Galan Says Spain Can Erase Power-System Deficit With Current Law

Spain can eliminate the debts run up by its government-controlled electricity system by applying the existing rules, Iberdrola SA (IBE) Chairman Ignacio Galan said.

While the law calls for phasing out the tariff deficit in the coming years, officials can close the shortfall by limiting subsidies for renewable energy, increasing prices and with higher demand, Galan said today in an interview in Barcelona.

“Those are the elements in the model that the Industry Ministry devised,” Galan, who heads the world’s biggest renewable energy producer, said on the sidelines of an energy industry conference. “It’s about complying with the law.”

Spain’s power companies loaned electricity users 2.8 billion euros ($3.9 billion) in the first eight months of the year under a system that obliges utilities to finance the shortfall should revenues raised through mostly government- controlled prices fail to meet the cost of delivering the nation’s power.

The government of Prime Minister Jose Luis Rodriguez Zapatero, who’s not seeking another team in elections next month, has flouted its own commitments to rein in the deficit. It has resisted increasing power prices for consumers while raising the fees that utilities including Bilbao-based Iberdrola earn for delivering power.

In December, Zapatero raised the legal ceiling for the 2010 deficit to 5.5 billion euros to avoid breaching a legal limit of 3 billion euros. The final deficit was 5.6 billion euros.

The Catalan Green Party last year proposed introducing levies on nuclear and hydropower plants in order to close the deficit.

Spain’s energy regulator said in an Oct. 6 report that the deficit may exceed the government’s forecast of 4.1 billion euros this year. Zapatero set the legal ceiling for 2011 at 3 billion euros.

Industry Minister Miguel Sebastian froze consumer power prices in the fourth quarter even after the wholesale price of power for the period rose about 10 percent in a government-run auction.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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