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Spain eyes mediation to approve gas, power cuts from 2020

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Spain eyes mediation to approve gas, power cuts from 2020

Mediation from a special commission may be required to approve a raft of cuts to Spain's gas and power regulated rates that have been proposed starting from 2020, the Spanish government said.

In a series of reports published Aug. 6 as part of the consultation on proposed modifications to both sectors, the ecological transition ministry said four of the six proposals, covering transport and distribution fees in both sectors, might require examination by the cooperation committee, a body made up of three members from the regulator and three from the energy secretariat designed to reach consensus on discrepancies and tailor regulation to energy policy.

While the government broadly aligned itself with changes to both systems proposed by the regulator, Comision Nacional de los Mercados y la Competencia, or CNMC, at the start of last month, it also expressed reservations that the proposals have failed to account for "fiscal prudence" and also overstep their remit in certain areas.

Under the initial proposals, the gas market is set to be heaviest hit, with payments for gas distribution set to drop 18% for the 2021-26 regulatory period to €1.4 billion, and payments for gas transmission and regasification to decline 22% to €1.2 billion, according to CNMC.

For the power market, where the new rates would come into effect at the start of 2020 and cover the period through to 2025, the amount paid out for electricity distribution would drop 7% to €5.5 billion,
CNMC said. The rate for transmission would drop 8% from the current amount to €1.7 billion, it said.

One of the main changes to regulated rates is the adoption of the weighted average cost of capital, or WACC, for calculating the final figure. This format will substitute the previous rate, which paid a fixed premium to the country’s 10-year debt instruments.

However, the proposals were met with strong resistance from the sector. Naturgy Energy Group SA, along with smaller grid operator Madrilena Red de Gas II, S.A.U., have said they would postpone investment under such a scenario, while gas lobby group Sedigas has urged more time to negotiate a more suitable figure.

"All options are on the table, including the temporary halt of commercial operations, without altering investments in maintenance and security," Naturgy CEO Francisco Reynés said July 24.

As part of the consultation process that ends Aug. 9, the ministry made detailed responses on six of the so-called circulars — three for each sector, which cover transport fees, retributions to the transmission system operators and distribution fees for the two sectors.

In the gas sector, while the government agreed that the distribution sector had been over remunerated, it also said the proposed cuts were not mindful of "fiscal prudence" for gas transport and LNG companies and was concerned for the high rate of leverage in the regulated activities.

In the power sector, while it welcomed the "continuity" of the new methodology, it noted that proposals to cap annual investment and approve annual spending were outside of the regulator’s remit, among other reservations.

All of the updates need to be approved before year-end for implementation of the first round at the start of 2020 as obliged by Royal Decree Law 1/2019.

Henry Edwardes-Evans and Gianluca Baratti, who contributed to this article, are reporters with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.