This Monday, July 1, the adjustment of electricity rates in Chile officially began. The measure has a direct impact on consumers, who could see a considerable increase in their electricity bills this month. The increase has worried the authorities, who are seeking to alleviate its effects, especially on the most vulnerable consumers, who will have to be assisted through subsidies.
The origin of this measure, which hits the pockets of Chilean families in the middle of winter, has its origin in a price freeze set almost five years ago. Added to this were some subsequent laws that kept the value of the electric service almost unchanged. The reality of the international energy market, in addition to a multi-million dollar state debt with the generating companies, have forced the accounts to be made clear.
EL PAÍS lists some of the key reasons for this increase.
The crash and the price freeze
In November 2019, the South American country was in a critical situation after the social outbreak of October 18 of that year. The citizen discontent, which had initially begun with the increase in the price of public transport in Santiago, expanded to other demands. During the second administration of the traditional right-wing president, Sebastián Piñera, a deadline was set for the government to pay for the cost of public transport in Santiago. Stabilized Customer Price Mechanismwhich allowed electricity prices to be frozen temporarily and reverse a 9.2% increase. The authority established a mechanism in which the State could have a maximum debt with the companies of the electricity industry of 1.35 billion dollars and that the price would be unfrozen in December 2020. The cost would be assumed by the companies and then paid by the State.
The Covid pandemic and the rise in energy costs – supported, among other things, by the growth of electromobility – in addition to some of its own problems in the application of the law, complicated the situation and caused the state debt to grow to 6 billion dollars.
Why the electricity bill goes up
The price freeze became unsustainable and the current left-wing administration of Gabriel Boric sought alternatives to control the situation. In May 2022, the Executive introduced a project to set a new debt ceiling with electricity companies and extend the payment period until 2032. Among the proposals discussed was the creation of the Tariff Stabilization Fund. The National Congress approved a law that seeks to regulate the price of electricity. From this point on, the companies will have to raise the value of their bills to consumers.
How much will it rise by region?
The increase in the price of electricity for households will reach up to 60% by 2025. The increase will be staggered according to consumption, and will be applied in different stages during the months of July, October and January of next year.
Energy Minister Diego Pardow told a House of Representatives committee that the increase would be applied based on consumption and the region where the electricity customer is located. For example, in the Metropolitan region, where the capital Santiago de Chile is located, the largest group of electricity users is the so-called G2, which uses up to 400 kilowatt hours (kWh). For them, an average increase in the price of their electricity bill is estimated at 36%.
The subsidy to apply
The Government announced a subsidy to contain this rise in electricity bills. Applications began on Monday, July 1 —when the price stabilization law came into effect— and will run until Sunday, July 14 at 11:59 p.m. The only requirements are to belong to the 40% of the most vulnerable households in the Social Registry of Households of the Ministry of Social Development and to be up to date with the payment of the electricity bill. People who meet the request made by the authority must enter the official website of the benefit.
The impact on inflation
In its latest Monetary Policy Report (MPR), the Central Bank of Chile has adjusted its projection of the Consumer Price Index (CPI) to 4.2% at the end of 2024, four-tenths more than estimated in March. According to the issuing institute, the increase in the prices of electricity bills will have an influence on inflation since electricity service represents 2.2% of the household consumption basket. This warning from the Chilean issuing institute has clouded the expectations of the Government itself, which hopes to further lower inflationary pressures and balance the cost of living.
Political pressure
The rise in electricity bills also led to a crisis between the Government and Congress. Minister Pardow, who pushed for the passage of the price stabilization law, was criticized by representatives of the government itself who said they were unaware of the real impact of the increase that was finally applied. One of the people critical of the Executive’s position is the president of the Chamber of Deputies, Karol Cariola, who has demanded a solution to stop the increase. President Boric took charge of the criticism and defended the stabilization of prices. “It is not popular, I know it is difficult, but I insist, a debt that is not paid, ends up being more expensive later,” he said.
The short circuit between the Executive and the parliamentarians has led to some ideas for extending and financing the price freeze. The Frente Amplio, the party that the president originally formed, proposed an increase in taxes on the most polluting energies.
The project to extend aid
The scope of the subsidy announced by the government was another topic of political controversy, as some representatives of the ruling party and the opposition pointed out that the current benefit, which only covers part of the 40% of the most vulnerable population, would leave out several families that require state aid. On Monday, the Executive announced a bill to extend the subsidy to the entire 40% of the most vulnerable, that is, to some 10 million people.
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