Hydrological Risk and the Rising CDE
But the pace of tariff increases is expected to slow in the coming months; adjustments should average 12% for the year.
Brazilians' electricity tariffs are expected to rise, on average, by about 12% this year. This average increase, covering all consumption classes and voltage levels, is far more significant than last year's average adjustment of 3.4%. On the other hand, the average impact tends to be significantly lower than what was seen in the first tariff proceedings of this year, which in some cases exceeded 20%. TR Soluções' projection doesn't account for tariff-flag variations and applies to 40 distribution companies, representing approximately 97% of the market.
The main drivers of the tariff increases are costs associated with hydrological risk borne by regulated consumers, mainly related to the deficit left unpaid in 2017, and the increase in the Energy Development Account (CDE). Additionally, for distribution companies undergoing tariff reviews, such as Energisa Mato Grosso, Enel RJ, CPFL Paulista, and Cemig, among others, recognizing new assets in the regulatory remuneration base also weighs on the upward average effect. Finally, compensation for transmission assets installed before 2000 is still affecting some tariff proceedings.
The hydrological risk stems from the fact that, in 2017, hydroelectric plants delivered less energy than contracted. Buying that energy at the short-term market price has been partially covered by the Tariff Flag Centralizing Account (CCRBT). But the amount collected through tariff flags last year wasn't enough to fully cover these costs. To give an idea, as shown in the chart below, in January the account had a deficit of BRL 3.75 billion.
Source: ANEEL
Since distribution companies had to cover the costs associated with hydrological risk and CCRBT funds weren't enough to cover them, ANEEL is recognizing this 2017 liability in 2018 tariffs. This has strongly affected distribution companies with tariff events early this year. But it's important to note that concessionaires going through tariff proceedings in the coming months won't necessarily be subject to such liabilities, since the amount varies depending on tariff-flag activation, secondary energy generation by hydroelectric plants, and the evolution of costs recorded under the CCRBT's responsibility.
As for the CDE, which covers subsidies related to public policies such as the Light for All Program and the social tariff for low-income consumers, the outlook is for a positive average effect of 3.8 percentage points on 2018 tariffs. The increase is due to economic and financial factors. First, the CDE quota allocated to consumers rose 30%, from BRL 9.3 billion in 2017 to BRL 12.2 billion in 2018. There's also the effect of removing a negative financial component from CDE accounts, on the order of BRL 9.00 per MWh, related to the 2017 tariff cycle, which remains in effect until each concessionaire's 2018 tariff event.
The cost of transmission-company compensation, meanwhile, began being passed on to tariffs last year. But for distribution companies whose tariff proceedings run through May, only an estimate of the amount to be charged was passed on in 2017. Now, that figure is being adjusted (upward, in all cases), putting upward pressure on tariff increases early this year.
Medium voltage – Below are the projected average tariff variations for captive consumers in subgroup A4, factoring in the Blue and Green tariff modalities. For consumers under these conditions, an average adjustment of 13.08% is expected for the year. As the chart shows, consumers of RGE Sul and Cemar should see the most significant tariff increases, while companies connected to Amazonas Energia and CEB should see tariff reductions.
In the latter case, which has had difficulty honoring its commitments to the Electric Energy Trading Chamber (CCEE), the projection concerns the distribution company's ordinary tariff event, should it occur on its anniversary date: October 22. There's a chance, however, that an Extraordinary Tariff Review could take place as early as April.
Source: TR Soluções
For consumers already in the free market, the only portion of energy spending that can be predicted is the one tied to using the transmission and distribution grids, plus charges and energy losses, present in the TUSD (Distribution System Usage Tariff). TR's projections indicate that, this year, the TUSD should rise more than 20% for industrial consumers connected at a voltage level above 13.8 kV. In this case, the main driver of the variation is the CDE, present in the portion of the TUSD billed based on energy (BRL/MWh), where there's no time-of-use signaling.
2017 Variation – Last year, the average tariff adjustment was 3.4%. Besides hydrological risk, in that case the increase was driven by passing on to bills the compensation for transmission assets installed before 2000.
But it's important to note that factors specific to each distribution company's conditions also weigh on tariff proceedings, so final results can vary widely. For residential consumers, for example, while the market-weighted average variation for each distribution company was 4.2% in 2017, those served by distribution companies like CEEE and Cepisa saw much more significant increases in their electricity bills, above 25%. On the other hand, bills for residents in CPFL Santa Cruz's and CPFL Paulista's concession areas fell by about 10%, as shown in the figure below.
Source: TR Soluções, based on ANEEL information.