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TR Soluções Bulletin August 2016, TR Soluções, trsolucoes, energy consumption, electricity, sete, energy indicators

August 23, 2016

Analysis of MME Ordinance No. 120/2016

Among the changes brought by MP 579/2011 is the early renewal of transmission concessions, which saw 100% adherence from transmission companies and whose effects on consumer tariffs took effect starting January 2013. However, the compensation amount concessionaires were entitled to remained open, with only a portion initially recognized.

The total compensation amount claimed by Existing Systems Basic Grid (RBSE) transmission companies (predating 2001) is around BRL 30 billion, at 2013 values. It took nearly four years for the government to decide on the compensation. MME Ordinance No. 120/2016 (PTR 120) set the general guidelines on how RBSE transmission companies should be reimbursed.

Based on TR's internal analyses and discussions, as well as unofficial information obtained from ANEEL staff, below is a first assessment of the possible tariff impacts arising from PRT 120.

Although transmission companies claimed an amount of nearly BRL 30 billion in compensation for the portion of reversible assets not yet amortized, ANEEL is working with a total compensation figure on the order of BRL 23 billion. Of that total, the Agency has already approved BRL 15.0 billion. Another BRL 7.1 billion related to Eletronorte, Copel, and Chesf would still need to be approved.

Given that the total amount to be compensated will be BRL 23 billion, TR's interpretation of PRT 120 is that, beyond ordinary expenses for grid expansion and reinforcing existing assets, an amount of about BRL 9 billion should be added to the 2017/2018 cycle's Permitted Annual Revenue (RAP), solely as compensation.

A bit less than half of that total, estimated to be factored into the 2017/2018 cycle as compensation, relates to a financial liability, covering the period between January 2013 and June 2017, during which the transmission companies whose concessions were renewed weren't compensated, nor did they earn any remuneration for the assets they owned.

Per PTR 120, the financial liability represents the total compensation amount to be approved by ANEEL, adjusted by the IPCA and remunerated at the real cost of equity capital, as defined by Sub-module 9.1 of the Tariff Regulation Procedures (PRORET). The resulting figure, estimated by TR at about BRL 26 billion, should be paid to the respective transmission companies over an eight-year term, or about BRL 4.2 billion per year.

Additionally, the 2017/2018 cycle will also factor in remuneration for these RBSE transmission companies' not-yet-amortized assets. These assets should be remunerated, through the end of their useful life, at the regulatory return rate for the transmission segment, also set by PRORET's Sub-module 9.1. The estimated amount to be added to the RAP for the 2017/2018 cycle is about BRL 5 billion.

For the TUST's 2017/2018 cycle, ANEEL-approved compensation is expected to be incorporated into the RAP only for the consumption segment. That's because virtually all generators have a stabilized TUST. So the full burden of RBSE transmission-company compensation, whether the financial portion or the remuneration portion, should fall on the consumption segment at least through the 2018/2019 cycle. Only in the following cycle will part of the generators have their TUST reviewed.

So the total compensation amount TR considered and incorporated into SETE version 10.53, released on August 4, 2016, is BRL 9 billion. TR therefore estimates the RAP attributed to the consumption segment will rise from BRL 3.5 billion (2016/2017 cycle) to BRL 13.6 billion starting July 1, 2017, when the TUST's 2017/2018 cycle takes effect. Beyond compensation, that figure already includes expected ordinary investments and the anticipated adjustment portion.

Should users be interested in changing the RAP projections previously used by TR, simply log into SETE and go to "RAP Cost Elements" to adjust the expected RAP variation between TUST cycles.

Regarding tariff impacts, only distribution companies whose anniversary dates fall after July 1, 2017, will feel PTR 120's effects in the 2017 tariff proceeding. The rest will only see it in 2018.

The impact of billing the compensation on the application tariffs of distribution companies with tariff proceedings in the second half of 2017 is an average increase of 7.27 percentage points. In the TUSD, the average impact is an increase of 18.64 percentage points. These percentages represent the isolated effect of billing the compensation in the adjustments and reviews expected for the second half of 2017.

Since there's almost no difference between the TUST's Peak tariff and its Off-Peak tariff, the Peak/Off-Peak (PFP) ratio for the demand tariff, under the Blue modality, should become less representative the higher the voltage level.

It's worth noting that the estimates presented above stem from TR's interpretation of PTR 120 and from conversations with ANEEL staff, who even reported that the regulator itself still lacks clarity on some points of that ordinance. TR therefore suggests users factor in some uncertainty regarding the RAP amount paid by the consumption segment when running their projections.

ANEEL also reported that a public hearing should be opened still in 2016 to discuss the matter and clarify which costs will actually be included in the 2017/2018 cycle's RAP.

TR will keep monitoring the topic, and will keep clients informed of any developments affecting distribution tariffs.

1Eletrosul: BRL 1.0 billion (ANEEL Order No. 2,296/2015); CTEEP: BRL 3.9 billion (DSP 4,036/2015); Furnas: BRL 9.0 billion (DSP 4,042/2015); Celg: BRL 0.2 billion (DSP 1,505/2016); CEEE: BRL 0.8 billion (DSP 1,643/2016); Cemig: BRL 0.9 billion (DSP 2,181/2016).