Earnings Call Transcript - ENIC Q2 2024

Operator, Operator

Good morning ladies and gentlemen and welcome to Enel Chile's First Half and Second Quarter 2024 Results Conference Call. My name is Carmen, and I will be your operator for today. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Such forward-looking statements reflect only our current expectations, are not guarantees of future performance, and involve risks and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in Enel Chile's press release reporting its first half and second quarter 2024 results, the presentation accompanying this conference call, and Enel Chile's annual report on Form 20-F included on the Risk Factors. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate except as required by law. I would now like to turn the presentation over to Ms. Isabela Klemes, Head of Investor Relations of Enel Chile. Please proceed.

Isabela Klemes, Head of Investor Relations

Good morning and welcome to Enel Chile's presentation of our second quarter and first half results for 2024. Thank you for joining us today. I am Isabela Klemes, the Head of Investor Relations, and with me is our CEO, Giuseppe Turchiarelli. You can find our presentation and related financial information on our website, www.enel.cl, in the Investors section, and also in our Investor app. A replay of this call will be available shortly. At the end of this presentation, there will be a chance for you to ask questions via phone or through the webcast chat link. Media participants are only able to listen. In the next slide, Giuseppe will begin with the key highlights from the period, followed by an update on our portfolio and regulatory context. Finally, he will discuss our business's economic and financial performance. Thank you for your attention, and I will now hand it over to Giuseppe.

Giuseppe Turchiarelli, CEO

Thank you, Isabela. Good morning and thanks for joining us. Let's begin our presentation with the main highlights of the period on slide 2. During the second quarter, our hydro portfolio performed exceptionally well, maintaining the strong performance from the first quarter. This was due to elevated reservoir levels at the start of the year because of the El Nino phenomenon last year, combined with significant weather events during this quarter. This resulted in a powerful and efficient generation portfolio mix for the semester. We added approximately 250 megawatts of new renewable energy capacity and BESS project. All of these additions support our long-term goal of decarbonization and the ongoing optimization of our portfolio. Furthermore, I want to mention that we have received the commercial operation date from the system operator for about 410 megawatts this year, resulting in a total of 1.6 gigawatts since January 2023. Moreover, during this period, Enel Generación, a subsidiary of Enel Chile, secured a 20-year term regulated PPA, representing sales of around 3.6 terawatt hours in the regulated auction, starting to deliver around 1.5 terawatt hours by 2027 and the remaining part to reach 3.6 terawatt hours in 2028. This aligns with Enel Generación's goal to diversify its sales and incorporate more long-term PPAs into its portfolio. On the regulatory front, we have significant updates to share. First, as you might know, the Chilean Congress approved the type III stabilization mechanism law. In July, the decree updating the regulated tariff was published. We are now awaiting the sovereign guarantee decree during the third quarter to initiate the factoring process. Second, the distribution tariff for 2024 became effective in June this year. The review process for the distribution tariff for 2028 is already in progress as expected, and I will provide more details on this topic later. In terms of profitability, I am pleased to announce that the first half showed solid EBITDA and net income results. This reaffirms our confidence in our guidance for this year. We achieved a positive FFO despite the tax receivables, which we expect to recover a portion of during the second half of this year. The positive effect of FFO reflects our strong operational performance for this semester. Lastly, we maintain a solid level of liquidity for future cash CapEx deployments. I will provide more details on this later. Now, let's look at updates on the hydrological situation on Slide 3. Favorable hydrological conditions in 2023 provided us with greater water availability in the first quarter. Additionally, above-average rainfall in the second quarter of 2024 enabled us to boost our hydro production, surpassing the levels recorded in the second quarter of 2023 by 72%. Consequently, in the first half of 2024, we accumulated 2.1 terawatt hours of hydro generation compared to last year. The hydrological status of our reservoir has also shown significant improvements compared to last year, especially in the south. With the water accumulated in our reservoir to date, we have enough capacity to meet our energy demand until the end of this year, despite the potential for a weak La Nina phenomenon in August and September. Based on these results, we have updated our hydro generation estimates to approximately 12 terawatt hours for 2024. We plan to complement this information once we have the results from the Ruta de Nieve studies, which will occur in the coming months to improve our snowmelt forecast for the fourth quarter. Now, let’s move to the next slide to review how we continue to enhance our portfolio of generation assets. We are persistently advancing our strategies towards a more efficient generation matrix, elevating our renewable capacity across various regions of the country, concentrating on solar near consumption areas, and integrating more batteries into our portfolio projects. In the first half, we achieved a total netting soil capacity of 8.7 gigawatts, with almost 250 megawatts of additional net capacity related to our solar plant with batteries, Don Humberto, located in the metropolitan region, and two additional projects with batteries: El Manzano BESS, also in the metropolitan region, and La Cabaña BESS in southern Chile. During this half, we received authorization from the National Electricity Coordinator to begin commercial operations for 410 megawatts associated with two solar plants: Las Salinas, a hybrid project located in the same area as Sierra Gorda Este, a 112-megawatt wind farm, and El Manzano, a solar plant near Santiago, close to the consumption center, alongside our wind farm La Cabaña located in southern Chile. Additionally, I want to inform you that we have completed the Los Condores hydro power plant. In September, we will reach a key milestone as we commence filling the tunnel with water to conduct what we refer to as the wet test. Subsequently, in coordination with the system operator, we will begin the testing process for Los Condores. Our objective is to complete the connection and testing by 2024. The deployment of our renewable plants aims to enhance the flexibility of our portfolio, which is currently 77% renewable-based. Notably, with everything mentioned above, we have finished the first wave of growth projects that formed part of our plan. Now on the following slide, we will examine the performance of our Generation KPIs. Net electricity generation totaled 12.1 terawatt hours as of June 2024, exceeding the prior year’s production in the first half by 15%, mainly due to increased hydro and renewable generation from improved hydrology and the operation of new projects. In the second quarter of 2024, net generation rose by 11% to 6.1 terawatt hours primarily due to higher hydro and wind generation. Our energy sales reached 17 terawatt hours in June 2024, marking a 10% increase compared to the first semester of last year, attributable to higher sales to both regulated customers and frequent clients. Importantly, we fulfilled our commitment to our clients with a higher portion of renewable generation, which also allowed us to reduce energy purchases in the spot market, mainly during solar hours. During the second quarter of 2024, physical energy sales increased by 11% to 8.5 terawatt hours largely due to greater sales to regulated customers. In terms of our balance, during the first semester, we raised our purchases from third parties by 1.5 terawatt hours as part of our ongoing effort to diversify our sourcing. Now on the next slide, we will analyze the performance of our main KPIs. In the generation business, we saw significant improvements in our KPIs during this semester. The renewable and BESS increased capacity reached 6.8 gigawatts of net capacity, accounting for 77% of our generation portfolio. This enabled us to achieve 74% CO2-free production, which is 13 basis points higher than the first half of 2023. Additionally, the energy sold in the generation segment reached 17 terawatt hours, reflecting a 10% enhancement compared to last year. I want to emphasize the substantial contribution of our renewable energy sources to our energy offerings, which continue to propel the electrification process. We improved our figures this semester when compared to last year. We increased the number of public and private charging points for electric vehicles by 25%, reaching nearly 3,000 charging ports. In terms of e-Home services and electrification indicators, we also saw improvements of 40% and 60%, respectively, compared to last year. Regarding public lighting, we achieved 372,000 lighting poles, a 1% increase from last year, primarily due to the maintenance contract with La Pincoya, Castro, and Huechuraba Municipality. In the Distribution segment, the number of clients in distributed energy within our concession area continued to grow by 2% and 3%, respectively, relative to last year. It is important to note that this quarter, we experienced significant weather events featuring heavy rains and snow, which impacted the stability of the electricity supply, influencing our quality indicators like SAIDI, SAIFI, and losses. Notably, the figures presented on this slide do not account for the effects of the maintenance events. Now on the next slide, let's review updates related to the regulatory content. As previously mentioned in our last call, in January, the Ministry of Energy introduced a bill concerning the stabilization of energy mechanisms aimed at continuing the PEC mechanism and alleviating projected increases for final customers. Simultaneously, we aim to enhance the client protection mechanism to allow for gradual repayment of accumulated debt with the generator and establish a transitory subsidy for the most vulnerable clients. This new law was discussed and approved by the Chilean Congress in April, published, and took effect on April 30. In June, the P&P decree was published, initiating the tariff updates for regulated clients, maintaining their location and monthly consumption. Clients consuming below 350 kilowatt hours had their generation component of the tariff updated by inflation, while those consuming above that level are anticipating an increase of about 35% as they begin to pay the real cost of electricity along with a new charge tied to the MPC. We are currently awaiting the issuance and publication of the sovereign guarantee decree, alongside a complementary set of rules and regulations necessary to initiate the factoring process. This guarantee will be presented to investors as part of the issuance coordinated by the IDB expected in the coming months. As of June 2024, we held an account receivable related to the PEC already net of factoring amounting to $904 million. Considering the interest adjustments of around $115 million, we totaled approximately $1 billion in accrual. With the upcoming issuance and publication of the pending regulations, we anticipate executing the factoring of the current accounts receivable in the second half of this year, expected to range from $550 million to $650 million. By year-end, we project net accounts receivable after factoring to fall between $350 million and $450 million. Present discussions surrounding the subsidy could potentially expand support to more families and mitigate further tariff increases. According to the recently approved law, $100 million will come from subsidies paid by consumers, particularly repeat customers, while $20 million will come from the treasurer of Chile. This $120 million will support approximately 1.2 million families. The families eligible for this benefit will be identified in September, with the distribution company applying the benefit retroactively from July starting in October this year. Congress is currently negotiating with executive authorities about possibly increasing this benefit to extend support to around 4.7 million families, raising the total subsidy to about $300 million annually as opposed to the current $120 million in place. Discussions on augmenting the subsidies remain under review by the government and Congress, and we expect the final proposal to be presented by mid-August. Regarding the distribution tariff review, the final regulatory decree for the 2020-2024 cycle was published in early June, meaning the new distribution tariff will result in a roughly 5% increase for finance customers in our concession area. For the 2024-2028 cycle, we received the consultant's technical report for review in July, which is currently being examined by the committee. The final record is expected to be published in early Q4 2024, and by year's end, we anticipate the regulator will release the preliminary technical report for this new cycle. We are more confident about the process, considering the consultant involved is the same as in the previous cycle, suggesting that prior discussions will be applicable to this process. Now let's review our earnings indicators. Our economic and financial performance has been robust in the first half and second quarter of 2024. As shown on the slide, both intervals saw significant improvements in EBITDA and net income compared to last year's figures, primarily driven by the excellent hydrological circumstances and a more efficient generation mix. For the first half of 2024, FFO also exhibited an increase, reaching $52 million, largely attributed to the rise in EBITDA, despite facing negative impacts from increased tax payments linked to Arcadia operations and a more substantial PEC accumulation. In the second quarter, FFO increased by $27 million in 2024 compared to 2023, arising from the same factors previously discussed. We will explore these details further on the next slide. Now turning to CapEx, our total CapEx reached $290 million in the first half, reflecting a 9% decrease from last year, as we concluded several renewable and solar projects since the second quarter of 2023. Of our total CapEx, 66%, amounting to $190 million, was directed towards renewable and storage projects, while 22%, or $63 million, was for distribution, primarily related to new customer connections due to our growing customer base, along with corrective maintenance of the network. Asset management CapEx stood at $87 million, constituting 30% of our total CapEx, a decrease of around 22% compared to last year, primarily due to increased CapEx in the distribution business focused on low and mid-voltage activities and maintenance within our generation fleet, chiefly in hydro and gas facilities. Lastly, development CapEx reached $167 million, representing 58% of our total CapEx, a 21% decrease compared to last year's figures as we near the conclusion of our renewable and BESS portfolio under construction. Moving to the next slide, we have a summary of the second quarter EBITDA breakdown. In the second quarter of 2024, our EBITDA amounted to $301 million, marking a 6.4-fold increase over the second quarter of 2023. I will outline the main impacts on this call, starting with the positive contributions. We saw a significant impact from PPA sales totaling $150 million, mainly due to increased volumes in regulated markets, as previously shown, and indexation in the free market. Another notable factor this quarter was industrial sourcing, contributing $70 million, largely stemming from reduced variable costs due to lower commodity prices and thermal generation, considering the hydrological situation and enhanced generation mix during this quarter. A further positive impact of $60 million arose from commercial sourcing, primarily due to lower stock market prices also driven by significantly enhanced generation during the period. Additionally, we observed a positive effect of $12 million linked to the grid margin, mainly due to grid remuneration associated with the VAD 2024 regulatory report's publication. Finally, there was a $13 million positive effect regarding OpEx and other factors, driven primarily by higher capacity payments from new projects, which more than balanced the higher OpEx related to these new renewable projects. These positive effects were partially countered by a negative impact of $7 million associated with the larger gas activity conducted in the second quarter of 2023. We also faced a $10 million negative impact from the Metka PPA agreement signed in 2023. Let us now proceed to the next slide to review the overall impact on EBITDA in the first half. For this period, our EBITDA was 74% higher than last year, reaching $597 million. Let’s highlight the positive influences. We had a contribution from PPA sales amounting to $168 million, primarily linked to increased volumes in the regulated market and overall indexation in the pre-market, consistent with the effects mentioned previously in the quarter. Additionally, there was a crucial effect of $160 million stemming from industrial sourcing, mainly due to lower variable costs driven by decreased thermal generation resulting from favorable hydrology in the period and a more efficient generation mix reflecting positive AG instrument effects versus 2023. We also saw a contribution of $108 million from commercial sourcing, largely due to lower prices and volume related to spot market purchases. This effect was somewhat offset by increased third-party purchases. Also, we recorded a positive effect of $16 million credited to the grid margin, as previously explained, stemming from recognition of the VAD 2020-2024 period. In terms of OpEx and others, we noted a positive impact of $16 million, mainly due to the same reasons previously detailed, related to higher capacity payments from new projects mitigating the higher OpEx incurred and higher expenses for climate-related contingency plans during the second quarter of 2024. These positive effects were partially mitigated by a negative effect of $124 million associated with significant gas trading activity during the first half of 2023 for around 2020 terabtu. Additionally, we experienced a $35 million negative effect related to the Metka PPA agreement signed in 2026. Moving to the next slide, let's review the evolution of our net income, which stands at $267 million. Our net income increased by 2.2 times compared to last year's figures largely attributed to the EBITDA results. I'll walk you through the other effects for the first half. Increased depreciation and amortization, alongside a bad debt of $34 million, largely arose from higher depreciation in energy and power due to the operationalization of new renewable capacity, along with higher bad debt accruals in Green, driven by increased expected credit losses among residential customers. In terms of financial results and equity investments, we noted a $6 million reduction compared to last year, primarily due to heightened interest associated with PEC receivables, countered by greater financial expenses and diminished financial income correlated to lower average interest rates. Income taxes rose by $57 million, largely because of improved results for the period, which was partially offset by lower costs from the reclassification of assets held for sale in 2023, particularly those associated with Arcadia. In focusing on the quarter, our net income jumped by $137 million, primarily due to the increased contribution from EBITDA, which was partially balanced by rises in D&A and bad debt of $21 million, largely attributable to a $15 million impact related to the operation of new renewable capacity. Bad debt increased by $6 million primarily due to an uptick in credit losses among residential customers in the distribution sector. These trends culminated in higher financial expenses and lower financial income tied to reduced cash levels and lower average interest rates. An increase in tax expenses of $58 million during the period stemmed from earnings recorded before tax losses in the second quarter of 2023, combined with positive EBITDA in 2024. Moving to FFO analysis, the figures for 2023 have been adjusted by $310 million allocated in taxes on capital gains from the 2022 sale of Enel Transmission. For the first half of 2024, our FFO totaled $52 million, signifying a $56 million improvement over the comparable period in 2023. Comparing FFO for the first half of 2024 with balances for 2023, we note an EBITDA contribution of $597 million leading to a variation of $254 million relative to last year, primarily due to heightened PPA sales and positive outcomes in industrial and commercial sourcing, as previously highlighted. There was a $216 million negative effect due to the cumulative stabilization mechanism’s impact on our receivables, which was partially offset by the execution of IDB factoring linked to the PEC amounting to $70 million this first half. When compared to last year's figures, the net effect of PEC adjusted by factoring yielded a total of $147 million, an amount that is $15 million more than last year. Working capital showed a negative balance of $142 million, primarily stemming from payments made in 2023. Compared to last year, working capital was $19 million lower, chiefly attributed to the sale of our Santa Rosa headquarters in 2023, countered by heightened accumulation of VAD tax credits and payments forthcoming from Santa Rosa feedback. Income tax also adversely impacted our FFO results by $137 million, largely derived from increased tax payments in the generation sector in 2024 and taxes on the sale of Arcadia assets. Comparing tax payments in the first half of 2024 with those in the first half of 2023, we observe a negative balance of $135 million, impacted mainly by tax payments from Arcadia operations, recoveries from previous periods secured in 2023, and lower tax payments in the generation sector. Lastly, regarding financial expenses, the first half experienced a negative effect of $120 million, largely linked to debt-related expenses. Comparing this first half's financial expenses with last year's, we observe a balance of $32 million, largely attributed to reduced financial income correlating to diminished cash positions and lower average interest rates. Now let’s assess our liquidity and leverage position. Our gross debt rose by 8% to $4.8 billion as of the end of June 2024 compared to December 2023. This rise in debt was mainly due to increased working capital requirements and CapEx needs for 2024. We expect this higher gross debt will reverse in the second half of 2024, considering the seasonal nature of our generation business and the on-going factoring under the PEC that we anticipate executing soon. The average term of our debt maturity slightly declined to 5.9 years by the end of the first semester in 2024, versus 6.1 years in December 2023. Fixed-rate debt constitutes 76% of our total debt. As of June 2024, the average cost of our debt stood at 5%, slightly higher than the 4.9% recorded in December 2023, largely due to the maturity of the Enel Generación Yankee bond in April 2024 for $100 million at 4.25%. Regarding liquidity, we have a strong position to meet our capital needs in the coming months and manage next year's maturities. As of June 2024, we have available committed credit lines amounting to $750 million and cash and cash equivalents totaling $305 million. To conclude this presentation, the first half of this year was pivotal in terms of updates to the regulatory framework. The VAD 2020-2024 decree and the approval of PEC three were succeeded by the publication of the PNP decree, marking a critical milestone as we commence factoring in the third quarter of 2024. Currently, the regulatory focus is on potential amplifications of subsidies for vulnerable families. We understand the significance of this moment and are closely monitoring developments. We will provide any necessary guidance to the authority and associations per formal protocols. Nonetheless, we anticipate that the State of Chile will make prudent decisions in this regard, maintaining the security of the regulatory and market landscape. I want to emphasize the increased emphasis on flexible technology within our generation markets. As indicated, all committed megawatts of renewable generation and BESS have been efficiently delivered. As previously mentioned, we are also finalizing the Los Condores hydropower plant by the end of this year. In summary, this quarter highlighted our strong operational and financial performance in the first semester. The achievements stem from our strategic actions to unlock value, giving us confidence in our guidance for 2024. I will now turn the floor over to Isabela.

Isabela Klemes, Head of Investor Relations

Thank you, Giuseppe. Let's now begin with the Q&A session. We will receive questions via phone and chat in the webcast. The Q&A session is open. Operator, please you may start.

Operator, Operator

Thank you so much. One moment for our first question, and it is from Alessandro Di Vito with Mediobanca. Please proceed.

Alessandro Di Vito, Analyst

Hi, thanks for taking my question. I have three. The first one is on the PEC mechanism. So, I wanted to understand you said that you have more or less $1 billion to recover. I wanted to understand if this amount can move or is it still? Because I saw that on your cash flow, you booked additional $200 million in this first half. So I wanted to understand if you could either move upwards or downwards? And then you said that you expect to recover, let's say, $600 million of receivables by the end of the year but the whole amount is going to be fully recovered by 2025. So I wanted to understand the trajectory of the remaining $400 million? This was the first question. The second question is on the update of distribution tariffs. I wanted to understand if the conclusion of the review for 2020-2024 tariffs had some impact on your numbers? And you also said that you expect a 5% increase in tariffs for the next update for 2024-2028. So, I wanted to understand which impact this may have on your numbers? And the last question is on guidance. So you confirmed the guidance for 2024. If I remember correctly, the guidance was based on an assumption of a 10 terawatt hour hydro output. But now we see that the projections are pointing more towards 12 terawatt hours. So I wanted to understand whether this guidance is conservative? Because, looking at the numbers, we are more or less halfway through the year and they are off the number of the guidance. So I just wanted to square the circle on this matter. Thank you.

Giuseppe Turchiarelli, CEO

Okay. Starting from the first one. As I said, we have at the end of June, we had $1 billion. That includes also around $150 million in terms of income. Now, the evolution of the PEC is based on the exchange rate U.S. dollar-pesos because I remind you that we have the PPA in dollars even if the payment of the receivables is in pesos. So, we have a certain trend at the end of the year but again this trend is strictly linked to the exchange rate FX. The recovery that we expect in 2024, of course, is strictly linked to this factoring process. The remaining part is going to be recovered between 2025 and 2026. I would like to remind you that the PEC 1 was seen to have a mechanism of recovery that is going to finish in 2027. So, approximately we have, but again this is just an estimation so far. We are going to recover another $200 million in 2025 and the remaining part between 2026 and 2027. These are basically the current estimations that we have today. For what concern the tariff update 2020-2024, as I said, we have an increase in our number of around $15 million in June versus last year. You have to consider that this amount includes also around $7 million that are part of the recognition referring to the previous year. You have to consider that this tariff decree is basically adjusting a situation that was absolutely external because we are at the end of the process and only now we got the final tariff. So, part of this increase is related to the adjustment from 2020-2023. And for what concerns the next regulatory cycle 2024-2028, let me say that the technical report that we have received aligns with our strategic plan. So, basically, we don't see any kind of situation that could so far affect the strategic plan. Clearly, we are going to give us our feedback, and we are going to try to understand which is the best tariff for covering the several aspects of the distribution company, but as of today, we don't have any kind of issue for the PEC technical report. In terms of guidance, well, what I can tell you is that as of today, we confirm our guidance of course. What we declared on the last Capital Market Day was the range. And as of today, I can confirm that we are in this range. Clearly, we are still trying to understand which are the results of the estimation and that will give us further information to understand how the hydrological season will be in the following months. But as of today, I can tell you that we are in the range of the guidance.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Giuseppe. Operator, do we have more questions coming from the line?

Operator, Operator

Yeah. Thank you. One moment for our next question and that is from Maria Florencia Mayorga Torres with MetLife. Please proceed.

Maria Florencia Mayorga Torres, Analyst

Thank you. Thank you for taking my questions. Just a follow-up regarding the receivables, so for this year how much are you expecting to be able to monetize?

Isabela Klemes, Head of Investor Relations

Thank you, Florencia.

Giuseppe Turchiarelli, CEO

Well, for what concern the receivable that is currently affecting our generation company. As I said, in the June closing, we have approximately $1 billion. If everything is going as expected in the second half, between I would say, September and October, we should be able to proceed with the factoring process, so we should have around $450 million and $600 million of outlook.

Maria Florencia Mayorga Torres, Analyst

Okay.

Giuseppe Turchiarelli, CEO

This is the EBITDA.

Isabela Klemes, Head of Investor Relations

Thank you, Florencia. Operator, do we have more questions coming from the line?

Operator, Operator

Yes. I have one more question from the line of Martín Arancet with Balanz. Please proceed.

Martín Arancet, Analyst

Hi. Thank you for the presentation and for taking my questions. I have three questions. I would like to run them one by one, if that's okay. First, we learned that Santiago electrical expressed a desire to see the Santiago electrical that was even stimulated in order to address potential issues with quality of service. I was wondering if this could affect the distribution of Chile Opex and CapEx plans and if so, about how much?

Isabela Klemes, Head of Investor Relations

Thank you, Giuseppe.

Giuseppe Turchiarelli, CEO

Yeah. The extreme weather events that we had in May affected our supply of energy into our work. It was very complicated, because of rain and also temperature. And clearly, we had some costs associated with it which are approximately $10 million, and clearly we are in discussion with BESS to understand how to manage this situation. We don't have any further information about that.

Martín Arancet, Analyst

Okay. Well following up then on energy solution. And I'm sorry because I think that you already mentioned this, so I may be asking you to repeat yourself. But I want to understand the situation around poor household power bills? So if you could please tell us which hikes have already been implemented by July? I guess that the ones related to Valor Agregado the distribution already implemented. I was wondering which hikes have been implemented in the energy component? And also specifically about the surcharge for large customers related to the PEC grade payment if that has been already implemented in the power bills also?

Isabela Klemes, Head of Investor Relations

Okay. Thank you. Giuseppe?

Giuseppe Turchiarelli, CEO

For what concern the tariff adjustment in the distribution segment, we have two kinds of adjustments depending on the cluster. For clients that consume lower than 350 kilowatt hours, the increase is going to be around 16%. This increase is the result of three components. The first one is the update of VAD 2020-2024. That represents 5%. So basically the increased tariff associated with the VAD 2020-2024 for the distribution company is around 5%. The remaining part is split between an increase in the tariff coming from the update transmission regulatory framework, which is around 4%, and finally, we have 8%, which is associated with the generation segment. This is for the cluster of clients lower than 350 kilowatt hours. For those consuming more than 350, the increase in tariff is higher because we have a distribution segment increase of 5%, transmission 4%, and an increase in the segment for the generation company that is around 33%. This is because for these customers, we are going to apply the cost of PPAs that the tenders in the past year have been resulting. For the PEC, the PEC that we're going to factorize by the end of the year includes also the interest.

Martín Arancet, Analyst

Is there a date for these increases, sorry?

Isabela Klemes, Head of Investor Relations

The date of this increase?

Giuseppe Turchiarelli, CEO

It's already in place.

Martín Arancet, Analyst

Okay. Thanks. Well, my last question then regarding the El Manzano and La Cabaña batteries. I think that they were connected, if I'm not mistaken, before. They are co-located generation plants that started operations. So I was wondering what is the remuneration mix that you expect to receive from these? For the moment, sale on batteries is shut spot trading or also capacity payments, and perhaps some ancillary services as well? And also, who will be in charge of deciding the charging and discharging times of these batteries? Is it going to be Enel Chile or the system operator?

Giuseppe Turchiarelli, CEO

Okay. Look, for what concern these batteries, the composition of the revenues is basically coming from the capacity payment and the energy shift. These are the main components of the remuneration of this plant. The ancillary services we are waiting for an update in the regulation by the end of this year. As soon as it goes into force, we are going to have also an additional revenue stream coming from this. These two projects are retrofitting, so basically they are jointly to another renewable project, in this case, El Manzano. In this case, we are talking about a solar power plant. So, basically, they are charging from the solar power plants, but the regulation allows us to charge the battery also by the grid. So, depending on the situation, we are going to use one of the two.

Isabela Klemes, Head of Investor Relations

Thank you, Giuseppe. Operator, do you have more questions coming from the line?

Operator, Operator

Yes, I do. One moment for a follow-up from Alessandro Di Vito with Mediobanca. Please proceed.

Alessandro Di Vito, Analyst

Hi again. Thank you for taking my questions. I have a couple of follow-ups. The first is regarding PEC. You mentioned that the general framework for recovering the PEC-3 receivables extends to 2025, but you aim to recover the entire $1 billion before 2027. Is that correct? You also stated that you have this $1 billion as of June 2024, with $150 million related to interest and $850 million related to tax receivables. Is that right? In this case, the $850 million is what remains, while the $150 million related to interest may fluctuate in the coming months. This is my first follow-up. The second follow-up is for clarification on the tariff updates. You said you expect a 5% tariff increase for the next regulatory period from 2024 to 2028, but the $16 million included in your numbers pertains to the update that concluded for 2020 to 2024. Can you confirm this? Thank you.

Isabela Klemes, Head of Investor Relations

Thanks, Alessandro. Giuseppe?

Giuseppe Turchiarelli, CEO

Yes, we will aim to provide clearer information. Currently, we have $1 billion, which includes $150 million in interest. By the end of the year, we expect to factor approximately $550 million to $650 million. The remaining amount will be recovered through standard mechanisms rather than factoring. By the end of 2027, we anticipate an increase in our outstanding credit. Moving forward, we expect to accumulate a small remaining portion of credit, which we will recover in the coming year. Regarding the update on tariffs, the impact on the distribution company will only be due to a 5% increase, as the other components, specifically international transmission, will be handled by the international and establishment companies. Therefore, the margin seen is solely linked to the 5% increase.

Alessandro Di Vito, Analyst

For the next regulatory period 2024-2028, right?

Giuseppe Turchiarelli, CEO

No. For the 2024-2028, we are still understanding how it's going to be the...

Alessandro Di Vito, Analyst

Okay. I just wanted to understand what regulatory period was related to the $15 million which relates to the 5%. So it's...

Giuseppe Turchiarelli, CEO

First one.

Alessandro Di Vito, Analyst

Okay.

Giuseppe Turchiarelli, CEO

As of today, at least the information that we got is in line with our expectations. So, we don't see a drop today, we don't see any kind of worry, but it's too early to understand how it's going to be, the tariff.

Alessandro Di Vito, Analyst

Okay. Thank you so much.

Isabela Klemes, Head of Investor Relations

Let's go to another question now coming from Felipe Torres from ISP Abita. So the question is, could you explain the better results in the Distribution segment? Is it related to the tariff decree of June?

Giuseppe Turchiarelli, CEO

Yes. The tariff decree permits energy distribution to revise past provisions regarding the VAD 2024. Until June, we estimated the provision based on projected tariffs, but now we have the final figures. We have begun implementing these final amounts and are recovering part of the adjustments made last year. This is the primary reason for the increase in the distribution company. Of course, there are several other factors at play, such as demand and inflation. However, in terms of the decree, this amount is significant for the company as it addresses the gap from last year.

Isabela Klemes, Head of Investor Relations

Okay. Also now on distribution, we have received some questions coming from our e-mail. Some retail investors are asking us, not regarding the impact of the current tariff discussions on Enel Chile. The question is whether the published tariff decree explains the results of Enel Chile as indicated by the press?

Giuseppe Turchiarelli, CEO

Let me clarify the point. Regarding the generation company, the tariff decree does not impact EBITDA at all. Since the first PEC law was issued, we have been making provisions according to the PPA in place, so there is no increase in the PPA due to this tariff increase. This is why we have PEC receivables. We have consistently applied the correct PPA price, and the payments we have received are only part of this PPA price, which explains the PEC receivable. As for the target decree, the only impact related to our performance increase concerns the distribution company. Distribution is beginning to accrue according to the current tariff for about three years, which accounts for around $15 million, roughly half of which comes from adjustments of the previous year. In summary, the current decree has affected our performance by a very minimal amount.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Giuseppe. Now we joined two questions here, one from Fernan Gonzalez from BTG. So Fernan is asking us how and when do you expect to receive payments from the accumulated debt in the distribution segments from the delay of 2020-2024 decree?

Giuseppe Turchiarelli, CEO

Okay. Our estimation is that we are going to receive the accumulated debt at the beginning of next year – in the first quarter of next year. This is the estimation that we have as of today. I don't believe that we're going to get any kind of adjustment by the end of the year.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Giuseppe. Now we joined two questions here one from Fernan Gonzalez from BTG. So Fernan is asking us how and when do you expect to receive payments from the accumulated debt in the distribution segments from the delay of 2020-2024 decree?

Giuseppe Turchiarelli, CEO

Okay. Our estimation is that we are going to receive the accumulated debt at the beginning of next year – in the first quarter of next year. This is the estimation that we have as of today. I don't believe that we're going to get any kind of adjustment by the end of the year.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Giuseppe. Now we joined two questions here one from Fernan Gonzalez from BTG. So Fernan is asking us how and when do you expect to receive payments from the accumulated debt in the distribution segments from the delay of 2020-2024 decree?

Giuseppe Turchiarelli, CEO

Okay. Our estimation is that we are going to receive the accumulated debt at the beginning of next year – in the first quarter of next year. This is the estimation that we have as of today. I don't believe that we're going to get any kind of adjustment by the end of the year.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Giuseppe. We do not have any more questions. So we would like to thank you all for being connected today. And as always if you have any other doubt the Investor Relations team will be available. Have a great end of week. Bye-bye.

Operator, Operator

And thank you all for participating in today's program, and you may now disconnect.