44,900,000 (2023), 45,800,000 (2022)

These might include derivatives or other financial instruments. Looking at the cash flow, there's "Cash Flows From Movements In Long Medium Short Term Financial Investments" of -350,500,000. The noncurrent financial assets increased significantly from 287,700,000 to 494,400,000.

Financial liabilities (noncurrent + current) = 247,200,000 + 44,900,000 = 292,100,000. These might be derivative liabilities or other items already captured. If they're not part of borrowings, they might be debt-like.

Actually, looking at the balance sheet structure, "Noncurrent Financial Liabilities" and "Current Financial Liabilities" are separate from borrowings. These likely include derivative financial instruments (negative fair value). S&P typically includes derivative liabilities as debt-like if they're not already in borrowings.

But wait - these might be netted against financial assets in some presentations. Let me check if they're material. 292,100,000 vs total debt of 10,770,100,000 = 2.7%. Moderately material.

However, for regulated utilities with hedging programs, derivative liabilities are often working capital items related to commodity or interest rate hedges. S&P may or may not include these depending on the nature.

Given the "Noncurrent Financial Assets" of 494,400,000 and "Current Financial Assets" of 255,300,000, there are significant financial assets too. Net financial liabilities = 292,100,000 - 494,400,000 - 255,300,000 = negative, so net financial assets.

I'll exclude financial liabilities/assets from debt adjustment unless they're clearly debt-like. The derivative positions are likely hedging-related and nettable.

**Eligible cash:**
Cash And Cash Equivalents: 2,155,100,000 (2023), 1,566,800,000 (2022)
Current Financial Assets: 255,300,000 (2023), 980,600,000 (2022)

S&P typically subtracts "eligible cash" which is cash and highly liquid investments. For utilities, they might subtract a portion of cash or all cash if it's truly excess.

Looking at S&P methodology: "eligible_cash" typically means cash and cash equivalents that are truly available, not restricted. Sometimes they subtract all cash, sometimes only excess cash above operating needs.

For regulated utilities with seasonal working capital needs, S&P says: "we adjust inventory and debt balances by netting the value of inventory against outstanding short-term borrowings" if seasonal working capital distorts leverage.

Terna doesn't seem to have seasonal working capital issues (transmission is stable). Cash of 2,155,100,000 seems high. Let me check if this is truly excess.

Actually, looking at the cash flow, there was significant financing activity: "Movement In The Reserve For Equity Instruments" = 989,000,000 (hybrid bond issued?), and dividends paid of 595,800,000. The company seems to hold cash for capex (1,492,300,000 purchase of PPE in 2022).

S&P typically subtracts cash if it's available to pay down debt. For investment grade utilities, they might subtract 50-100% of cash. Let me use a conservative approach: subtract 100% of cash and current financial assets that are liquid.

Actually, "Current Financial Assets" of 255,300,000 (down from 980,600,000) - these might be short-term investments or deposits. If liquid, they're eligible cash.

Eligible cash = Cash And Cash Equivalents + liquid current financial assets = 2,155,100,000 + 255,300,000 = 2,410,400,000? Or just cash = 2,155,100,000.

S&P's standard is usually to subtract cash and cash equivalents, sometimes with a haircut. For this calculation, I'll subtract cash and cash equivalents: 2,155,100,000.

But wait - the formula says "eligible_cash" which implies not all cash may be eligible. Let me use cash and cash equivalents as the base: 2,155,100,000.

**Putting it together for Adjusted_Debt:**

Reported debt (2022 year-end):
= Longterm Borrowings + Shortterm Borrowings + Current Portion Of Longterm Borrowings
= 8,416,700,000 + 444,100,000 + 1,909,300,000
= 10,770,100,000 EUR

Plus:
- Leases: 0 (assume minimal, not explicitly disclosed)
- Pension deficit: 48,400,000 (net pension liability)
- Guarantees: 0
- Hybrid debt portion: 494,500,000 (50% of 989,000,000)
- Other debt-like: 0 (financial liabilities seem hedging-related, net against assets)

Minus:
- Eligible cash: 2,155,100,000

**Adjusted_Debt = 10,770,100,000 + 48,400,000 + 494,500,000 - 2,155,100,000 = 9,157,900,000 EUR**

Wait, I should double-check the hybrid treatment. S&P's methodology for hybrids has evolved. For investment grade utilities, they might treat 50% as equity. But looking at the equity classification and coupon treatment (charged to equity as distribution), this is clearly equity-like.

Actually, let me reconsider whether to include hybrid at all. The formula explicitly says "hybrid_debt_portion". This suggests we should include some portion. Given S&P's typical 50% treatment for investment grade: 494,500,000.

But I want to verify Terna's rating. Terna is typically rated BBB+ by S&P. For this rating, 50% equity content is standard.

Let me also check if I should use average debt. S&P typically uses average debt for FFO/debt when calculating ratios for a period. Average of beginning and end of year:

2021 year-end debt: 8,835,000,000 + 1,947,000,000 + 1,640,000,000 = 12,422,000,000
2022 year-end debt: 10,770,100,000
Average debt: (12,422,000,000 + 10,770,100,000) / 2 = 11,596,050,000

But for balance sheet adjustments (hybrid, cash, pension), we need to know what S&P does. Typically they use year-end or average depending on the specific ratio definition.

For FFO/debt, S&P Global Ratings typically uses "adjusted debt" at year-end or average. The prompt doesn't specify. I'll use year-end 2022 as it's the fiscal year end.

Actually, let me recalculate with average debt to see:
Average reported debt: 11,596,050,000
Average hybrid (50%): (0 + 494,500,000? No, hybrid was issued in 2022. Beginning 2021: 0, End 2022: 494,500,000. Average: 247,250,000? Or was it there all year?

Looking at equity: 2021-01-01 equity doesn't show hybrid. 2022-01-01 equity doesn't show hybrid in the detailed breakdown. But 2022-01-01 to 2023-01-01 shows "Equity Instruments Perpetual Hybrid Bonds" of 989,000,000. And 2023-01-01 equity shows "Capital Instruments Bonds Hybrid Perpetual" = 989,000,000.

So the hybrid was issued during 2022. For year-end 2022, it's 989,000,000. For year-end 2021, it was 0.

Average hybrid (50% of 989,000,000 weighted by time): roughly 494,500,000 if issued mid-year, or less if issued later.

This is getting complicated. Let me use year-end 2022 figures for simplicity, as is common for point-in-time ratios.

Adjusted_Debt (year-end 2022) = 10,770,100,000 + 48,400,000 + 494,500,000 - 2,155,100,000 = 9,157,900,000 EUR

But I want to reconsider the cash subtraction. S&P sometimes doesn't subtract cash if it's needed for operations or if the company is in growth mode. Terna has significant capex (1.5B) and might need cash.

Actually, looking at S&P's standard approach for FFO/debt: they typically calculate "adjusted debt" as debt minus cash and cash equivalents (if positive). This is the standard definition.

Let me also verify: should I include current financial assets as eligible cash? "Current Financial Assets" of 255,300,000 - these could be short-term deposits, marketable securities, etc. If truly liquid, yes. But they've decreased from 980,600,000, suggesting they were used.

I'll be conservative and include only Cash And Cash Equivalents as eligible cash: 2,155,100,000.

**Final Adjusted_Debt = 9,157,900,000 EUR**

## Step 5: Calculate FFO / Adjusted_Debt

Using:
- FFO = 1,581,600,000 EUR (with net interest approach)
- Adjusted_Debt = 9,157,900,000 EUR

FFO / Adjusted_Debt = 1,581,600,000 / 9,157,900,000 = 0.1727

If I used gross interest:
- FFO = 1,517,400,000
- Ratio = 1,517,400,000 / 9,157,900,000 = 0.1657

Let me also try without hybrid in debt:
- Adjusted_Debt = 10,770,100,000 + 48,400,000 - 2,155,100,000 = 8,663,400,000
- FFO / Adjusted_Debt = 1,581,600,000 / 8,663,400,000 = 0.1826

Or with gross interest and no hybrid: 1,517,400,000 / 8,663,400,000 = 0.1752

I need to make a definitive choice. Let me reconsider the hybrid treatment more carefully.

Looking at S&P's methodology document referenced: "Corporate Methodology: Ratios And Adjustments" - for hybrid instruments, S&P typically assigns equity content based on the instrument's features. The 50/50 treatment is a common starting point, but the actual content depends on features like coupon deferral, maturity, etc.

For perpetual hybrids with coupon payable at issuer's discretion (or with dividend pusher/catcher), S&P might assign 50% equity content. Given this is a "perpetual hybrid bond" with coupon charged to equity (not P&L), it likely has significant equity-like features.

However, I notice the coupon is "Coupon Payable To Holders Of Hybrid Bonds" = 21,100,000, which was paid (charged to retained earnings). This suggests it's not deferrable or has strong incentive to pay.

For a BBB+ rated utility, S&P likely gives 50% equity content. I'll use 50%: add 494,500,000 to debt.

Now for the interest treatment, let me think more carefully. The formula says "cash_interest". In S&P's standard definition, this is typically "cash interest paid" (gross). Interest received is typically not subtracted in the FFO formula, but it's included in CFO.

However, for utilities, regulatory accounting might treat interest received as part of operations. And in EBITDA, we don't have interest income. So if we subtract gross interest paid, we're being conservative.

But actually, looking at standard S&P FFO calculation for utilities: FFO typically includes interest income if it's operating in nature. The formula given is simplified.

Let me use the interpretation that makes most economic sense: net cash interest paid = 90,600,000, since interest received is operating cash flow for a utility.

FFO = 2,052,300,000 - 90,600,000 - 380,100,000 = 1,581,600,000

Actually, I want to double-check my Adjusted_EBITDA once more. Should I add back the hybrid coupon? No, because EBITDA starts from EBIT which is before interest and thus before hybrid coupon (which is treated as equity distribution, not interest expense). So EBITDA is correct.

But wait - is the hybrid coupon in EBIT? No, it's charged to retained earnings directly, below net income. So it's not in EBIT or EBITDA. Good.

Final calculation:
FFO = 1,581,600,000
Adjusted_Debt = 9,157,900,000
Ratio = 0.1727

Let me round to four decimal places: **0.1727**

Actually, let me recalculate more precisely:
1,581,600,000 / 9,157,900,000 = 0.17270335... → 0.1727

Hmm, but I want to verify my Adjusted_EBITDA one more time. Let me recalculate from scratch:

Revenue: 2,898,100,000
Other Revenue: 66,400,000
Total Revenue = 2,964,500,000 (matches "Revenue And Operating Income")

Wait, "Revenue And Operating Income" is 2,964,500,000. This seems to be total revenue including other income.

Expense By Nature: 1,631,000,000
- Raw Materials: 247,800,000
- Services: 276,900,000
- Employee Benefits: 348,100,000
- D&A: 725,700,000
- Other: 32,500,000
Total: 1,631,000,000 ✓

EBIT = 2,964,500,000 - 1,631,000,000 = 1,333,500,000 ✓ (matches "Profit Loss From Operating Activities")

EBITDA = EBIT + D&A = 1,333,500,000 + 725,700,000 = 2,059,200,000

Nonrecurring gain on disposal: 6,900,000 (subtract)
Adjusted_EBITDA = 2,052,300,000

Now, should I add back any other items? Looking at "Other Expense By Nature" = 32,500,000 - is this recurring? Likely yes (insurance, minor items).

What about the "Share Of Profit Loss Of Associates And Joint Ventures" = -1,000,000? This is below EBIT, so not in EBITDA.

What about "Finance Income Cost" = 22,700,000? This is net finance income/cost, below EBIT.

I think Adjusted_EBITDA = 2,052,300,000 is reasonable.

For FFO, let me also consider: should I use cash taxes paid (380,100,000) or tax expense (355,400,000)? The formula says "cash_taxes", so cash taxes paid = 380,100,000.

And cash interest: should I use 154,800,000 paid or net 90,600,000? I'll use net 90,600,000 as the economically correct figure for a utility where interest received is operating.

FFO = 2,052,300,000 - 90,600,000 - 380,100,000 = 1,581,600,000

Actually, I want to check one more thing. The "Finance Costs" = 121,800,000 and "Finance Income Cost" = 22,700,000. The net is -99,100,000 (cost). But cash flow shows "Interest Paid" = 154,800,000 and "Interest Received" = 64,200,000. The difference between accrual and cash is significant (154,800,000 vs 121,800,000; 64,200,000 vs 22,700,000). This suggests there's accrued interest or capitalized interest.

Looking at "Interest Costs Capitalised" = 24,800,000. This is capitalized interest, part of PPE cost. So total interest cost = 121,800,000 + 24,800,000 capitalized = 146,600,000? Close to 154,800,000 paid.

Actually: Finance Costs 121,800,000 + capitalized interest 24,800,000 = 146,600,000. But interest paid is 154,800,000. Difference of 8,200,000 might be opening/closing accruals or other items.

For cash interest, we should use actual cash paid: 154,800,000. Interest received: 64,200,000.

Net cash interest outflow: 90,600,000.

I'll stick with FFO = 1,581,600,000.

Now for debt, let me also consider if I should use 2022 year-end or average. The ratio is for 2022 fiscal year. S&P typically uses "adjusted debt" which could be year-end or average. For FFO/debt specifically, they often use average debt to match the flow numerator with a stock denominator averaged over the period.

Average debt:
2021 year-end: 8,835,000,000 + 1,947,000,000 + 1,640,000,000 = 12,422,000,000
2022 year-end: 8,416,700,000 + 444,100,000 + 1,909,300,000 = 10,770,100,000
Average: 11,596,050,000

Average hybrid (50%): The hybrid was issued during 2022. If we assume issued mid-year or use average of 0 and 494,500,000 = 247,250,000. But if issued at year-end, average is lower. Let me use 247,250,000 as conservative.

Average pension: (60,800,000 + 48,400,000) / 2 = 54,600,000

Average cash: (1,566,800,000 + 2,155,100,000) / 2 = 1,860,950,000

Average Adjusted_Debt = 11,596,050,000 + 54,600,000 + 247,250,000 - 1,860,950,000 = 10,036,950,000

FFO / Average Adjusted_Debt = 1,581,600,000 / 10,036,950,000 = 0.1576

This is quite different from 0.1727. Which does S&P use?

Looking at S&P methodology more carefully: For FFO/debt, they typically use "adjusted debt" at year-end for point-in-time measures, but for rolling ratios they might use average. The standard published ratios usually use year-end debt.

Actually, I recall S&P uses "average debt" for some ratios and "year-end debt" for others. For FFO/debt specifically, I believe they typically use year-end adjusted debt or a combination.

Given the ambiguity, let me use year-end 2022 as it's more common for annual ratio reporting and matches the fiscal year end.

But let me also check if the hybrid was outstanding all year. Looking at equity changes: "Equity Instruments Perpetual Hybrid Bonds" = 989,000,000 for 2022-01-01 to 2023-01-01 period. And 2023-01-01 equity shows "Capital Instruments Bonds Hybrid Perpetual" = 989,000,000. But 2022-01-01 equity detail doesn't show this account. So it was issued during 2022.

If issued late in 2022, year-end debt includes it but average might not. For conservatism in year-end debt, I'll include it.

Let me finalize with year-end 2022 figures:
Adjusted_Debt = 10,770,100,000 + 48,400,000 + 494,500,000 - 2,155,100,000 = 9,157,900,000
FFO = 1,581,600,000
Ratio = 0.1727

Actually, I want to do one more verification. Let me see if I can derive FFO from the cash flow statement directly, as S&P sometimes defines it.

From cash flow:
Cash Flows From Used In Operating Activities = 2,323,700,000
Less: Interest Received = 64,200,000? No, this is part of operations.
Less: Working capital changes = ?

FFO is typically CFO before working capital changes, or CFO + working capital changes. Actually, standard definition: FFO = CFO - working capital changes (or + if working capital was a source).

From above: CFO before working capital = 2,072,700,000. But this includes interest and tax accruals, not cash.

Actually, a common approximation: FFO = Net Income + D&A + Deferred Taxes + Other Non-Cash - Working Capital Changes... no that's CFO.

Standard S&P FFO: Net income + depreciation + amortization + deferred income taxes + other non-cash items - extraordinary items + adjustments for unconsolidated subsidiaries.

Let me try: Net Income = 857,700,000
+ D&A = 725,700,000
+ Deferred taxes? Not explicitly stated. Tax expense 355,400,000 vs cash taxes 380,100,000. So taxes paid > expense, meaning deferred tax liability decreased or deferred tax asset increased. Actually, tax paid > expense suggests negative deferred tax movement.
+ Other non-cash: provisions 51,700,000 - gain 6,900,000 + other -24,100,000 = 20,700,000
+ Hybrid coupon (equity distribution, not in NI) = 21,100,000? 

= 857,700,000 + 725,700,000 + (355,400,000 - 380,100,000) + 20,700,000 + 21,100,000
= 857,700,000 + 725,700,000 - 24,700,000 + 20,700,000 + 21,100,000
= 1,600,500,000

Close to my 1,581,600,000! Difference of 18,900,000 might be rounding or other items.

If I add back the net interest accrual (not cash): Finance cost net 99,100,000, but cash net interest 90,600,000. Difference 8,500,000.

Actually, let me try another approach: FFO = EBIT + D&A - Cash Taxes - Cash Interest + Interest Received (if not in EBIT)
= 1,333,500,000 + 725,700,000 - 380,100,000 - 154,800,000 + 64,200,000
= 1,588,500,000

Close to my 1,581,600,000. Difference of 6,900,000 which is exactly the gain on disposal! Because EBIT includes the gain, but I subtracted it from Adjusted_EBITDA. So:

Adjusted_EBITDA - net cash interest - cash taxes = 2,052,300,000 - 90,600,000 - 380,100,000 = 1,581,600,000

But EBIT + D&A includes the gain: 2,059,200,000 - 90,600,000 - 380,100,000 = 1,588,500,000

Difference is 6,900,000 gain. So my Adjusted_EBITDA approach is correct.

Actually wait, I need to check: is the gain on disposal in EBIT? Yes, because it's "Profit Loss From Operating Activities" which includes it. And the cash flow adjustment subtracts it, confirming it was in profit.

So Adjusted_EBITDA = 2,059,200,000 - 6,900,000 = 2,052,300,000 is correct for normalization.

But then FFO = 2,052,300,000 - 90,600,000 - 380,100,000 = 1,581,600,000.

Hmm, but the alternative calculation gave 1,588,500,000 using unadjusted EBIT+D&A. The difference is exactly the gain. Both could be argued, but normalization is more correct for S&P purposes.

Let me verify with yet another approach. S&P's standard FFO formula from their methodology:

FFO = Funds from operations = net income + depreciation & amortization + deferred income taxes + other non-cash items - extraordinary gains/losses + adjustments for unconsolidated subsidiaries.

Net income: 857,700,000
+ D&A: 725,700,000
+ Deferred taxes: Tax expense 355,400,000 - Cash taxes 380,100,000 = -24,700,000 (this is a use, not a source)
+ Other non-cash: Let's see... gain on disposal -6,900,000 (subtract, it's non-cash gain already in NI), provisions 51,700,000, other -24,100,000... Actually these are already in the reconciliation.

Actually, the cleanest is: FFO = NI + D&A + Deferred Taxes - Gain on disposal + Hybrid coupon (if equity distribution)
= 857,700,000 + 725,700,000 + (-24,700,000) - 6,900,000 + 21,100,000
= 1,572,900,000

Hmm, this is close to 1,581,600,000 but not exact. Difference of 8,700,000.

Actually, I think the issue is "deferred taxes". The tax expense is 355,400,000 but "Income Tax Expense Continuing Operations" = 355,400,000 and "Adjustments For Income Tax Expenses" in cash flow = 356,700,000. Slight difference of 1,300,000.

Let me use: 857,700,000 + 736,100,000 (D&A per cash flow, slightly higher) - 24,700,000 - 6,900,000 + 21,100,000 = 1,583,300,000. Very close to 1,581,600,000!

The remaining 1,700,000 difference could be rounding or other items. I'll stick with 1,581,600,000 as it's derived from the explicit formula given in the prompt.

Final answer: 1,581,600,000 / 9,157,900,000 = 0.172703... → **0.1727**

Wait, I want to double-check one thing. Should I include the full hybrid or 50%? Let me re-read S&P's typical treatment.

For "Equity Instruments Perpetual Hybrid Bonds" classified in equity with coupon charged to equity (not P&L), S&P's equity content analysis would consider:
- Perpetual maturity: yes, equity-like
- Coupon deferral: not clear, but since it's "payable" and was paid, maybe no deferral feature
- Subordination: yes, to debt
- Loss absorption: limited

For investment grade (BBB), S&P typically assigns 50% equity content to such instruments. So 50% debt-like = 494,500,000 is correct.

However, I notice the prompt's formula says "hybrid_debt_portion". This suggests I should include the portion that S&P treats as debt. If S&P treats 50% as equity, then debt portion = 50% = 494,500,000.

Actually, re-reading: "hybrid_debt_portion" - this could mean the portion that is debt-like. So yes, 494,500,000.

But let me also consider: does the formula mean "add the debt portion of hybrid" or "add hybrid and its debt portion"? The wording "hybrid_debt_portion" suggests the portion of hybrid that is treated as debt. So +494,500,000.

Alright, I'm comfortable with Adjusted_Debt = 9,157,900,000.

One final check: should "Current Portion Of Longterm Borrowings" be included in debt? Yes, absolutely. It's debt due within one year.

And "Shortterm Borrowings" = 444,100,000 - this is clearly debt.

Total debt: 10,770,100,000. Correct.

Let me also verify I haven't missed any other debt-like items:
- Trade And Other Payables To Trade Suppliers: 3,687,700,000 - this is trade payables, not debt
- Trade And Other Current Payables To Related Parties: 60,900,000 - trade payables
- Other Current Liabilities: 669,900,000 - likely accruals, deferred revenue, etc.
- Noncurrent provisions: 48,400,000 - employee benefits, already included as pension
- Other Longterm Provisions: 140,800,000 - these are operating provisions, not debt-like typically
- Other Noncurrent Liabilities: 971,400,000 - need to check what these are

"Other Noncurrent Liabilities" of 971,400,000 - this is material. What does this include? Looking at the data, there's no detail. Could include deferred revenue, regulatory liabilities, etc. For utilities, these might be regulatory liabilities that are somewhat debt-like.

However, S&P typically doesn't reclassify operating liabilities as debt unless they're clearly debt-like (e.g., put options, derivative liabilities, etc.). Without more detail, I'll leave as is.

Actually, looking at the cash flow: "Adjustments For Increase Decrease In Other Non Current Liabilities" = -126,100,000 (decrease). This suggests these are operating-related, not financing.

I'll leave Other Noncurrent Liabilities out of debt.

**Final calculation:**
FFO = 1,581,600,000
Adjusted_Debt = 9,157,900,000
FFO / Adjusted_Debt = 0.17270335... ≈ **0.1727**

<answer>0.1727</answer>