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.
