Distribution Tariffs in Brazil Martn Rodrguez Pardina Brazil

Distribution Tariffs in Brazil Martín Rodríguez Pardina

Brazil: Main Characteristics Area 8. 5 M km 2 Population 170 Millions GDP pc U$ 3000 10 th largest economy of the World Federal country 27 States Electricity Coverage 93% All electric activity is of Federal Jurisdiction

Brazil’s Electricity Market Characteristics of the Brazilian Market: Large market with over 47 millions customers Predominantly hydro generation Very long transmission network Market concentrate in the south-east region North region served by small thermal units (diesel)

Brazil: Distribution Main Characteristics Market served by 64 concessionaires (public service) covering the whole country 20 State concessionaires under Federal, State and Municipal control 44 Private companies controlled by large domestic and international investors 47 millions customers of which 85% are residential Coverage of over 99% of the towns and 93% of total population (71% in rural areas 99% in urban)

Brazil: Regulatory Agency (ANEEL) Created by Law 9. 427 passed December 26 1996 Agência Nacional de Energia Elétrica - ANEEL, is an autarkic agency under the Mining and Energy Minister Main functions: Regulate and control generation transmission and distribution balancing the interest of consumers and other agents having as main goal the public interest. Arbitrate in any conflicts between market members or between a member and consumers Give concessions, permits and licenses for electric works Guarantee fair and reasonable tariffs Look after quality of service Impose investments on regulated companies Promote competition Ensure universal service

Brazil. Distribution Tariffs Price cap regulation of distribution companies established by law (1996) Indexed to inflation on an annual basis Subject to efficiency factor (X-factor) Periodic review every 4 years Tariff divided into Manageable costs (price cap) Non-manageable costs (pass-through)

Brazil. Distribution Tariffs (cont) Non Manageable costs (Type A Costs) Energy cost Transmission costs Fuel costs (CCC – fuel costs account) Taxes Financial contribution for hydro studies Manageable costs (Type B Costs) Total costs – A Costs

Brazil. Distribution Tariffs (cont) Indexation rule IRT: Tariffs Adjustment Index VPA: Type A Costs VPB: Type B Costs IVI: Price index (70% wholesale 30% retail) RA: Total Annual revenues

Brazil: Tariff Reviews Only 2 companies have gone through the 4 year review so far Busy schedule from now on: 17 Companies under review in 2003 26 Companies under review in 2004 27 Companies under review in 2005 1 Company under review in 2006 3 Companies with review date not defined

Brazil: Tariff Review Main topics under methodological analysis by ANEEL Cost of Capital (Country Risk) Capital Structure (leverage and U$ denominated debt) Benchmarking (alternative techniques and data constraints) Non regulated activities Efficiency Factor (X) Regulated Asset Base (main source of controversy with private companies)