Brazil approves new hikes in power rates

Brazil’s electric power watchdog Aneel has approved changes to the power distribution rates of five concessionaires, as well as to the “flag system,” which sets additional costs according to local generation conditions. 

In Minas Gerais state, Cemig-D and Energisa Minas Gerais were granted 8.8% and 16.6% raises, respectively. The former supplies electricity to 8.8mn consumers and the latter 476,000. 

In Paraná state, Copel, which has 5mn consumers in its portfolio, was allowed to make a 4.9% increase. 

The regulatory agency also gave the green light to an increase of 11.0% for Rio Grande do Sul’s RGE Sul Distribuidora de Energia and a 19.2% hike for Energisa Nova Friburgo in Rio de Janeiro state. RGE supplies power to 3mn consumers and Energisa Nova Friburgo 112,000. 

The increases are being made as part of the annual process of updating the rates of each power distribution company to preserve the economic and financial balance of their concession contracts.

According to a BNamericas survey published earlier this month, regulated rates have increased by an average of 11.6% since the beginning of the year. 

TARIFF FLAG SYSTEM

On the same day, Aneel approved the values of the tariff flags for the period between July 2022 and June 2023. 

The green flag, as in previous years, will have no additional cost to the consumer and will serve to signal favorable conditions for power generation. 

The yellow flag will indicate a tariff of 2.989 reais per 100kWh (US$0.58/100kWh) consumed in the month. 

The red flag level 1 rate has been raised to 6.50 reais/100kWh, while the red flag level 2 tariff approved by Aneel is 9.795 reais/100kWh.

The increases in the values reflect the market conditions for energy purchases during the period of water shortages in 2021, the cost of thermal dispatch due to the high cost of fuel and a price correction in accordance with the national consumer price index (IPCA), which ended 2021 at 10.1%.

The tariff flag system indicates generation conditions and costs for power consumers. When conditions are favorable for generation at hydro plants – which produce cheaper energy than thermal plants, Aneel activates the green flag, but when there is lower water availability, the yellow or red flags (level 1 or 2) may be activated, increasing prices.

Because of the extraordinarily high use of thermoelectric plants in 2021, the government also created the water scarcity flag, which signals an extra cost that is even higher than the red flag level 2 rate. 

Nevertheless, the measure failed to cover the costs of the water crisis and the impacts of the COVID-19 pandemic, so regulated prices are expected to continue rising in the coming years as a consequence of using emergency thermoelectric plants and the increase in the energy development account (CDE).