March 7, 2025
BRL 2 Billion Compulsory Loan: Consumer Risk in Light's Tariff Adjustment
Summary
Light's consumers in 2025, following what happened with Copel Distribuição's (Copel-DIS) consumers in 2024, risk becoming the distribution company's creditors without realizing the terms of that loan. No, you didn't read that wrong: facing the prospect of seeing their tariffs drop by an average of 14%, the distribution company petitioned the National Electric Energy Agency (ANEEL) to keep the rates charged over the last 12 months and return the difference to consumers in future tariff proceedings. The concessionaire's argument rests on the same deferral model the regulator authorized for Copel-DIS last year. But the measure ignores how important it is to reduce, even temporarily, energy tariffs in the country, as well as how relevant distribution companies' tariff variations are to shaping the country's inflation.
1. Tariff Swings Over Time
Current tariff regulation, with its financial mechanisms designed to promote the greatest possible neutrality in passing costs on to consumers and to ensure concessions' economic-financial balance, makes tariffs evolve in a way similar to what happens when a stone is thrown into a lake. As physics teaches us, the waves formed in the water carry the energy generated by the stone's impact, forming circles whose strength diminishes as the waves move away from where the stone landed.
This happens because tariff dynamics involve dozens of factors interrelated over time. This movement can also be pictured as a pendulum: if a tariff rises sharply in a given period, there's a good chance it will fall in the next period, and vice versa, as shown in the chart below, covering the evolution of Copel-DIS's tariff variation from 2013 to 2024.
Source: TR Soluções' SETE platform
The intensity of each tariff increase or decrease is tied to its underlying triggers, plus other interferences. The fact is that the more intense a given event, the bigger the tariff waves it produces, which also tend to shrink as they move further from the moment the event occurred.
As a rule, abrupt tariff variations stem from public policies aimed at stopgap solutions for tariff relief, as seen in the following examples:
- the early renewal of generation and transmission concessions in 2012, along with a structural change to the Energy Development Account (CDE), with a multi-billion-real contribution from the National Treasury (Law No. 12,783/2013 – the conversion law for Provisional Measure No. 579/2012);
- after two years of Treasury contributions to the CDE, in 2013 and 2014, the Treasury's failure to contribute in 2015 contributed to all of Brazil's distribution companies needing an extraordinary tariff review in March of that year, resulting in an average increase of 22%;
- the treatment given to compensation owed to Existing Systems Basic Grid transmission concessionaires starting July 1, 2017 (MME Ordinance No. 120/2016);
- the reversal of PIS/COFINS tax credits to consumers (Law No. 14,385/2022);
- and the accelerated payoff of loans related to the Covid Account and the Water Scarcity Account (Provisional Measure No. 1,212/2024).
2. Consumers Acting as Copel-DIS's Creditors
In last year's tariff proceeding, Copel-DIS's consumers should have seen a 3.29% tariff reduction under the tariff-regulation procedures in force at the time.
Given tariffs' pendulum-like behavior, the concessionaire petitioned the regulator in favor of stability, predictability, and smoothing out tariff effects over the 2024-to-2026 period. The goal was to soften the swing's amplitude, taking into account the tariff-variation estimates for the following two years presented to the regulator by the concessionaire itself.
Given this, ANEEL set an additional financial component in the company's tariffs so as to cancel out the reduction expected in that adjustment: since Copel-DIS's tariffs should have been reduced, at the concessionaire's request, the regulator had consumers in Paraná lend BRL 452 million to Copel-DIS.
"50. My proposal, then, would be to include a positive financial component in the current tariff proceeding, a component to be adjusted by the SELIC rate and returned to consumers in future tariff proceedings." (§50 of rapporteur-director Ricardo Lavorato Tili's vote, Proceeding No. 48500.005881/2023-45).
As a result of this loan, instead of a tariff reduction, consumers in Copel-DIS's concession area had their tariffs held unchanged in 2024, in a kind of upfront charge for a possible future cost.
This discretionary logic assumes that consumer units must guarantee, with no set term, a financial cushion for the distribution concessionaire. Under this logic, whenever a tariff reduction is expected, the rates are held steady, and the consumer ends up lending money to the distribution company. On the other hand, in subsequent tariff events, if a tariff increase is expected and there are funds previously lent by the consumer available in the concessionaire's cash reserves, the tariff also won't rise, because at that point the previously lent funds will be used instead.
It could be said that the deferral methodology applied in the Paraná distribution company's tariff proceeding was even more discretionary regarding how the loan was allocated within the tariff. Of the BRL 452 million deferred, BRL 392 million (87%) was allocated exclusively to Copel-DIS's captive consumers, since it was factored into the Electricity Tariff (TE). The remaining BRL 60 million was allocated to energy losses, part of the Distribution System Usage Tariff (TUSD), which affects both captive and free consumers. This allocation criterion changes risk exposure and distorts the economic signals for any eventual migration to the free market or opting into the Electricity Compensation System through distributed generation.
3. Light's 2025 Tariff Adjustment
On March 15, 2025, new tariffs take effect for consumers served by Light. The date has long been seen as a turning point for the concessionaire's costs, due to the end of the supply contract with the Norte Fluminense (NorteFlu) thermal plant in December 2024. In a letter sent to ANEEL in February, the concessionaire itself estimated an average 14% reduction in tariffs for Rio residents.
This is an old bilateral contract, signed because of the 2001 rationing crisis, under the so-called Priority Thermal Power Program (PPT). That program allowed energy contracting between related parties, known at the time as self-dealing — both Light and NorteFlu were controlled by EDF.
This contract represented a significant share of the distribution company's energy-purchasing portfolio. In the 2024 tariff proceeding, for example, it represented just over 21% of the contracted amount, at a price of BRL 417/MWh, while the average economic price ANEEL approved at the time was BRL 283/MWh. So, with this bilateral contract ending, a structural — not temporary — reduction in the average energy-purchasing price, and consequently in Light's tariffs, is expected.
The relief on most Rio residents' electricity bills, however, could be undermined: citing similarity to Copel-DIS's 2024 proceeding, and aiming for supposed "cost predictability," the distribution company requested a positive deferral, such that the 2025 tariff-adjustment index be approved by ANEEL at 0%. In practical terms, that would amount to a loan from consumers to the company of almost BRL 2 billion. And more: with no set repayment term.
3.1. Impacts
If processed as expected, the tariff reduction should benefit both captive and free consumers. That's because of how significant energy losses are to the distribution company's costs — mainly non-technical losses (theft): since they're valued at the average price of energy-purchase contracts, if that price falls, the tariff associated with losses falls too, directly affecting the TUSD, which is also paid by free consumers.
The proceeding should also affect how inflation is measured: the Rio de Janeiro metropolitan region — of which about 75% is served by Light — accounts for about 10% of electricity's weight in the basket that makes up the official inflation index, the IPCA.
In a year when the National Monetary Council's inflation target is 3%, and the expectation is that the country's average tariff variation could exceed the target's ceiling of 4.5%, giving up a structural, long-anticipated tariff reduction raises questions about the reasonableness of this measure, given its impacts on consumers and the country's economy.
4. Deferrals on the TCU's Radar
According to ANEEL, tariff deferrals have been used 51 times since 2017. However, only in the case of Copel-DIS's 2024 adjustment, with ANEEL's consent, was the tool used to temporarily hold tariffs steady, rather than to reduce them.
On June 15, 2022, the Federal Court of Accounts (TCU), through Ruling No. 1,376/2022, expressed concern over the lack of structured planning for public policies aimed at tariff moderation. The ruling notes that, instead of structural measures to reduce energy tariffs, the government has resorted to stopgaps, such as creating loans and deferring adjustments, which end up imposing an additional burden on consumers in the long run, as was the case with the Water Scarcity Account and the Covid Account, among others. Additionally, there's a risk that measures like these could get in the way of new tariff-moderation actions, since many of them create cost commitments for future years.
The TCU also noted that, when using deferral of costs related to electricity distribution service (Portion B) as a tariff-relief mechanism, there's always a risk the measure won't even be applied, because, under business logic, a request to postpone receiving revenue would have to make economic sense. If it doesn't make sense, companies would tend not to request the deferral.
It also stressed that adopting stopgap solutions for tariff relief, such as loans and adjustment deferrals, has only a momentary reducing effect and creates even larger cost commitments for future years, postponing the resolution of the problem.
For this reason, it recommended that ANEEL, whenever carrying out cost-deferral measures for subsequent tariff adjustments, also conduct future-impact and cost-benefit analyses of the postponement, attaching such analyses to the administrative proceedings for the adjustment being deferred, and that the advantages and disadvantages of applying such measures be assessed.
5. Regulating Deferral Requests
Given the precedent Copel-DIS set in 2024, and the expectation of possible new developments in other distribution companies' tariff events, such as Light's still-ongoing 2025 case, ANEEL published Technical Note No. 198/2024-STR1 for discussions related to regulating deferral requests in distribution tariff proceedings.
The main argument Copel-DIS used to justify the positive deferral of its 2024 tariff adjustment was the pursuit of predictability, presenting the 3.29% tariff reduction as a potentially destabilizing element for consumers. In Technical Note No. 198/2024-STR, the regulator highlights aspects of Ruling No. 1,376/2022 that guide the use of the tariff-deferral tool:
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251..." High tariff volatility is undesirable from the consumer's standpoint, as they may lose their ability to plan ahead in order to pay energy bills that are significantly higher than the previous month's, before the adjustment."
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If an annual tariff reduction of 3.29% is considered capable of disrupting consumers' financial planning, what should we say about the erratic impact of Tariff Flags? Based on the average tariffs Copel-DIS charges, applying the Yellow Flag results in a 3.4% increase, while the Red Flag level 1 raises tariffs by 8%, and the Red Flag level 2 by 14.2%. Given this, shouldn't the use of Tariff Flags also be reconsidered in favor of greater predictability for consumers?
Regardless of the technical solution the regulator ultimately adopts, the fact is that, with the precedent set in Copel-DIS's case in 2024, tariff-adjustment event outcomes now carry a degree of discretion never seen before. Given this, it stands to reason that, in events where tariff deferrals are requested, especially when they amount to loans from consumers, society should also be able to weigh in before ANEEL approves the tariffs.
After all, if this trend catches on, consumers will start lending money so the distribution company won't reduce tariffs. That's right, there's no error in that sentence: under the unprecedented arrangement devised by Copel-DIS, and now copied by Light, consumers may end up paying so their electricity bill isn't reduced.
* Paulo Steele is managing partner and Helder Sousa is Director of Regulation at TR Soluções.