Spain Power Deficit Widens 46% as Steps to Close Gap Founder

Spanish power companies’ regulated revenue fell short of what the government promised by 5.6 billion euros ($7.3 billion) last year as new taxes failed to narrow the gap between costs and sales.

The shortfall, known as the tariff deficit, expanded 46 percent from 3.85 billion euros a year earlier, according to a report on the website of the National Energy Commission.

Prime Minister Mariano Rajoy’s government vowed to close the power gap and has failed during its first 16 months, mirroring actions of the two previous administrations. The 2012 deficit, which weighs on the country’s sovereign debt rating, was more than triple the government’s forecast made last April.

For more than a decade, Spain has approved more revenue to electricity retailers including Endesa SA and Iberdrola SA than it let them collect from customers. The problem worsened in recent years as utilities were forced to pay above-market prices to renewable-power producers without rates, or tariffs, being increased by a corresponding amount.

Those subsidies jumped 23 percent in 2012 to 8.6 billion euros, according to the commission’s report dated April 18. They were paid mostly to solar and wind parks and to “cogeneration” fossil-fuel plants that are deemed efficient by recycling heat.

Approved Measures

Rajoy approved measures to close the gap, including a 7 percent tax on all generation and lower subsidies for new clean-energy projects. The deficit continued to balloon as aid to existing projects rose, poor people were given discounts on power bills, and the government extended subsidies to residents of the Canary and Balearic islands.

The deficit generates debt on the books of power companies until they can bundle it into securities and sell it to investors, who are paid interest out of future consumer bills.

Investors in the 3.875 percent tariff-deficit bond due in 2018 are demanding about 319 basis points in interest more than a similar government bond pays, according to BNP Paribas data compiled by Bloomberg. The bond is rated BBB- by Standard & Poors, one step above junk.