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May 11, 2021

Main Components of Electricity Tariffs in Brazil


Electricity tariffs and rates in Brazil are determined by ANEEL (National Electricity Agency). The agency’s goal is to create the necessary conditions for the electricity market to develop in a balanced way for both energy sector players and Brazilian society.

To calculate these tariffs, ANEEL considers certain components of electricity tariffs, which vary according to the utilities’ conditions and the consumer market, among other factors. This tariff structure ensures that the costs of generation, transmission, distribution, and regulatory obligations are fairly distributed among consumers. In this article, we will explore the main electricity billing components and how they affect the final bill paid by consumers.

What Do Electricity Tariffs/Rates in Brazil Consist Of?

To provide quality electricity, utilities have costs that must be considered when defining electricity tariffs. These costs are broken down into three main energy bill components:

  1. Contracted energy: This refers to the costs of energy purchased from generators and is directly associated with the TE (Energy Tariff) component of the bill.

  2. Transportation of electricity to consumer units: This is the cost of using transmission and distribution networks, also referred to as TUSD (Distribution System Usage Tariff). This component reflects the charges related to the use of electricity grids.

  3. Sector charges: These are regulatory charges aimed at funding initiatives to maintain the balance of the electricity sector. These charges include subsidies and payments to cover operational and investment risks faced by utilities.

In addition to these electricity billing components, consumers also pay taxes imposed by federal, state, and municipal governments, such as:

  • PIS/COFINS (federal taxes);

  • ICMS (state tax); and

  • Public Lighting Contribution (municipal tax).

It is important to note that regulatory charges and taxes are not created by ANEEL but are established by law. Some are applied only to distribution costs, while others are embedded in generation and transmission costs.

When the electricity bill reaches the consumer, the complete electricity tariff/rate breakdown includes the following energy bill components:

  • Energy purchase (generator costs reflected as the TE (Energy Tariff));

  • Transmission (costs associated with the transmission system, often categorized as energy transmission charges);

  • Distribution (costs related to the services provided by the utility, reflected in the distribution charges); and

  • Sector charges and taxes (a mix of regulatory charges and taxes such as ICMS, PIS/COFINS, and the Public Lighting Contribution).

According to ANEEL, energy costs represent the largest portion of electricity bills (53.5%), followed by taxes (29.5%) and distribution charges (17%). This electricity rate breakdown highlights how different elements impact the final cost paid by consumers.

How Is the Value of Electricity Tariffs Determined?

The initial tariff and rate value and the mechanisms for updating it are defined in the concession contracts signed between utilities and the Federal Government (the granting authority). These contracts are public and available on the ANEEL website. The contracts establish three mechanisms for updating tariffs:

  1. Annual adjustment: This adjustment occurs on the anniversary date of each utility’s contract. It ensures that utilities can pass through inflation and other cost adjustments in line with economic indicators.

  2. Periodic tariff review: This review typically occurs every four years and allows for an in-depth assessment of the tariff and rate structure, taking into account operational efficiency, market conditions, and regulatory requirements.

  3. Extraordinary tariff review: This review can be triggered if there are significant changes in the costs of generation, transmission, or distribution. Such reviews may lead to adjustments in regulated electricity rates when unexpected factors significantly impact utility costs.

These mechanisms ensure that the electricity tariff/rate breakdown is updated regularly, balancing the interests of consumers, utilities, and the regulatory agency.

Did you enjoy learning about the components of electricity tariffs/rates? Be sure to also check out our article on how to save energy in your company.