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Energy – Resolutions 6/2016 and 7/2016

By Amalia Saenz.

Rate Increases in the Electricity Sector

Alleging that the compensation systems established in the Wholesale Electricity Market failed to attain the objectives contained in Law No. 24,065 (Electricity Regulations), basically, because supply and service quality was not assured and private investment decreased, the Ministry of Energy and Mining (the “Ministry”) announced through Resolution No. 6/2016, pursuant to the new schedule suggested by Compañía Administradora del Mercado Mayorista Eléctrico S.A. (CAMMESA), a sharp increase in wholesale electricity prices for the February – April quarter of 2016. 

According to the recitals of Resolution No. 6/16, through this adjustment, the Ministry expects that the price to be paid for the demand for electricity covers the cost of suppling same and also to stop resorting to the National Treasury to make up for the deficit. This last circumstance has allegedly “materially contributed to an increasingly heavier tax pressure on the population as a whole, which is unsustainable”.

In this sense, it is worth mentioning that during the last years, the sector’s higher costs were not passed to consumers, but were generally covered by the amounts contributed by the National Government in the nature of subsidies.

However, adjustments in the electricity prices were expected with the change of administration and the enactment of Decree No. 134 dated December 16, 2015, in which the Macri Administration declared the state of emergency in the national electricity sector until December 31, 2017, and instructed the Ministry to prepare a program that guarantees the quality, safety and provision of electricity service.

In this connection, the Ministry announced increases in the different categories composing the wholesale electricity price, which will have an impact of approximately 350% on end consumers and of 600% on large industries, according to the calculations made in the market.

Resolution No. 6/16 was supplemented by Resolution No. 7/16 which, among other issues, imposed the requirements to be eligible for the social tariff benefit; social tariff beneficiaries would not pay for electricity consumed up to 150 kWh per month and will pay significantly lower amounts for any electricity consumed in excess thereof.

According to Resolution No. 7/16, the following people are eligible for the social tariff benefit: retirees or pensioners whose retirement or pension benefits amount to a sum equal to twice the national minimum salary, employees who collect a gross salary of up to two Adjustable Minimum Living Wages, welfare plan beneficiaries, people who collect unemployment insurance benefits, etc.

Nevertheless, such people will not be eligible if they are the owners of more than one property, cars not older than 15 years, or luxury aircrafts or vessels.

On the other hand, Resolution No. 7/16 also revoked the Rational Use of Electricity Program (PUREE for its Spanish acronym), which implies the discontinuation of the transfer of funds for account and by order of CAMMESA to the electricity companies (EDENOR S.A. and EDESUR S.A.).

The immediate consequence of these Resolutions has been a significant increase in the price of the electric utilities stock.  

Electricity distributors are expected to inform within the next few days the final electricity prices to be paid by consumers.

In addition, as Resolution No. 6/16 points out that the values fixed are still inferior to the actual supply cost, it is possible that new increases may be implemented in the next few months.

In short, although this increase in rates will have a strong impact on the regular citizen and the industry, this measure is part of a process intended to correct distortion in market values and limit subsidies and/or financial support from the National Government.