Brazil’s electricity regulator alerts to risk of lack of funds amid water crisis

RIO DE JANEIRO, BRAZIL – A letter sent by ANEEL (Naional Electricity Regulatory Agency) to the Ministry of Economy indicates that the lack of funds for operating expenses in 2022, amid the water crisis, may adversely impact the electricity sector.

“The amount presented – R$147.4 (US$28) million – is lower than what was planned by ANEEL and is insufficient to minimally fulfill our programming,” reads the text signed by ANEEL’s director-general André Pepitone.

The letter was sent to the Ministry of Economy’s Federal Budget Secretary Ariosto Antunes.

Brazil is currently undergoing a water crisis that will be reflected next year. The lack of rainfall has lowered hydroelectric reservoirs to their worst level in 91 years and has forced the government to take measures to avert the risk of energy rationing.

Thermal power plants have been activated, which have a higher cost than hydroelectric plants. This causes consumers to pay more for the electricity they consume. ANEEL therefore adopted measures, such as changing the tariff surcharge system, in an attempt to cover the higher cost of power generation in the coming months.

Experts say that the risk of a blackout will continue next year if the rainy season remains below expectations.

The Ministry of Economy and ANEEL declined to comment on the report about the agency’s budget for next year. Negotiations for next year’s budget began in June. The government has until the end of August to send the bill on federal spending for 2022 to Congress. Therefore, negotiations between both sides will continue in the coming days.

“ANEEL has been striving to rationalize and prioritize its expenditures. However, the restrictions signaled for discretionary spending in 2022 may affect this regulatory agency’s institutional performance,” the letter states.

In the letter, Pepitone cites that without an increase in the budget for next year the agency’s administration and the supervision of electricity services will be impacted.

In conclusion, he urges the Ministry to ensure that “the necessary budget for ANEEL’s discretionary expenses, otherwise there will be a risk of compromising the agency’s activities, with detrimental consequences to the electricity sector.”

The letter does not mention the water crisis or its potential consequences next year.
However, the agency recalls that, when supervising electric energy services, its goal is to instruct agents and consumers as to the fulfillment of obligations, in addition to monitoring compliance with contracts and operating rules for electric energy services and facilities.

ANEEL further stated that it has been seeking to modernize its inspection processes and has plans to include new tools for the analysis and monitoring of works.

If the cost budget of R$147.4 million next year is confirmed, it would be the agency’s lowest since 2017, when the amount reached R$129 million, adjusted for inflation.

After 2017, the level rose to over R$170 million in 2018 and 2019.

But since then it has been dropping. Last year it reached R$156.6 million. In 2021, in values corrected for inflation through July, the budget amounts to R$142 million – therefore, it may exceed the range advocated by the Ministry of Economy for next year.

According to the president of ABRACE (Brazilian Association of Large Industrial Energy and Free Consumers) Paulo Pedrosa, the scenario for the electric sector in 2022 is worrisome.

“Despite all the thermal resources and measures to reduce consumption, we should see very low reservoirs, around 10%, in the coming months, because we are undergoing the worst water crisis ever recorded. Furthermore, the scenario for 2022 is one of economic recovery and, therefore, more consumption,” Pedrosa says.

Therefore, in a below average rainy period, it will be difficult to guarantee energy supply at the lowest possible cost, he says. Through July, energy consumption increased by 7.5% compared to 2019.

With respect to ANEEL’s budget, Pedrosa recalls that the agency has funds collected through an inspection fee paid by energy consumers. Therefore, the request for more funding is understandable.

This is the same argument Pepitone used in the letter to the Ministry of Economy. It is the so-called TFSEE (supervision fee for the electric energy service), calculated based on the financial result of the sector’s concessionaires.

The agency states that the estimated collection of this fee next year is R$902.4 million. According to the document, this is more than enough to cover expenses with personnel and costs in the level argued by ANEEL, which together would reach R$533 million in the year.

The government says that it has been working since 2020 to tackle the current water crisis. In this respect, it has authorized the use of all available thermal power plants, irrespective of the price of energy, and has announced the possibility of commissioning plants currently not under contract and imports.

The Ministry of Mines and Energy is working on a program with industry representatives to encourage companies to change their consumption schedules to periods of lower energy demand.

The measure should be voluntary and aims to prevent production and economic growth from being disrupted.

The government has been trying to dispel concerns about blackouts or rationing. In June, Minister of Mines and Energy Bento Albuquerque made a statement on national TV and urged the population to save energy and water in order to tackle the current situation.

In the most recent estimate, released in July, the government calculated that the increased use of thermoelectric power plants will cost consumers R$13.1 billion this year. In June, this figure stood at R$9 billion.

The billion-dollar expense will be included in the energy tariffs next year. ANEEL is the agency responsible for calculating tariffs.