CNMC proposes reducing returns for electricity and gas distribution and transport

CNMC

The National Commission of Markets and Competition (CNMC) is looking into reducing the returns for the distribution and transport of electricity and gas. This could lower the electricity bill as much as 40% and 70% in the case of gas.

The new amounts should enable companies to recover their regulated investments. This would help reduce the toll cost paid by individuals and companies in the bill.

Process of public hearings

The CNMC announced it will submit seven new projects of circular letters to public hearings. There projects would define a stable and rigorous regulatory framework for electricity and gas returns in the coming years.

Once the process is complete, the CNMC will analyze the companies’ allegations and approve final regulations. In accordance with the most recent ruling, “the CNMC will, prior to January 1, 2020, (…) approve regulations containing the methodologies for the estimation of the tolls and charges to access the networks, as well as the returns related to regulated activities in the electricity and gas sectors.”

According to the CNMC, one of the main novelties entails establishing an explicit methodology to calculate the financial rates of return, based on the Weighted Average Cost of Capital (WACC).

The regulator highlighted this is a consistent, reproducible, and widely used methodology among European regulators to calculate the rate of return for regulated activities in the electricity and gas sectors.

Moreover, this methodology minimizes regulatory uncertainty, as it is easily replicable, thereby facilitating the predictability of future rates of return. Furthermore, it contributes to generating a stable and more favorable environment for investment, the CNMC says.

Greater reduction in electricity

The returns for electricity distribution will go down by an average 7%. Meanwhile, gas distributors will see their distribution rates drop by 17.8% is the CNMC’s proposal is approved.

The plan is detailed in the documents that establish the methodology to calculate the returns for electricity transport and distribution and regasification. The proposals were delivered for public consultation on Friday. Also, the offer adds that REE’s electricity transport will be cut by 8.2%.

For its part, the reduction for gas transportation, handled by Enagás, is estimated at 21.8%.

These cuts will reduce the electricity bill, which regulator estimates will go down by 3% for domestic consumers and 6% in the industrial sector.

Meanwhile, the gas bill is set to decrease by 10% for households and 20% doe industries.

The deadline to submit comments is August 9, 2019. Once the public hearing process is finalized, the CNMC will analyze the companies’ allegations. It will also approve the final regulations before January 1, 2019.

Calculation and methodologies established in the circulars

The returns are addressed in the first circular, which establishes the methodology to calculate the rate of returns for the transport and distribution of electricity and natural gas. The rest establish the methodology in different sections.

In detail, the draft circulars submitted establish the methodology for:

  1. Calculation of the rates of return of transportation and distribution activities of electricity and natural gas and regasification.
  2. Returns for the electricity operator.
  3. Methodology to establish the returns for the gas system’s technical manager.
  4. Returns for regulated activities of gas transportation and regasification.
  5. Returns for regulated activities of gas distribution.
  6. Calculation of the returns for electricity transportation.
  7. Calculation of the returns for electricity distribution.

Effects on the stock market

The CNMC’s announcement had an impact on the stock market. At the opening session of the Ibex 35 on Tuesday, Enagás recorded the biggest losses, dropping by 1.4841%, while Red Eléctrica fell by 1.6338%.

For more information, check Energía16

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