Energy Updates 1-2014

December 27, 2013 saw the publication in the Official State Gazette of Law 24/2013, of December 26, 2013 (hereinafter, “Law 24/2013”, “LSE” or the “law”).

According to its preamble, the law emerged in a context of “continual legislative changes that have led to a significant distortion in the functioning of the electricity system, and that needs to be corrected by action by the legislature that will provide the regulatory stability that the electricity business needs.” To this end, the basic aim of Law 24/2013 is “to lay down the provisions governing the electricity industry that will guarantee the electricity supply with the necessary quality levels and at the lowest cost possible, to ensure the economic and financial sustainability of the system and to permit an effective level of competition in the electricity industry, all in accordance with the environmental protection principles of a modern society.”

Law 24/2013 is also a response to the structural reform of the electricity industry included in the Council Recommendation on the National Reform Program 2013 of Spain, approved by the Council of the European Union on July 9, 2013.

The new LSE is underpinned by four (4) fundamental principles:

• Recognition of free enterprise when it comes to the conduct of the activities aimed at supplying electricity that are regulated in the law: generation, transmission, distribution, energy recharging services, retailing and intra-Community and international exchanges, as well as the technical and economic management of the system, all notwithstanding any restrictions that might be established for activities that are considered natural monopolies.
• Consideration of the supply of electricity as a service of general economic interest, previously considered as an “essential service”. The access of system participants to grids as one of the cornerstones of the operations of the electricity system, essential to guaranteeing supply and effective competition in the market; and
• The configuration, as a new feature, of the economic and financial sustainability of the electricity system as a guiding principle for the actions of the public authorities and the other system participants within the scope of application of the law.

Law 24/2013 establishes that it is basic legislation, except for the references it contains to administrative proceedings, which will be controlled by the competent public authorities and must conform in all cases to the provisions of Public Authorities and Common Administrative Procedure Law 30/1992, of November 26, 1992.

The reform of the electricity industry was completed with various recently approved pieces of secondary legislation and others which are currently passing through parliament and are expected to be approved in the forthcoming weeks, including most notably: (i) the Draft Royal Decree governing electricity generation activities using renewable energy sources, cogeneration and waste; (ii) the Draft Royal Decree establishing the rules on the administrative, technical and economic conditions for electricity supply formats with own consumption and generation formats with own consumption; (iii) the Draft Royal Decree governing the capacity and hibernation mechanisms and amending certain elements of the electricity generation market; (iv) the Draft Royal Decree governing the electricity generation activity and the dispatch procedures in the electricity systems of the nonmainland territories; and (v) the Draft Royal Decree regulating trading activities and the conditions governing the procurement and supply of electricity.

Described below are the main new legislation introduced by the law, which consists of 80 articles and is divided into ten titles, twenty additional provisions, sixteen transitional provisions, a repealing provision and six final provisions.

1. ECONOMIC AND FINANCIAL STABILITY OF THE ELECTRICITY SYSTEM

2. REMUNERATION OF ACTIVITIES

3. VOLUNTARY PRICES FOR THE SMALL CONSUMER AND LAST RESORT TARIFFS

4. THE TARIFF DEFICIT

5. ACCOUNTING AND INFORMATION

6. TECHNICAL AND ECONOMIC MANAGEMENT OF THE SYSTEM

7. SALE AND SUPPLY OF ELECTRICITY

8. OWN CONSUMPTION

9. OTHER PROVISIONS OF INTEREST

10. ENTRY INTO FORCE