Portugal's electricity regulator ERSE proposed a 2.6% reduction in regulated tariffs in a bid to protect hundreds of thousands of consumers from skyrocketing prices affecting the Iberian wholesale market MIBEL.

"This exceptional review of tariffs in 2022 is essential to ensure greater tariff stability given the high volatility in energy markets and abnormally high prices in wholesale electricity markets," regulator ERSE said late on Friday.

ERSE said the cut would be possible due to better than expected "benefits" from the production of wind and solar energy, as well as energy purchase contracts and additional revenues from greenhouse gas auctions.

The cut would help 921,000 Portuguese consumers with contracts based on regulated tariffs, mainly households and small businesses, ERSE said. They represent 15% of the total 6.4 million customers in the country.

ERSE said that after the cut the regulated tariffs would only increase 1.1% compared to the average level of 2021. In Portugal, regulated tariffs serve as a benchmark for liberalised market tariffs and most electricity distributors have similar offers.

European countries are struggling to cope with surging gas and power prices, pushed higher by Russia's invasion of Ukraine, and to cushion their effect on spending power.

Brussels agreed last week to allow Spain and Portugal to place a temporary cap on reference prices for natural gas and coal used by power plants of 40 euros per megawatt-hour.

ERSE will hear the views of Portugal's tariff council, which brings together consumers, companies, the government and municipalities, whose opinion is not binding, before making a final decision by mid-June.

The cut would come into force on July 1 and stay in place until the end of the year.

(Reporting by Sergio Goncalves; Editing by Catarina Demony and Ed Osmond)