A shock for the electricity bill

The Spanish government's decision to raise electricity rates by 9.8 percent for some 20 million customers reflects the logic accepted in a market economy: in a regulated system, prices have to reflect increased costs.

In view of the fact that Spanish consumers now owe some 20 billion euros to the power companies in the form of a rate deficit, which they have to pay because the law says so, the January price hike was inevitable. But the political effects are another matter. An increase of this magnitude, unprecedented in the history of electric power in Spain - especially if we take into account that in 2011 new rises will probably have to be approved - will tend to reduce real household income (especially when added to price rises in gas of almost four percent, and in transport), and will deepen public malaise in a time of recession.

The thorny problem of electric rates raises two questions: how have we arrived at this situation; and what solutions exist to reduce a 20-billion euro debt, which, apart from challenging the solvency of the companies that sustain it in their balances, weighs like a millstone upon the Spanish debt market. To the first question, the answer is that the Popular Party (PP) concocted a method of rate calculation that put off all the indispensable hikes until the future. Electric rates were shored up (a good example of the economic policy favored by the PP) so that they would have to be paid by future consumers, and the PP took the credit for not raising bills. The subsequent governments of the Socialist Party (PSOE), in the course of more than seven years, have shown themselves incapable of cleaning up the mess thus swept under the rug. They were well aware of the risks of a growing debt, but on several occasions put off the necessary hikes and refused to undertake a thorough overhaul of the rate system.

The result is that electricity bills now carry an unbearable burden of other charges: the Spanish consumer is sustaining both the inefficiency of the system (including the absurd subsidies for domestic coal) and the preferential treatment given to renewable energies, which, in some cases, do not have obvious benefits.

Workable solutions require a political capacity that has, so far, been conspicuous by its absence at the Industry Ministry. Last week's decree, which cut back acknowledged costs to companies and reduced bonuses for solar power, is a drop in the bucket: it will save, if all goes well, 4.6 billion euros in three years. But in 2011 alone the rate deficit will grow by another 5 billion euros. To cope with the crisis, the government has to prepare a schedule of rate hikes, known to both consumers and investors; negotiate a restructuring of existing commitments to subsidize renewable energies with companies and banks; impose tighter controls and avoid excesses in renewable energy production; and reform the system in such a way that the power companies no longer receive regulatory benefits for long-amortized installations (nuclear and hydroelectric). The system of electric rate regulation should have been set right when Zapatero came to power in 2004. It was not, and consumers are now suffering the consequences.