Diogo Lisbona, a researcher at FGV CERI, wrote to Brasil Energia about the approaches that European and Brazilian authorities have taken to deal with issues associated with access to essential services during the COVID-19 pandemic.

Read the full article below:

Provision and Billing of Essential Services in Exceptional Times of Covid-19

The Coronavirus pandemic (Covid-19) imposes an unprecedented reality on the contemporary world. The objective of "flattening the curve" of cases justifies social isolation as a short-term solution, given the limited capacity of health systems to meet simultaneous critical and unpredictable demand.

During quarantine, only essential activities are maintained, especially the provision of public services such as electricity, water and piped gas (utilities). Economic-social hibernation interrupts flows of goods, revenues and incomes, severely compromising the ability to pay (affordability), including invoices for essential services.

The hecatombe demands immediate state action to support the vulnerable population and give momentary breath to companies. Large aid packages have been announced both by countries with a high social safety net, such as France; and by countries with lesser safeguards, such as the United States. In addition, palliative measures are also adopted on invoices and the continuity of supply of utilities in exceptional times, as illustrated by European experiences.

In Italy, the Energy, Networks and Environment Authority (ARERA) suspended the interruption due to a default in the supply of electricity (low voltage customers), natural gas (consumption below 200 thousand m³ / d) and water (all customers) , between March 10 and April 3, already extended for 15 working days. Interest-free installments were also authorized upon request, with installments of not less than 50 euros. If revenues are lower than expected, electricity distributors can pay up to 80% of the system's general charges (including access charges) and natural gas charges 90%. The regulator also suspended the payment of invoices until April 30 for 11 municipalities in the “red zone” (Lombardy and Veneto).

To cope with the exceptional measures, a € 1 billion fund from the Caixa de Serviços Energético e Ambiental (CSEA) was highlighted. Established in the 1960s for tariff equalization, Caixa currently manages regulatory accounts under the tutelage of ARERA. To access the aid, traders in the municipalities of the red zone must demonstrate financial criticality, that is, a loss greater than 3% of the total revenue in relation to the last 12 months.

In France, the “winter truce” guaranteed by law, which runs from November 1st to March 31st, was extended to May 31st. During this period, expulsion of tenants is prohibited and electricity, heating and gas suppliers are prohibited, interruption due to default in the main households of residential consumers - the water supply cannot be interrupted at any time. The law allows for a reduction in the power of the electricity supplied, except for consumers with a social tariff.

The French emergency law granted micro-companies that were beneficiaries of the public Solidarity Fund - instituted for three months, extendable - the right to defer and install without interest, for six months, the payment of rent and bills for essential services. The law also vetoed the interruption of supply, prohibiting the reduction of electricity power. In addition, the French Energy Regulator (CRE) has suspended the application of more expensive dynamic electricity tariffs, generally applied during the winter.
 

In Portugal, ERSE (Energy Services Regulatory Entity) extended the usual period for interruption due to default by 30 days, extendable. Currently, the cut for default can only occur after 20 days' notice (or 15 business days for vulnerable customers). The regulator also allowed payment in installments without interest, upon request; and encourages self-reading to avoid estimates. The default will be temporarily borne by the network operators (EDP), who must pay the respective access charges in installments.

Since 2016, inclusion in the social tariff register in Portugal has become automatic, expanding the base from 170 to 800 thousand consumers (13% of the total). As there is a separation between distribution and commercialization, the discount is made on the network access tariff - the free market already reaches 92% of the energy sold. Currently, the social discount corresponds to 33% of the regulated market tariff. The cost is borne by the generators, in proportion to the installed power.

The Iberian electricity market (MIBEL), following a global trend, is witnessing a drop in spot prices - both due to the reduction in demand due to the pandemic, as well as the drop in gas prices amid the concomitant oil crisis. The reduction in prices in the wholesale market is passed on to retail consumers - in the free and regulated markets, whose tariff has already been reduced by 3% in Portugal.

In Spain, emergency decree laws have suspended the cut for default on electricity, gas and water for residential consumers; banned increases in LPG prices in the next six months; and allowed small companies and freelancers to suspend or change supply contracts without penalties, and also request deferral and installment of invoices for six months. Traders also defer the respective payment of network access fees and applicable taxes, being able to access lines of guarantees opened by the State to request private financing for the loss of revenue.

In exceptional times, European experiences point to common sense palliative measures: special treatment for vulnerable people; suspension of cut due to default; and deferral with installments of debts. While the provision of essential services is guaranteed and defaults are mitigated with large income transfers to the population, the functioning of the energy markets accommodates the fall in consumption, transmitting the adjustment throughout the chain.

In Brazil, ANEEL vetoed, for 90 days, the interruption due to default by residential consumers; extended procedural deadlines; flexible reading intervals, allowing self-reading or average estimation; postponed tariff adjustments; and authorized the early transfer of funds for future burden relief (R $ 2 billion).

Additionally, Provisional Measure No. 950/2020 exempts, for 3 months, the payment of the accounts of the beneficiaries of the social tariff (9 million, about 13% of the total) for consumption of up to 220 kWh / month. The treasury will contribute R $ 900 million to the Energy Development Account (CDE), but the exemption should reach R $ 1.2 billion. The MP also foresees future tariff charges to defray the measures to be taken to offset the loss of revenue from the distributors.

Brazil follows the usual relief measures during the crisis, but has not defined plans for deferral and installment of invoices. If, on the one hand, it gives exemption to the most vulnerable part of the population; on the other hand, it signals cost coverage beyond default, compensating the over-contracting of energy in the regulated market with future tariff increases, which will further compromise the ability to pay after the crisis.

Diogo Lisbona Romeiro is an economist, PhD from the Institute of Economics at UFRJ, and researcher at the Center for Regulation and Infrastructure Studies at FGV (FGV CERI).

Follow the normative production related to COVID-19 through the Regulatory Monitor of COVID-19 at FGV CERI.

The opinions expressed in this article are those of the author and do not necessarily reflect the institutional opinion of FGV.