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    Brussels forces the government to urgently reform the regulated tariff as requested by the electricity industry


    May 14, 2022 - CE Noticias Financieras

     

      "One of the conditions for the approval of the mechanism by the European Commission is the reform of the current voluntary price for the small consumer (PVPC). Thus, the adjustment mechanism is configured as an extraordinary measure while this reform is being carried out and comes into force effectively, which is not immediate". Thus begins the fourth preamble of the Royal Decree approved yesterday by the Government, which establishes a temporary mechanism to intervene in the price of gas used in electricity generation.

      The document, to which EL MUNDO had access, reveals that Brussels has forced the Executive to present before October 1 a calculation methodology that partially disconnects households from the wholesale electricity market in order to reduce the volatility of their bills and cushion the impact of the war in Ukraine. This is something that the Ministry of Ecological Transition started working on 8 months ago and finally decided to leave in the freezer due to the contrary response of consumer associations such as Facua. The electricity companies have been insisting for months that this is the real problem of the sector, but the vice-president Teresa Ribera had so far given long to the matter to prioritize others such as the market intervention mechanism approved yesterday. The Commission has ordered her to correct this anomaly as a matter of urgency, since Spain is the only country in Europe with a model so closely linked to the wholesale market.

      The corrective from Brussels comes in the middle of a clash between the Government and the president of Iberdrola, Ignacio Sánchez Galán, precisely because of the regulated tariff. The electricity executive pointed out a few days ago that only "fools" continued to be covered by the PVPC with the current wholesale market prices, words to which Ribera herself responded yesterday, assuring that they had caused her "embarrassment" and defending the fact that the regulated tariff has historically been cheaper than the offers in the deregulated market.

      The modification will entail that the new calculation of the regulated tariff of the small consumer will be marked by a combination between the wholesale price of the daily market -as it happens now- and a reference to the prices of the forward markets based on a basket of products of annual, quarterly and monthly markets. The aim is that, with the model designed before October, the regulated tariff could be in place by the beginning of 2023.

      What will be the effects of this new change? The first is that it will add more confusion to the domestic consumer, who does not really know how his tariff is configured after all the regulatory ups and downs approved in the sector in the last decade. And the second is that they will no longer have to be so concerned about what time they put the washing machine on, as the price difference between hours will weigh much less on their final bill. On a political level, the new model means a respite for Ribera and Pedro Sánchez by avoiding the 'newsreel pain' of having to face a record price in the wholesale market every day.

      The obligation to reform the domestic electricity tariff is just a sample of the conditioning that Brussels' evaluation of the gas price intervention mechanism designed by Spain and Portugal has entailed. A measure with which the Government itself had promised a reduction of up to 30% on the domestic electricity bill, but which has been so decaffeinated that yesterday neither Ribera herself nor sources from her ministry wanted to confirm what its impact will finally be.

      The measure consists of establishing an average political price of 48 euros per megawatt hour for gas used by thermal power stations for electricity generation. The difference between this reference and the real cost of this hydrocarbon in the world market -Spain only produces 0.3% of what it consumes- will have to be compensated to the electricity companies.

      The final version of the text establishes that this difference will have to be paid by those who will benefit from it, i.e. only PVPC customers and others with tariffs indexed to the market, and not by the whole of the demand as initially proposed by the Government. Portugal vetoed the idea of all consumers paying for the invention, since in its case 95% of families have a fixed electricity price. This means that this compensation - which Endesa estimated at 6,000 million euros - greatly limits the effect of the measure. Ribera and her team continue to assure that "the net effect" will be positive, without quantifying how much, because other technologies such as nuclear or hydro will see a reduction in their remuneration if the gas supply is sold at a lower price (as it is a marginalist market, the price at which the last supply enters is the one that rewards all the agents).

      Finally, the Government has still not clarified when the measure will be applicable 50 days after it was announced as a success after the European Council at the end of March. Although both Spain and Portugal approved it yesterday, the text includes a clause that leaves the application of the mechanism on hold until the European Commission gives its final approval to the proposal. This could happen in "days, a week or two weeks," Ribera said yesterday. The Government, in any case, is confident in the endorsement after obtaining the preliminary approval last Monday.

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