Spanish gas groups face up to 22% cut in regulatory review

Spain’s National Commission on Markets and Competition’s plans for a new regulatory period for gas distribution and transmission companies could see a reduction in revenues of up to 22 percent for the sector.

The review, for the period 2021-26, is in a consultation phase and envisages a fall in prices of 26 percent for domestic gas consumers across the period and 6.7 percent for large industrial consumers.

The review is the first undertaken by the CNMC in an effort to “[balance] the interests of consumers, both individuals and companies, with the interests of investors and energy companies that carry out regulated activities”, it said in a statement. The matter was previously in the hands of the Ministry of Energy.

For gas distribution, the CNMC has proposed an allowed return on a regulated asset base model of 5.8 percent, the first time this has been introduced. The allowed return for gas transmission has increased marginally from 5.1 percent to 5.4 percent, although the remuneration for continuation of supply, a demand-based revenue generator, is set to be phased out in the first four years of the regulatory period, a significant move a source told Infrastructure Investor has taken the industry by surprise.

“In gas transmission, we were expecting the remuneration to be unchanged,” added Massimo Schiavo, analyst at S&P Global Ratings. “The cut is mainly coming from the elimination of the RCS, an element which was particularly important for the companies. This is harsher than we were expecting.”

The proposal is understood to have prompted a backlash from some in the industry, which includes Global Infrastructure Partners and CVC Capital Partners, both of whom own 20 percent of listed group Naturgy. According to the Financial Times, they form part of a group of investors to have sent a letter to the Spanish government warning the measures “will damage the country’s economy and deter future investment”, although Infrastructure Investor understands this did not receive signatories from across the industry.

In the gas distribution sector, some companies are grappling in particular with elements of the plans encouraging more efficiency in the system, according to S&P analyst Gerardo Leal.

“It is here we see the CNMC aims to take out remuneration for assets which it deems are depreciated,” he told Infrastructure Investor. “ These are assets mainly from pre-2002 and this could have the biggest impact on distribution systems operators.”

S&P has put three companies – Energas, Madrileña Red de Gas and Naturgas – on negative outlooks, with companies such as Naturgy and Redexis remaining stable, in part due to a younger asset base. Fitch Ratings, however, has placed Naturgy on a negative outlook.