Electricity sector overhaul to push bills up by 3.2 percent

The Cabinet on Friday approved an overhaul of the regulated electricity system that will push up costs for producers and prices for consumers, many of whom already have problems making ends meet in a country where unemployment has hit 27 percent.

Returns on investment for power suppliers and distributors are to be cut by 2.7 billion euros, while the average electricity bill is set to rise by 3.2 percent, possibly from August.

The reform is aimed at attacking the problem of the so-called tariff deficit — the difference between what it costs to produce electricity and the regulated rates charged for it. Industry Minister José Manuel Soria estimated that the shortfall this year will come in at 4.5 billion euros.

“The measures in this reform aren’t easy for anyone, but they’re absolutely necessary,” Soria told a news conference Friday. “If we did nothing, the only alternatives would be either the bankruptcy of the system or an increase in the price for consumers of more than 40 percent.”

Addressing the same news conference after the regular Friday Cabinet meeting, Deputy Prime Minister Soraya Sáenz de Santamaría said: “This is a definitive reform to end the problems of Spain’s energy sector.”

Households are already struggling with a situation in which inflation continues to rise, with wages either stagnating or falling. According to figures released Friday by the National Statistics Institute (INE), the rise in the consumer price index in June accelerated to 2.1 percent from 1.7 percent the previous month as a result of an increase in fuel costs.

Presenting the figures, the secretary of state for the economy, Fernando Jiménez Latorre, predicted that the rise in electricity rates would not have a “significant impact” on inflation, which he said should move back toward around one percent by the end of this year.

The core inflation rate — which factors out the impact of volatile fresh food and energy prices — was steady at 2.0 percent. That figure is still relatively high given the weakness of domestic demand, with the country locked in its second recession in four years.

The electricity sector reform depressed the share prices of power utilities, particularly renewable energy suppliers, which are badly hit by the overhaul. Acciona declined 8.52 percent, Iberdrola was down 3.35 percent, Red Eléctrica decreased 7.54 percent, Enagás dropped 6.05 percent, while Gas Natural fell 8.05 percent.