Legislation on the electricity distribution system

Consumer installations are connected to the network of a distribution company, which is responsible for the technical aspects of supply – including supply quality (quality of the product and continuity, power cuts and interruptions) – and which is predetermined by the physical connection itself.

As from 1 July 2009, distribution companies have been unable to sell electricity. Hence, as from that date, consumers have been required to contract an electricity supply through a supply company.

Approval of Law 54/1997, of 27 November, on the Power Sector, marked the start of a gradual deregulation process in the sector with the opening up of networks to third parties, establishment of an organised energy negotiation market and reduction of State intervention in management of the system.

A reform of regulation in the Spanish power sector took place in 2013 via publication of Law 24/2013, of 26 December, which adapted the previous legislation (Law 54/1997, of 27 November) to circumstances in both the economy and the electricity and power sector in Spain. This new legislation maintains the administrative structure and powers established in the previous legislation; and aims to undertake the reforms necessary to guarantee the long-term economic and financial sustainability of the system.

This new legislation establishes regulations for the power sector in order to guarantee electricity supply and adapt it to the needs of consumers in terms of safety, quality, efficiency, objectivity, transparency and minimal cost.

As it is a particularly strategic sector, it must be regulated in such a way that its operation is economically and technically co-ordinated to ensure that the liberalising policies are not detrimental to other necessary objectives: improving energy efficiency, reducing consumption and protecting the environment.

The stakeholders in the electricity market

The electricity system comprises all of the activities aimed at supplying electricity: the generation, transportation, distribution, power recharging services, intra-regional and international marketing and exchanges, and the economic and technical management of the electricity system when focusing on those closest to distribution.

The purpose of generation is to produce electricity

Electricity production is regulated by Heading IV of Law 24/2013, of 26 December, on the Power Sector.

The distinction between ordinary regime and special regime that existed in the previous legislation is eliminated and a new economic regime is established for production facilities employing renewable energy sources, cogeneration and waste that is based on remuneration for the sale of energy generated valued at the market price.

The role of transportation is to carry energy through the high voltage network.

The activity of electricity transportation is regulated by Heading VI of Law 24/2013, of 26 December, on the Power Sector

There are two different types:

  • Primary transport: this consists of lines, parks, transformers and other elements with nominal voltages equal to or greater than 380 kV or international, insular and extrapeninsular interconnections.
  • Secondary transport: this consists of lines, parks, transformers and other elements with nominal voltages equal to or greater than 220 kV or lower voltage installations with transportation functions.

It is a regulated activity and will be carried out by a single network manager who will act as the sole transport contractor for the entire country.

Distribution relates to the transfer of electricity to the points of consumption.

The activity of electricity distribution is regulated by Heading VII of Law 24/2013, of 26 December, on the Power Sector.

To do this, networks need to be built, maintained and operated, measurement devices need to be read and a 24 breakdown service provided.

This activity includes ensuring the following principles are met:

  • Guaranteeing the power supply.
  • Guaranteeing the quality of the supply.
  • Ensuring this is carried out at the lowest possible cost.

They will also be responsible for charging the access tariff to customers and producers connected to the network for use of these installations. This charge will be regulated.

The Power Sector Act states that remuneration for the activity of distribution will be established by law under objective, transparent and non-discriminatory criteria that encourage improvements in management efficiency, economic efficiency and technical efficiency of said activities, as well as improvements in electricity supply quality. In order to calculate this, the costs incurred by an efficient and well-managed company in undertaking the activity will be taken into consideration through the application of standardised criteria for the entire country with prejudice to the specific circumstances considered for non-mainland territories. These economic regimes will enable suitable remuneration for such a low-risk activity.

The remuneration parameters for the activity of distribution will be established by taking into consideration the cyclical situation of the economy, the demand for electricity and the correct profitability for these activities in regulatory periods that will last for six years.

In application of the remuneration principles established by Law 24/2013 on the Power Sector, Royal Decree 1048/2013 establishes a formula for remunerating the activities of distribution using a clear, stable and predictable method:

1. The accrual and collection of remuneration generated by distribution facilities put into service in year n will begin as from 1 January of the year n+2.

2. Remuneration by way of investment will be undertaken for those unrecovered assets in service, using the net value thereof as the basis for their financial remuneration.

3. For the purpose of allowing remuneration to be adapted to that for such a low-risk activity, the rate of financial remuneration for the asset with an entitlement to remuneration from the electricity system will be tied to the performance of State Obligations at ten years in the secondary market plus a suitable differential.

4. The remuneration method for the activity of distribution must consider economic incentives, which may be positive or negative, for improving the quality of supply, reducing losses and counteracting fraud.

5. The Government of Spain will establish the general network criteria and the operating criteria for electricity production facilities subject to regulated remuneration. The remuneration methods established against revenue from the electricity system will only consider costs stemming from application of said criteria.

6. As is the case for all other regulated activities, remuneration parameters for the activity of distribution are set for regulatory periods that last for six years.

Furthermore, the new model introduces a maximum limit for the investment recognised on an annual basis with two years prior to the receipt of the remuneration.

In addition, and given that the activity of distribution is naturally a monopoly, this Royal Decree introduces parameters and establishes formulas that allow efficiency increases in both the construction of infrastructures and network operation and maintenance.

Incentives have been reformulated in order to increase the simplicity of their application, establish an incentive for each company to improve the targets set by them in previous years with regard to quality of service and improve losses from their network.

As a result of increased electricity fraud, a new incentive has been introduced for distribution companies to reduce energy fraud given that these companies own the networks and are responsible for metering.

The role of marketing is to buy energy and sell it to the end user.

The activity of electricity marketing is regulated by Heading VIII of Law 24/2013, of 26 December, on the Power Sector and the supply of electricity. This Heading consists of two Chapters. Chapter I relates to user supply and electricity demand management. Chapter II of Heading VIII regulates supply quality, this understood as a series of characteristics, service techniques and relations with consumers and producers that can be demanded of companies engaged in activities aimed at supplying electricity. Furthermore, it provides a legal regime for suspending the supply of electricity.

There are two types of agent involved in this activity:

1. Free market supplier: with whom the customer negotiates a free price which will include the power supply and the use of networks or tariffs.

2. Leading marketer: Only certain types of customer will be able to contract with them, and they will be responsible for billing these customers at a legally determined maximum price (Voluntary Price for the Small End-Consumer (PVPC)). Furthermore, these marketing companies will charge the last resort plan to those consumers who, pursuant to current legislation, meet the applicable requirements. The last resort plan will be a discounted version of the Voluntary Price for the Small End-Consumer (PVPC) for application to vulnerable consumers and a surcharge to the Voluntary Price for the Small End-Consumer (PVPC) for those consumers who temporarily have no valid supply contract with a free market supplier.

Connecting to the distributor’s networks

Those eligible to access distribution networks are producers, self-producers, distributors, suppliers, external agents and qualified consumers.

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Electricity network access tariffs

The access tariff corresponds to the use that generators and consumers make of the distributor’s networks. This charge is set by the government and is the same for the whole country.

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Meter replacement campaign

A campaign is being carried out on the requirement to replace meters, aimed at those customers with a power supply of less than 15kW.

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Quality of service

Service quality comprises a series of technical and commercial characteristics inherent to the electricity supply and required by the subjects, consumers and competent authorities.

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