Wednesday, August 10

The Government’s formula to fulfill its promise of light

It was the beginning of September, after a summer in which all the media had done exhaustive daily monitoring of the sharp rises in the price of electricity, and the President of the Government, Pedro Sanchez, threw in an interview with El País a promise: the necessary measures would be taken so that “all citizens with an average consumption at the end of 2021 pay a similar amount and similar to what they paid in 2018, logically with the discounted CPI.”

“That is the objective and the commitment,” declared the President, slipping into the unstable political terrain that involves making quantifiable promises with specific deadlines. At first, the commitment did not seem too ambitious: 2018 was the year in which the most expensive annual electricity bill in history was recorded. It was also the year that Sánchez arrived in Moncloa after the motion of censure, and that was his political asset: leaving the receipt at least the same as how he found it when he came to power.

But since he made his promise, prices in the electricity market have spiraled even more and reached all-time highs, and the more than well-founded doubts that such a commitment could be fulfilled have been spreading in the electricity sector and among consumers. Even so, both Sánchez and the vice president of the branch, Teresa Ribera, have been confirming for all these months without fissures that the objective will be achieved. And from the Government it is taken for granted that the President will be able to endorse it in his speeches between now and the end of the year.

Calculating the mean

The Executive will consider its promise to be fulfilled, relying on what the average of all Spanish households will pay on its bill throughout the year. All households. And it is that this average will finally include both customers with a regulated rate (the Voluntary Price for the Small Consumer, PVPC) and consumers of the free market, as confirmed by the Secretary of State for Energy, Sara Aagesen, in a published platform on THE PERIODIC OF SPAIN, newspaper that belongs to this group, Prensa Ibérica.

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Until then, the Government had not clarified this point, and the electricity sector and consumer organizations assumed that only the evolution of the PVPC would be taken as a reference. This is the reason why for weeks it has been considered impossible that Sánchez’s promise would be fulfilled: part of the price of the regulated rate depends directly on the evolution of the wholesale electricity market, which is the one that has been setting records since summer, and that is why the year will end much higher than in 2018, despite the measures adopted by the Government.

The more than 10 million families with regulated tariffs -which will pay more than in 2018- and the 16 million customers with free market tariffs -which in most cases will pay less. Traditionally, PVPC customers benefit from better prices than those on the free market, whose rates are freely set by electricity companies and which tend to have fixed but higher prices, because they include higher margins for companies (in addition to complementary services). ). This year, on the other hand, free rates will be cheaper as they do not reflect the spiral of increases in the electricity wholesale market for the time being.

“The average of all households will pay the same as in 2018, which does not mean that each of us individually pay exactly the same,” said the vice president and minister for the Ecological Transition, Teresa Ribera. “There will be many families that pay less, there will be some families that pay the same and there will be some families that may pay a little more.”

A crash plan for everyone

The Government approved a shock plan in two batches – in June and September – to cushion the impact of the increases in the electricity market on the electricity bill of households covered by the PVPC. The measures, however, benefit all domestic consumers: those who suffer increases in the wholesale market (families with PVPC) and those who are not passed on these increases (those in the free market), through temporary reductions in taxes applied on the receipt and with a 96% reduction of the regulated charges included in the invoice.

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“This is the way the government can operate. The Government cannot control what rate each family has or what consumption each family has, ”stressed Teresa Ribera. “Regarding the variables in which the Government has something to contribute, we have adopted the measures, the choice of each one on the rate and the electricity consumed is not something on which we can intervene.”

Some will pay more than in 2018 and others will pay less, but the Executive assumes that the average will be below the bill of three years ago. A prediction that the Ministry for Ecological Transition maintains “according to the best possible estimates.” The price of the PVPC can easily be calibrated based on the evolution of the wholesale electricity market and the futures market. But there is no prior record of the price of the hundreds of rates that electricity companies offer in the free market, it is only publicly reflected in the semi-annual statistics of Eurostat, the statistical service of the European Commission.

No confirmation until April

The main Spanish electricity marketers are not obliged to send the Ministry the information on the final prices that apply to all their customers until the end of February. It is then when the Government will know for sure if it has managed to fulfill its commitment. These data, however, will not be made public until Eurostat publishes its statistics on electricity prices for all the countries of the European Union for the second half of the year, which does include both regulated and free market rates. The European Commission does not have this publication scheduled until next April.

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The Statistics National Institute (OTHER) prepares a revolution in how it measures the evolution of electricity prices and its impact on household consumption, precisely to include all types of rates. The agency will apply in January 2022 a change in the calculation base of the consumer price index (CPI), which among other modifications will include the stop measuring only the evolution of the regulated electricity rate and also include market rates free, which for years have concentrated the majority of the market and which until now have not been taken into account to calculate inflation. From the body it is stressed that the renewal of the CPI calculation base is carried out every five years and now it is time to change because the current one has been in force since 2016.

A decade ago, more than 90% of all electricity customers took advantage of the regulated tariff, which is why it was the only measurement carried out by the INE to calculate the evolution of inflation. But in recent years the flight of customers from the PVPC has skyrocketed and the transfer to free market rates – despite being more expensive – has been massive and they now account for almost 61% of the small consumer market. Currently, free tariffs concentrate 10.5 million customers, compared to 16.2 million small consumers in the free market (plus another 1.8 million large consumers without the right to PVPC).

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