July 5, 2020

The CNMC approves the formula that cuts the remuneration to electric and gas companies | Economy

The National Commission of Markets and Competition (CNMC) This Wednesday has approved one of the most anticipated circulars on the regulation of the electric and gas markets. This is the one that establishes the methodology for calculating “the rate of financial compensation for the activities of transport and distribution of electric energy and regasification, transport and distribution of natural gas.” The circular sets the values ​​for the period 2020-2025 in electricity and 2021-2026 in gas.Once approved, a transparent criterion for remuneration and non-political criteria may be used as before.

This circular, which has been sent to the Ministry of Economy to refer to the State Council, It is part of the package of seven that the CNMC submitted to public consultation on July 5 on the remuneration of companies that perform the function of gas and electricity distribution. In the circular project, it was anticipated that the remuneration of electricity companies would be reduced by 7% and those of gas by 17.8%. In addition, the plan included that the transport carried out by Red Eléctrica de España (REE) and Enagás would suffer a 8.2% and 21.8% cut, respectively. The debate on this package of circulars is being rough and long within the CNMC because of its difficulty.

If it were as it had been proposed, the reduction of the remunerations would lower the electricity bill by 3% for the domestic consumer and 6% for the industrialist, according to calculations made by the agency. Meanwhile, in the gas bill the expected reduction is 10% in households and 20% in industries. The proposal caused a strong controversy in companies, especially in REE And the gasistas. It also caused a sharp decline in the stock market of energy values, especially those cited Enagás and REE.

One of the main novelties of the aforementioned circular is to establish an explicit methodology for the calculation of the financial compensation rate based on the WACC (Weighted Average Cost of Capital or Average Weighted Capital Cost). According to the CNMC, this methodology minimizes uncertainty, since, being replicable, "it facilitates the predictability of future remuneration rates and helps to generate a more stable and investment-friendly environment." So far it has been set with political criteria.

The Association of Electric Power Companies (Aelec) said that the defined compensation rate experiences a significant decrease, standing at 5.58% before taxes. That remuneration, in his opinion, “is insufficient and does not match the contribution that distribution networks have to make” to meet the objectives of the National Energy and Climate Plan. In that sense, the companies charged against the plans proposed by the CNMC because they consider that “the contribution of the distribution power networks is crucial to integrate the volume of renewable projects planned, make self-consumption possible and allow the development of charging infrastructure of the electric vehicle ”. In his opinion, the distribution business requires a lot of investment that takes time to be profitable, and adapt to the objectives of the Energy and Climate Plan It requires maintaining the current remuneration level.

The association of gas companies Sedigás, meanwhile, attacked and underlined his disappointment considering that the proposed methodology risks the objectives of the aforementioned plan and discourages the sector in its plans to promote the ecological transition. In his opinion, "the proposed measures are misaligned with European regulation, which clearly bets on the coupling of gas and electricity markets in addition to the flexibility and development of gas as a vector to boost the decarbonization of the economy."

Rest of circulars

The State Council already has in its hands the first four circulars that were submitted to public consultation and with which the regulatory framework for electricity and gas will be defined tThe CNMC must assume the powers attributed by Community law. They are the circular access of electricity, gas, electricity markets and gas balance.

The following circulars, which form the compensation package, establish the methodologies in different sections. In that sense, the second circular establishes the remuneration methodology of the electric system operator, which sets the parameters that will be applied during the 2020-2023 regulatory period. The following circular establishes the methodology of remuneration of the technical manager of the gas system, which is carried out for the first time and sets the prices that will be passed on to the agents for the financing of the operator, as well as its collection and settlement.

The following circulars establish the methodology for remuneration of regulated activities of transport and regasification of natural gas and distribution of natural gas. These determine the remuneration of natural gas facilities for the costs of said facilities.

The last two circulars establish the methodology for the calculation of the remuneration of the activity of transport of electrical energy and distribution of electrical energy and that determine the amount to be paid to the companies that own electric energy transport facilities for the construction, operation and maintenance of these, with homogeneous criteria throughout the State and at the lowest possible cost to the system, as well as distribution to guarantee the provision of the service.

In another package of circulars, the CNMC proposed lowering tolls for transport and distribution of gas 26% for domestic consumers and 6.7% for industrialists for the 2020-2025 regulatory period, as reflected in the draft circular published on Wednesday on the methodology for calculating transport tolls, local networks and regasification of natural gas. The main novelty of this methodology proposed by the CNMC is that it establishes differentiated tolls for each of the services provided by the different facilities. The objective is to maximize the use of infrastructures, preserving the sufficiency of income to recover the remuneration recognized for each of the activities.

As to the extension of time discrimination, the agency maintains that consumers will be able to know more precisely prices to encourage efficient consumption and, consequently, better use of the networks avoiding unnecessary investments in the current context of electrification of the economy. The objective is for the consumer to know transparently the determination of their transport tolls, their distribution among the different types of consumers and how much the cost of the networks in their total electricity bill.

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