29/12/2025 - SD Verdia

29/12/202510/10/2026

The electricity distribution activity in Spain

Electricity distribution is one of the essential pillars of the Spanish electricity system and is legally configured as a “regulated activity”. The following is a general overview of how the electricity distribution activity is regulated in Spain, with particular attention to its obligations, functions and rights.

Article 6 of Law 24/2013, of 26 September, on the Electricity Sector, defines the various parties that carry out the activities for the supply of electricity and defines electricity distributors as those companies whose function is to distribute electricity to the points of consumption.

The distribution activity has the character of a regulated activity, which means that both its economic regime and its operation are strictly subject to the law. For this reason, it is essential that distributors have regulatory advice that allows them to optimise their decision-making at all times.

As to its material content, Article 38 of the Electricity Sector Act specifies that the purpose of the distribution activity is the transmission of electricity from the transmission grids, or other distribution grids, to the points of final consumption. The criteria for regulating this activity are set by reference to electricity distribution zones, with common characteristics linked to the configuration of the grid.

Likewise, the commissioning, modification, transfer and definitive closure of distribution installations is subject to a regime of administrative authorisation. This regime reflects the single-grid and natural-monopoly character inherent in any activity with regulated remuneration.

Article 40 of the Electricity Sector Act establishes a detailed regime of obligations, functions and rights for distribution companies, deriving from their status as owners of the distribution grids and from the regulated nature of the activity they carry out.

Obligations of distributors

As a general rule, Article 40.1 provides that distributors are obliged to provide the distribution service in a regular and continuous manner, in accordance with the quality conditions determined by regulation. They are also responsible for the construction, operation and maintenance of their distribution grid up to the point of connection with the customer.

The provision also gives distribution companies a central role in managing requests for connection to their grids, which must be analysed and, where appropriate, accepted, refused or made conditional in accordance with objective and non-discriminatory regulatory criteria, and must serve all requests on equal terms.

From an economic-regulatory perspective, before undertaking the necessary investments, distributors must submit their annual and multi-year investment plans, so that the planned investment ceiling can be authorised. Subsequently, once those investments have been carried out, distributors are obliged to provide the Administration with the information necessary to determine their remuneration regime, in accordance with the methodology in force.

Of particular relevance is the obligation to extend the distribution installations where necessary to meet new supply demands, without prejudice to the specific regime applicable to electricity connections and to the obligations incumbent on developers in the urban-planning sphere.

These responsibilities are complemented by the functions that Article 40.2 of the LSE attributes to distributors in their capacity as distribution-grid managers, under which they must establish the operating and maintenance criteria needed to guarantee the security, reliability and effectiveness of electricity supply.

These functions include managing grid access, coordinating with other grid managers and with the system operator, as well as performing essential functions in metering, meter reading and consumption-data management, applying and collecting access tolls, consumer protection, managing supplier switches, detecting and reporting fraud situations, and preserving the confidentiality of the information obtained in the course of their activity.

Rights of distributors

As a counterweight to the broad catalogue of obligations imposed on them by the sector rules, Article 40.3 of the LSE recognises a series of rights that are essential for distribution companies to properly carry out their activity.

First, distributors have the right to administrative recognition and to receive adequate remuneration for carrying out the distribution activity within the electricity system. Knowledge of the methodology in force is a key factor in obtaining adequate remuneration.

They may also require that the installations and receiving appliances of users connected to their grids comply with the technical and safety conditions required by the applicable rules, as well as their proper use, in order to avoid deterioration or degradation of their quality.

Likewise, distribution companies are entitled to require the installation of the legally established metering and control equipment from those parties obliged to do so, thereby ensuring proper metering and control of energy consumption. Finally, the LSE recognises distributors’ right to access the information necessary to carry out their functions.

Conclusions

The electricity distribution activity is configured in our legal system as a regulated activity. The framework set out in the Electricity Sector Act and its implementing rules precisely establishes the scope of the distribution grid, the role of distribution companies and the set of obligations, functions and rights required of them, in order to guarantee the security, reliability and effectiveness of electricity supply. To carry out a regulated activity, companies need highly specialised regulatory legal advice with expert knowledge of that framework.

29/12/202510/10/2026

The remuneration of the electricity distribution activity in Spain

Asesoramiento legal en redes eléctricas y distribución

The remuneration regime for electricity distributors is regulated by law, which establishes the methodology applicable for its calculation. This article offers a general overview of the regulatory framework governing the remuneration of the distribution activity and of its evolution across the different regulatory periods.

The electricity distribution activity has the character of a “regulated activity”, in accordance with Article 8.2 of Law 24/2013 on the Electricity Sector, which means that, both for the purposes of its separation from other activities and of its economic regime and operation, it must comply with the provisions of that law.

The Electricity Sector Act provides, in its Article 14, that the remuneration methodologies for the transmission and distribution activities will be established by regulation by reference to the costs necessary to build, operate and maintain the installations, in line with the principle of carrying out the activity at the lowest cost for the electricity system as set out in Article 1.1.

In line with the principle of economic and financial sustainability of the electricity system, the system’s revenues (tolls) are used to fund the cost of remunerating the transmission and distribution activities. In accordance with Article 14.4 of the Electricity Sector Act, the remuneration of the distribution activity is determined by regulatory periods of six years.

Schematically, before undertaking the necessary investments (year n-1), distribution companies must submit their annual and multi-year investment plans, so that they are approved by the Administration, which authorises the maximum volume of investment (linked to GDP growth) in order to carry them out (in year n).

After their execution, companies must provide the required information (in year n+1) for setting the annual remuneration (year n+2) in accordance with the methodology in force at each point in time.

1. First regulatory period

The methodology for remunerating the distribution activity was approved by Royal Decree 1048/2013, of 27 December, establishing the methodology for calculating the remuneration of the electricity distribution activity. This methodology was applied for the first time in calculating the remuneration for 2016 and was applicable until 2019.

For the correct application of the methodology provided for in Royal Decree 1048/2013, it was necessary to approve the reference unit values for investment and for operation and maintenance, as well as other technical and economic parameters. In other words, remuneration was based on these investment and maintenance unit values.

To this end, Order IET/2660/2015, of 11 December, was issued, containing those unit values used in calculating the remuneration of electricity distribution companies.

Subsequently, Order IET/980/2016, of 10 June, was approved, establishing the remuneration of distribution companies for 2016 and also setting certain parameters relevant to calculating the remuneration for subsequent years.

That Order was the subject of numerous administrative and judicial appeals, giving rise to several partially upholding judgments of the Supreme Court. As a result of this litigation against the remuneration parameters set in Order IET/980/2016, together with its declaration of unlawfulness (lesividad), there was a significant delay in approving the remuneration for the following years.

As a result of this situation, the remuneration for 2017, 2018 and 2019 was not approved until 27 July 2022, by Order TED/749/2022, approving the incentive or penalty for the reduction of losses in the electricity distribution grid for 2016, amending the base remuneration for 2016 for several distribution companies and approving the remuneration of electricity distribution companies for 2017, 2018 and 2019.

At SD Verdia, we actively took part in defending our clients’ interests during a regulatory period that was especially turbulent.

2. Second regulatory period

Article 14.12 of the Electricity Sector Act establishes that “it will be for the National Markets and Competition Commission to approve the remuneration for each year of the companies owning transmission and distribution installations, in accordance with Law 3/2013, of 4 June”. Likewise, Article 7.1 of Law 3/2013, of 4 June, creating the CNMC, was amended to establish that the CNMC will set, by circular, “the methodology, the parameters and the asset base for the remuneration of electricity transmission and distribution installations”.

Under this new framework of powers, from the 2020 financial year it is for the CNMC to approve the methodology for remunerating the electricity distribution activity. In compliance with that mandate, the CNMC approved Circular 6/2019, of 5 December, establishing the methodology for calculating the remuneration of the electricity distribution activity.

Accordingly, it is for the CNMC to establish annually, by resolution and after hearing the interested parties, the remuneration recognised to each distributor for the distribution activity, calculated in accordance with the formulation set out in that Circular.

In contrast to the previous regulatory period, Circular 6/2019 establishes that the calculation of the depreciable investment value of the installations put into service is carried out considering the actual audited value declared by the companies (with a comparison against the unit values at the end of the half-period).

Other notable new features were that it grouped the remuneration for operation and maintenance of both electrical and non-electrical assets, and the remuneration of other assets necessary for carrying out the distribution activity, into a single term called COMGES.

In practice, this regulatory timetable is not being met, since the remuneration for the 2020, 2021 and 2022 financial years has been approved with considerable delay.

Specifically, the remuneration for 2020 was approved by CNMC Resolution of 31 July 2024; the remuneration for 2021 by CNMC Resolution of 17 February 2025. The last annual remuneration approved to date is that for 2022, by Resolution of 6 November 2025. Therefore, as of today, the remuneration for 2023, 2024 and 2025 remains pending approval.

At SD Verdia, we have also taken part in advising and defending our clients’ interests in the application of the methodology provided for in this second regulatory period.

3. Third regulatory period

Following the 2020-2025 regulatory period, it was for the CNMC to set once again the methodology for the 2026-2031 period. That methodology was approved by Circular 8/2025 of 22 December, just days before the legally established deadline.

The new methodology represents a paradigm shift compared with what had been established to date. It provides for an evolution from the current remuneration model — in which the efficiencies associated with capital costs (CAPEX) and those associated with operation and maintenance (OPEX) are addressed separately — towards a TOTEX (total-cost) remuneration model, in which those efficiencies deriving from CAPEX and OPEX are addressed jointly.

The methodology seeks to create the right incentives for distribution companies to make the most efficient decision between CAPEX and OPEX, while providing for a transitional remuneration model that allows a gradual adaptation of distribution companies’ investment decisions to the new model.

The methodology approved represents a significant challenge for distributors, who need specialised advice to optimise their decisions in seeking to maximise their remuneration — key to securing their future — an area to which SD Verdia is fully committed.

29/12/202510/10/2026

The electricity retail activity in Spain

The liberalisation of the electricity sector led to the separation of the sector into different activities, distinguishing between regulated activities (such as transmission and distribution) and liberalised activities (such as generation and the retail of electricity). Among these activities, as defined by Law 24/2013, of 26 December, on the Electricity Sector, the retail activity is that by which companies, accessing the transmission or distribution grids, acquire energy to sell it to final consumers. Retailers are therefore entities that act as intermediaries between consumers, distributors and the electricity market itself.

The importance of these relationships with other players means that, although it is configured as an activity under free competition, the retail activity must be subject to numerous rules that condition its operation. Below, some of the most essential regulatory aspects that retailers must address are briefly outlined.

Requirements to carry out the retail activity

To be set up as a retailer and therefore to be able to carry out that activity, it is necessary to meet all the requirements identified in Article 73 of Royal Decree 1955/2000, of 1 December, regulating the transmission, distribution, retail, supply and authorisation procedures for electricity installations.

In other words, it is essential to meet the following legal, technical and economic requirements:

Be set up as a commercial company and be entered in the relevant register. Among other details, the register must show that the company’s corporate purpose allows it to buy and sell electricity. In addition, the principle of separation of activities must be respected.
Meet the technical requirements demanded of buyers in the electricity production market in accordance with the Technical Operating Procedures and, where applicable, the Operating and Settlement Rules of the production market.
Demonstrate its economic capacity before the System Operator Red Eléctrica de España (REE) and before the Iberian Market Operator, Spanish Pole (OMIE).

If the above requirements are met, the start of the retail activity must be notified to the Directorate-General for Energy Policy and Mines of the Ministry for the Ecological Transition and the Demographic Challenge (“MITERD”).

Relationships with the various players in the electricity sector

In their operations, retailers interact with the vast majority of players that make up the electricity sector, and obligations arise from this:

1. Relationship with distribution companies

Distributors are the players the retailer interacts with the most, since this relationship is essential for managing customers’ supply points. In this respect, three main areas of action can be distinguished:

Managing the third-party grid-access contract: it is the retailer’s responsibility to request from distributors, on behalf of the final customer, the sign-up, supplier switches, cancellation or changes to power or to any other technical condition of the supply contract, among other matters.
Distributor billing: retailers, representing their customers, are responsible for contracting and paying the access toll for the transmission and distribution grids. Thus, retailers must handle and pay the toll invoices (or ATR invoices) issued by distributors for each supply point.
Billing consumers: retailers must issue supply invoices to customers, in accordance with the consumption data and meter readings passed on by distributors through the ATR invoices.

2. Relationship with the electricity market and the market operator

The retail activity involves acquiring energy from generators, whether on the electricity market or directly through bilateral contracts. To this end, retailers carry out various activities related to the electricity market, notably consumption forecasting, the purchase of energy itself, the verification of final settlements and payment for the energy acquired. It is essential that retailers meet all the obligations necessary to operate in the electricity market, such as maintaining the legal, technical and economic capacity requirements, acquiring the energy needed to carry out their activity and, to that end, providing any guarantees required.

3. Relationship with the National Markets and Competition Commission

Retailers are required to send periodic information to the National Markets and Competition Commission so that it can carry out its function of supervising and controlling the operation of the electricity market. Among other information, they must report on retailer switches (sign-ups and cancellations), consumption and managed-energy data, consumer claims, billing obligations and commercial offers.

4. Relationship with the Administration

Like any other company, an energy retailer must comply with its obligations before the relevant public administrations and with the Tax Agency, to which it must declare and settle the corresponding taxes. Examples of these obligations include the obligation to send half-yearly and annual information to the Ministry on the prices applied to final, industrial and domestic consumers, as well as the obligation to settle and pay the amounts relating to financing the social bonus and the contribution to the National Energy Efficiency Fund.

5. Relationship with consumers

The main activity of retail is billing the final customer for energy consumption. The retailer is responsible for issuing supply invoices to its customers, for which it must not only comply with the sector rules but also respect the obligations established by consumer-protection legislation, as well as the personal-data protection rules.

Among all these duties and obligations that retailers must comply with in their daily relationships with consumers, the Electricity Sector Act stipulates the following as specific general obligations of retailers:

Formalise supply contracts with final consumers in accordance with the applicable rules.
Bill the supply in accordance with the contractual conditions.
Have a service for handling claims and incidents.
Not carry out advertising or formalise contracts during home visits not requested by the consumer themselves.

Conclusions

To carry out the electricity retail activity, it is necessary first to define how the company’s day-to-day will be managed and to have the appropriate economic, technical and human resources. These include commercial, operational, systems, legal and customer-service areas. Physical and material resources such as software, offices and external services are required, in addition to qualified staff for management, administrative tasks and customer service. Overall, electricity retail requires a significant economic, technical and human endowment, and involves a high economic risk owing to market volatility, price variability and the heavy and changing regulatory burden.

For all these reasons, it is necessary to have highly specialised regulatory advice that allows retailers to carry out their activity with full legal certainty and ensuring compliance with the applicable rules.