On January 16, 2024, a bill was introduced in the Senate aimed at proposing measures to stabilize electric rates, normalize electricity costs, unfreeze energy prices, and incorporate measures to implement a subsidy to electricity accounts. The bill is subject to immediate discussion, and the Executive branch aims to pass it through the Senate in January, with full approval expected in the first quarter of the year.

Before delving into the details of the initiative, it is important to recall that in recent years, two laws with mechanisms preventing the passing on of increases in electricity bills to customers were approved. The first of these, Law No.21,185, published in November 2019, stipulated that distribution companies could only pass on price levels set in Decree 20T corresponding to the first half of 2019, known as the Stabilized Price to Regulated Customer or PEC.

Additionally, the law created a mechanism for accumulating balances generated by the billing difference between the PEC and semi-annual fixations or the Average Knot Price (PNP). These accumulated balances with generators could not exceed USD 1.35 billion, and a mechanism for their refund was established.

Subsequently, in July 2022, due to the rapid depletion of the aforementioned fund, Law No. 21,472 was approved, creating a Tariff Stabilization Fund and establishing a Customer Protection Mechanism (MPC).

The Stabilization Fund, as its name suggests, aims to stabilize electric rates for customers subject to rate regulation through a new public service charge to end-users. This fund would enable the payment of balances generated by the PEC 1 of Law 21,185 and those generated by the Tariff Stabilization Mechanism. Contributions to this fund come from customers with consumption exceeding 350 kW/h, structured so that higher consumption entails a higher contribution. The MPC, in turn, sought to limit the increase in bills through a fund of up to USD 1,800 million.

However, both laws and their respective funds were depleted much faster than anticipated due to various factors, such as exchange rate increases, fuel price hikes, PNP increases, delays in the implementation of Law No. 21,472, among others. This implies that it would be necessary to start passing on to customers the increases contained in pending decrees, with hikes ranging from 8% to 98%.

This led the government to present a new initiative that, as they propose, seeks to provide a comprehensive solution to the accumulated debts and price freezes. The bill aims to:

1. Stabilize and progressively move towards the normalization of rates, so that the cost of energy reflects the actual costs of the system.
2. Make adjustments to Laws No. 21,185 and No. 21,472 to simplify them and establish the payment method for the originated balances.
3. Implement a temporary subsidy to the electricity accounts of around 850,000 families.

In particular, the initiative proposes the following measures:

Customer Protection Mechanism (MPC):

• Increase the fund amount from USD 1,800 million to USD 5,500 million, explicitly stating that the resources must be allocated to the payment of accumulated debt.
• In the first stage, balances of Law No. 21,185 and payment documents issued by the Treasury for up to USD 1,800 will be paid. In the second stage, starting January 1, 2028, the outstanding balances of Law No. 21,472 and those arising from the new law will be paid, with a maximum payment term by the end of 2035.

• Update the price levels applicable to different tariff periods:
  • 2023 values will be those corresponding to Decree 16T of 2022.
  • First quarter of 2024, for consumption below 350 kWh, prices from Decree 16T of 2022 +IPC will be applied; for consumption above 350 kWh, the respective PNP + MPC charge will apply.
  • Second quarter of 2024: for consumption below 350 kWh, the respective PNP values will be applied. For consumption above 350 kWh, the respective PNP + MPC charge will apply.
  • From 2025, the value for all customers will be the respective PNP + MPC charge.

MPC Charge:

• Modify the formulation of said charge to a fixed rate of $22 per kWh + IPC between the years 2024 and 2027, and $9 per kWh + IPC for the period 2028 and 2035.
  • These prices may be readjusted when there are:
    • Variations exceeding 10% in demand projections.
    • Variations in the dollar price exceeding 10% compared to the average value as of December 2023.
    • Transitory adjustments during the years 2026 and 2027 if it is projected that the balances of Law 21,185 will not be covered.

Value Added Distribution (VAD):

• Progressively lift the freeze on the VAD established in the thirteenth transitory article of Law No. 21,194, following these rules:
  • Starting from the PNP of the first half of 2024, the VAD is unfrozen for cooperative distributors.
  • Starting from the PNP of the second half of 2024, an increase of up to 10% is allowed compared to the prices frozen by Law No. 21,196. From the PNP of the first half of 2025, an adjustment of up to 20% is made in relation to the price of Law No. 21,194. From the PNP of the second half of 2025, it is fully updated.

Temporary Subsidy for Electricity Accounts

Modifications are made to facilitate and implement the subsidy established in Article 151 of the General Electricity Services Law. The subsidy is expected to operate between 2024 and 2026, benefiting 850,000 families.

The resources to finance the subsidy come from the Tariff Stabilization Fund, whose funds come from the Public Service Charge contributing with USD 100 million annually, and USD 20 million annually that the Ministry of Finance will contribute to said Fund.

The initiative is a step towards allowing the regularization of existing debts due to the application of Laws No. 21,185 and No. 21,472 and resuming the principle that bills reflect the real value of the service and energy.

However, doubts have arisen regarding the financing sources of the project, as the majority of resources come from customers themselves, who must contribute to paying the owed amounts. Additionally, the financing of the subsidy involves cross-subsidies among individuals, and it would be preferable for the resources to come from the Treasury through general revenues of the Nation.

For additional information on this matter, please contact Francisco López at flopez@jdf.cl flopez@jdf.cl