UPDATE 1-Spanish watchdog has plan for initial 2014 power price rise below 3 pct
* Suggests using electricity futures market for power prices
* Proposals would limit price hikes to below 3 percent
* Government due to approve a new pricing decree on Friday (Adds details and background)
MADRID, Dec 26 (Reuters) - Spanish competition watchdog CNMC proposed a new method of formulating electricity bills, based on the futures market, that would keep initial 2014 rises below 3 percent instead of the double-digit hikes suggested under the old system.
Spain's electricity prices, which have so far been set partially by quarterly wholesale power auctions, came under fire last week after they logged a steep jump that could have meant a painful 11 percent rise in consumers' power bills.
The regulator, Comision Nacional de los Mercados y la Competencia (CNMC), annulled the results of the quarterly auction on the ground of what it called "atypical circumstances" in the process. It did not give further details.
The Spanish government is expected to announce a decree on a new method for power pricing on Friday.
In proposals made public in a report on Thursday, the regulator suggested using the electricity futures market as a new base for power prices in the first quarter of next year and possibly for longer.
The CNMC proposed using either the average of future prices over the past three months, which would lead to a 2.9 percent increase in 2014 electricity bills, or over the past six months for a 1.4 percent rise.
The regulator said the new formula should be used to set consumer electricity prices in the first three months of the year and could be extended for the whole of 2014, although it advised against this option because of possible distortions to competition.
Wholesale power auctions account for about 40 percent of Spanish electricity bills.
Spain's main utilities Endesa, Iberdrola and Gas Natural could be hit by the new measures. Spokesmen for all three companies declined to comment on the proposal. (Reporting by Tracy Rucinski; Editing by Anthony Barker)
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