Fynsa
The calculation of electricity tariffs is based on three components: energy value (70%), distribution (20%) and transmission (10%). Of the customers, 90% consume less than 350 kWh, while the remaining 10% corresponds to higher consumption, mainly associated with industries and small and medium-sized companies, with two key factors influencing the determination of tariffs; One of them is the exchange rate ($640 before the social outburst), and the other is international fuel prices. Believe it or not, approximately 50% of Chile's energy matrix still depends on the use of hydrocarbons.
Prior to the social outburst of October 2019, the government had enacted a tariff decree that implied a 9% increase in electricity bills. However, the social crisis led to a freeze in electricity rates, which forced companies to assume the financial cost of not adjusting rates. This freeze was initially projected for the period between July 2019 and December 2020, under Law 21.185 (PEC1), which created a "transitory mechanism for the stabilization of electricity prices for customers subject to tariff regulation".
The generating companies had to assume the financial costs of containing the increase, Therefore, a US$1.35 billion fund was created to accumulate the debt with the generation companies, which was recoverable between 2025 and 2027. In addition, the profitability of the distribution companies was reduced and the electricity distribution tariff process was improved.
With the pandemic in 2020, the parameters of the tariff freeze were severely affected. International fuel prices rose, inflation climbed to decade highs and the exchange rate suffered a sharp devaluation. The war between Russia and Ukraine in 2022 aggravated the situation. All this caused the debt ceiling established in PEC1 to be exceeded ahead of schedule, so in 2022 the freeze on electricity tariffs was extended by the new law 21.472 (PEC2). In this way, a tariff increase of approximately 44% was avoided, establishing a fund of US$1,800 million, payable until 2032. Additionally, a new debt ceiling of up to US$5,500 million was established, with a payment method differentiated by consumption segment.
Well time to pay the bill, unfreeze electricity rates and pay the debt generated by the rate freeze under PEC1 and PEC2. generated by the rate freeze under PEC1 and PEC2.
The new law 21.667, enacted in April of this year, proposes measures to protect the most vulnerable socioeconomic sectors from tariff adjustments, It perfects the tariff stabilization fund with the purpose of normalizing electricity prices, and seeks to mitigate increases in the bills of regulated customers.
In addition, it proposes to amortize the current total debt of USD 5.5 billion until 2035 (previously 2032), gradually unfreezing electricity distribution tariffs and creating a new transitory subsidy targeted at one million vulnerable households to mitigate increases in their electricity bills, This will have a total cost of US$120 million per year, with US$20 million contributed annually by the Treasury and US$100 million by the Tariff Stabilization Fund (FET).
Current measures are aimed at stabilize the electricity market, protect the most vulnerable and ensure a gradual transition to market tariffs, and to encourage greater investment in the sector.
Electricity rates in Chile are influenced by a combination of internal and external factors, all of which have a significant impact on inflation. Our economics team has revised inflation estimates upwards, projecting 4.9% for 2024 and 3.8% for 2025. These projections are based on the expectation that there will be little second round effects due to the country's weak economic scenario.
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