Spain’s Natural Gas Suppliers to Get Reprieve on Tariff Cut

(Bloomberg) -- Spain’s competition regulator is preparing to order natural gas suppliers to make a smaller cut in the tariffs they can charge consumers than was previously proposed, people familiar with the matter said.

The 10-member board of the CNMC regulator is likely to cut the existing levies the companies can charge by less than the amount originally recommended by the agency’s technical team, according to the people with knowledge of the deliberations who asked not to be named because the discussions aren’t public.

The decision will benefit companies including Enagas SA and Naturgy Energy Group SA, which were bracing for a much deeper reduction. Both company’s shares and bonds fell in July when the regulator proposed an average 17.8% tariff cut.

A spokesperson for CNMC declined to comment.

Shares in Enagas and Naturgy jumped following the news. Enagas was up 4.4% to 21.23 euros at 5:28pm and Naturgy climbed 2.8% to 24.37 euros.

The original proposals by the agency’s technical teams have been discussed by the board at the regulator. The matter is now going through a public hearing process that will end by Sept. 30, after which the board will make a final decision.

While the consensus among CNMC board members is that payments to the utilities must be pushed downwards, the proposed cuts are too aggressive, the people said.

Enagas had argued that a decrease of that scale would put the gas industry’s business model at risk, and Naturgy has temporarily suspended some 300 workers at its distribution unit until it had more clarity on the proposals.

The regulator must balance protecting consumers with keeping the industry solvent and leaving some incentive for companies to make further investments, one of the people said.

Lower tariffs are justified by lower financing costs, which have added to the scale of returns the companies have been earning on their investments, the people said. Enagas and Naturgy both have bonds trading at negative yields. Financial metrics such as the weighted average cost of capital are taken into account, one of the people said.

Power companies are also facing a review, but the proposed cuts are lower and and less impactful on those businesses, which include Endesa SA.

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