On 3 April 2020, Spain’s Official State Journal (Boletín Oficial del Estado) published Circular 4/2020, of 31 March, of the National Markets and Competition Commission, which establishes the methodology for remunerating natural gas distribution (the “Circular”).
In the Circular, the Spanish National Markets and Competition Commission (Comisión Nacional de los Mercados y la Competencia, or “CNMC”) establishes the remunerative framework applicable to the distribution of natural gas for the second regulatory period (beginning on 1 January 2021 and ending on 31 December 2026), replacing the framework applicable up to that date, as established in Annex X of Law 18/2014, of 15 October, on the approval of urgent measures for growth, competitiveness and efficiency (“Ley 18/2014”).
It should be highlighted that the Circular initially proposed by the CNMC – submitted to public consultation on 5 July 2019 – substantially modified the methodology for remunerating natural gas distribution established in Law 18/2014.
Indeed, the remuneration structure in Law 18/2014 is an activity-based remuneration model, which has been used to remunerate natural gas distribution since 2002. However, the first version of the Circular established a mixed model, in which: (i) facilities brought into service up to 2020 would be subject to an asset-based remunerative model, based on the net value of the assets (excluding, therefore, those that had depreciated), implying the receipt of a depreciation-based component – including the application of a Rate of Financial Return (Tasa de Retribución Financiera, or "RoFR") – and an operation and maintenance component; (ii) assets brought into service from 2021 onwards would be subject to an activity-based market development remunerative model, applying the parametric formula defined in Law 18/2014, albeit with a number of modifications.
In that context, in Circular 2/2019, of 12 November, of the National Markets and Competition Commission, which established the methodology for calculating the rate of financial return for the transmission and distribution of electricity, and the regasification, transport and distribution of natural gas, the CNMC approved a RoFR of 5.83% for natural gas distribution for the 2021-2026 regulatory period.
The first version of the Circular elicited huge sector response because, although the CNMC anticipated that the methodology would mean an average reduction of 17.8% in the remuneration of natural gas distribution, the truth is that the impact was very uneven (and could be far higher) for different companies depending on the age (and, therefore, degree of depreciation) of their assets.
As a result, on 3 December 2019, the CNMC restarted the process and sent a new Circular for public consultation in which it dropped its plans to change the remunerative methodology used, retaining the remunerative structure used since 2002 (pursuant to Annex X of Law 18/2014), albeit subject to certain modifications and adjustments. The Circular that has now been approved essentially keeps those terms.
The main features of the remunerative framework contained in the Circular are described below:
- When will the methodology established in the Circular apply?
- How will the new methodology be applied?: annual resolutions and new gas year
- What are the key features of the remunerative methodology established in the Circular?
- Does the RoFR for natural gas distribution established by Circular 2/2019 apply in the new remunerative model?
- How is the remuneration for distribution existing in year 2000 adjusted?
- Will the adjustment be applied progressively?
- What modifications have been made to the parametric formula for remunerating new business?
- What impact does the new methodology have on the remuneration for distribution?
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