Rajoy promises consumers won’t see “unjustified” electricity rate rises

Prime Minister Mariano Rajoy said Friday that the government would soon be reviewing electricity rates after Spain’s anti-trust authority, the CNMC, invalidated the result of a wholesale auction that took place on Thursday and would have meant a huge hike in consumers’ bills.

“The government is working on a procedure to fix an alternative price to that of the auction,” Rajoy told a news conference. “The matter will be resolved before the end of the year.”

Rajoy reiterated that in no case would the result of the auction be applied to what Spanish consumers pay for their electricity. “The government believes the rise was excessive and unjustified,” he said. “The CNMC thinks the same and for that reason we have annulled it. The important thing is that the outcome of the auction is not passed on to bills.”

The Industry and Energy Ministry has to decide over the course of the next few hours whether to formally throw out the result of the wholesale auction on Thursday after the CNMC in the early hours of this morning informed the ministry that it could not “validate” it because of doubts about the reliability of its outcome. The CNMC does not have the powers to declare the tender null and void.

The price of electricity increased by over 25 percent at the tender, meaning that electric bills were set to rise by 10.5 percent next year. The government is also planning to raise the so-called regulated component of consumer bills – which covers the cost of transportation, distribution and rate premiums paid to renewable energy producers – by one to two percent. As a result, consumers, already struggling to make ends meet in an environment of falling wages and high unemployment, would have seen a hike in their electricity bills next year of between 11 and 13 percent. The wholesale component accounts for about 45 percent of the typical electricity bill and the remaining 55 percent the regulated component.

The Industry and Energy Ministry on Thursday formally requested that the CNMC launch an investigation into the circumstances surrounding the auction on the grounds that there may have been collusion among energy companies.

European Union vice president, Spaniard Joaquín Almunia, who is responsible for competition in the bloc, said that if there had been prior agreement among suppliers then it was up to the national regulator to investigate. “If there has been collusion to artificially alter prices that derive from the auction then action will have to be taken,” he said in an interview with Spanish state radio RNE.

“Unfortunately, we do not have a single market for energy, neither electricity nor gas, and there a lot of barriers to entry and a lot of national regulations,” Almunia added. “He noted that the Spanish electricity sector had had a lot of problems with competition in the past, adding that “the bad practices of former public companies with monopolies to a certain extent still persist.”

Eduardo Montes, the chairman of Unesa, the association that groups together Spain’s electricity companies, said Thursday’s auction was conducted in a “normal manner,” adding that this is the first time the competition watchdog has not validated its outcome.

Earlier this month, the government made a last-minute decision to withdraw a plan to allocate public resources to help trim the so-called tariff deficit – the difference between what it costs to produce electricity and what consumers pay for it – citing the need to prioritize the reduction in the public deficit. The tariff deficit for this year is estimated at some 3.6 billion euros.

Industry and Energy Minister José Manuel Soria initially said the decision to withdraw funding for the tariff deficit would not impact electricity bills, but later acknowledged there would be a hike. “Electricity prices will not rise 11 percent under any circumstances,” the minister told RNE on Friday. “We suspect manipulation because the price that emerged from the tender is seven-percent higher than reference prices for equivalent contracts.”