Earnings Call: Q4 2013

Feb 26, 2014

Good morning, ladies and gentlemen, and many thanks for your attention. For me, it's a pleasure to be able to present Redeia's results to you for the year just ended, and also to take a look back at the regulatory developments over the year that will have a relevant impact in the future. I'd also like to take this opportunity to give you an insight into what lies ahead in 2014. Things are changing a little bit, so today I will not be giving you an update of our strategy because there are still a few questions yet to be resolved concerning our remuneration methodology and the company's future investment plan. It's therefore advisable to postpone presenting our strategy plan until some time during the year, probably halfway through. We've got our CFO, Juan Lasala, here with us to help us with any questions. But in order to avoid interruptions during the presentation, we'd rather you ask the questions at the end of the presentation. In this section of the presentation, we'll firstly go over the most important milestones during 2013. We will then turn to the legislative changes during the year and the new chapter in the company's development, shaped by a stable regulatory environment that will ensure that Redeia's revenues are predictable moving forward. Lastly, we'll analyze the results for the year, the balance sheet, and the most significant ratios. 2013 involved a growth path slightly lower than the rate achieved before 2011, and our financials were marked by the regulatory changes affecting the company. Nevertheless, assuming the aforesaid impact of these regulatory amendments, Redeia was able to post strong and stable growth in 2013, with an increase in profit before taxes in real terms of 7.5%. If we strip out the effects of certain relevant events that occurred during 2012 and 2013, which have already been reported in our quarterly results presentations, such as the asset revaluations and changes in the scope of consolidation, this growth rate would be 8.8%. Recurring EBITDA, meanwhile, rose at a rate of 5.9%. The dividend proposed to the shareholders at the general meeting was EUR 2.5422 per share, which is 7.5% more than what was paid out in the previous year. In 2013, Redeia invested EUR 564 million in its transmission grid, having brought 776 kilometers of circuits online and 2,525 MVA of transformer capacity which came into service. The most noteworthy of these investments commissioned during the year are the following. First of all, the Almaraz-Guillena line, which guarantees the quality of supply to Extremadura and Andalusia, which is basically the center-south axis. The Guillena-Puebla de Guzmán line, which alongside the Almaraz-Guillena line, strengthens the connection with Portugal. Then in the north, the Grados-Sales line, which forms part of a wider project to fully connect the Cantabrian coastline and allow wind energy to be evacuated from Galicia and Asturias to areas with high demand and supply shortfalls, such as the Basque Country and Cantabria. We also continue working on several major projects which will be completed in the next few months. Of these, I'd like to highlight the new interconnection through Catalonia to France, which will make it possible to double the exchange capacity with our neighboring country and will make the entire Spanish electricity system more flexible. 2013 also saw the introduction of measures to safeguard the financial stability of the electricity sector, including approval of Royal Decree Law 9/2013, which cut the company's revenues by EUR 72 million. However, if we had to sum up 2013 in a few words, I'd say it was a year in which our regulated framework was consolidated. The final method for calculating the remuneration of the electricity transmission business was approved. This method reinforces and clarifies the principles for remunerating electricity transmission activities in line with our European peers. Later on, we'll examine these regulatory developments in greater detail. Lastly, Redeia made further progress in developing best corporate governance practices during the year, adopting them as an essential part of the company's strategy in line with international best practices. An example of this was the creation of the lead independent director position, and then the subsequent appointment of the independent director, Ms. Carmen Gómez de Barreda, to fill this position. A new board member remuneration structure was also approved, involving a cut in bonuses along the same lines as has been called for by our shareholders. The growing presence of women on the board of directors and on the corporate responsibility and governance and audit committees is also noteworthy. The majority of members of these are now independent directors, and none of the directors from the executive committee sit on them. Our notable performances in socially responsible practices was also recognized by the market, with the company being listed on the prestigious Dow Jones and FTSE4Good sustainability indices. Additionally, Red Eléctrica has renewed the European Seal of Excellence 500 plus in accordance with our EFQM 2013 model, achieving 678 points, which is, I think, the highest score in Spain. We can now move on to talk about the main figures in our profit and loss account for the year. We'll begin with a comparison of the recurring figures, which are a reflection of the company's ordinary business, stripping out a number of elements that could distort the interpretation of the underlying performance, as we'll explain later. Firstly, revenues were boosted mainly because of the revenues generated by new facilities brought online. The company's net revenue climbed to EUR 1,822.6 million, which is almost 95% of it coming from electricity transmission. Our EBITDA, in like-for-like terms, rose to EUR 1,369 million, which is up 5.9% against the previous year. This improvement in EBITDA was driven by the efforts made to cut back operating costs. In like-for-like terms, our EBIT increased by 7.5%, while pro forma profit for the year was EUR 558 million, which is 8.8% higher than the previous year. As I mentioned earlier, our earnings have been impacted by various one-offs that occurred during 2012 and 2013, which have had an impact on the performance of our income statement. If we exclude these effects, we can see that the profit for the year rose by 7.5% since the negative effects of these one-offs are not taken into account. The most noteworthy were the measures contained in Royal Decree Law 9/2013, which reduced income from electricity transmission by EUR 72 million, or EUR 50.6 million after tax, as you can see in the graph. At the same time, the implementation of this royal decree law meant that our income tax expenses fell by EUR 33.9 million because of Law 16/2012 on asset revaluation. Changes to the group's scope of consolidation following the expropriation of TDE in May 2012, and the increased stake in Redeia in 2013 caused a drop in after-tax earnings of almost EUR 24 million. With respect to TDE, I'd like to point out that the company began arbitration proceedings in July 2012, having disputed the expropriation, and had been working to settle the conflict through agreement until February, when an arbitration claim was filed after it became clear that an agreement was not going to be reached due to the gap between the offers received and the entitlements that Red Eléctrica considers to be legitimate. Nonetheless, despite this claim, Red Eléctrica has in no way closed the door on the possibility of negotiating a deal and avoiding a full-out arbitration process. Lastly, the impairments to property, plant, and equipment in the first half of 2012 totaling EUR 32.5 million after tax must also be factored into this reconciliation. If we now look at the company's balance sheet, we can see that debt totaled EUR 4,541 million at December 2013. First of all, I'd like to underscore Red Eléctrica's excellent performance in generating cash, EUR 974 million, which it earmarked for investments of close to EUR 600 million and dividends of EUR 319 million in 2013. Also, we saw significant growth in working capital, which was very positive. A higher amount of settlements collected in 2013 compared to the previous year, and higher VAT reimbursements received in January contributed EUR 209 million to this item. Stripping out these temporary effects, the closing balance of net debt should be approximately EUR 4,800 million. The average cost of debt rose slightly to 3.84%, while the average term to maturity stands at 5.7 years. 88% of our debt is at fixed rate to term. Our prudent financial policy, coupled with our strong liquidity position, gives us very sound platform on which to be sure that we can deliver on our targets. Debt is well diversified, and we have enough liquidity to comfortably cover forthcoming maturities. Much of our debt entails bond issuance on the European market. Since October 2010, we have issued EUR 2,600 million of long-term bonds. We've been proactive as well in raising finance, tapping the best alternatives available in the market at any one point in time. Therefore, Red Eléctrica's liquidity stands at EUR 1,860 million, including the most recent issues in 2013 of EUR 400 million in January, and then EUR 300 million in May 2013, and two private placements of EUR 50 million each. Most of this liquidity is long-term. This gradually strengthens our balance sheet, which has led to an improvement in all our Solvency ratios. I would like to continue by stressing the importance of all of the measures that have been taken over recent months to guarantee the financial stability of the Spanish electricity sector, and to ensure that energy in our country is not a limiting factor for economic development. As an electricity sector player, Red Eléctrica has been involved in the solution to the tariff deficit. Our company contributed around EUR 500 million through cuts to revenues, as we've seen already, or deferment of those revenues. However, we can now look forward to a future free of the cloud of regulatory uncertainty that has hung over us for the last few years. This brighter outlook will allow us to consolidate a new growth path, allowing Red Eléctrica to remain one of the most profitable and attractive companies to investors. Although the company gave a specific presentation on the changes to the remuneration system in January 2014, we shall now explain to you the main terms for remunerating the transmission business as laid down in Royal Decree Law 1047/2013 of 30th December 2013. The transmission business remuneration scheme has been created within the context of a new benchmark framework for the entire electricity sector. That is, the Law 24/2013. The basic aim of that law is to establish regulation for the sector that guarantees electricity supply with the required quality levels and at the lowest cost possible, thereby ensuring the economic and financial stability of the system. To safeguard the system's financial sustainability, mechanisms have been established to limit the divergences caused by revenue shortfalls to 2% of estimated revenues for the year and accumulated debt to 5% of those revenues. Failure to comply with those limits would lead to review of the corresponding tolls and charges. The rules enacted reinforce and clarify the principles and criteria of remuneration for regulated activities and allow for better comparability with remuneration systems of other European TSOs, thereby contributing towards establishing a much more stable and predictable framework for the transmission business. We've seen that there is this new law, but with regard to the royal decree, I'd like to pick out the most significant elements concerning the transmission business as follows. There are seven of them. First of all, the new regulation establishes a formula for remunerating transmission assets using a single methodology. One single methodology, irrespective of when the asset is commissioned, and with regulatory periods that are established at being six years. Secondly, assets and service are remunerated using their net value as a basis for their financial remunerations. All the assets currently in operation are assigned a useful life and a return on investment, acknowledging, thus, the efforts that have been made in the past to replace and improve assets and assigning an adequate or appropriate useful life for regulatory purposes to all assets. The model is based on benchmark unit investment and operation maintenance values with a pre-established method for updating and revision. Fourthly, under this scheme, installations begin collecting in year N+2. However, there is a mechanism called the delay factor that ensures that all facilities put into service before 1998 receive remuneration equal to what they would have collected had they started receiving it from the moment they were brought on stream, i.e., in year N. Fifthly, the financial remuneration rate will be benchmarked to the yield of Spanish 10-year government bonds plus a spread that may be revised in each regulatory period. Sixth, once the assets' useful lives for regulatory purposes come to an end, they may be extended by increasing the remuneration for O&M. The seventh point is that there are also incentives for the efficiency and availability of transmission network included. The new methodology is transparent, stable and predictable. It helps to provide regulatory stability to our business and establishes mechanisms to ensure the sustainability of the system and incentives to improve efficiency. It is also important to point out that the report that was submitted to the Council of State analyzing the regulatory impact of the royal decree included Spanish Ministry of Industry projections regarding the remuneration for transmission up to 2019. It used the transitional or transitory methodology established in Royal Decree Law 9/2013 of 12th of July 2013, which is very similar to the methodology defined in Royal Decree 1047/2013. A hypothetical scenario has been defined for this calculation, involving net investment of EUR 600 million, including the incentive for availability, and assuming that the first year of the first regulatory period will be 2015. The projections include the remuneration for Gas Natural Fenosa's transmission assets. The appropriateness of these projections will depend on the benchmark unit values established on the setting of certain parameters that remain outstanding and still have to be decided on, such as extension of assets' useful lives and on the actual investment that is carried out, and on the company's operation performance, which results in the availability incentive. This approach sets Red Eléctrica's transmission tariff revenue in 2015 at approximately EUR 1,685 million, rising by 3% over the period 2015 to 2019. The revenues generated from assets entering into service the year prior to the one being calculated must be included to estimate the revenues of the company's transmission activity. One of the pillars of the new regulation is to incentivize continuous improvement in management efficiency. Effectiveness and economic and technical efficiency of the new royal decree allows the transmission company to improve the returns on its investments through various mechanisms. One is the possibility of obtaining a margin, both on the construction of the installations and on the management of their operation and maintenance function. In this regard, a realistic scenario based on proper, adequate management of the various processes would see returns on new investments rising from 4.6% to over 6%. Furthermore, by continuing to achieve new process efficiencies, the company should obtain superior returns or higher returns to those predicted in this example. Operationally, the company must optimize its construction and operation and maintenance processes still further, maximizing the potential value of the remuneration from useful life extensions in the future. Moreover, additional measures designed to unlock value must also be considered, redefining the company's financial policy and process management approach. Lastly, pursuant to the transitional method set out in Royal Decree-Law 9/2013, the 2014 tariff allocated to Red Eléctrica and the ministerial order published in the official state gazette on the 1st of February, sets out revenues for the transmission business at EUR 1,622 million in 2014. Let me talk you through the company's next steps with regard to the regulatory environment. One priority is to negotiate a reasonable outcome for various outstanding remuneration regulatory matters, such as I'm sure you're familiar with, the benchmark unit values, which will be established in accordance with the average values representative of the cost of infrastructure. The National Market and Competition Commission in Spain has to submit a proposal to the Ministry for that first regulatory period before the 1st of April 2014. Moreover, the company is already working to obtain accreditation for the renovation upgrades to its installations so that it can present the documentation to the National Market and Competition Commission before the end of June 2014, and so that it can determine the residual useful life of all the assets that entered into operation before 1998, before 15th of July. Pursuant to an agreement with the government's Delegated Commission for Economic Affairs, the Ministry of Industry in Spain will set out all of the technical and economic parameters to be used to calculate transmission activity during the entire regulatory period. We are currently helping to push through all the studies and checks that are required so that we can clarify all of those parameters. An analysis of the future treatment of maintenance CapEx will be carried out based on the criteria to be adopted by the Ministry in relation to the residual life of the installations that entered into operation prior to 1998. We'll be reviewing the main operating processes in keeping with criteria of efficiency and quality to increase the returns on our investments, and we will also continue to work to obtain an appropriate return for our system operation activity. I'll finish off now with some comments on the company's outlook for 2014. As mentioned earlier, the ministerial order revising access tariffs for this year was passed on 1st of February 2014. Red Eléctrica's tariff from transmission will amount to EUR 1,622 million, plus an availability incentive of EUR 14 million and a payment for system operation of EUR 56 million. This is higher than the figure in previous years, thanks to the company's efforts to ensure the cost of this activity is duly recognized. Despite this, as we've explained also during this presentation, we'll continue to push for a remuneration scheme that's commensurate to the work involved in operating the system. The most important investments in 2014 include bringing the interconnection with France and Portugal online, as well as making progress with the Mallorca-Ibiza interconnection. Investments earmarked for 2014 will amount to approximately EUR 550 million. Finally, even off the back of the extremely positive impact of the asset revaluations in 2013, Red Eléctrica has forecast that net profit will rise by between 4% and 5% in 2014. The company's financial policy will be aligned with the new regulatory framework. The rules of the game have clearly changed, and the maximum efficiency that can be obtained from a benchmark linked to 10-year bond yields, when this benchmark is set in six-year periods, should, along with a number of other issues, be studied in depth. To finish off, I'd just like to remind you, we're still working on the company's strategic plan for the next few years, and we would hope to be able to unveil that to you in coming months. That is the end of today's presentation. Many thanks for listening, and we will now open the floor to questions. We will first of all answer any questions you may have in Spanish, then we will move on to the questions that you may have in English to streamline the interpretation process. Thank you very much. Everything is very clear here in the room, but we also have questions. Let's start with the questions that are now coming in over our website, then we will come back to the questions coming over the telephone line. Javier Garrido from JP Morgan asked about the net debt level that we expect for the end of 2014 and asks how working capital will behave after what's happened in 2013. He also asks about the cost of debt that we're expecting for 2014. What is the outlook for repair and maintenance costs in 2014 compared to 2013? He also asks about the situation with respect to the sale of the optical fiber business with ADIF. Juan Lasala will be answering those questions. Thank you. Net debt for 2014, perhaps the most appropriate thing to do would be to explain what happened in 2013. The close of year net debt figures are really a snapshot, aren't they? It's been a bit of an odd snapshot this year, as you heard from the chairman in his presentation at the end of 2013. There was an additional transmission settlement that was collected, so one more than what we had in 2012, and that has had a very favorable impact on the final snapshot of the company's net debt performance. There have also been other movements, such as VAT reimbursement, subsequently, and some supplier payments, because of exceptional business activity at the end of the year, were also paid in the start of 2014 instead of 2013. That meant that the final picture for the close of year 2013 was perhaps too positive because our net debt figure should have been around EUR 4.8 million, as you've heard before. What about the performance of net debt during this forthcoming year? It will depend on those factors that I've already talked about. If things happen as normal, if we have the same number of settlements and working capital performs in the way we would expect, we would estimate there will not be a big difference with regard to the closing balance for net debt. That will, of course, depend on the settlements that are paid to the company. With regard to the settlements, again, when the new competition commission was set up after the summer, things actually worked very well, and we were actually getting paid before the end of the month. We think that this will mean more stability for the future in the way things work in settlements. With regard to working capital, will there be an impact in the future? I think I've partly answered that with the previous answer that I've just given here. That logically, looking ahead to the future on the subject of working capital, you would expect that we would always have to finance those revenues stemming from the CapEx of the year because of that N+2 criterion. There will always be slight additional financing of working capital. But you would expect, as I explained before, that there should be no really exceptional movements. With regard to the expected cost of debt for 2014, we expect a reduction in the cost of debt. This year, you may remember in the September presentation we made to you, the cost was above 3.9%, I think it was about 3.93%, and it's down to about 3.84%, and that's just happened over the last three, four months. I don't think that also includes the impact of the maturity of a EUR 800 million bond maturity. It had quite a high coupon, 4.75%, and that has been replaced by much cheaper bonds. About 1.5% is the coupon. That's the reduction. That's not the cost, of course, that's 1.5. And that reduction has only been seen over three and a half months. So of course, that will be seen over eight and a half months, like for like, next year in 2014. So we expect the cost of debt, the average cost, will be closer to 3.5%. Or 3.5, I think that's good news when you're talking about a CapEx-intensive company like ours. With regard to the expenditure on renewals and renovations and improvements in 2014 compared to 2013, I think this will depend a lot on how all the regulatory framework changes pan out at the end. There shouldn't be excessive differences, really, between 2014 and 2013, because it's a little early to take decisions. But of course, our policy there might be changed with regard to the useful life of the pre-1998 installations. Exactly what the decision is taken there. The useful life, just imagine it's actually extended 20 years, or it's not extended a lot. There will be differences there, because any expenditure on renewals will be higher the longer the useful life that is recognized for those installations. But if we're talking about one year here, I think it's probably more relevant if you're talking about a longer period. But we're just talking about one year here, and I think the differences from one year to the next will not be very significant. Although you might see bigger differences when we bring out the strategic plan, which will be halfway through this year, I think. With regard to ADIF, the tender for optic fibers there. We're in the midst of that process at the moment of tendering the contract. It kicked off in October. Two companies are now already on the pre-qualification shortlist, and the data room's open. In fact, it's just about to close. And there will be a period until the bids come in, which will be perhaps early April, and then there'll be an auction. We'll have a winner. Someone will be awarded the contract, then there will be a process we have to lead up to the close of the operation, which has to do with the current customers ADIF has. At the same time, we will have to get the permits and the licenses from the commission authorities. Of course, these are conditional in the operation. They have to be obtained if this is to go ahead. So essentially, you're looking at this whole process being completed perhaps just before the summer holidays period, June, July. Let's see if we can get back to the questions that we had over the webcast. Over the conference call, ladies and gentlemen, please, press 01 if you'd like to join on your keypad. Yes, Mrs. Suarez, could you ask the question again? Yes. Good morning again. I hope you can hear me now this time. I'm from Mediobanca. The first question I had for you was about the net income guidance that you have given us for 2014. You've talked about the growth of between 4% and 5% for net income. If that is the case, will that growth be based on the net profit figure you've reported? I think it was EUR 529 million, if I've got that right. In 2014, do you think you'll be looking at around EUR 550 million for this year for net income? So EUR 520 million would be the figure we'd be expecting in 2014. Do you think the market isn't actually reflecting your performance? Because I think 4% to 5%, I don't know how significant that is for a regulated company, that difference then. The second question was a question that has already been asked by Javier Garrido, actually, and it's about your cost of your debt. That 3.8%, don't you think that's quite high for a company like Red Eléctrica in the regulatory framework you're in with ever lower interest rates? To what extent do you think your cost of debt can be brought down over the next 2 years? Linked to that, is the company changing or thinking of changing its payout dividend policy? I think it's 65% at the moment, and I know some companies in Spain are increasing their dividend payout to above that 65% level that you have set. Then the third question I had was about the reform of the wholesale electricity market. It seems that the Spanish government would like to reform that market. I want to know what your position is as a company, Redeia, as you manage the grid, you're the Transmission System Operator. Do you think that this reform of the wholesale market would be advantageous for the electricity industry? What could Redeia do to help bring down the cost of electricity in Spain? Thank you. Well, I'll start, and then you can answer if that seems correct. Naturally, cruising speed for 2014 is benchmarked against what we already have. What we have right now is, first, the regulation, and then the expected investment. As I've said, that's EUR 550 million, which is expected for the entire year. That figure fits in very well with, and I think this is important, the investment processes that Redeia has. Some people might say, "Well, there's not so much activity. There's differences in capacity. Maybe you should cut it back." But the regulator, the government, has established certain reference terms that we have to take into account to know where we are. They've got a cap of 0.065% of GDP, which means that our cruising speed is EUR 670 million CapEx. According to the Council of State and the royal decree that we got last year, there's now a provisional exercise, which is based on EUR 600 million as a figure. Where did they get that figure? Well, it's based on what the Ministry of Industry did in their study. Is it true that since we haven't got all the planning approved, we're having to establish the investments that we had already promised in order to roll them out? Well, yes, that is true. Nonetheless, we can be quite prudent about what we're going to do, and that figure is EUR 550 million in CapEx, and the predictions that we're making is that there'll be an increase of between 4% and 5%. That gives us the final figures that we gave in the presentation. With respect to our payout policy, we've said, and we've always said, and continue to say that dividends increase with the increasing profits of the company. So this year, the dividend's gone up 7.5% against the dividend of the previous year, 7.5%. It's true. Of course, I can't deny it that other companies, which are peers for us, have a payout which is slightly higher than that 65%. We should be prudent about this, and how can we be flexible about it? This chairman and the board always has to look at new scenarios, recognizing that what's going to happen as we close the model, the different perimeters that we're going to have in the future, and the way we're doing our strategy planning. We're never closed to changes, especially in a context in which the idea is that the financial costs of debt will go down in the international markets. That means that this year it's clear, and this is what we're taking into account and what we're saying to the general meeting, that we should keep our payout level at 65%. I don't know if you wish to go on. Well, yes. Maybe. I can go into slightly more detail, but I think actually the chairman's already answered. When we talk about net income for 2014, I'm surprised to see estimates that try to base next year on this year's performance. We're talking about EUR 529 million, and that 4.5% gives us the figure that we presented. You can probably imagine that the tariff that came out is about EUR 70 million something higher than revenues last year, and this year we will be commissioning new lines so that our transmission revenues will be higher than they were last year, probably about 4% higher. What would seem to be logical, it's never happened, I think, that when we have revenues at 4% going up, we can't get the efficiency to trickle down all the items on the account. So the positive impact of the corporate income tax for 2013 means that the increase could seem even rather low, because we're comparing against a figure which was abnormally high because of the corporate income tax. But I think 4.5% is a reasonable figure. Maybe, if you look at the analyst consensus, maybe they're thinking that the financial costs will be rather higher than what we were factoring in. The next question was about the cost of debt, and earlier on with Javier Garrido's question, we said already that we're reckoning on about 3.5%, and you talk about 3.8, and you say it might be high, but you have to look at our track record. Our track record is financing very long-term investments because our financial ratio was established over 40 years. As the chairman said, the rules of the game have changed, so the rate is going to change now every six years. But we've already got the track record. We've got with the rates that we've had, fixed rates for a long time, which were taken up in times when the general rates were higher. But it is true that in general, the rates will be going down. And that's why we're talking about that 3.5% rate for this year. As for changing the financial policy in the future, we've already heard what the chairman said about the payout policy. As to our financial policy, the way we fund ourselves, obviously, there are a lot of things we have to take into account with respect to how much of our debt we want to have with a variable, with a fixed rate, and whether we want to have shorter terms on our debt. But in general, the answer has to be that it's— well, it's also true, it depends on the kind of fixed rates that you get. When they're lower, then obviously you want to take advantage of them. But it would seem to make sense that there will be more variable rates and probably with shorter terms in order to bring down our debt. As to the dividend, well, in terms of the amount of debts that we have, it is not really very important, but I think that the payout policy that the chairman described is going to stay in force. We have talked about that 65% figure, which was put to the board and will be put to the general meeting. Then obviously in the future, we will have to see what happens and all the other factors that have to be taken into account. I did not say anything about the cost of debt. One of the maturities we had in September was EUR 800 million. Correct me if I am wrong, but the rate on that, I think, was 4.75. Obviously, when we roll over the debt, the rates are going to be lower, and they were lower in that case. We have a track record, we have a history, and we have debt which we hold at old rates, but these will be renewed over time. Right now, we are not going to talk about the wholesale market right now or the legislation. We know that the wholesale market as such has not worked too badly, and I think the operators recognize that, and the market is reflecting that. We have got surplus capacity. It has rained a lot recently, and we see that the match was zero. There have been fluctuations on occasion. What was really bad is going to be changed, and that is what we use for the tariff of last resort, recourse, sorry, which is the basic benchmark for the wholesale market at any one time. The idea is that we want to have more stability for that price so that at any one time, the wholesale market knows what the values are and when they go up, as happened in December, because of what happened with the change with respect to the nuclear feed-in and such like, this will not change the whole system. But the wholesale market in Spain has not worked too badly at all. However, there have been changes to improve it with this government so that it will be more stable and more rational, and we will know what that TUR tariff is going to be. Thank you. The next question comes from Jose Javier Ruiz from Macquarie. Go ahead. Yes. Good morning. Thank you very much for taking my question. I've got two. One, could you say if you are going to immediately start the second stage of interconnection with France, which would pass through the Basque Country? Secondly, and this is pure curiosity on my part, but could you give us information on the impact on 2014 revenues that you've got from the new regulation, EUR 72 million compared to the EUR 72 million that you had the previous year? That is for 2013. Yes. I will answer the first question, and then the CFO will answer the second one. Let me see. As you know, Spain has a 1,400 megawatt commercial capacity interconnection with France. The new interconnector will double that capacity. In March 2002 at the European Barcelona Summit, it was said that by 2005, all European Union countries should have an interconnection of at least 10% of the installed capacity. We have an installed capacity of more than 100,000 megawatts. So right now, well, not right now, but back since 2005, 10 years ago, my system, we should have the 10% of that figure, 10,000 megawatts. As you can see, we still continue to be almost an electricity island. That has meant that we have not been able to get the benefit of a broader trading market with those interconnectors that we could use for the surplus capacity, renewable power that is being generated to take advantage of the more competitive pricing in Europe. So we are very much limited, and this has to be done. This has to be done because it was the European Union that set out that these were the things that had to be done to establish that single internal market for energy. INELFE is working really well. INELFE is a company that has been set up, but together we have a 50% split with a French company to work on this. It is a EUR 700 million project, and by next year, this should be operating. This will benefit us for so many different things. We will have more interchanges. It will also improve the meshing of the network down the Costa Brava, the Mediterranean side. It will be of great benefit for the whole country. I should say that first and foremost, of course. At the same time, we are working on studies for that new interconnection through the Basque Country, through the Bay of Biscay. We are at the study phase at the moment, and this is not an easy matter, technically speaking. There are a number of different repercussions there. But there is quite clearly a political will on both sides of the border, on the French and the Spanish side, to implement that interconnector. But we are still at the study stage at the moment. Therefore, that new interconnection will not be up and running before 2020 or even 2022. Nevertheless, the will is there to put this in place, because I don't see that there are really any other ways to have an interconnector through the Pyrenees. Yes, the question about impact on income in 2014, it's really very difficult to know what to compare figures with. I don't know whether this is a comparison between the new regulatory framework and the old one, or with the fact it's N+2, and to work out the impact on the old way we worked it out with the underlying inflation rate, which isn't used anymore. It's very hard to know exactly what to use to make your comparison. Right now, the tariff is around EUR 1.5 billion. I think it's EUR 1.7 billion for next year, which is more or less corresponding to the new commissioning of facilities for years N minus 2, because we're talking about commissioning for 2012. Then we'd have to add in the income for the year just before that, because you know that we're actually booking things with N+1 as a criterion. So I think the change is quite clear. Tariffs last year and this year, you're talking about EUR 70 million additionally because of the commissioning of the new facilities. That is the additional income. But it's very difficult to make that comparison with what happened before. As you know that we've compared tariffs in 2013 and 2012 with the income that we would have obtained under the previous model, and the sum total was around EUR 500 million, adding together these different factors. I'm just talking strictly speaking about the tariff there, because you could also talk about the delay in actually implementing N+1 and N+2, because that is the real impact on the tariff if you add that in. But I think if we started to talk about 2014, it would make things even more complicated. I think we need to talk about the transition from 2013 to 2014 tariff, and then it would be easier to work out the transition from 2014 in subsequent years until 2019, because it's the very first time, as I said before, that we have the clear six-year period ahead of us with transparent tariffs and fees that we've paid in transmission. The first time since I've been familiar with this sector here anyway. There are no more questions. Our next question comes from line of Olivier Van Doosselaere from Exane. Please go ahead, sir. Yes, thank you for taking our question. Most of them have been answered. I just had one more question, actually, on the cost of debt, the 3.5% that you indicate for 2014. Is that the simple mechanical impact of the cheap refinancing that you have done in the fourth quarter? Would that then mean that if it's only this one that you have in that guidance, that you could potentially beat the 3.5% target if on top of that you would change the structure of your debt by having more variable rates? Would I be correct to interpret it like that? Yes, basically yes. The impact right now is practically mechanical because there is not a lot of refinancing going to be done in 2014. It is the mechanical impact of that bonus. It is true that if there are needs for further cash during the year, we will try to cover them at variable rates with promissory notes, with the Euro Commercial Paper. We think that that could lead to a slight improvement, but it is reasonably prudent to reckon that we will be at about 3.5%. Yes, your interpretation is correct. Questions that came over the webcast. Fernando Lafuente from n+1 Equities asks, "What is the average life for the assets from before 1998?" He also asked when you expect the government to approve the standards for CapEx and for operation and maintenance. Quite obviously, we cannot say right now what figure we are looking about for the years, but quite clearly, we have to demonstrate very clearly what the state of our lines are, and we are doing that now. Also clearly, I think there is a figure. There was a nine-year figure that was given by the commission, but we believe that that will be improved on in the light of the information that we have asked for and we have been given. That is actually one of the question marks hanging over us for the next period. Obviously, in the light of the information that is available and, in fact, the report that was put together by the government and projected income figures, it seems that the figure will be much higher than that nine-year figure because of the condition and the state of the grid itself that would allow for it. But very shortly, we will find out. Yes. I just want to make it absolutely clear what the timing is here for each different thing. The National Markets and Competition Commission, the regulator, has to bring out those standards for O&M before April 1, 2014. The company, as you know, then has a six-month process period. It was actually since the royal decree was published back in December to increase that useful life through all of the renovation improvement endeavors that we have put in place in the past. Once again, let me tell you that we are doing our utmost to ensure that those parameters will be ready as soon as possible so that the commission does not have to take a decision at one time or another, depending on the information that they have. As the commission has to take a decision in April about the standards, we're not quite sure about the tariffs and how it would actually link to the residual useful life to June. All of our best efforts are working towards early March, first 10 days of March, so that by then, the National Markets and Competition Commission, the competition authorities, will have all of our information from us and, if possible, verified and checked out by independent experts on the residual life and on the standards so that the authorities, the commission, will have all of the information to be able to take the right decision. But of course, we have these legal periods that have been stipulated, the timescale, as I mentioned before, those deadlines. The question about the average life, both for physical reasons and for financial reasons, we don't know exactly what life terms we will be given, as the chairman said, but we will try and do everything we can to ensure that we can lock all of the value out of what we have done in renovating our installations over recent years. We're absolutely convinced that the real, actual useful life that we want to be acknowledged for our installations is pretty high, and we think we should be very close to the maximum allowed level. But now we have to see what sort of financial documentation that we can use to justify that belief and what physical justification documents. But we hope to get a satisfactory result. The next question we have is from Fred Barasi from Goldman Sachs. There's a question about the growth goal, the growth target for 2014. Does it mean that you'll be changing at all the way you are booking your CapEx for O&M or your depreciation amortization? There's also a question about whether you believe that the revenues assigned to the TSO are sufficient to cover costs, and do you think you can obtain any additional improvement in the future? With respect to the second question, yes, indeed, we have presented to the regulator our detailed analysis of what we think the costs are for the system operator here in Red Eléctrica. We think there's been a partial application of the methodology which has been studied. We're grateful for this. Obviously, it's difficult to get things done quickly, but the Ministry has gone out of its way to improve things. It's gone from EUR 40 million to EUR 56 million, and that's a significant increase with respect to the real cost in the analysis. That is part of the pathway already covered, and we definitely see that the Ministry is very willing to look at the real data and to consider them, and we are happy. We think justice has been done, but maybe not as much justice as we'd like. There's still some upside for future years. With respect to the changes in policy, no, the 2014 figure doesn't reflect any change because so far we haven't reached any decisions on the caps on amortization or on the maintenance CapEx. As we said before, we're waiting to see exactly what the figure will be with respect to the extension of the useful life of pre-'98 assets, because that will make us decide how we will change our policy with respect to both the real and the book figures. From Finanzas, Daniel asks us, you talked about the stability of net debt in 2014. What are you comparing it against, with EUR 4.5 billion or EUR 4.8 billion? Well, I think right now we're comparing it with EUR 4.8 billion. What I can't tell is whether by the end of the year that will be the picture of the company's position. It depends a lot on whether you're collecting in the settlements due to you just a few days before, and if it stays in working capital. It's a big amount, which should actually be offset by the debt position. It's difficult to say that right now. What is true is that the trend seems to be that there will be collection of the payment settlements on a monthly basis. There shouldn't be that problem. Sometimes it is difficult to predict these movements on your balance sheet. We're estimating at EUR 4.8 billion, and that is the figure. With significant stability, irrespective of, and let me say this quite clearly, any strategic planning that we may be bringing out over the next few months, and irrespective of any other strategic measures that we would like to implement outside the regulatory environment. Of course, scenarios may change. Now we're talking on the basis of the way things stand at the moment, and it's EUR 4.8 billion. We were looking at those figures that we're talking about, maybe EUR 200 million going up or down. It's not that structurally we have come down from the EUR 4.8 billion position to EUR 4.5 billion. It's quite clearly we're still up there at EUR 4.8 billion, and we will have to see what happens. Then we will know whether it's a high figure or a low figure. We think the ratios are very reasonable. Well, thank you very much to all of you for listening. Thank you for giving us those questions, and we hope we've been able to answer all of them for you. Thank you.