Tariff Impacts

Since late 2016, but more frequently since early 2017, the media has been reporting that this compensation should affect tariff adjustments throughout the year, with increases averaging 8% to 9%¹.

Given the scale of the amounts involved, debate over the compensation has focused on agents' positions regarding how the regulator, ANEEL, is implementing MME Ordinance No. 120². There's also a possibility agents could challenge the ordinance's legality in court. Once the exact amounts are set, they'll start being paid by distribution agents as soon as the new transmission tariffs are approved, which take effect starting July 1 each year. That means only distribution companies with tariff proceedings in the second half of the year would feel, still in 2017, the impact of the compensation payments beginning.

It turns out that, in one item of the proposed regulation for calculating tariffs for distribution companies whose concessions were renewed or that signed an amendment, ANEEL Public Hearing No. 058/2016 (AP 58), the regulator proposes provisionally setting, as cost projections in exceptional situations, economic values that could be published over the course of the next tariff period. This measure would advance revenue to distribution companies, which would prevent cash-flow imbalances from forming. Distribution companies' cash-flow imbalances are inevitably, at some point, passed on to consumer units or taxpayers. These imbalances, in turn, are adjusted monetarily by the Selic rate.

Although the exact amount of the compensation is still under discussion in Public Hearing No. 068/2016, ANEEL has signaled, in early-2017 tariff events, that the regulator's expectations of exceptional increases for the cost element tied to energy transmission will be taken into account.

It's important to note that the proposal to advance exceptional costs, as is the case with transmission compensation, applies only to distribution agents whose concessions were renewed or those that amend their concession contracts. The distribution companies with tariff events scheduled for the first half of the year that haven't yet amended their contracts are: RGE Sul, Cosern, CPFL Paulista, ESE, RGE, Coelce, Caiuá, CFLO, CNEE, Copel, EDEVP, EMG, Celpe, and EBO (Energisa Borborema).

TR Soluções found no evidence that EBO has amended or renewed its concession; however, as described in the rapporteur's vote, at a meeting held on 1/26/2017, the distribution company requested that the revenue advance associated with transmission compensation be included in the ongoing tariff review. This matter was reviewed by ANEEL's Board of Directors, which granted the distribution company's request³.

In effect starting February 4, EBO's electricity tariffs already factor in the exceptional increases expected by the regulator for the transmission system. Had these exceptional costs not been factored in, the tariff would have seen an average reduction of 2.37%⁴, instead of the 0.43% increase that was approved.

Advancing exceptional costs affects both the 2017 and 2018 tariff events. As a simulation exercise, two basic cases were calculated for the 2017 and 2018 tariff repositioning for consumer units connected at medium voltage (A4). The first case assumes that, for all distribution companies with a tariff event in the first half of the year, advances of exceptional costs associated with transmission compensation payments would be factored in. The second case doesn't factor in this possible new regulatory practice.

In the first case, TR Soluções estimates the average effect felt by consumers in 2017 tariff events would be -1.56%⁵. For 2018, an average repositioning of around +9.24% is expected.

Although the average figures give an idea of how the group of distribution companies as a whole will behave, they're not at all effective at describing how tariffs will actually evolve at each concessionaire, as shown in Figure 1.

For 2018, even though the average adjustment is higher, at +9.24%, the gap between the highest and lowest repositioning is much smaller, ranging between -3% and +15%.