Spain tackles natural gas tariff deficit in new law

07 July 2014 16:21 Source:ICIS

Spain passed a new law on Monday that puts measures in place to prevent a debt bubble developing in the regulated gas sector, the Spanish government has said.

Spain is still dealing with the fallout of an enormous ‘tariff deficit’ – the debt that accrues when regulated income is insufficient to cover spending – in the electricity sector and is keen to ensure that a similar one cannot occur in the gas sector. The electricity tariff deficit ballooned to more than €25bn in just a few years after the sector was liberalised. Putting steps in place to resolve it has proved a huge headache for the Spanish energy ministry, known as Minetur.

Although there has been a small gas tariff deficit in Spain for the best part of a decade, it is only recently that it has developed into a potentially serious threat. By the end of 2013, the deficit stood at €326m. But this is expected to have ballooned to €800m by the end of 2014 because of costs associated with new infrastructure capacity, coupled with a big drop in demand in the first quarter of this year, according to Minetur. The new capacity includes the on-ice Castor underground storage plant, and the mothballed El Musel LNG regasification terminal, both of which have entailed significant investment; meanwhile the deficit has been exacerbated by falling gas demand as this has resulted in regulated infrastructure – which is guaranteed a minimum rate of remuneration – being used less than anticipated, creating a further shortfall.

“Increasing costs to the system mean that there has been a tariff deficit since 2006, one that is forecast to reach €800m by the end of 2014 if measures are not taken to address it,” Minetur said in a statement on Friday where it announced the new decree. The new law entered force on Monday following publication in Spanish state bulletin BOE as part of a wider package of legislation on growth, competiveness and efficiency called Royal Decree-Law 8/2014.

Currently, those costs are picked up by the taxpayer, but the new law will pass some of the responsibility for the debt onto the shoulders of infrastructure owners. The new rules will be in place during the course of a six-year regulatory period running from the start of 2015 to the end of 2019.

New rules will prevent deficits from accumulating by automatically limiting deficit growth to below 10% a year: in the event that a deficit is generated that exceeds 10% of income, tariffs will increase automatically in the following year to compensate.

Parties affected

Preliminary estimates by Spanish gas transmission system operator (TSO) Enagas are that the new reforms will have a net effect on its income of €120m a year between now and 2020.

In a balanced statement on Monday, the company said it welcomed the reforms, as they would “eliminate definitively the existing tariff deficit as well as contribute to guaranteeing regulatory stability of the sector, with the fundamental objective of reducing the final price of energy in Spain and increasing the competitiveness of Spanish companies”. The reforms would also guarantee the system was economically sustainable in the future, Enagas said.

In a separate statement made to Spanish stock market regulator CNMV incumbent supplier Gas Natural Fenosa estimated the reforms would cost it around €45m in 2014. Rob Songer

By Rob Songer