By Andrés González and Jose Elías Rodríguez
MADRID, July 12 A major overhaul of Spain's
energy sector set to be approved on Friday will hit companies
and consumers hard but it may fail to plug a growing gap between
power prices and generation costs, sources with knowledge of the
A 26 billion euro (US$33 billion) deficit created by years
of mismatched regulated prices and costs has become a growing
headache for recession-hit Spain.
Subsidies for wind and solar electricity generation, and for
providing power to remote islands, as well as production
over-capacity have widened the deficit.
It is expected to grow by 4 billion to 5 billion euros a
year unless action is taken.
The centre-right government of Prime Minister Mariano Rajoy
has been looking for months at how to plug the hole and share
the burden between traditional electricity companies, renewable
power producers, consumers and taxpayers.
The sources, who attended or were briefed on talks between
the government and the electricity firms on Thursday, said the
state's budget would cover no more than 900 million euros of the
gap, or just half the cost of providing power to the Canary and
Electricity companies Iberdrola, Endesa,
Gas Natural or E.ON are expected to see a
cut of about 1 billion euros through a reduction of about 20
percent to the fees they charge to the state for distributing
Money would be saved by shutting down combined cycle plants,
which would help reduce the 600 million to 700 million euros
cost of power over-capacity.
Power grid operator Red Electrica Corporacion SA is
expected to receive up to 200 million euros less from the state
Finally, consumers will likely have to pay more for their
electricity and the government will make it harder for them to
access subsidised fares.
One of the sources said the reforms, consisting of one text
detailing the new regulation of the sector and another one about
sharing the burden, would fall short of fixing the deficit.
To do that, consumer prices will have to be increased, which
is a sensitive decision as cash-strapped Spaniards struggle to
make ends meet.
The sources cautioned last minute that changes were likely
as a meeting of senior officials who prepare the weekly cabinet
meeting's decisions was cancelled on Thursday. Several ministers
remain at odds over who should foot the bill.
Utilities have funded the shortfall until now and the
government has been gradually paying them back through the
issuance of state-backed bonds.
But the treasury ministry, keen to control any extra
spending as it struggles to meet tough deficit targets agreed
with the European Union, wants to shift the burden to companies.
Tensions escalated within the government this week when the
treasury ministry dismissed assertions from the energy ministry
that a deal had been struck on how the energy deficit would be