What is the tariff deficit of the electricity system? We explain it to you

The scuffle on account of the rise of the light during the first session of control to the Government of the political course in the Congress of Deputies brought up an old acquaintance in the Spanish electricity sector: the tariff deficit.

Specifically, he was the deputy of the Popular Party Guillermo Mariscal, who, during his speech, made reference to the state in which this debt was at the end of the Government of Jose Luis Rodriguez Zapatero: “In 2011 they left us 27,000 million euros of tariff deficit, which represents an annual bill payment of 2,500 million euros.”

His partner on the bench also alluded to this ‘electric mortgage’ Cuca Gamarra, who reproached the Government that “every time the Socialist Party governs, the electricity system goes into deficit and electricity rises. Last time they accumulated a debt of 27,000 million euros that we are paying together on each electricity bill and they made electricity more expensive by 60% ”.

But what exactly do they mean when they talk about the deficit in the tariff of the electricity system? We explain it to you.

What is the electricity tariff deficit?

The experts Natalia Fabra, professor of Economics at the Carlos III University, and Jorge Fabra, former president of the National Energy Commission, defined the electricity tariff deficit in the article The tariff deficit in the Spanish electricity sector as “the difference between the collection rights recognized to the electricity companies and what is entered through the regulated electricity rates.”

In other words, it is the gap between what it costs to generate and transport electricity and what consumers pay for electricity. The difference that results from this calculation is the money that the Spanish owe to the electricity companies. Javier Colón, CEO of Neuro Energía, sums up the situation: “The companies sold below cost and that debt was recognized”.

How much is the debt today?

According to the latest data provided by the National Commission of Markets and Competition (CNMC) referring to the end of 2020 and published in February of this year, the electricity debt amounts to 14,294 million euros, 13.9% less than in 2019.

The debt annuity for 2020 was 2,710.3 million euros, a figure that consumers pay every month, as reflected in the electricity bill in the charges section. For 2021, the estimated annuity is somewhat lower, from € 2,464.5 million.

What is the origin of the tariff deficit?

To understand when the tariff deficit arose, we must go back to the first years of the mandate of Jose Maria Aznar. Specifically, to 1997. That year the Law 54/1997, of November 27 of the Electricity Sector, which marked the beginning of the process of liberalization of the generation and commercialization of electricity, in tune with what Brussels dictated.

This new regulation enlightened the wholesale electricity market of which Spain is a part, together with the rest of the countries of the European Union. There, the price of energy is negotiated according to the demand that the country needs, as we explain in this article on Newtral.es. Until that moment it was the government of the day that determined the prices.

However, before this liberalization process began, in 1988, during the mandate of Felipe González, the Government began the privatization of Endesa.

Rodrigo Rato’s rule

Rubén Sánchez, general secretary of FACUA, explains to Newtral.es that the liberalization of the market meant that from the year 2000 the price of the kilowatt hour increased. To avoid that these increases had a great impact on the pocket of the citizen, the then Minister of Economy, Rodrigo Rato, established in the Royal Decree 1432/2002 that the electricity bill could not rise more than the CPI, despite the fact that the costs of generating electricity were much higher. “What he did was falsify the price of electricity,” adds the secretary of FACUA.

In Sánchez’s opinion, at that time the electricity bill must have gone up. However, he did not do it. This situation generated a debit with the electricity sector. The debt began to accumulate. “No government likes to increase the price of a product that everyone consumes, as it creates unpopularity,” adds José Luis Sancha, an expert in the energy system, professor at the Polytechnic University of Comillas and author of the book Boast of understanding (thoroughly) electricity and gas bills.

The decrees of Rodríguez Zapatero

When Jose Luis Rodriguez Zapatero came to power, in 2004, he encountered this problem. However, “it does nothing, beyond introducing slight changes,” Sánchez specifies. Specifically, during its first stage it approved the Royal Decree Law 7/2006 of June 23, by which urgent measures are adopted in the energy sector and which modifies some paragraphs of the Law 54/1997 and add some provisions. Among them, that “the Government, for the calculation of the average rate that it approves, may set the maximum annual limits to the increase in said rate, as well as the costs to be considered.”

Another of the rules of the time was the Royal Decree 662/2007, of May 25, which regulates the activity of electricity production under the special regime. “What was established in these standards were the premiums for renewables,” says Javier Colón, CEO of Neuro Energía.

In 2008, it approved the Royal Decree 222/2008, of February 15, which establishes the remuneration regime for the electricity distribution activity and the Royal Decree 325/2008, of February 29, which establishes the remuneration of the electricity transmission activity for installations put into service as of January 1, 2008. In 2009, the social bonus. In addition, throughout his two legislatures in Moncloa he also modified the Law 54/1997, of November 27, the Electricity Sector on more than 10 occasions.

However, despite these regulations, during his government this deficit did not stop growing until it exceeded 26,000 million euros, as reflected in the media of the time.

Mariano Rajoy’s solution

Mariano Rajoy decided to tackle the problem. Approved the law 24/2013 of December 26 of the Electricity Sector, whose last update was published on September 15, 2021. In point 3 of the article 19 points out that “the part of the mismatch that, without exceeding the aforementioned limits, is not compensated for the increase in tolls and charges will be financed by the subjects of the settlement system [los consumidores] in proportion to the remuneration that corresponds to them for the activity they carry out ”. That is, this means that it is the consumers who assume that debt.

What has been the evolution of this deficit since 2013?

In 2014, the system registered for the first time a a surplus of 550.3 million. This situation was repeated during 2015, 2016, 2017 and 2018, although each year to a lesser extent. The aggregate surplus that has been generated from 2014 to 2018 reached 1,687.5 million euros, according to data offered by the National Commission of Markets and Competition.

During the years 2019 and 2020 the system registered a deficit. However, as established in the order TED/952/2020 The surplus of the electricity system has been partially applied to cover temporary imbalances and transitory deviations between income and costs of the exercises 2019 and 2020. Therefore, the figures for both years remain at 0, although the data for 2020 are still provisional. The CNMC points out that “specifically, 527.65 million euros so that the year 2019 will end in balance, and a total of 506.2 million in provisional settlement No. 10 of 2020, which have increased the coverage index of provisional settlement No. 10 to 84.96% ”. In total, 1,034 million.

When will the payment stop?

According to the estimates of the CNMC, that debt will stop paying the December 31, 2028.