MADRID — Iberdrola Chairman Ignacio Galan is resisting the Spanish government’s campaign to make utilities like his assume some of the 24 billion euros ($32 billion) in debt that consumers owe to electricity producers.
Galan, head of Spain’s largest power generator, presented a competing plan Thursday to close the gap between the industry’s costs and what it’s allowed to charge. He would boost consumer bills, impose a clean-power levy on fossil fuels and cut subsidies for solar generators. Only one group escapes new sacrifices under Galan’s plan: power companies like Iberdrola.
“We are already shouldering the burden,” Galan said at an earnings press conference in Madrid that was largely devoted to his criticism of power regulations. “You don’t call it a sacrifice having financed the sums we’ve financed that were nothing to do with us, and playing banker for the industry?”
Galan’s broadside capped a week of high-profile lobbying from Spanish power companies that include Gas Natural SDG after Industry Minister Jose Manuel Soria said Feb. 16 they will have to assume some of the costs of balancing the books of the power system. The accumulated debt swelled to an estimated 24 billion euros ($32 billion) by the end of 2011.
Iberdrola, which Thursday reported 2.8 billion euros in 2011 profit, fell for a fourth day in Madrid trading, losing 0.9 percent to 4.49 euros at 5:10 p.m. local time. The stock has declined 7.1 percent this year compared with a 0.8 percent gain in the Euro Stoxx Utilities Index.
Iberdrola is the parent company of both Central Maine Power and Maine Natural Gas. CMP employs about 1,200 people, and has more than 600,000 customers in Maine. Maine Natural Gas has about 2,700 customers, and a work force of 10.
Soria, who took the minister’s job under a new Spanish government elected in November, is battling to prevent that debt from ending up on the government’s books after public accounts were shredded by an economic slump heading into its fourth year.
Spanish consumers were allowed to run up that debt because previous administrations agreed that utilities should book more revenue than they were permitted to collect. The gap accelerated during the last five years, swollen by subsidies added to power bills to support renewable power plants, energy efficiency projects and domestic coal mines.
While the five biggest power companies that finance the so- called power-tariff deficit are allowed to collect it from power bills over 15 years, the debt has snowballed.
Galan, 61, said financing the annual deficit has cost Spanish power companies 1.1 billion euros because they pay more to finance the debt in the capital markets than they earn in interest from consumers.
Spain has shifted 12 billion euros of the debt of the 24 billion-euro estimated total from the industry’s balance sheets by bundling the assets and selling them to investors through a government-guaranteed fund.
The utilities’ lobby group, Unesa, estimates the deficit will be 5.9 billion euros this year unless the government addresses the imbalances in the system. The legal limit for this year’s deficit is 1.5 billion euros.
Neither consumers, the government nor the power industry can bridge on their own the gap in power rates, or tariffs, Soria said during last week’s speech in Madrid.
“Nobody can think that any one of those can or should unilaterally provide a solution to the tariff deficit,” he said. “What we have to work on is a mix so that the burden is distributed.”
The most likely solution may involve a levy on atomic and hydroelectric plants owned by Iberdrola and Endesa, according to Shai Hill, an analyst at Macquarie Group in London. He predicts the government will impose a “windfall tax” of 15 euros a megawatt-hour on the two technologies, costing Iberdrola 578 million euros a year and reducing its 2012 earnings per share by about 14 percent.
“The power companies know they are going to be made to share some of the pain,” Hill, who predicted a freeze in clean energy subsidies that Spain announced on Jan. 27, said in an interview. “Ongoing remuneration levels for low-cost generation such as hydro and nuclear are going to get battered.”
The government has also considered capping wholesale power prices, a move rejected by “all parties,” Iberdrola Business Director Jose Luis San Pedro said Friday, while Deputy Prime Minister Soraya Saenz de Santamaria last week declined two invitations to rule out a so-called haircut for the tariff debt utilities still hold on their books.
With assistance from Randall Hackley in Zurich.
mwickenheiser:
The Maine Impact
Iberdrola and the other Spanish utilities all benefited financially from government mandates to increase clean energy generation (primarily wind turbines) with the support of huge subsidies. The profligate subsidy programs have now come home to roost with substantially higher energy prices and costly debt. Now the Spanish government wants to double down by inserting surcharges on the country’s lowest cost energy generation which are hydro and nuclear. They want to claw back what they never should have given away in the first place.
The critics of Spain’s renewable energy policies forewarned of the mandates that the inefficient technologies (wind and solar) and uses of investment capital (the government treasury) would bring. They were dismissed as ignorant doomsayers. Well the doom has arrived as predicted. The arrogant government and special interest got what they wanted and now the ratepayers will foot bill.
Iberdrola has been running all over the USA to put up wind turbines due to the governments’ subsidies. The push is on by our government and special interest across America to repeat the Spanish experiment in mandates. The USA will suffer the same consequences as Spain unless they permanently kill the subsidies and mandates.
Your post explains in full detail why our government on all levels should not be pushing these types of energy proposals. If a project is worth doing and has financial merit then 99% of the time it will be done by the private sector using a majority of private funds to finance the project.
How about Portland Maine and the 1.4 million dollar deal they made with Iberdrola to keep them around 10 years. Feeling very bad for anyone involved with Iberdrola. Including CMP. But, someone will buy CMP and keep the 1,200 people working.
Galan’s audacity to complain about being a “a banker for the industry” is remarkable after his company has been collecting government subsidies around the world to bankroll their own projects – $1.5 billion from the American taxpayers through just the 1603 treasury grant program.
It is so wrong that 600,000+ Mainers send their money to a Spanish Corporation each month.
It most certainly is. And yet do you think that even 10% of those people know that the power they use is supplied by a foreign company?
So the financial meltdown of the PIGS, mostly Greece, could result in Mainers paying higher energy costs. Thats great.