In recent days the Spanish Government has approved a series of provisions to tackle the crisis caused by the COVID-19 outbreak. Those provisions adopt a set of measures that have differing impact on a number of business sectors.
In the case of the energy sector, and irrespective of other general provisions (for example, tax measures, the suspension of administrative terms and deadlines, which logically affect administrative procedures based on sector-specific legislation, or measures related to corporate governance), two regulations are particularly important in this context:
- Royal Decree 463/2020, of 14 March, which declares the state of emergency to tackle the health emergency caused by COVID-19 (“RD 463/2020”).
- Royal Decree-law 8/2020, of 17 March, on extraordinary measures to tackle the economic and social impact of COVID-19 (“RDL 8/2020”).
RD 463/2020 and RDL 8/2020 include a number of provisions and measures that affect both the electricity and the hydrocarbons sectors. An analysis of the two will be conducted below. This note also analyses amendments to the rules governing certain foreign investments in Spanish companies that perform business in the energy sector (although that measure also affects sectors other than energy).
Measures adopted in the electricity sector
Potential exceptional measures to safeguard supply
Article 17 RD 463/2020 authorises the “delegated competent authorities”1 to adopt the measures necessary to guarantee the supply of electricity “in accordance with the provisions of article 7 of the Spanish Electricity Sector Law 24/2013, of 26 December”.
It should be remembered that article 7 of the Spanish Electricity Sector Law 24/2013, of 26 December (Ley 24/2013, de 26 de diciembre, del Sector Eléctrico, or “LSE”) allowed the Spanish Government, at any time, to adopt the “measures necessary to guarantee the supply of electricity” for a “specific period of time” in the following circumstances:
- When there is a certain risk to the supply of electricity.
- Supply shortages of any or some primary energy sources.
- Situations that could seriously jeopardise the physical integrity or safety of people, objects or facilities or the integrity of the electricity transmission or distribution networks.
- Situations triggering a substantial reduction in the availability of production, transmission or distribution facilities or the supply quality indices of any one of them.
As such, the main scope of article 17 RD 463/2020 would be to authorise the respective designated competent ministers to adopt those measures rather than the Central Government (Council of Ministers) itself.
Article 7 does not set out an exhaustive list of the measures that may be adopted; it contains an open list (“among others”), which includes the following categories:
- Temporary restrictions or modifications to the electricity market or to dispatch in the isolated electricity systems.
- Direct operation of generation, transmission and distribution facilities.
- Establishment of special obligations regarding security reserves of primary energy sources required for electricity generation.
- Limitation, temporary modification or suspension of the rights enjoyed by renewable energy, co-generation and waste-to-energy producers.
- Modification of the general conditions for supply regularity in general or for specific types of consumers.
- Limitation, temporary modification or suspension of third party rights and guarantees to access the networks.
- Restriction or allocation of the primary energy stocks to electricity producers.
- Any other measures that may be recommended by the international bodies of which Spain is a member or that arise by applying the conventions to which Spain is a party.
Therefore, most of these measures refer to generation, although the limitations imposed on the electricity market and the modification of the general conditions of supply regularity (see above, points 1 to 5) may also have an impact on other activities and very particularly, electricity supply.
Finally, article 7 describes that, if some of those measures are ultimately adopted, the Government (and, it is understood, for the duration of the state of emergency, the respective minister acting as delegated competent authority), “will determine the remunerative regime applicable to the activities affected by the measures adopted, while at all times guaranteeing a balanced distribution of costs”.
Prohibition on cutting the electricity supply to consumers who are vulnerable, especially vulnerable or at risk of social exclusion, between 18 March and 17 April 2020
Article 4.1 RDL 8/2020 establishes that, “during the month following the entry into force of this royal decree-law”, electricity suppliers cannot suspend the supply of electricity to consumers “that are vulnerable, especially vulnerable or at risk of social exclusion, as defined in articles 3 and 4 of Royal Decree 897/2017, of 6 October, which regulates the concept of vulnerable consumer, the “bono social” and other measures to protect domestic consumers”.
In practice, those supplies are temporarily given the status of essential supplies, in accordance with article 52.4 LSE (which establishes that, “in no event can the supply of electricity be suspended to those facilities whose services have been declared essential in accordance with this law”). This measure is temporary (although the wording of article 4.1 allows for different interpretations, when construed in relation to the tenth final provision of RDL 8/2020 it must be inferred that the prohibition will apply from 18 March 2020 to 17 April 2020, both included) and applies to vulnerable consumers, as defined in article 3, paragraphs 1, 2 and 3, of Royal Decree 897/2017, of 6 October, which regulates the concepts of vulnerable consumer, the “bono social” and other measures to protect domestic consumers (“RD 897/2017”), as well as especially vulnerable consumers as defined in article 3.4 and consumers at risk of social exclusion as defined in article 4 of that same RD 897/2017.
The measure is somewhat surprising when referring to especially vulnerable consumers as they already fall in the category of essential supplies as a result of article 52.4.j) LSE; furthermore, article 20 RD 897/2017 already prohibits – in absolute terms and without a time limit – the suspension of their electricity supply (provided, as they will have done, that they have applied for the bono social an electricity discount) and the last resort tariff rate (tarifa de último recurso, or “TUR”) is being applied to them. Under RD 897/2017, the cost of supplying those consumers will be borne by the regional or local authority whose social services are dealing with the consumers in question and by the companies that have an obligation to share the financing of that cost in accordance with article 45.4 LSE.
As regards vulnerable and especially vulnerable consumers, cutting the electricity supply due to non-payment is already subject to the fulfilment of the terms and formalities set out in article 19 RD 897/2017 (requiring evidence of a series of requirements and the need to respect certain minimum time periods). The new measure would seem to prohibit electricity supply being cut off between 18 March and 17 April even when those formalities and time periods have been complied with in the event of non-payment. However, it does not preclude that the respective electricity supplier may suspend supply or claim outstanding payments after that date.
According to articles 9 and 10 RD 897/2017, the electricity discount known as the bono social applies, in general, for a period of two years from the date on which it is awarded; that term can be renewed (by applications made at least 15 days before it is due to expire) for successive periods of two years provided that the discount’s eligibility requirements continue to be met. In this context, given the foreseeable difficulties that some beneficiaries will face to apply for a renewal, article 4.2 RDL 8/2020 automatically extends the term of the discount to 15 September 2020 in the case of any beneficiaries whose two-year entitlement ends before that date. However, that extension would not affect (given the express and exclusive legal reference to article 9.2 RD 897/2017) large-family beneficiaries whose entitlement expires before that date.
It must nevertheless be pointed out that the automatic extension does not release beneficiaries from the obligation to apply for a further renewal, if any, to their entitlement at least 15 days before 15 September 2020. In accordance with article 10.4 RD 987/2017, the respective last resort electricity supplier must warn consumers of the entitlement end date in the last invoice that they issue prior to 15 September 2020, informing them that, should they fail to apply for a renewal duly in advance, their entitlement to the discount will lapse (those consumers would however be able to reapply for the discount if they continue to meet the eligibility requirements).
Measures adopted in the gas and hydrocarbons sector
Potential exceptional measures to secure supply
Similarly to the electricity sector, article 17 RD 463/2020 authorises “delegated competent authorities” to take the measures necessary to safeguard the supply of petroleum derivative products, as well as natural gas, in accordance with articles 49 and 101 of the Spanish Hydrocarbons Law 34/1998, of 7 October (Ley 34/1998, de 7 de octubre, del sector de hidrocarburos, or “LSH”).
As with the electricity sector, the main scope of this provision is to appoint designated ministers as delegated competent authorities to adopt measures that the LSH confers to the Central Government (the Council of Ministers).
That said, article 49 LSH allows for any or some of the following measures (which are listed restrictively) to be adopted in the event of “supply shortages” of petroleum derivatives:
- The imposition of maximum speed limits on vehicles on public roads.
- Limits to all vehicles on roads.
- Limits on sea vessel navigation and aircraft flights.
- Limits on the hours and days during which petroleum product suppliers can open.
- The application of rules of intervention in respect of the minimum security reserves.
- Restrictions to or the allocation of the supply of all kinds of petroleum derivative products to consumers, as well as restrictions to their use.
- Imposition of an obligation on hydrocarbon exploitation concession holders to supply their product for national consumption.
- Any other measures that may be recommended by the international bodies of which Spain is a member, or that arise by applying the conventions to which Spain is a party or those of which it is a signatory that establish similar measures.
In relation to the supply of natural gas, in the event of supply shortages or when there is a threat to the safety of persons, objects, facilities or to network integrity, article 101 LSH makes it possible to adopt any or some of the following measures, “among others” (the list is therefore not exhaustive):
- Temporarily limit or modify the gas market.
- Establish special obligations regarding minimum security reserves of natural gas.
- Temporarily suspend or modify rights of access.
- Modify the general conditions on supply regularity in general or in reference to specific types of consumers.
- Make sales of natural gas for foreign consumption subject to administrative authorisation.
- Any other measures that may be recommended by the international bodies of which Spain is a member or that arise by applying the conventions to which Spain is a party.
In both cases, it is established that the Government will establish the remunerative system applicable to those activities impacted by the measures adopted, ensuring a balanced distribution of costs at all times.
Prohibition on cutting the supply of natural gas to consumers who are vulnerable, especially vulnerable or at risk of social exclusion, between 18 March and 17 April 2020
Article 4.1 RDL 8/2020 extends the prohibition on cutting supply analysed above in respect of electricity (See: Prohibition on cutting the electricity supply to consumers who are vulnerable, especially vulnerable or at risk of social exclusion, between 18 March and 17 April 2020) also to the supply of natural gas (although not piped LPG, which it does not mention). The measure is temporary and affects consumers that are categorised by electricity regulations (specifically, RD 897/2017) as vulnerable, especially vulnerable or at risk of social exclusion.
In practice, that means that these supplies fall into the category of essential supplies for the purposes of article 88.3 LSH and article 60 of Royal Decree 1434/2002, of 27 December, which regulates the transport, distribution, commercialisation, supply of and authorisation procedures for natural gas (“RD 1434/2002”). It should nevertheless be pointed out that, although article 60 RD 1434/2002 establishes that the supply of essential services cannot be suspended, it also establishes an exception if the suspension is triggered due to “certain danger to people or objects”. It seems reasonable to infer that, although RDL 8/2020 does not mention that exception expressly, it would nevertheless apply.
Suspension of the mechanism to review the price of bottled LPG for a period of six months
Article 4.3.a) RDL 8/2020 suspends the mechanism for reviewing the maximum before-tax retail prices of bottled liquefied petroleum gases (LPGs), established in Order IET/389/2015, of 5 March, for a period of six months (“three two-month periods”, as the price review takes place every two months).
Therefore, the maximum prices established by the Directorate General of Energy Policy and Mining in Resolution 14 January 2020 regarding bottled LPG with a load equal to or higher than 8 kg and less than 20 kg will continue to apply during the suspension.
Suspension of the mechanism for reviewing the last resort tariff rate of natural gas for a period of six months
Article 4.3.a) RDL 8/2020 suspends the methodology for reviewing the last resort tariff rate of natural gas for a period of six months (“two quarters”, taking into account that, in accordance with article 10.1 of Order ITC/1660/2009, of 22 June, the variable component is to be reviewed quarterly and must be performed from 1 January, 1 April, 1 July and 1 October of each year).
Therefore, during the suspension (and, in practice, until 1 October 2020) the tariff rate established in Resolution 23 December 2019 by the Directorate General of Energy Policy and Mining will continue to apply.
Certain foreign direct investments in the Spanish energy sector will be subject to authorisation
Final provision four of RDL 8/2020 modifies Law 19/2003, of 4 July, on the legal regime applicable to the movement of capital and financial transactions abroad (Ley 19/2003, de 4 de julio, sobre régimen jurídico de los movimientos de capitales y de las transacciones económicas con el exterior). The new provision includes an article 7 bis that suspends the rules for liberalising foreign investments in specific reference to foreign direct investments in certain strategic sectors, including the energy sector. As a result, those investments are now subject to prior authorisation.
Specifically, foreign direct investments are defined as those made in Spanish companies by “residents from non-EU and non-EFTA states when they come to hold a shareholding interest equal to or greater than 10% in the Spanish company or, as a result of the transaction, come to take part in its management or control”.
Although the Statement of Purpose of RDL 8/2020 states that the underlying reason for the measure is to tackle the “certain threat” to Spanish listed and unlisted companies posed by the impact of the COVID-19 outbreak on the world’s stock markets, the changes to the rules governing these investments is indefinite and will remain in force until they are lifted by the Council of Ministers.
The authorisations regime applies, among other categories, to investments in critical infrastructure (including energy infrastructure) as provided for in Law 8/2011, of 28 April, which establishes measures to protect critical infrastructure (Ley 8/2011, de 28 de abril, por la que se establecen medidas para la protección de las infraestructuras críticas) and, in general, to investments in companies that perform activities related to the supply of energy, these understood as being activities regulated by the LSE and the LSH.
Authorisation is also required for any foreign investment in Spain (that concept as defined above) made by a foreign investor that: (i) is directly or indirectly controlled by the government (including public entities or the armed forces) of another state, applying the criteria established in article 42 of the Spanish Commercial Code for the purpose of ascertaining that control; (ii) has made investments or has taken part in sectors that affect public safety, public policy or public health in another member state; (iii) where action has been brought against it in another state on grounds of having engaged in criminal or unlawful conduct.
Investments made without the required prior authorisation will be invalid and legally void until they have been properly legalised. In addition, breach of the restrictions constitutes a very serious offence, which would lead to a fine (which could amount to the sum of the transaction) and public or private reprimand.
It should be understood that the regime of prior authorisation does not remove, but rather is in addition to, the ex-post control by the Spanish National Markets and Competition Commission into certain investments in the energy sector, in accordance with the ninth addition provision of Law 3/2013, of 4 June, on the creation of the National Markets and Competition Commission (Ley 3/2013, de 4 de junio, de creación de la Comisión Nacional de los Mercados y la Competencia).
- Which, according to article 4 of RD 463/2020, are, in their respective areas of responsibility, the Minister of Defence, the Interior Minister, the Minister of Transport, Mobility and Urban Agenda, and the Health Minister, the latter in respect of all of those areas not falling to the preceding three.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2020