December 21, 2018
Possible Effects of the End of CDE-Energia Billing
In this edition, the TR Bulletin presents a general overview and the possible effects arising from the end of billing for the Energy Development Account - Energy (CDE-Energia). This is a component billed in regulated consumers' Electricity Tariff (TE) that pays for loans distribution companies took out between 2013 and 2014 to cover costs arising from their short-term market exposure, plant dispatch for energy-security reasons, the System Service Charge's (ESS) CVA, and the Energy CVA, among others. TR Soluções expects this move to result in a reduction in the average CDE-Energia tariff, from the current BRL 39.22/MWh to about BRL 8.04/MWh in 2019. This projection considers the tariffs of the 38 distribution companies TR tracks.
A Brief History of CDE-Energia
After implementing provisions from Provisional Measure No. 579/2012, through an extraordinary tariff review ANEEL approved on January 24, 2013, most distribution concessionaires faced cash problems. This happened because these companies became decontracted1 and faced extraordinary expenses tied to energy from availability-modality contracts.
So distribution companies could honor these commitments, the government published Decree No. 7,945, of March 7, 2013, which allowed CDE2 funds to be passed on to concessionaires. That year, a total of BRL 11.13 billion was transferred to distribution companies.
Additionally, given also-unfavorable hydrology the following year, the government published a new decree, No. 8,221, of April 1, 2014, which created the Regulated Contracting Environment Account (ACR Account). There were three credit operations, with a total of BRL 21.2 billion transferred to distribution companies, at 2014 values.
The sum of these two loan modalities was called CDE-Energia, and started being billed in the Electricity Tariff on March 2, 2015. Between 2016 and 2018, CDE-Energia billed to regulated consumers averaged around BRL 40/MWh.
End of Payment for the CDE Liability – Decree No. 7,945/2013
Per Technical Note No. 243/2018-SGT-SRG-SFF/ANEEL, payments toward the liability tied to Decree No. 7,945 are scheduled through March 2019.
It's worth remembering that this loan's annual repayment generated extraordinary revenue of about BRL 3 billion per year for the CDE. Once this liability is paid off, the CDE will no longer have this revenue, resulting in an increase in the CDE-Usage quota paid by all consumers, free and regulated.
In practice, then, the regulated consumer will see a reduction in the TE because the loan has been paid off. However, since part of this payment had been treated as CDE revenue, they'll also see an increase in the TUSD, though not in the same proportion. That's because, when billed in the TUSD (as an increase in the CDE-Usage quota), the cost is also shared among free consumers.
Using tariff figures in effect as of December 2018 as a reference, the CDE-Energia component tied to the loan is BRL 12.57/MWh. Once paid off, the TE should be reduced by 4.85%. On the other hand, the roughly BRL 3 billion per year reduction in CDE revenue should raise the TUSD by 3.57%.
Possible Early Payoff of the ACR Account – Decree No. 8,221/2014
Beyond the principal loan amount of BRL 21.2 billion and interest on the order of BRL 13 billion, the ACR Account included a markup, a kind of guarantee. So, under the Credit Facility Agreement, a Reserve Account was set up to maintain operational security, with a minimum balance equivalent to three installments starting 10/15/15, four starting 10/15/17, and five starting 10/15/2018.
The CCEE's accounting report on the ACR Account's debt position3 as of November 30, 2018, indicates that the current Debt Balance is BRL 10.6 billion. It also shows the Reserve Account has a balance of BRL 4.6 billion.
The proposal ANEEL's director-general, André Pepitone, presented to the press in November4 is that, once the Debt Balance equals the amount held in the Reserve Account, the latter will be used to pay off the debt, which is being called early payoff. By ANEEL's and the CCEE's calculations, that would happen by the end of the third quarter of 2019, that is, in September of next year.
Should the lending banks not accept the regulator's proposal, the debt would only be paid off in March 2020. Only then would the amount held in the Reserve Account be returned to consumers. It's important to note that even ANEEL doesn't know how the return of funds in the Reserve Account would be operationalized, whether all at once or in installments. What is known is that the amount would be allocated among distribution companies proportionally to the size of their captive markets in the February-to-December 2014 period.
TR Soluções considers the early-payoff scenario the most likely, since unofficial information suggests that, at the last meeting between the CCEE and the lending banks, ANEEL's proposal was well received, indicating a trend toward the early payoff actually being implemented.
SETE version 12.65, available since December 21, 2018, factors in both the schedule for ending payments toward the liability under Decree No. 7,945/2013 and the possible early payoff of the ACR Account. As indicated above, the effect of these two moves on the tariffs of the 38 distribution companies TR tracks should be that the average CDE-Energia tariff moves from the current BRL 39.15/MWh to about BRL 8.04/MWh in 2019. In 2020 tariff events, the CDE-Energia tariff will cease to exist or, depending on the company, will represent a very low financial cost, with negligible tariff impact.
Possible Early Payoff of the ACR Account – Decree No. 8,221/2014
Beyond the principal loan amount of BRL 21.2 billion and interest on the order of BRL 13 billion, the ACR Account included a markup, a kind of guarantee. So, under the Credit Facility Agreement, a Reserve Account was set up to maintain operational security, with a minimum balance equivalent to three installments starting 10/15/15, four starting 10/15/17, and five starting 10/15/2018.
The CCEE's accounting report on the ACR Account's debt position3 as of November 30, 2018, indicates that the current Debt Balance is BRL 10.6 billion. It also shows the Reserve Account has a balance of BRL 4.6 billion.
The proposal ANEEL's director-general, André Pepitone, presented to the press in November4 is that, once the Debt Balance equals the amount held in the Reserve Account, the latter will be used to pay off the debt, which is being called early payoff. By ANEEL's and the CCEE's calculations, that would happen by the end of the third quarter of 2019, that is, in September of next year.
Should the lending banks not accept the regulator's proposal, the debt would only be paid off in March 2020. Only then would the amount held in the Reserve Account be returned to consumers. It's important to note that even ANEEL doesn't know how the return of funds in the Reserve Account would be operationalized, whether all at once or in installments. What is known is that the amount would be allocated among distribution companies proportionally to the size of their captive markets in the February-to-December 2014 period.
TR Soluções considers the early-payoff scenario the most likely, since unofficial information suggests that, at the last meeting between the CCEE and the lending banks, ANEEL's proposal was well received, indicating a trend toward the early payoff actually being implemented.
SETE version 12.65, available since December 21, 2018, factors in both the schedule for ending payments toward the liability under Decree No. 7,945/2013 and the possible early payoff of the ACR Account. As indicated above, the effect of these two moves on the tariffs of the 38 distribution companies TR tracks should be that the average CDE-Energia tariff moves from the current BRL 39.15/MWh to about BRL 8.04/MWh in 2019. In 2020 tariff events, the CDE-Energia tariff will cease to exist or, depending on the company, will represent a very low financial cost, with negligible tariff impact.
1 Distribution companies became decontracted for two main reasons. The first was the government's failure to hold the A-1 regulated energy-replacement auction in 2012. Tied to that, the second reason is that the generators Cemig, Copel, and Cesp didn't opt into the early renewal of their generation concession contracts under MP 579.
2 CDE: Covers public subsidy policies, such as the Social Electricity Tariff, the Light for All Program, the Fuel Consumption Account, Incentivized Sources, among others. The CDE contains expenses (all subsidies) and revenue, including the CDE-Usage quota, the sectoral charge billed in the Distribution System Usage Tariff (TUSD).
3 Source: https://www.ccee.org.br
4 Source: https://economia.estadao.com.br