Spanish Secretary of State for Energy Alberto Nadal told the El Pais newspaper in a Sunday interview the quarterly power auctions will disappear after April, to be replaced by a system in which prices will be based on the average wholesale market rates during the period to be billed.
The move represents a step back from the market liberalization policies instituted by the government of Prime Minister Mariano Rajoy. The results of the last auction were thrown out by regulators due to suspected price manipulation by Spain's electricity utilities.
The auctions determine 45 percent of Spanish consumers' energy bills. Regulators annulled the results of the Dec. 19 auction -- which would have triggered an 11 percent rise in consumer bills -- over the objections of the country's energy providers.
Instead, a 2.3 percent rise based on historic price trends was instituted by the government in an unprecedented entry into the market denounced by energy companies as "an important risk for the liberalization" sought by the European Union in its energy market reforms.
Spanish Industry Minister Jose Manuel Soria said in December a new system was necessary to prevent what he called the "crude manipulation" of the auctions.
Nadal told El Pais the government has now decided to permanently eliminate them. Instead, consumer prices will be determined by the average wholesale market price, which can be adjusted monthly or bimonthly, thus allowing "significant savings for domestic consumers."
He said the auction system was flawed because it set a constant price for the entire quarter even though prices in the wholesale electricity market fluctuate every hour.
"It was very complex, with many intermediaries, and generated a high extra cost for the consumer," Nadal said, adding that with the new system the financial intermediaries will vanish and consumers will no longer need to pay a fixed price.
The high prices, he asserted, have added to Spain's $36 billion "energy deficit" -- the accumulated shortfall between the cost of power generation and what regulated rates extract from consumers. The government had vowed to limit the 2013 energy deficit to $4.9 billion, but by October it had reached $6.1 billion, the New York Times reported.
Asked by El Pais about the objections of the energy providers over the changes, Nadal said the government has a responsibility to protect consumers.
"Organized sectors, and [energy providers] are an organized sector, have the capacity to influence the government, if only because they are received in the ministry offices. But the great mass of electrical consumers are not as organized," he said.
"We have to ensure the government is helping those who have seen their bills grow and grow and don't understand why. Those who do understand must do their best to prevent the burden from falling on them."
Nadal denied the energy providers' claims they weren't consulted on the changes, saying, "That is not so. We may have had dozens of meetings with the sector before the reform.
"The government has tried to find a center of gravity which naturally satisfies no one. We listened to traditional power, renewable, co-generators, consumers, the market operator, the system operator ... and we chose what we thought best."