Banco Sabadell | According to press reports, the Council of State has issued a legal ruling questioning the legal validity of the circular on network remuneration methodology, particularly the Totex model, as linking remuneration to future demand introduces a market risk that is incompatible with the regulated nature of the activity, while imposing limits on investment could encroach on the Ministry’s powers. However, with regard to the circular on the financial remuneration rate (TRF), its considerations would be less severe. The ruling has been sent to the National Commission on Markets and Competition (CNMC), which must evaluate it in plenary session and take it into account before its approval, which must be before 31 December to avoid an extension of the current methodology.
Assessment: Although we must wait to see what the CNMC finally decides, the news should not have much impact, as the Council of State’s ruling is mandatory but not binding, meaning that the CNMC would not be obliged to take its conclusions into account. Although approving the new methodology circular without taking into account the legal recommendations of the Council of State could fuel future lawsuits against the CNMC, it would not be the first time this has happened, as in 2019 the electricity companies appealed several remuneration circulars before the National Court, lawsuits that have not yet been resolved. In any case, the main recommendations would focus on the distribution network methodology but not on the financial remuneration rate, which is likely to remain at the proposed 6.58% (below the 7/7.5% requested by the sector). We would highlight that the companies most exposed to the regulated domestic business in our coverage would be Redeia (81% estimated EBITDA’25) and Endesa (36% estimated EBITDA’25).
