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Spanish utilities slam government plans for nuclear, hydro profit cap

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Spanish utilities slam government plans for nuclear, hydro profit cap

The heads of some of Spain's largest utilities went on the offense regarding the Spanish government's plans to curb the profits they can earn on existing nuclear and hydropower plants in the country, painting the proposal as misguided since the financial reality of their generation assets was far from what policymakers were claiming.

During their third-quarter earnings presentations, executives at Iberdrola SA, Endesa SA and EDP - Energias de Portugal SA slammed a proposal to cap so-called windfall profits from nuclear and hydropower plants, which Spain's Socialist administration argues were built decades ago and have long recovered their costs.

Iberdrola CEO Ignacio Galán said on a call with analysts Oct. 24 that, on the contrary, the generator had poured billions of euros into upgrades over the past several years, and that its hydro and nuclear plants were in the red last year due to stringent new taxes introduced in 2013.

"All you have to do is look at our balance sheet," Galán said. "Last year, I think that we lost just over €100 million and the year before that, more than €200 million [on nuclear]," he said, adding that, since 2001, the company had invested approximately €3.8 billion to replace equipment at its hydro plants and €2 billion in nuclear plants.

Spain's two governing parties had earlier in October signed a policy document laying out the reforms, pointing out that nuclear and hydro plants had been installed prior to power market liberalization and asserting they had "more than recovered their investment costs," according to a report by S&P Global Platts. It cited one option to establish a threshold for the amount certain technologies can earn on the market, with the difference to the market price collected as additional income for the power system.

Galán said that projects were amortized over their concession period and that Iberdrola's 9.7 GW of hydro assets in Spain had an average of 35 years remaining in their useful lives. Investment in its 3.2-GW fleet of nuclear plants was spread across a 40-year lifespan, which the plants would reach over the next decade, he said.

José Bogas, CEO of Endesa, the largest electric utility in Spain and a majority-owned subsidiary of Italy's Enel SpA, said that his company was in discussions with Spain's political parties to "explain the reality" of nuclear and hydro generation in the country.

"There [is] no real basis to maintain that the nuclear and hydro have windfall profits," he told analysts on Endesa's earnings call on Nov. 5, listing annual investments of up to €140 million in nuclear and €50 million in hydro since 2001. "These technologies ... are not fully amortized, neither for accounting nor for financial purposes," he said. "So it has no sense just to put a cap, in our opinion, on these technologies."

Bogas said that Endesa's nuclear and hydro plants had a net book value of €2.8 billion and €0.8 billion, respectively, at the end of the third quarter. The company has stakes in approximately 3.4 GW of nuclear and 4.8 GW of hydroelectric plants in Spain.

Although EDP CEO António Mexia said Spain was not an essential market for his company, the proposal was nevertheless "more than wrong." The company's hydro plants have a net book value of €4.8 billion, he said. EDP operates 1.2 GW of nuclear and just under 1 GW of hydro generation in Spain.

"The number of years that we still have of hydro concessions on average weighted by megawatts is up to 2056," Mexia said during the company's earnings presentation Nov. 9.

S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.