October 13, 2017
CCRBT Balance and Over-Contracting Pass-Through
This edition of the TR Bulletin presents two topics that can have a significant impact on electricity distribution tariffs, depending on the concessionaire.
The first is the balance of the Tariff Flag Centralizing Account (CCRBT), recalculated every month and settled in each distribution company's tariff event, whether it's in surplus or deficit. At this moment of low GSF and high PLD, the CCRBT's balance has resulted in a multi-billion-real deficit, expected to intensify.
Which month's balance gets factored into tariff proceedings can lead to significant tariff impacts: for distribution companies with tariff proceedings this month, using August's CCRBT balance (instead of July's) could represent a difference of at least 2.1% in tariffs, per TR Soluções' calculations detailed below.
Regarding the over-contracting pass-through, TR warns SETE users about the potential tariff impacts arising from bilateral agreements distribution companies made to get rid of any energy surpluses.
CCRBT Balance
The CCRBT's balance is treated as a financial component in distribution companies' tariff proceedings. This happens regardless of whether the account's balance is positive or negative, so that, in the month following the distribution company's tariff event, its balance with the CCRBT is zero.
In early October, ANEEL made August's CCRBT accounting spreadsheet available. In that month, the total cost tied to hydrological risk alone was BRL 3.14 billion. Revenue from activating tariff flags, about BRL 600 million, combined with revenue from Coner1, of BRL 500 million, wasn't enough to cover the costs the CCRBT was responsible for, whose July 2017 balance already showed a deficit of approximately BRL 400 million.
As a result, August's CCRBT calculation resulted in a negative balance of BRL 2 billion.
Figure 1 – Tariff Flags - Revenue vs. Cost Comparison - 2016 and 2017 (source: ANEEL)
Under the rule ANEEL currently applies, each distribution company's individual balance is settled at its tariff event using the same approach applied to the CVA2. That is, for tariff purposes, the CCRBT balance known up to 30 days before the distribution company's tariff event is used.
Under this rule, distribution companies with tariff events scheduled for October 22 and 23 (CEB, Celg, CPFL Piratininga, and EDP SP) would only have July 2017's CCRBT balance recognized in their tariff, since August's accounting was finalized after September 23.
But given the current hydrology scenario and the expectation that September and October will show even bigger CCRBT deficits, distribution companies are requesting that August's balance already be factored into October's tariff events. Although ANEEL's technical staff is against it, the final decision rests with the Agency's board, which is expected to discuss the matter at its next ordinary meeting, scheduled for October 17.
Based on the above, TR Soluções carried out an exercise to identify the impact, on the tariffs of distribution companies with a tariff event happening in October, of a board decision to use August's CCRBT balance instead of July 2017's.
TR Soluções has spent the last two months developing a tool that will let SETE users project the CCRBT balance to be factored into tariff proceedings over a six-year horizon. This is a fairly complex calculation involving projecting crucial assumptions, such as the PLD, CMO, ESS, plus which flag color gets activated and its respective future values. TR expects to make the tool available in SETE by the end of October.
Over-Contracting Pass-Through
Regarding any distribution company's energy balance, purchasing enough energy to serve 100% of its market (required energy) is treated as an economic cost. This is the regulatory purchase.
It turns out that, for tariff-setting purposes, surpluses of up to 5% above required energy are also factored in, plus involuntary surpluses. This amount, 5% plus involuntary surpluses, is settled at the PLD, with its revenue (when PLD exceeds the average energy-purchasing tariff, Pmix) or its cost (when PLD is below Pmix) recognized in the following year's tariff as a financial cost, negative or positive. This tariff-level recognition is called the "over-contracting pass-through"3.
Under the current scenario, where the PLD is quite high, significant swings in over-contracting volumes can have considerable tariff impacts.
The most recent example of this effect can be seen in the projections for Eletropaulo's tariff event expected for July 2018. That's because, in the new SETE version, 12.38, going live next Monday, October 16, TR removes about 960 average MW from the distribution company's energy balance, due to bilateral agreements Eletropaulo made and that TR consolidated from ANEEL's spreadsheets.
On September 4, TR formally requested that ANEEL make available information on all bilateral agreements already signed by distribution companies. On the 25th of the same month, ANEEL responded saying such information should be requested from the CCEE. After opening a support ticket with the Chamber and two phone calls, TR was informed that, although the data had initially been treated as confidential, the body's legal department had reassessed the case and approved releasing the information. However, it could take some time for that to happen. As of today, there's no news of the bilateral agreements being released.
Based on ANEEL's SPARTAS spreadsheets and some inferences, TR was able to compile the survey shown in Figure 2 from various bilateral agreements. This information will be available in the next SETE version.
Figure 2 – Consolidation of Bilateral Agreements to Be Factored Into SETE Version 12.38
Returning to the Eletropaulo example, by removing 960 average MW of surpluses that would be settled at a PLD considerably higher than the Pmix, the revenue from that settlement, which would have reduced the company's 2018 energy tariff, no longer exists. The result between SETE version 12.37 (with 960 average MW of surplus) and version 12.38 (without the 960 average MW) is an increase of about BRL 40/MWh in the application tariff, a figure fully explained by removing the financial component tied to the over-contracting pass-through. There's no change in the economic energy tariff.
We could say Eletropaulo's over-contracting pass-through is an exception, given the size of the surplus amount involved. However, regardless of the volumes distribution companies negotiated bilaterally, TR was only able to consolidate the data summarized in Figure 2. It's possible other distribution companies have also negotiated significant volumes of energy surpluses, which could have knock-on effects on future tariff proceedings.
For this reason, TR takes this opportunity to appeal to SETE users to pressure the CCEE to publish these bilateral agreements. As soon as that happens, TR will update SETE's database so users have even more reliable projections at their disposal.
1Reserve Energy Account.
2Compensation Account for Variation in Portion A Item Values.