Tolmasquim: Energy tariff reduction is permanent

247 – The president of the Energy Research Company (EPE), Mauricio Tolmasquim, criticizes the erroneous predictions of the “prophets of doom” regarding the electricity sector and assures that the tariff reduction promoted by President Dilma Rousseff is permanent:

Prophets of the Apocalypse

Provisional Measure 579, received and converted into law by Congress, provided a structural reduction in energy tariffs.

Two years ago, President Dilma Rousseff promised to reduce energy tariffs. She delivered. Since the end of last year, prophets of doom have been announcing rationing. They were wrong. Now, disguised as videotape analysts, they are shifting their focus and accusing the electricity sector of being disorganized. They are wrong again.

They continue to confuse public opinion—by mixing concepts and data—and distorting reality in an attempt to lend some support to the arguments they formulate. Who benefits from this misinformation?

Provisional Measure 579, received and converted into law by Congress, provided a structural reduction in energy tariffs. This means a permanent drop in tariffs due to consumers appropriating part of the bonus offered by an amortized generating and transmission park, and the removal from the tariff of costs related to public policies (Light for All, subsidies for low-income families).

As economics textbooks teach, such costs should be debated by Parliament and therefore preferably covered by the Union Budget.

This structural drop should not be confused with cyclical cost variations due to rainfall scarcity. Without the provisional measure, the energy tariff would be equally affected by the increased production costs imposed by adverse weather conditions—basically, an increase in thermal generation, a characteristic of a hydro-thermal system like Brazil's.

We would have a tariff impact with detrimental effects, since the adjustments necessary to cover the costs of thermal power plants would be based on a 20% higher base. The normalization of hydrology will restore the operational conditions of the system and reverse the trend of cyclical cost variations.

The former prophets, now analysts, argue that Provisional Measure 579 broke one of the pillars of the model implemented in 2004, whose success, it should be noted, has international recognition. Nothing could be further from the truth.

In fact, starting in 2013, with the decision by the power generators Cesp, Cemig, and Copel not to adhere to the conditions of Provisional Measure 579 and not to participate in the auctions of that year, a portion of the distributors' demand was left uncovered, or, in industry jargon, exposed.

This generated high costs because the uncontracted energy had to be purchased on the short-term market, where prices rose due to the lack of rain. It was a risky gamble. If it weren't for the provisional measure, the level of exposure would have been much higher. After all, other generators also wouldn't have offered their energy in the auctions. In other words, the provisional measure prevented an even greater cost increase!

This entire situation will be normalized next year, when the concessions for the three power plants expire and their respective productions are allocated to the distributors at cost price.

This brings a downward bias to the tariff, contrary to the increase due to exposure and thermal generation. In these situations, the natural solution is to create a "bridge," so that a temporary cost increase can be absorbed without major disruption to society.

The tariff reduction should not be confused with the contributions from the National Treasury and the financing from the pool of banks to the distributors, which aimed to mitigate a strong short-term tariff impact caused by an extraordinary drought.

The prolonged drought was not just another detail, but a key factor in raising production costs. Whether paid all at once or spread over time through loans, the increase in production costs will be passed on to the consumer.
As you can see, contrary to what some would have you believe, Provisional Measure 579 avoided an even higher social cost. Definitely a courageous and correct measure!