The Supreme Court reshaped the financial landscape again last year, affecting how social energy subsidies are funded and who ultimately bears the cost. Electricity providers have long fought in court to avoid shouldering these social policy expenses, which currently exceed 800 million euros annually. Governments have repeatedly adjusted the financing mechanism when courts have ruled in favor of the companies, at times ensuring money already contributed by households is returned to the fund.
Last year the Supreme Court overturned the financing model approved by the previous administration led by Mariano Rajoy, following a prior ruling by the European Court of Justice. The court ordered several large electricity companies to reimburse the presumed costs they had discounted from bills. More than a million homes had been affected for years, with delays in repayments to households. The ruling now compels the state to initiate payments related to social bonus compensation.
After concrete execution cases are filed, the Court of Cassation expects timely restitutions. Endesa, Iberdrola, Naturgy, and other regulated tariff marketers faced reimbursements covering the discounted amounts between 2016 and 2021, totaling roughly 320 million euros plus default interest. The court also requires the Ministry of Ecological Transition to calculate compensation due to the subsidiaries of these major energy groups that participate in the free electricity market, an amount that reaches millions of euros in returns to the energy sector.
The Supreme Court has issued successive orders in recent months directing the state to repay 152.27 million euros to Endesa, 102.8 million euros to Iberdrola, and 64.2 million euros to Naturgy for the social bond funding costs recorded by the regulated market. The government now faces determining additional compensation for other subsidiaries within the same energy groups in relation to the same mechanism.
Missing deadlines
The government has been given a one-month window to settle payments owed to regulated trading companies tied to electricity system accounts. Reports indicate the deadline has passed in most cases, except for Naturgy, with some filings showing no breaches of court limits.
The court has also ordered a one- to two-month window for calculating the remaining compensation, depending on each situation, but no payments have been forwarded yet. The Ministry of Ecological Transition admits that only amounts deemed owed are currently in process, without a specified end date.
Who pays the social bonus?
The electricity social bonus provides discounts on bills ranging from 25% to 40%, depending on the consumer’s vulnerability. In the crisis response phase, temporary increases raised discounts to 65% and 80% on certain receipts.
Initially, the responsibility lay with the large electricity companies that marketed the regulated tariff—Iberdrola, Endesa, Naturgy, EDP, and Viesgo. Over time, reforms in the financing scheme following judicial decisions broadened the group of companies required to bear the deductions for vulnerable households.
In line with EU requirements and after recent court actions, the current government reformed the policy to place the cost on all electricity sector players, including marketers, distributors, and generators, with allocations based on market share. The larger energy groups continue to shoulder the largest portion of the cost.
The major electricity companies have argued that the cost should be borne by the general state budget since it is a social policy, rather than charged to the sector itself.