Large companies prepare a legal battle against power companies for the end of flat rate contracts

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The rise in wholesale prices of electricity and the government’s measures to try to reduce its impact on consumers threaten to dynamite the relationship of electricity companies with their large customers. Iberdrola it is asking the companies with which they have contracts that it is necessary to renegotiate their long-term agreements. And Naturgy and Endesa do not rule it out in the short term.

In recent weeks, has communicated through letters to its main customers that it will be necessary to cancel or modify the PPA (Power Purchase Agreement), contracts that until now guaranteed the supply of electricity for a fixed price, shielding them against possible increases in electricity.

A situation in which the largest companies in Spain by market capitalization (all of the Ibex have signed PPAs for part of their energy consumption) have reacted with the intention of starting a legal battle if necessary. Sources from these companies have confirmed to EL ESPAÑOL-Invertia that trying to cancel or modify the PPAs is a flagrant change in the conditions of some contracts signed, many of them, a few months ago.

The electricians argue circumstances “extraordinary, unpredictable and supervening” that the conditions under which these PPAs were signed have completely changed and that fundamentally pass through the Government decree and the change in market conditions for electricity companies.

Legally, a supervening cause is one that occurs without being foreseeable. They are those that could not be expected at first (at the signing of the contract) because they have been produced by Causes not originally planned.

“Cause supervening”

In fact, the electricity companies estimate the impact of the recent measures approved by the Government at 2,600 million euros. Some measures that point directly on the waterline of profit of the electricity companies, by forcing them to return the ‘supervening retribution’ due to high gas prices and taxation on the bill.

On the other hand, the electricity companies explain that most of the energy generated by their power plants no polluting emissions they already had a fixed price closed with customers either through a PPA or a long-term contract. Therefore, high market prices do not enter spot.

But the new regulation forces the plant to reduce its income as if it were selling its energy in the market spot, with which this operation would yield a negative income, they indicate.

In this sense, the sources consulted by THE SPANISH- Invertia They indicate that the teams of lawyers of large companies consider that these contracts cannot be canceled without the right to reply, even because of this “supervening cause” clause.

Another manager of a company from Ibex He also points out to this newspaper that the end of the PPAs does not make sense in a context in which the large electricity companies are also carrying out campaigns to attract retail customers so that they contract a flat rate.

“They try to recover some of the losses with an argument that does not hold,” says another senior manager of a large company.

Wholesale prices

Iberdrola offers several alternatives that range from renegotiating upward contracts, canceling them or charging an extra fee during the time that the measures of the Government. The possibility is even offered to return part or all of the increases when the situation normalizes.

Some solutions that the affected companies do not share. The big companies of Spain have seen their electricity costs increase between 30% and 40% due to the increase in wholesale prices, which this Friday reaches a historical record with 216 euros per megawatt / hour.

Faced with this situation, the PPAs protected a part of their electricity consumption at fixed prices from the volatility of the electricity market. Without PPA, big companies like Acerinox, ACS, Aena, Renfe, Cellnex, Telefónica Ferrovial, ArcelorMittal or CIE They could see their electricity bill skyrocket by a percentage much higher than these figures.


Does this mean that PPAs will end up in court? The sources consulted indicate that if the electricity companies go ahead with the unilateral cancellation of the PPAs, a legal battle could be generated, but the large companies trust that alternatives will be offered that allow reaching an agreement that distributes the impact of the “hack” of the government.

In fact, in the latest statements of some companies this intention to cancel the PPAs is already being qualified. “The will is the maintenance of the contract in conditions in which the economic balance is restored, for this reason we call on them to negotiate economic conditions that would be applied temporarily,” says the letter from Iberdrola.

The truth is that no PPA has yet been broken and this means that the lawyers of the large electricity companies have a lot of work ahead of them. In fact, the sources consulted warn of a long negotiation path, case by case, with the large companies of the Ibex to try to reach a breakeven point that maintains the contracts or, at least, commercial linkage.

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