Spanish Utilities Accuse The Government Of Damaging Their Reputation

electricity prices

The electricity companies have never had good press in Spain. Perhaps because they are natural monopolies, despite the ‘liberalisation’ of the sector, they are viewed as rather obnoxious, very powerful, companies which charge too much than they should, don’t listen to their clients and cut off your electricity…But however it strange it may seem, these companies have never considered themselves as powerful. On the contrary, they frequently come over as the victims who, rather than benefiting from the system, have had to carry the can for an interminable list of capricious, irresponsible, arbitrary or simply stupid energy policies from different governments. This would not have been at all important if it hadn’t been for the impact these policies have had on electricity bills, pushing them through the roof to unimaginable levels even in the rest of Europe. To such an extent, that tens of thousands of consumers are unable to pay them.

Those who are moderately informed know perfectly well that in Spain two-thirds of the price people pay for their electricity doesn’t really go to the companies to pay for electricity generation, but it goes on other, apparently incomprehensible items: taxes like VAT (21%), the tax on generation (7%) and another for renewables (4.6%). There is also a series of fees which include distribution costs, payments for interruptibility for industrial firms or for the islands (to compensate for production overruns), as well as the burden of the premiums for the renewables or subsidies for the coal industry.

So, as they don’t know this, the majority of the population put the blame exclusively on the electricity companies which, in the end, only get paid a third of the bill for generation. And this situation has always pushed the electricity companies to the limit. One thing is to pay for your own mistakes, but for those of others…To such an extent that they are increasingly more daring in their criticisms of the government – the current and previous ones, whatever their leaning – and their energy policies, which they consider to be the real historic reasons for this mess.

This happened in 2014, when there was an excessive hike in electricity prices and the then Industry Minister, José Manuel Soria, decided to change the auction system and the bill itself for a system of hourly marginal prices: prices are hour-by-hour according to the highest energy price which enters the system at the last minute. And it has happened again now, as the current minister Álvaro Nadal, bold as brass, has unceremoniously cast doubts on the sector and the way in which the electricity companies fix their prices in the wholesale market.

According to a top executive, the electricity companies were not happy about Nadal putting them in the firing line and referring to them as “the only one responsible for the rise in prices.” And they have not hesitated to protest about the continual warnings of inspections issued by the minister which “have made us”, they said, “a target and fuelled suspicions about abuses on the part of the electricity companies.”

Suspicions which have led the Fiscal Department of the Supreme Court to carry out an investigation to find out in detail how the sector works and the “real reasons” behind the high price of electricity.

They were particularly irritated by one of its phrases, warning that “fishing in troubled waters” should be avoided. And the companies have also had no doubts about saying that if it wants to lower prices “it’s easy, just cut VAT from 21%.”

So is the minister right to suspect that maybe the companies are not playing sufficiently fair when they set the prices? It’s possible he is right to some extent. In fact, in 2014 Iberdrola had to pay a 21 million euros fine for manipulating the price of its hydro-electricity. But his attitude has basically been politically-motivated: push the unpopularity of the situation away from the government and on to the sector, which explains the companies’ indignation.

At the end of the day, the stratospheric rise in January to almost 100 euros on some days is an extraordinary situation – the lack of rainfall and wind, more expensive gas, higher consumption, the stoppage at French nuclear power stations – which lasted for a few days and will only have a very slight real impact on the electricity bill, at least for the year as a whole. Furthermore, because the basic  situation, and this has to be said, is that electricity generation in Spain is amongst the cheapest in Europe. In other words, the “electricity” generated in Spain has lower prices in the wholesale market than those usually found in the rest of the EU. If it weren’t for the taxes and tolls of political origin, and for which the electricity firms are not to blame, Spaniards would pay a third of what they are paying.

It’s possible that Nadal could not do anything else. As usually happens, the other parties in parliament, from PSOE to Podemos passing by Ciudadanos, decided not to allow the opportunity for hoisting a flag which is very expensive for the left in general: the attack on the electricity companies, very expensive despite the fact that when the PSOE is in office, it usually treats these companies better than the PP does, however strange that may seem.

What is clear is that this block offensive from the opposition, which has also been translated into a series of proposals, has left the minister with very few options for action other than go along to a certain extent with the dominant side and unite himself in some way with its arguments “that people don’t think…we are the same.”

Do these companies make a lot of money? Well it depends. For example, in the first nine months of last year, despite its revenues having fallen by 9.1%, Iberdrola increased its gross margin by 2.3%, its EBITDA by 4.2% and its net profit by 17%.  Of course not all of this originated in Spain. Only 41% of its EBITDA in networks came from Spain, the rest from abroad, especially from the US and the UK (55%).

It doesn’t seem to have gone quite so well for others. Gas Natural Fenosa saw its 2016 revenues decline from 26 billion euros to 23.2 billion and its net profit from 1.5 billion to 1.350 billion. In Endesa’s case, its revenues fell from 9.8 billion euros to 8.8 billion in the first quarter, with net profit declining from 870 billion euros to 800 billion.

About the Author

Fernando Barciela
Fernando Barciela has been a regular collaborator for Spain's leading daily El Pais' business section since 1994. He is also a regular collaborator on foreign policy. For Grupo Consejeros he interviews the top executives of Spain's listed companies. He was a correspondent with Diario de Noticias, Portugal's leading daily newspaper, in 1987-2004. He has a degree in Business Science and Journalism from the Complutense University.