Continuity Indicators - Aneel

INSIDE THE
ELECTRIC BILL
PUBLIC UTILITY INFORMATION

INSIDE THE
ELECTRIC BILL
PUBLIC UTILITY INFORMATION

National Electric Energy Agency - Brazil
Board of Directors
Jerson Kelman
general-director
Edvaldo Alves de Santana
Joísa Campanher Dutra Saraiva
José Guilherme Silva Menezes Senna
Romeu Donizete Rufino
directors

N A T I O N A L E L E C T R I C E N E R G Y A G E N C Y
INSIDE THE
ELECTRIC BILL
PUBLIC UTILITY INFORMATION
Brasília
September 2008

NATIONAL ELECTRIC ENERGY AGENCY - BRAZIL
Address: SGAN 603 Módulos “I” e “J” - Brasília - DF
Zip Code 70830-030
Telephone: 55 (61) 2192-8600
Ombudsman: 144
E-mail: institucional@aneel.gov.br
Home-page: http://www.aneel.gov.br
Edition
Gabriela Leal
Writing
Daniel Martins D'albuquerque
Gabriela Leal
Simonne Rose de Souza Neiva Coelho
Revision
Salete Cangussu
Art Project and Layout
Christian Dantas
Translation
Arabera Traduções Técnicas Ltda.
Revision in English – Superintendency of Economic Regulation
Bruno Hatori Vidal
Cataloging in Publication Data - CIP
B827i Brazilian Electricity Regulatory Agency.
Inside the electric bill : public utility information / Brazilian
Electricity Regulatory Agency. Brasília: ANEEL, 2008.
32 p. : il.
CEDOC
1. Electric bill Brazil. 2. Electric tariff. 3. Tariff charge. 4. Public
service. I. Title.
UDC 621.31:330.567.2(81)

Inform consumers, companies, authorities and society in general about the
policies and regulations of the electric sector, as a form of reducing asymmetry of
information between utilities and users, is one of the Brazilian Electricity Regulatory
Agency (ANEEL)'s guidelines.
Conscientious of the importance of that task, ANEEL faces the challenge of
explaining one of its most complex attributions: set an energy tariff that is, at the
same time, fair for the consumer and enough to guarantee the utility's economicfinancial
balance.
Translate the puzzling mechanism of tariff composition and readjustment, in a
simple, direct manner, is ANEEL's objective upon launching the primer “Inside the
Electric Bill”. Through this guide, several factors are presented that influence the
value of the electricity bill, concerning the impacts of peculiarities existing in the
service territory of each company.
ANEEL intends to, with this information, show the role and the limitation of the
regulatory comission in this process. In the endless search for balance between
defining the fair price for those who pay for energy and an adequate remuneration for
those who provide services, with the security of continuous, reliable and good quality
supply, ANEEL fulfills legal decisions that outreach its decision competency. One of
these decisions is the strong incidence of sector charges and tributes in the energy
cost, with great impact on the tariff.
With this initiative, this Agency presents the electricity tariff's “anatomy” that,
despite having some specifications, according to the region and the distribution
utility's profile, present, in their calculation, the same methodology.
We wish you good reading!
INSIDE THE
ELECTRIC BILL
PRESENTATION

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HOW DOES THE BRAZILIAN ELECTRIC SECTOR
WORK AND HOW DOES ANEEL PERFORM?
The multiplicity of applications and the mainly in the North region, which main
convenience of usage of electricity became characteristics are the limitation of energy
an essential resource for man's survival and exchange and thermoelectric generation.
essential for the nations' socio-economic
development. In Brazil, the generation of
electricity by the use of the strength of river The main sector agents are the
waters (hydroelectric generation) answers, generators, which produce energy; the
currently, for 75% of the total capacity transmission companies, responsible for
installed in the country. transporting energy from the point of
generation to the consumer centers; the
The country's electric systems is made distribution companies, which take the
up by the National Interconnected System energy to the consumer's house, and those
(SIN – Sistema Interligado Nacional) – a who commercialize it, authorized to buy and
large transmission network that allows the sell energy to free consumers, or in other
exchange of energy between the regions of words, those who need more than three
Brazil – and by the Isolated Systems, located thousand kilowatts (3 thousand kW).
TRANSMISSION
GENERATION
INSIDE THE
ELECTRIC BILL
DISTRIBUTION
COMMERCIALIZATION
In the past years, the Brazilian electric areas of generation, transmission and
sector suffered several transformations. It commercialization of energy, demanded
migrated from the state monopoly to a from the State designing the adequate
competitive market, with the entrance of new structure. For this reason, in 1997, was
agents in the control of energy distribution created a sector regulating agency – the
companies and new investors, a role Brazilian Electricity Regulatory Agency
exercised previously by the State. (ANEEL) – autarchy in special regime,
linked to the Ministry of Mines and Energy
The complexity of the new model with (MME).
the introduction of different agents also in the
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ANEEL's Mission
Provide favorable conditions for the electricity market to develop between the
agents and in benefit of society.
Consumers
Tariff
inexpensivenees
Quality of service
Garantee of rights
Government
Strategic
Interests
Balance
Public Interest
Regulated
Agents
Adequate Agents
Contracts honored
Clear rules
ANEEL has as basic functions to The new model preserved ANEEL and
normalize the policies and the guidelines the National Electric System Operator
established by the Federal Government for (ONS), responsible for coordinating and
the electric sector, inspect service rendering supervising the centralized operation of the
to society and diminish eventual conflicts that Brazilian interconnected system. It also
may arise among different sector players. It created new actors, such as the Energetic
also falls to ANEEL the function of granting the Research Company (EPE), linked to MME,
right of exploring services, an activity whose function is to carry out studies
delegated by the Ministry of Mines and Energy necessary for the planning of the expansion
(MME). of the electric system; and the Chamber of
Electricity Commercialization (CCEE), for
In 2004, the Federal Government decided
to implement the “New Electric Sector Model”,
through Laws n° 10.847 and 10.848, keeping
negotiation of energy on the free market.
the formulation of policies for the electric Finally, to supervise service conditions
sector as an attribution of the Executive and suggest actions to avoid the lack of
Power, through MME, with consultancy by the energy, it instituted the Electric Sector
National Council of Energetic Policy (CNPE) Monitoring Committee (CMSE), also linked to
and the National Congress.
MME.

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WHY IS THE ENERGY TARIFF DIFFERENT IN
EACH STATE?
Between the 1970s and 1990s, there was for inflation control – the minimum
just one electricity tariff in all of Brazil. The remuneration planned for the distribution utility
consumers from various states paid the same wasn't reached, generating a vicious cycle,
value for energy consumed. This value with breech between distributors and
guaranteed the remuneration of the generators and lack of economic-financial
distributions utilities, despite their efficiency, capacity for carrying out new investments. In
and the companies that didn't profit were this context, Law n° 8.631/1993 arose, though
maintained by those that did and by the Federal which the tariff became set for each
Government. distribution utility, according to the specific
characteristics of each utility's service territory.
This tariff modality did not encourage the
companies to be efficient, because the entire And, in 1995, Law n° 8.987 was approved
cost was paid by the consumer. For several which guaranteed the economic-financial
regions – among them the contention of tariffs balance to the utilities of electricity distribution.
Editing of Law 8.631/93
which put an end
to tariff uniformizing and to
guaranteed remuneration.
INSIDE THE
ELECTRIC BILL
Introduction of the
economic-financial
balance concept
(Law 8.987/95).
Since then, one tariff per concession This way, the energy tariffs reflect
area (geographic territory where each peculiarities of each region, such as number
company is obligated by contract to supply of consumers. kilometers of network and
electricity) was established. If this area market size (quantity of energy served by a
coincides with that of one state, the tariff is determined infrastructure), compared
one in the federative unit. Else, different energy cost, state tributes and others.
tariffs co-exist within the same state.
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IT IS IDEAL THAT THE TARIFF BE ENOUGH TO:
Guarantee the supplying of energy with quality
Guarantee service renderers sufficient profits to cover
the efficient operational costs and remunerate
investments necessary to expand the capacity and
guarantee good serve quality
WHAT ELSE IS INLAID IN THE COST OF ENERGY
THAT REACHES THE CONSUMERS?
It is the distribution utility's obligation to take should be covered by the energy tariff. In
electricity to its consumers. To fulfill this general, the electric bill includes the
commitment, the company has costs that indemnification of three distinct costs:
energy
generation
energy transportation to
the houses (wires)
transmission + distribution
+ +
charges
and taxes

R$ 40,00
R$ 35,00
R$ 30,00
R$ 25,00
R$ 20,00
R$ 15,00
R$ 10,00
R$ 5,00
R$ 0,00
How much is paid per component on an
electric bill of R$100.00 (average/Brazil 2006)
R$ 33,27
R$ 5,96
R$ 27,50
R$ 33,27
Source: Economic Regulation Department (SRE) ANEEL 07/2007
INSIDE THE
ELECTRIC BILL
Starting with Law n° 10.848/2004, the Additionally to these costs, there are
value of energy generation bought by the charges and taxes (related in the next item),
distributors to resell to their consumers which are not created by ANEEL, but by
began to be determined in public auctions. laws. Some of them are included only on the
Before this law, the distribution companies distribution cost, while others are included
could freely buy energy to be resold, with a in the generation and transmission costs.
price limit set by ANEEL. The objective of the
auctions is to guarantee competition and
best prices, besides the transparency in the When the electric bill arrives to the
cost of energy purchase,. consumer, he pays for buying energy
(remuneration of the generator), the
The transportation of energy, from the transmission (the transmitting company's
generation point to the final consumer, is a costs) and the distribution (services
natural monopoly, for the competition in the rendered by the distributors), plus the
segment doesn't bring economic benefits. charges and taxes determined by law,
For this reason, ANEEL performs for the destined to the government. If we consider
tariffs of this segment to be composed just by the component “charges and tributes” apart,
the costs that effectively relate to the in 2006, the costs were R$8.54 and
services rendered, in a manner to make R$24.73, respectively, summing R$33.27
them fair. for this component.
Purchase of Energy
Transmission
Distribution (Component B)
Charges and Taxes
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TO FIND OUT MORE
Even if the consumer doesn't use electricity or a determined
period, when he travels, for example, the distributor charges a minimum
value on the bill. This takes place because the company has to maintain its
electric system and its service structure in perfect functioning for the
consumer to be able to use energy at the moment he wants. Or in other
words, even if the switch is not one, the entire electric network should be
maintained in a stand-by to serve the consumer unit. This is the so-called
availability cost, present in the applicable tariffs for billing the served
consumer units in low supply tension.
ANEEL Order 456/2000 established the minimum values for each profile of
residential consumer. For the mono-phase* and bi-phase units with two
conducers, the minimum chargeable value 30 kWh, even if there is no
consumption. For bi-phase units*, the minimum charge will be equivalent
to 50 kWh, and for tri-phase * units the value will correspond to 100 kWh.
For this value to not be charged, the consumer has the option of requesting
that the distribution utility cut his consumer unit from the distribution
network. However, when they decide to reestablish the energy
consumption, they will have to pay a fee for the execution of reconnecting
to the network.
*The mono-phase consumer unit is connected to the electricity network by one phase (where
the energy runs) and one neutral (to close the circuit), or in other words, two conducers. The
bi-phase connection is done through two phases and one neutron (three conducers), while
the tri-phase is connected by three phases and one neutral (four conducers). The number of
phases should increase the greater the load is (demand and consumption) of the consumer
unit to guarantee more quality and safety in the energy supply. For example, in a house where
there are few household appliances and the energy consumption is small, the consumer unit
will be mono-phase. If new electric equipment is installed, an energy overload may happen
and, in this example, the first sign that the consumer should reinforce installation and change
to a bi-phase is the constant activation of the breaker.
Phase
Phase
Phase
Phase
Neutral
Neutral
Phase
Phase
Neutral
Monophase
Quarter phase
Tri phase

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WHAT ARE TE SECTOR CHARGES AND WHAT
ARE THEY FOR?
They are contributions defined in laws Check on the table below the value of
approved by the National Congress, used for sector charges paid by consumers in 2006.
specific purposes.
* updated until 06/11/2007
** 2006/2007 Cycle
INSIDE THE
ELECTRIC BILL
Charge What it is for
How much was
collected in 2007 in
sector charges
(R$ Million)
CCC
Fuel Consumption Bill
Subsidy the thermal generation mainly in the
Northern region (Isolated Systems)
2,870.6
RGR
Global Reversal Reserve
Refund assets connected to the utility and
promote the electric sector expansion
1,327.7*
TFSEE - Electric Energy
Service Inspection Fee
Provide resources for ANEEL's functioning
Provide the energetic development from
324.97
CDE
Energetic Development Account
alternative sources; promote energy service
universalization, and subsidize the Low
Income residential sub-class
2,313.1
ESS
System Service Charges
Subsidize the maintenance of reliability
and stability of the National
Interconnected Electric System
85.9
PROINFA Subsidy the alterative Energy sources 637.7
P&D – Research and Promote scientific and technological researches
Development and Energetic related to electricity and the sustainable use of 331.9**
Efficiency
Natural resources
ONS
System’s National Operator
Provide resources for the functioning of the
ONS
10.7
CFURH
Compensate financially the use of water and
Financial compensation for the productive lands for the electricity
1,232.74
use of Water resources
generation
Itaipu Royalties
Pay for the energy generated according to the
Brazil/Paraguay Treaty
414.26
The electric system charges should cost approximately R$ 9.5 billion in 2007
Source: Economic Regulation Department (SRE) ANEEL 07/2007
Observe that each charge determined impact the tariff, and, consequently, the
by law is justifiable, if assessed individually. consumer's payment capacity.
However, when considered in a group, they
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WHAT ARE Taxes AND WHAT ARE THEY FOR?
They are compulsory payments due to On electric bills, municipal, state and
the government, coming from a legal federal taxes are present. The distributors
determination, which guaranteed resources just collect and pass on these taxes to the
to develop its activities. In Brazil, the tributes competent authorities for their charging.
are embedded in the prices of products and ANEEL publishes, through a resolution,
services. This means that on water, electric the value of the energy tariff, not including
and phone bills, in the purchase of food the taxes, by consumer class (residential,
products and goods and in the contracting of commercial, industrial, etc.). Based on
several services, the consumers pay these values, the energy distributors
tributes, at a later date passed on to the include the taxes (PIS, COFINS, ICMS and
public accounts by the companies that CIP) and emit the electric bills that the
collect them. consumers pay.
$
TAXES LAID ON THE ELECTRIC SECTOR
FEDERAL Taxes
Social Integration Programs (PIS) and Contribution to the Social Security
Financing (COFINS): charged by the Union to maintain programs aimed at the worker
and to serve the Federal Government's social programs. The application of these taxes
was recently altered, with elevation in the value of the electric bill. With the issuance of
Law n° 10.637/2002, 10.833/2003 and 10.865/2004, PIS and COFINS had their rates
altered to 1.65% and 7.6%, respectively, in a non accumulative manner. This way, the
average rate of these taxes varies with the volume of credits verified monthly by the
distribution utilities and with the PIS and COFINS paid on the costs and expenses during
the same period, such as energy purchased for resale to the consumer. The table on the
next page shows the two calculation systems.
STATE TAXES
- Tax on Circulation of Merchandise and Services (ICMS): foreseen in article 155 of
the 1988 Federal Constitution, this tax lays on the operations related to the circulation of
merchandise and services and is the competency of the State governments and the
Federal District. The ICMS is regulated by each state's tributary code, or in other words,
established in law by the legislative houses. Thus they may vary. The distribution utility
has the obligation to carry out the charging of the ICMS directly on the bill and pass them
on entirely to the State Government. Its calculation is also done based on gross revenue,
as the demonstration below.

- +
X
-
Previous System (cumulative) Current System (not cumulative)
Aliquots
Aliquots
PIS - 0 .65%
PIS - 1.65%
COFINS - 3.00%
COFINS - 7.60%
Example - cumulative
Example - not cumulative
Gross Profit R$ 10,00.00 Gross Profit
R$ 10,00.00
PIS R$ 65.00 PIS
R$ 165.00
COFINS R$ 300.00 COFINS
R$ 760.00
PIS/COFINS to pay R$ 365.00 1-PIS/COFINS to debit R$ 925.00
Costs and/or Expenses
2-PIS/COFINS to credit
(incident on costs and
expenses)
PIS/COFINS to pay (1-2)
Effective or average”
Effective or average”
Aliquot
3.65%
Aliquot
The PIS and COFINS are calculated based on gross revenue, or in other words,
the taxes themselves are part of the calculation base.
Method OF CALCULATION
MUNICIPAL TAXES
R$ 4,000.00
R$370.00
R$555.00
5.55%
The gross revenue base of the ICMS, PIS The distribution utility, receiving the
and COFINS tributes is established by values charges on the electric bills,
corresponding federal laws and implies that discriminates the taxes to be collected to the
the value of these tributes integrate the Union the component referring to the PIS
calculation base on which lays on its and COFINS, and to transfer to the States,
respective rates. according to the corresponding state laws,
the part equivalent to the ICMS.
Value to be charged
from the consumer
=
INSIDE THE
ELECTRIC BILL
value of the tariff published by ANEEL
1 - (PIS + COFINS + ICMS)
- Contribution for Financing the Public Lighting Service (CIP): foreseen in article
149-A of the 1988 Federal Constitution which establishes, among the municipalities'
competencies, to regulate, according to the specific law approved by the Municipal
Chamber, the form of charging and the CIP calculation base. Thus, any and all
responsibilities for project, implementation, expansion, operation and maintenance of
public lighting installation services are attributed to the Municipal Public government. In
this case, the distribution utility just collects the public lighting fee for the municipality.
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R$/MWh
350
300
250
200
150
100
50
0
R$ 8,05 (5,22%)
AVERAGE TARIFF BRAZIL
R$ 154,05 / MWh
(100%)
R$ 48,66
(31,58%)
R$ 47,69
(30,95%)
R$ 49,65
(32,23%)
108,11%
125,34%
103,94%
2001 2006
R$ 304,37 / MWh
R$ 101,27
(33,27%)
R$ 83,70
(27,50%)
R$ 18,14 (5,96%)
R$ 101,26
(33,27%)
Generation Transmission Distribution Charges + Taxes
In the graphic above it can be observed represents just 5.96% of the electric bill
that, since 2001, the value of the value and that these investments are
transmission cost was the item that grew the essential for allowing the flow of energy
most in the electric energy market between regions in the periods of lack of
(125.34%). This increase happened due to rain. The second segment which grew the
heavy investments made in the tranmission most (108.11%) was charges and taxes
grid, (high tensions) to allow the flow of which represent more than 33.27% of the
energy between the different regions of the electric bill value, being, therefore, the
country, in the intention of increasing the greatest impact item, after generation. The
reliability of the national electric system distribution (75.5%) and the energy
concerning the availability of water in the purchase (103.94%) had the lowest growth.
reservoirs of the hydroelectric plant. Even though, this increase was higher than
inflation for the period (page 24), for
However, it is pointed out that this item reasons that will be explained later.
97,6%
75,5%
Source: SRE ANEEL 07/2007

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HOW IS THE ENERGY TARIFF VALUE DEFINED?
The electricity distribution utility signed In this contract the rules are set for
with the Union (Granting Power), since electricity distribution service rendering and
1995, a “concession contract”, which is a three tariff settlement mechanisms are
public document and available on the foreseen.
Agency's Internet page (www.aneel.gov.br).
Tariff
Review
Tariff
Readjustment
INSIDE THE
ELECTRIC BILL
Extraordinary
Tariff Review
THESE MECHANISMS ARE APPLIED TO:
Allow the energy tariff to be fair to consumers
Define a tariff sufficient enough to cover the service costs
with the quality level established by ANEEL
Remunerate the investments acknowledged as prudents
Encourage the increase of efficiency and the quality
of services rendered by the distribution utilities
Guarantee service covering the market without
geographic or income distinction
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To understand how these mechanisms are applied to maintain the distribution leasers'
economic-financial balance, follow the reasoning below:0
Imagine you are the manager of a value that, added to that paid by the
condominium who needs to determine others, will compose revenue capable
the monthly value to be paid by the of covering condominium expenses,
residents. You will pay the costs with c o n s t r u c t i o n p r o j e c t s a n d
water and taxes, which, actually, are investments.
just divided among the residents. To a certain extent, this also applies to
There will also be other costs, such as the Regulatory Agency in the definition
staff payments, cleaning products and of the energy tariff. ANEEL, following
construction projects, which can be to utility contracts dispositions, set
controlled to spend more or less, values that, added up, represent
according to the condominium's need. revenue sufficient for the distribution
Thus, you will have to apply the utility to cover its efficient costs and
dispositions of the condominium make prudent investments for the
decree to collect, from each resident, a maintenance of service quality.
The revenue required by the company, called “distribution service revenue”, can be divided in
two large set for passing on costs:
Component A: uncontrollable costs that are just passed on to
the energy tariff and are independent from the distribution company's
management (in the example of the condominium, the costs of water
and taxes, which the manager just divides among the residents).
Component B: controllable costs, or in other words, managed
by the distributor itself. Part of this component are the expenses with
operation and maintenance, the quota of depreciation and
remuneration of the investments (in the example of the
condominium, these are the costs with staff, cleaning products and
construction projects, which the manager has a way to manage).

Distribution service Revenue
Component A
Component B
Energy Purchase
Operational Costs
Transmission Depreciation Quota
Sector Charges
INSIDE THE
ELECTRIC BILL
Investment
Remuneration
Understand how the updating of this revenue is done by the mechanisms mentioned,
according to Law n° 9.427/1996 and the Concession Contract.
A) TARIFF READJUSTMENT: reestablishes the purchase power of the
distribution utility's revenue, according to the formula foreseen in the concession
contract. It takes place annually, on the contract anniversary, except in tariff review. For
the application of this formula, all of the distribution company's uncontrollable costs
(Component A) are calculated, or in other words, the new values of sector charges,
energy purchase and transmission costs are verified. The other costs, contained in
parcel B, are adjusted for the IGP-M, from Getúlio Vargas Foundation. The adjustment
of parcel B still depends on another component, the X factor, an index set by ANEEL at
the time of the tariff review. Its function is to divide with the consumer the distribution
company's productivity earnings, due to the growth in the number of consumer units and
of the increase of the existing market consumption, which contributed to the tariff
inexpensiveness.
Readjusted Revenue
Parcel A (updated) + Parcel B x (IGP-M - X Factor)
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TO FIND OUT MORE
Until 2004, the Tariff Readjustment Index (IRT) accounted for the
variation of some items in Component A just on the day before the
distribution readjustment date, as foreseen in the concession contract
(Economic IRT). This way, if the dollar value used for the purchase of
energy by the distribution company rose or fell on the day before the
readjustment, the calculation would be done on that quotation, not
considering the oscillation of the currency value throughout the year. This
hindered the precise calculation of the company's cost variations. For this
reason, in November 2004, the Government created the Compensation
Account of Component A Items (CVA), which began to account for the
register of variation of some Component A items during the entire period
between one readjustment and another (IRT Financial).
In the example of the condominium, suppose that even if the annual fee
has risen from R$ 500 to R$ 550 (10%) there was the need for an extra fee
of R$ 30. In this case, R$50 would be the Economic IRT and R$ 30 would
be the Financial IRT. The value to be paid in the year will have been R$ 580.
The next year, the new readjustment will be based on the normal fee value,
of R$ 550, and not the total of R$580, which includes the extra fee. Or in
other words, if it is readjusted again 10%, the normal fee, which was R$
550, will increase R$ 55 and reach R$ 605, because the R$ 30 referred to
the extra fee. This way, since you paid R$ 580, upon having to pay R$ 605
you will realize an increase of just 4.31% and not 10%. For a similar reason,
the energy consumer perceives a different readjustment than that
announced, for the percentage defined by ANEEL is not applied on the
previous tariff, but on the previous tariff value minus the financial index of
the past readjustment.

B) PERIODIC TARIFF REVIEW: allows for the repositioning of the tariff after the
complete analysis of the efficient costs and remuneration of prudent investments, in an
average interval of four years. This mechanism differs from the annual readjustment due
to being more extensive and taking into consideration all the costs, investments and
revenues to set a new tariff platform, adequate for the company's structure and for its
market. To obtain a result that doesn't depend just on the information provided by the
distribution company itself, which could contaminate the review process, ANEEL uses
the “reference company” methodology. It is a theoretic model that reflects effective
operational costs for an ideal distribution utility and the prudent investments made by the
distribution company for service rendering and which will have right to remuneration of
the tariffs charged from the consumers. This investment is called Remuneration Base.
The depreciation costs refer to the necessary quantity for the formation of financial
resources designated to replacing the investments made prudently for electricity service
rendering at the end of its useful life. The capital remuneration refers to the reward paid to
the investor for the capital employed in service rendering. This mechanism is
prospective, or in other words, the distribution utility's historic costs are not considered
as a reference for its future costs. The future reference costs are created by ANEEL to
encourage the distributing companies to seek greater efficiency.
However, when holding a tariff review, a new value is reached for Component B, which
should, also, be added to the value calculated for Component A.
Reviewed Revenue:
INSIDE THE
ELECTRIC BILL
Updated Component A + New value for Component B
Operational
costs
Depreciation
quota
Investment
Remuneration
- reference company
- remuneration base x
depreciation rate
- remuneration base x
return rate
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C) EXTRAORDINARY TARIFF REVIEW: is aimed to serve the very special
cases of justified instability. It can take place at any time, when some unpredictable event
affects the utility financial-economic balance, such as the creation of a new sector
charge. Until the moment, few cases justified its application.
TO FIND OUT MORE
In the application of electricity tariffs, the consumers are identified by
consumption classes and subclasses: residential; industrial; commercial
and service; rural; governemnt; public lighting; public service and own
consumption. Each class has a distinct tariff structure, according to the
peculiarities of energy consumption and the power demand.
Until 2003, there was a crossed subsidy in the calculation of tariffs, or in
other words, the consumers fit in the Low Tension classes, such as
residential, paid part of the costs of consumers served in High Tension,
such as the industrial consumers. With the issuance of Decree 4.667/2003,
guidelines were determined for opening and realigning tariffs, in a manner
that, each year starting in 2003, the subsidy was reduced a little, until be
extinct in 2007. For that reason, in the period of 2003 to 2007, the Low
Tension tariff updating indexes will have been lower than the High Tension
ones.
Consumer Classification
High Tension
A1 supply tension equal to or greater than 230 kV
A2 supply tension of 88 kV to 138 kV
A3 supply tension of 69 kV
A3a supply tension of 30 kV to 44 kV
A4 supply tension of 2.3 kV to 25 kV
AS - supply tension less than 2.3 kV, served by the underground distribution
system and invoiced in Group A exceptionally
Low Tension
B1 residential and low income residential
B2 rural, rural electrification cooperative and irrigation public service
B3 other classes
B4 public lighting

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INSIDE THE
ELECTRIC BILL
CAN ANEEL NOT ADJUST THE TARIFFS?
No. The tariff updating mechanisms sector legislation in effect. About the
( r e a d j u s t m e n t a n d r e v i e w s ) a r e subject, check the understanding of
determined in the concession contracts, minister Edson Vidigal, from the
signed between the Union and the Superior Court of Justice:
distribution companies, and based on the
“It is certain that on the opportunity of celebration of the concession
contract of the electricity distribution utilities, as authorized by the
pertaining legislation, clauses were inserted foreseeing maintenance
mechanisms of its economic-financial balance, such as the tariff
readjustment. These mechanisms have origin in the tariff policy
previously approved by the National Privatization Council (CND), and are
vital for public service rendering to be able to give conformity with the
constitutional and legal principal that fall upon it, and which don't just
allow, but make possible the celebration of such contracts between the
government and the private that is ready to negotiate with the
Administration, notably when handling concession contracts with long
term duration.
Thus I already decided in a similar hypothesis (SL57-DF): the nonfulfillment
of contract clauses, hindering the real tariff value update, in the
terms foreseen in the concession contract, causes serious financial harm
to the distribution company, and may seriously affect the quality of
services rendered and its maintenance, implying the absence of
investment in the sector, harming the users, causing negative reflections
in the public economy, therefore inspires insecurity and risks in the
contracting with the Public Administration, repelling investors, resulting in
severe consequences also for public interest as a whole, besides, of
course, influencing negatively the Brazil Risk". (our underlining).
I understand that public interest is not summed in the contention of tariffs
being evidenced, also, in the continuity of energy supply; in the
maintenance of public service concession contract, in a manner to make
possible investments in the sector, for the country to not return to the
darkness. This way, the non-fulfillment of what was legally agreed to, with
the official seal from the Judiciary Branch, can, in this case, affect its
economic-financial balance, especially because there is no way to omit
the Country's real inflation that will affect those it contracts in long term.”
(SLS 162, 2005/0126743-9, dated 09/20/2005)
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WAS THE TARIFF READJUSTMENT SUPERIOR TO
THE INCREASE OF THE MINIMUM WAGE AND
OTHER PUBLIC SERVICE?
The sector model adopted to update raised above the IGP-M, due, mainly, to
the electricity distribution company's the increase of number of charges and
tariffs is not based on inflation indicators their values.
or on the minimum wage correction. Just
in the years that tariff readjustments take In the graphic below, we compared
place is the IGP-M used to update the the energy increases with other public
items contained in Component B services and other indicators, from
(controllable costs). In these years, 2003, the first year of the tariff review
Component A, which reflects the sum of cycle, until March 2007 (before the
costs that are divided among the beginning of the second cycle),
consumers of a concession, have been according to IBGE data (%):
90,00
*Minimum Wage
61,27 61,04 58,25 57,39 56,37 54,46 51,36 49,98
Tolls
Water and
Sewage Fee
Office of
Notary Public
Automobile
Insurance
Urban Buses
Health Insurance
Subway
Interstate
Buses
43,86 42,84 41,80
38,36
* Nominal variation from 2003 to March 2007. According to DIEESE, the real increase (with inflation discounted by the
INPC of the period) is 32.1%.
Landline phones
Pipe Gas
Residential
Electricity
Diesel
29,85
29,81
IGPM
IPCA
27,82
21,84
Gasoline
Alcohol

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WHY DOES ANEEL NOT RECONCILE THE TARIFF
POLICY WITH THE MINIMUM WAGE OR THE
WORKER'S INCOME?
Because this action is outside the the National Congress, and the energetic
competencies attributed to ANEEL. The policies and tariffs are formulated by the
laws, which ANEEL fulfills, are elaborated by Federal Government.
?
INSIDE THE
ELECTRIC BILL
DOES ANEEL INSPECT THE DISTRIBUTION
COMPANIES?
Yes. Inspection is an instrument that according to a set annual calendar. Eventual
ANEEL and the state regulating agencies actions are also done, destined to the
with pacts have available to guarantee the inspection of great relevance facts
fulfillment of legal and contractual throughout the year. Two important items
obligations by the electric sector companies. are assessed during the ANEEL inspections
The inspection actions are permanent, at the distributor:
the economic-financial aspect And the quality of electricity supply
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The consumers can contribute to the registering their complaints at the ANEEL
improvement of their distributor's inspection Ombudsman (toll free call at 144) or with the
presenting suggestions during the specific state agency with a pact.
public hearings, held in the state to discuss
the Distribution Company's Annual The inspection reports elaborated by
Inspection Program; upon participating in ANEEL are public and can be found
the annual research of the ANEEL on the Agency's electronic page
Consumer Satisfaction Index (IASC) and (www.aneel.gov.br).
?
WHO INSPECTS ANEEL?
ANEEL is systematically inspected by Besides these controls, ANEEL is
the State Controllership of the Union (CGU) called, sporadically, to render information to
by the Union Account Court (TCU) and by the the Public Ministry and Judiciary Power.
National Congress's thematic Commissions.
?
HOW DOES ANEEL ASSESS THE ENERGY
SERVICE QUALITY?
The quality of electricity supplied by the interruption in the supply took place. If there
distribution company is inspected by ANEEL is no fulfillment of goals the company can be
as to the aspects of continuity and conformity fined in 1% of the invoicing. With the goals,
with the levels of electricity tension. The the Agency's objective is to provide the
continuity of the service observes the consumers a quality service with growing
duration and the frequency of interruptions in improvement, as well as the guarantee of
the energy supply and is measured by the gradual reduction of the global values of
indicators included in the electric bill. these indicators. The distribution company
has to inform, on the electric bill or in a letter
attached to the bill, the DEC and FEC values
ANEEL defines the goals for duration to be observed. The monthly goals for each
(DEC) and frequency (FEC) indicators of the set of consumers units will be equivalent to
interruptions in the energy supply in the 30% of the goal values of the annual values
distribution area of each distributor. The established, while the trimester goals are
DEC measures the time that a group of equivalent to 60% of the annual values.
consumers went without electricity and the These annual goals are redefined in the tariff
FEC indicates the quantity f times that review year for each distribution company.

Continuity Indicators
INSIDE THE
ELECTRIC BILL
DEC/DIC (Equivalent Interruption Duration):
indicates the number of hours, on average, that a consumer
goes without electricity during a period, usually monthly.
FEC/FIC (Equivalent Interruption Frequency
per Consumer Unit): indicated how many times, on average,
there was interruption in the consumer unit.
The DMIC (Maximum Interruption Duration
per Consumer Unit): indicates the maximum time of each
interruption, seeking to keep the distribution company from
letting the consumer go without electricity during a very
long period. This indicator began to be controlled starting in 2003.
DEC and FEC are verified per concession area. DIC and FIC are
individual indicators, verified per consumer unit.
The conformity reflects if the energy like pressure is to the hydraulic system. The
tension supplied to the consumer and the water that reaches the residences should
variation of these levels is according to the have a certain level of pressure; on the
values pre-established by ANEEL and contrary, it couldn't be used in the simplest
adequate for the functioning of the tasks, like taking a shower. The same thing
equipment and electro electronic appliances happens with electricity. Low levels or
equipment of consumers in houses, stores, tension variation hinder the adequate use of
factories, etc. equipment, with the risk of damaging them.
When the tension level is considered critical,
To understand what tension level is, the functioning or performance of the
imagine that tension is to the electric system electronic devices is jeopardized.
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HOW DOES QUALITY INTERFERE IN THE TARIFF?
The quality of energy supplied at a or the enlargement of their homes in distinct
consumer unit (residence, store or industry) manners, but always according to their
depends on the electric system that the income level and life quality they desire.
distributing company built over years and of The costs to enlarge the electric system
how this system is enlarged and maintained. and maintain it are considered at the time of
The demand grows with the appearance setting the tariffs practiced by the
of new consumers and the increase of the distribution companies, during the tariff
quantity of energy consumed by each client. review process. The resources applied in
To serve the demand with the ideal quality the enlargement compose the investment
level for the adequate service rendering base to be remunerated, and the
determined by ANEEL, the company needs maintenance resources are part of the
to enlarge and do maintenance of the company's operational costs.
existing electric system. The enlargement ANEEL does not cover necessarily all
can be done by building new substations, the costs presented by the distribution
transmission and distribution lines or by companies. They should result from
adopting equipment with new technologies. maintenances and enlargements held in the
The maintenance seeks to preserve the products in service, or in other words, those
system in good conditions for the adequate used in the energy distribution. It is also
energy supply. necessary that they be held in a manner to
In a home, besides the estate respect the established quality criteria by the
maintenance, periodic painting, cabinet Agency. Thus, in the tariff review process,
fixing, electric and hydraulic installation, the costs presented by the company are
there can also be the enlargement for evaluated by ANEEL to guarantee that those
obtaining more comfort or by the use of a passing on the tariff are limited to those held
new technology for domestic usage. having the finality of the adequate electricity
Different residents, with different distribution service rendering.
degrees of demands, execute maintenance

?
DO THE ELECTRIC LOSS, THEFT, FRAUD AND
DEFAULTING CONSUMERS IMPACT THE
ENERGY TARIFF?
Yes, the losses and bad debts are country, considering an average tariff of
recovered, in part, by the distributors, which R$254.08 (without taxes) for February 2007
results in the increase of tariffs for all the was R$ 5.5 billion.
consumers. The losses in the energy
distribution are divided in technical losses Starting with the first tariff review cycle
(inherent to energy transportation through the (2003-2005), ANEEL started giving special
networks) and commercial or non-technical treatment to the matter, including in the tariff
losses (non-measured or not-billed energy just part of the value of commercial losses and
consumption, through measurement error, breech. The idea is to encourage the
theft or fraud). Bad debts is the sum due by distribution companies to invest in the
consumer due to lack of payment. reduction of these indexes to relieve the
burden of the honest, paying consumer.
If we consider the 61 companies that went
through the tariff review process, the non- In the case of lack of payment, the
technical losses were greater than 15 methodology applied in the first tariff review
thousand gigawatts-hour (GWh) and the established a trajectory of reduction of the
technical losses in the range of 22 thousand value to be recognized in the tariff period
GWh. The cost of non-technical losses for the (2003/2007).
?
WHAT CAN BE DONE TO REDUCE THE
ELECTRIC BILL?
ANEEL
Assess the possibility of reducing the quality level demanded from the distribution
company for electricity distribution service rendering, since the degree of quality is
proportional to the sum of investments required. Or in other words, to have better quality
energy, it is necessary to have a greater volume of resource applied. It is worth pointing
out the investments already made should be admitted and the new ones can be planned
and implemented under the new orientation.
NATIONAL CONGRESS
Reduce the number and value of sector charges and federal taxes that are included the
electricity tariff.
STATE
Reduce the ICMS rate that lays on the electricity service.
INSIDE THE
ELECTRIC BILL
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MUNICIPALITY
Decrease the value of Contribution for Public Lighting Cost (CIP).
DISTRIBUTION COMPANY
Reduce commercial losses.
Increase inspection to halt adulteration of meters.
Use new technologies to avoid energy theft and frauds.
Consumer
Adopt attitudes to reduce electricity consumption.
Tell the company when there is suspicion of theft or fraud.
CHECK SOME TIPS
- PREFER household appliances, motors and light bulbs that have the Procel seal, for they
are more efficient and use less energy;
- UPON DOING electric installations, use adequate wires and do not mend them poorly;
- AVOID using adapters (T sockets) to connect several devices;
- SUBSTITUTE incandescent bulbs for compact or circular fluorescent bulbs;
- TURN OFF light bulbs, air conditioners and the television in unoccupied areas and also
don't sleep with the TV on;
- DON'T PUT AWAY hot, uncovered food in the refrigerator and keep it organized to avoid
the door from staying open for a long time;
- DON'T PUT clothes to dry behind the freezer or refrigerator and regulate the thermostat
according to the season of the year, for, in the cold weather, the temperature doesn't
need to be a low;
- MAINTAIN the freezer and refrigerator rubber seals in good conditions. If they aren't,
replace them for new seals;
- TRY to use the iron which overloads the electric network a lot - while other devices are
off. To not turn it frequently, iron a large quantity of clothes all at once;
- AVOID long showers and regulate the showerhead according to the season of the year;
- WHEN using the washing machine, put the maximum quantity of clothes - or dishes in
the dishwasher and use the adequate level or soap to avoid a lot of rinsing, and
- COMMUNICATE to the distribution company when you identify irregular uses of energy,
including theft or fraud.

?
HOW DO I PARTICIPATE IN THE TARIFF
DEFINITION PROCESS?
ANEEL, to give transparency to its actions out loud to present contributions and
and opportunities for society to participate in suggestions.
the decisions it makes, holds public hearings In the cases of annual tariff readjustment,
with the objective of obtaining subsidy and ANEEL, fulfilling the concession contract, just
additional information to perfect the regulatory applies a specific formula, reason for which
acts in the elaboration phase. The hearings, public hearings are not held. However, those
disclosed ahead of time in newspapers, on interested in finding out about the decisions
the radio and by TV broadcasting stations and about the tariff readjustments can watch the
also on ANEEL's page, on the Internet, are ANEEL Board of Commissioners' meeting,
open to all society. In them, the participants, which are public, broadcasted on the internet.
properly enrolled, have the right to manifest
?
WHAT ARE THE ENERGY CONSUMERS' MAIN
RIGHTS AND RESPONSIBILITIES?
RIGHTS
- HAVE at least 6 due date options for their electric bill;
- RECEIVE the electric bill at least 5 working days before the due date;
- BE INFORMED in up to 30 days about the solution of a complaint made;
- Be refundesd for eventual damage caused by faults in the electricity supply;
- Be warned at least 15 days ahead of time about the disconnection of electricity due to
lack of payment;
- REQUEST the verification of the meter reading, if your electric bill comes with a reading
much higher or lower than the normal;
- GET ELECTRICITY back at the most in 4 hours after it was unduly cut;
INSIDE THE
ELECTRIC BILL
- HAVE ENERGY reestablished in 48 hours after the reason for cutting it ceases;
-HAVE AVAILABLE a book for complaints and suggestions in all the distribution
company's service posts.
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?
RESPONSIBILITIES
-CELEBRATE supply contract with distribution company, when it will supply information
about the expected load. Significant alterations in this load should be communicated to
the company;
- INSTALL in adequate, easy access location the devices necessary for the consumption
meter and protection equipment;
- KEEP in your control, in condition of loyal, free depositor, the distribution company's
meter equipment;
-REFORM or substitute the consumer unit's internal electric installation that is not in
compliance with the standards, especially in relation to safety aspects;
- PAY PUNCTUALLY the services rendered for the energy supply;
-INFORM THE DISTRIBUTiOn company about the existence of users of limited
autonomy equipment, vital to the preservation of human life and dependent of electricity.
Thus, the user has the right to be warned about programmed interruptions. This warning
is mandatory, written, personalized and sent at least 5 working days in advance in
relation to the interruption, under the penalty of a fine of up to 2% distribution company's
revenue.
DO THE CONSUMERS HAVE REPRESENTATION
AT THE DISTRIBUTOR?
Yes. All distribution company´s should term of one year.
maintain an Electricity Consumer Council, The functioning of the councils
as foreseen in Law n° 8.631/1993. The depends on their Annual Activity Plan, in
performance of each council seeks to which their expected work strategy and
guarantee energy supply quality for the expenses for carrying out each action
consumer through orientation, analysis and should be detailed. The financial resources
evaluation of the questions related to the for financing its activities are made
tariffs and to the fitting of the service. available by the distribution company in a
The councilmen represent society per joint checking account with the Council. It is
consumption category (residential, also up to the distribution company to
commercial, industrial, rural and public supply installations and adequate structure
power) and count on a representative from for carrying out all the expected and
a consumer defense organ or entity. The approved activities from the Annual Activity
president and vice-president are elected by Plan.
the council members to fulfill a

N A T I O N A L E L E C T R I C E N E R G Y A G E N C Y
Address: SGAN 603 Módulos “I” e “J”
Zip Code 70830-030
Telephone: +55 (61) 2192-8600
Ombudsman: +55 144
E-mail: institucional@aneel.gov.br
Home-page: http://www.aneel.gov.br