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Distribution Tariffs in Brazil

Distribution Tariffs in Brazil. Martín Rodríguez Pardina. Brazil: Main Characteristics. Area 8.5 M km2 Population 170 Millions GDP pc U$ 3000 10th largest economy of the World Federal country 27 States Electricity Coverage 93% All electric activity is of Federal Jurisdiction.

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Distribution Tariffs in Brazil

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  1. Distribution Tariffs in Brazil Martín Rodríguez Pardina

  2. Brazil: Main Characteristics • Area 8.5 M km2 • Population 170 Millions • GDP pc U$ 3000 • 10th largest economy of the World • Federal country • 27 States • Electricity Coverage 93% • All electric activity is of Federal Jurisdiction

  3. 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 south-east region • North region served by small thermal units (diesel)

  4. 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)

  5. 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

  6. 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)

  7. 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

  8. 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

  9. 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

  10. 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)

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