This paper engages in a classical political economy discussion of the creation and securitization of public debt in the Spanish electric sector. Public debt is created in the Spanish electric sector when the revenues from the electric tariff are smaller than the recognized costs of the electric system. This debt is financed by electricity companies, that have securitized the receivables and sold them to investors as bond-like instruments.
This paper argues that this debt, which is known as the tariff deficit, is in effect a subsidy from the State to the electricity companies. The subsidy is financed with claims on a percentage of the electric tariff of consumers. Because of the inelasticity of demand of electricity, charging consumers for the tariff deficit is in effect an unconventional tax-collection tool of the State. By using this mechanism the Government moves off its balance sheet the subsidy, improving its balance sheet structure and reducing its official public debt levels.