In 2022 the Supreme Court rolled back the electric social tariff funding system for a third time. This discount on electricity that helps vulnerable households faced renewed legal challenges as major utilities sought repayment of millions they had fronted to fund the social program between 2016 and 2021. After years of lawsuits, Iberdrola, Endesa, and Naturgy are prevailing again in court.
National governments have repeatedly adjusted how the vulnerable households aid mechanism is financed whenever court rulings favored the companies and invalidated the prior schemes. On the two previous occasions when the Supreme Court overturned the funding formula, which required companies to shoulder different shares, utilities already won back substantial sums they had contributed.
Today the three giants are once more winning judicial backing and are likely to receive compensation totaling around 740 million euros. Plus late-payment interest that will add tens of millions more to cover the delay and the loss of access to those funds over the years. All told, compensation to the big Spanish electricity groups will surpass 800 million euros.
Compensations Paid and Owed
Two years ago the highest court canceled the financing model approved by the last government under Mariano Rajoy, following a ruling from the European Union’s top court. It ordered the current administration to compensate the big electricity companies for the costs incurred implementing discounts on the bills of over one million households benefiting from the social tariff for more than five years. Delays in refunds followed, and the Supreme Court continued to press the authorities to execute those orders and ensure the state disburses substantial sums.
Nearly a year behind the court’s explicit directive, the three large utilities have already received about 320 million euros in actual indemnifications, plus late-payment interest, for the social tariff costs assumed by their regulated tariff subsidiaries during 2016 to 2021. Endesa has received 152.27 million euros, Iberdrola 102.8 million, and Naturgy 64.2 million. These amounts come from the state budget controlled by the Ministry for the Ecological Transition, funded by the electric system itself.
The Supreme Court has also issued final verdicts confirming the right to recover charges for the social tariff from some market liberalization subsidiaries of the big groups. In two separate rulings, from May and this July, Iberdrola subsidiaries with free market tariffs were awarded 183.4 million euros and Naturgy 63 million, per the latest company financial reports for the first half of the year. With these legal precedents, Endesa expects its liberalized subsidiary to collect the 150 million it has claimed, disclosed to analysts during a results presentation.
Separately, the court confirmed Iberdrola’s right to 17.8 million for building the IT systems and staff for managing the social tariff during that period, and Endesa’s right to 7 million for the same reason, reflecting the investments behind administering the program.
Who Pays for the Social Tariff
The social tariff lowers electricity bills by 25 to 40 percent depending on the customer’s vulnerability. As part of anti-crisis measures, discounts have temporarily increased to 65 and 80 percent. This extra relief remains in place but will gradually be rolled back toward normal levels starting next year.
Initially, the social tariff costs were borne only by the major utilities that sold regulated tariffs: Iberdrola, Endesa, Naturgy, EDP, and Viesgo. Over the years the funding reforms widened the list of companies required to take on the discounts for vulnerable households. Totalenergies and Repsol replaced Viesgo in subsequent corporate steps.
The current government, responding to EU requirements and after the latest Supreme Court annulment, passed a reform two years ago that assigns the cost of the mechanism to all players in the electricity sector, including distributors, generators, and marketers. The bulk of the funding continues to fall on the major energy groups, allocated according to market share. The large utilities have long argued that the government should cover the cost through the national budget, treating it as a social policy rather than a charge on the industry.