The measures adopted, while aimed at reducing the cost of the tariff components, are temporary solutions.

On September 16th, the Ministry of Mines and Energy announced the so-called “Pact for Tariff Justice,” a project that promises to lower energy rates in the country. As a user of this service in the city of Barranquilla, this news brought me great relief, knowing that I would see a reduction in my monthly bill. However, my role in these matters is not limited to simply announcing things, so I responsibly proceeded to carefully evaluate the measures adopted by the Energy and Gas Regulatory Commission (CREG) regarding this issue. To my surprise, I found that the much-touted rate reduction will not actually materialize, and what will likely end up happening is only a temporary stabilization of prices applicable to the last three months of this year.

My challenge this time will be to explain simply the reasons for the tariff increase, the measures taken by the government, and the possible effects to expect. To do this, I must start with the basics: how is the price of energy determined? There is a lot of misinformation surrounding this question, especially since it is inaccurate to attribute this problem solely to generators or distributors, when in reality the tariff has the following components: 35% corresponds to generation, 5% to transmission, 38% to distribution, 13% to marketing, 7% to losses, and 2% to restrictions. This means that, to achieve a decrease in prices, measures must be implemented that impact the various components, not just those that affect some agents in the chain.

In this sense, the reasons for the tariff increase can be summarized in two points: inflation and the losses component. Regarding the first point, it’s worth mentioning that not only Colombia but the entire world is suffering the consequences of high inflation, which has considerably increased the costs of goods and services. Naturally, inflation raises the Producer Price Index (PPI), the index used in the electricity supply, thus generating price increases for this service.

On the other hand, the losses component refers to electricity that is produced but not sold or billed, a situation that particularly affects the Caribbean region due to the scourge of illegal connections. The collection of charges for losses has increased by 29.2% on the Atlantic Coast, while for the rest of the country the increase has been only 12.5%. However, unfortunately for the inhabitants of this part of the country, the “Pact for Tariff Justice” does not include provisions regarding this specific component.

Regarding the measures adopted by the Government, while they are aimed at reducing the cost of the tariff components, it should be noted that they are temporary solutions. Through a series of resolutions, the CREG (Energy and Gas Regulatory Commission) required network operators, transmission companies, generators, and retailers to adjust the prices and indexation factors of their contracts for the next five months only. This means that we will feel the effects of this temporary stabilization at the beginning of 2023.

Therefore, it can be concluded that the measures do not promote a sustained reduction over time and will not actually result in a decrease in tariffs. For this reason, I believe it is pertinent to begin to conceive of “tariff fairness” not only in terms of price controls.

It is crucial that this new ministry views the user as the center of a transformation of the electricity market to achieve fairer tariffs. Currently, new technologies allow households to generate their own electricity and meet their own demand. Therefore, it is time for Colombia to begin a fundamental discussion in order to lift the existing prohibitions on the creation of energy communities and to allow the sale of energy between users, since by not needing to use transmission and distribution networks, the costs on the bill would decrease considerably.