A Review of The Liberalization of the Argentinean Electricity Sector Darío R. Gómez (CNEA) Eduardo Lerner (ENRE) Osvaldo Postiglioni (ENRE) Carlos F. Rey (CNEA) Comisión Nacional de Energía Atómica

Introduction At the beginning of the 90´s a deep reform was introduced in the electric power sector of Argentina. To secure a reliable supply of electricity with appropriate quality conditions To achieve efficiency in the usage of productive factors To order an put on a sound financial basis the fiscal relationship between the electricity sector and the state To establish a regulatory framework appropriate to encourage risk investment from the private sector

Electricity Sector Organization SECRETARIAT OF ENERGY NATIONAL STATE Regulatory Commission Generators MARKET Transporters Distributors Large Scale Users

Wholesale Electricity Market Private Generators State-owned Generators Binational Generators International Interconnections (imports) Supply Distribution Companies Large Scale Consumers International Interconnections (exports) Demand TRANSMISSION WEM Long Term Agreements 2. Seasonal Market 3. Spot Market

Non Profit Organization. In charge of the administration of the Wholesale Market. Economic Dispatch. Hourly prices. Members: l Generating Companies l Distribution Companies l Transport Companies l Large Users Stakeholders in the Electricity Sector GENERATION TRANSPORT AND DISTRIBUTION LARGE USERS CAMMESA Competition. Free Entry. Prices are not regulated. Declared as General Interest Natural Monopolies. Concessions. Regulated Prices. Third Party Access. No discrimination. Declared as Public Service Freedom to Contract. Members of the Wholesale Market. Their supply is competitive.

Electric Regulatory Framework Act ACTS AS AN INSTANCE OF APPEAL IN CASE RESOLUTIONS GIVEN BY ENRE ARE REJECTED ISSUANCE OF RULES FOR THE ECONOMIC DISPATCH SECRETARY OF ENERGY CAMMESA ECONOMIC DISPATCH OPERATION COMMERCIAL TRANSACTIONS REGULATION CONTROL FEDERAL JURISDICTIONAL ENRE ADMINISTER NATIONAL FUND OF ELECTRICITY GIVES ADVISE TO E.P AND CONGRESS FEDERAL ENERGY COUNCIL

Regulation PRICE CONTROLS QUALITY CONTROLS OBLIGATION TO SUPPLY THIRD PARTY ACCESS Prices, like under perfect competition, are determined outside the firm. Therefore, profit maximization must be achieved through managerial efficiency (cost reduction, optimization of investment decisions etc). The existence of captive demand (there are no alternative suppliers) creates the need for product and service quality controls Distribution companies have the obligation to meet all demand. They can not discharge this obligation on the basis of lack of generation or transport facilities. Transport and Distribution companies must allow third party access to lines if there is spare capacity.

Privatization SEGBAHIDRONORAgua y Energía Eléctrica 5 thermal power plants 3 distributors 5 hydropower plants 4 transmitters 1 distributor 1 transmitter 9 thermal power plants 8 hydropower plants Assets that belonged to several provinces were also privatized and incorporated to the WEM

Performance of the Electricity Sector under the Liberalization Number of Members of the WEM

Generation TOTAL WEM + WEMPS TOTAL GWh WEM October 2000January -October 2000 Self-generation and cogeneration. Imports not included. Maximum capacity declared according to demand satisfied at WEM = Installed Capacity (MW)Energy Generated (GWh)

Generation - Installed Capacity

Generation by company

Generation - Prices Energy Prices Sharply decreased from 1992 as result of a new Electric Market Design ENERGY AND SPOT MEDIUM PRICES

Installed and Demand Capacity by Area Source: ENRE NOA NEA CENTROCUYO BA-GBA Litoral COMAHUE MEMSP CapacityDemand NOA 1225 MW 952 MW NEA 3248 MW 522 MW CUYO 1276 MW 722 MW CENTRO 2150 MW 1228 MW BA-GBA Litoral 8440 MW 9635 MW COMAHUE 5771 MW 476 MW MEMSP 836 MW 519 MW

Source: Enre Transmission Grid Lines 330 kV1.100 Lines 500 kV9.292 Lines 220 kV 500 Transmission Length in km Lines 132 kV6.000

è 95 years concession & 15 year management periods. è Free access to purchasers & sellers. è Remove obstacles to purchase or sell energy. è Remuneration for the operation & maintenance. è Quality conditions compliance. è Different grid expansion mechanisms. Transmission

Distribution CHARACTERISTICS u Natural monopoly with regulated tariffs u Submitted to a regulatory framework u Obligation to meet demand and ensure adequate service. u Open access to third parties u Tariffs must be fair and reasonable covering operating costs, taxes, amortization and a rate of return u Quality standards established by concession contract.

u Incorporation of a new generating units to the WEM and phase out of old ones u Improvement of the efficiencies of dispatched thermal machines u Environmental attitude of new business units u Replacement of other types of energy by electricity Main aspects related to the environmental performance of the electricity sector

u Decreasing technical and non-technical losses u Role of the community u Unrestricted fuel choice u No interest for hydropower projects by part of the private sector Main aspects related to the environmental performance of the electricity sector

3 Environmental Management Manuals for - hydropower plants - thermal power plants - ultra high voltage transmission lines The Advisory Council on Licensing of Nuclear Facilities of CNEA was in charge of the regulatory role for all nuclear activities Environmental Policy applied to the Electricity Sector - Until 1992

Transmission & Distribution: -Public security risks -Waste treatment Generation: -Gas effluents control -Liquid effluents control -Noise levels -Environmental monitoring of radioisotopes Environmental Controls since 1992

Environmental Impact Assessment -Mandatory for new facilities -Mandatory to authorize modifications of power plants or extensions of the systems of transmission or distribution -Requires a public hearing where third party comments, objections and petitions are received

Environmental Legislation in Argentina -Amendment of National Constitution defines the division of roles on environmental protection of national and provincial authorities -Minimum standards must be established at National level -Neither roles or minimum standards are defined -Competence overlapping and impairment of the coordination of administrative environmental activities

Economic Incentives -No economic incentive apart from dispatch priority was included in the privatization scheme -Secretary of Energy maintained programs on rational use of energy and non-conventional energy sources -Act of 1998 assigns a special regime for wind and solar energy through tax benefits -ENRE has started a discussion process on the tariff for the distribution concessionaires

Trends in the Environmental Impact of the Liberalized Electricity Sector -An exercise on the prospective development of the generation sector of the WEM -Hypothesis: 5% annual increment of demand, 3000 MW exports to Brazil, no imports from Brazil, no exports to Chile, level increment of Yacyretá dam -Results: future installation before 2020 of MW mostly in thermal power units

Energy Exchange GAS ELECTRICIDAD PETROLEO con CHILE : G1: GASANDES - 2,5/5 MMm 3 /día G2: SAN ISIDRO - 1,8 MMm3/día G3: AGUADA PICHANA/S.ROQUE - 1,58 MMm 3 /día G4: NORGAS - 3,7 MMm 3 /día G5: ATACAMA - 2,5 MMm 3 /día G6: METHANEX (1) - 2 MMm 3 /día G7: METHANEX (2) - 2,75 MMm 3 /día con BRASIL : G8: URUGUAYANA - 2,5 MMm 3 /día G9: BRASIL - 5 MMm 3 /día con URUGUAY : G10: URUGUAY- 1,5 MMm 3 /día con URUGUAY : EE1: Salto Grande (500kV) - CH Binacional 1890 MW C.Elía-San Javier (500kV) – Contrato 400 MW firmes con PARAGUAY : EE2: El Dorado-C.A. López (132kV) EE3: Clorinda-Guarambaré (220kV) – 150 MW no firmes EE4: Yacyretá (220kV) - CH Binacional 2700 MW con BRASIL : EE5: P.Libres-Uruguayana (132kV) – 50 MW no firmes EE6: Garabí (500kV) – Contrato 1000MW firmes con CHILE : EE7: Güemes-Atacama (345kV) MW, 5000 GWh/año con CHILE : P1: 15 Mm3-día G7 G4 G1 G2 G10 EE3 G9 P1 G3 G6 G8 EE1 EE5 EE6 EE7 EE4 G5