December 19, 2023

Understanding Electricity Bills

Utilities Electricity bills, which include the Distribution System Usage Tariffs (TUSD) and Energy Tariffs (TE), in various forms such as Blue Tariff, Green Tariff, Conventional Tariff, and White Tariff, are considered expensive for several reasons. Some of the main factors contributing to the high tariff and rate values and increasing electricity bills for consumers, especially residential consumers, include taxes, sector charges, operational costs of transmission and distribution, subsidies, tariff flags, and energy theft. Additionally, how energy is consumed and the utility that provides the supply service also influence the value of electricity bills.

A study conducted by PwC and the Acende Brasil institute in October 2023 reported that, for the calendar year 2022, the impact of taxes and sector charges amounted to approximately 48.1% of the total gross operating revenue from the sale of energy to the final consumer in Brazil.

Taxes

In electric bills, also known as electricity bills, taxes are applied in addition to the tariffs and rates. These tariffs and rates are regulated by ANEEL. Here are the main taxes that may be found on electricity bills:

• ICMS (Tax on the Circulation of Goods and Services): This is a state tax levied on the circulation of goods and services, including electricity. The ICMS rate varies by state and can represent a significant portion of the total tariff.
• PIS/Pasep (Social Integration Program) and COFINS (Contribution for Social Security Financing): These are federal taxes imposed on companies' revenues. These taxes are also passed on to electricity tariffs.

Sector Charges

In addition to taxes, electricity tariffs and rates also include sector charges, which are amounts intended to subsidize public policies and electricity sector costs, contributing to tariff moderation. Some examples of charges are:

• Energy Development Account (CDE): This charge is intended to finance programs and projects in the electricity sector, such as the universalization of access to electricity and energy efficiency actions.
• Reserve Energy Charge (EER): The EER is a fee aimed at covering the fixed revenue of power plants with contracts under the reserve energy modality. These plants are contracted in specific auctions to enhance energy supply security within the National Interconnected System (SIN).

Tariff Subsidies

The value of subsidies paid through electricity tariffs and rates is one of the primary reasons for rising costs. These subsidies, which affect tariffs and rates for all consumer segments, are intended for various sectors, such as renewable energy generation, social programs, and discounts for low-income consumers. To qualify as low-income, a consumer must meet at least one of the following conditions:

1. Be registered in the Unified Registry for Social Programs (CadÚnico) with a monthly per capita family income equal to or less than half the national minimum wage.
2. Have a family income of up to three minimum wages, with a family member suffering from a disease or disability that requires continuous use of equipment that consumes electricity.
3. Be an elderly person aged 65 or older, or a person with a disability receiving the Continuous Cash Benefit (BPC) of social assistance.

The burden of these subsidies is mostly passed on to residential consumer tariffs, making electricity bills more expensive and highlighting the importance of conscious energy consumption. ANEEL provides a website with information related to tariff subsidies at this link: ANEEL Subsidy Monitor.

The Energy Matrix

Brazil has an energy matrix heavily reliant on hydroelectric generation, which is influenced by climate conditions. For instance, during drought periods, hydroelectric reservoirs reach low levels, leading to the activation of more expensive thermal power plants. This climate variability directly impacts the cost of electricity and tariffs, especially in the case of energy tariffs (TE).

Tariff flags are a tool used to indicate water availability in hydroelectric reservoirs. When levels are low, yellow and red flags are activated, signaling an increase in energy costs. This occurs because it is necessary to activate thermal power plants, which have higher generation costs. These extra costs are also passed on to consumers.

Network Costs

Brazil has an extensive transmission and distribution network, managed by various transmission and distribution companies, which requires constant investment in infrastructure. Additionally, the expansion of energy generation, the construction of new power plants, and grid maintenance generate costs that are passed on to consumers, affecting tariffs.

Energy Theft

Energy theft, commonly referred to as "gato de luz" (illegal electricity tapping), has a significant impact on electricity tariffs. Non-technical losses, which include energy theft, are incorporated into regular consumer tariffs. This means that those who pay their bills correctly end up bearing part of the cost of energy theft. In 2022, non-technical losses in Brazil averaged 14.56%. In some distribution companies, such as Light, CEA Equatorial, and Amazonas Energia, more than 50% of the consumed energy is stolen, directly impacting tariffs.

These are just some of the factors contributing to the high cost of electricity bills in Brazil. It is important to note that the composition of electricity tariffs may vary depending on the characteristics of each utility in different regions of the country, influencing the costs of electricity supply.

Understanding the National Electricity Sector

This text was generated with the help of TR GPT Chatbot. Thanks to sophisticated AI and machine learning algorithms, TR GPT not only answers queries but also performs tasks and provides insights into electricity tariffs and economic regulation. Want to better understand the national electricity sector? Ask TR GPT Chatbot, available for free consultations. Be clear and specific with your questions, as that helps a lot.