Spain to hike power rates, cut subsidies-reports

MADRID, March 24 (Reuters) - Spain’s centre-right government may decree on Friday an electricity rate hike of up to 7 percent for consumers and cut subsidies to power distributors by 10 percent, several newspapers reported on Saturday.

However, government sources told Reuters there was no decision yet on the exact content or timing of pending energy sector reforms.

The cut in subsidies to distributors would hold down Spain’s rising tariff deficit, which is backed by the government, by some 500 million euros in a year, the media reports said.

The government is in the middle of an austerity drive to keep the euro zone debt crisis at bay.

The lower subsidies would affect Iberdrola, Gas Natural Fenosa and Endesa and other smaller companies, according to the media reports.

Financial newspapers Expansion and El Economista reported that the distributors would consider legal action against the government if their subsidies were cut but not those of national grid operator REE, which is 20 percent state owned, and gas pipeline manager Enagas, which is 5 percent state owned.

Industry Minister Jose Manuel Soria is to take the proposed decree to the cabinet meeting on Friday, March 30, the same day the cabinet is to approve the austere 2012 budget, newspapers reported.

A second phase of energy reform could come in April or May, the reports said. One possibility the government is considering is a windfall tax on profits from hydro and nuclear generation.

Spain’s energy watchdog recommended this month that consumer rates must rise to fix a power market structure that has built up a government-backed 24 billion euro ($31 billion) debt pile.

The so-called “tariff deficit” has grown for more than 10 years due to utilities being forced to sell power at regulated rates below nominal generation and distribution costs.

But the industry ministry criticised the report and the recently elected People’s Party government has said repeatedly that consumers cannot be expected to bear the entire burden of the energy sector’s tariff deficit by paying higher rates.

Consumer power rates were hiked 8.1 percent in the first quarter last year and by 9.8 percent in the third quarter. (Reporting by Fiona Ortiz; editing by Jason Neely)