Case Study on Loss Manegement in Brazilian Utilities Marcos Aurélio Madureira da Silva Corporate Commercial Director Sistema Cataguazes-Leopoldina

 Brazilian electricity market overview  NTLs concepts  SCL’s losses fighting history  New challenges to reduce NTLs  Revenue Intelligence case study in SCLAgenda

Introdução  Informe o motivo da discussão  Identifique-se BRAZIL OVERVIEW 8,500,000 SQUARE KILOMETERS 62 ELECTRIC UTILITIES AROUND 180 MILLION INHABITANTS AROUND 53 MILLION CUSTOMERS

Brazil – Electrical Sector  Electrical Companys o Generation (almost all State owned) o Trasmission(almost all state owned) o Distribuition (almost all privatized)  Regulatory and Control o ANEEL – Regulatory Agency o ONS – G and T Independent System Operator o CCCE – Energy Trading Contracts Energy Bids Spot Market o Free Customers

Sistema Cataguazes- Leopoldina Northeast of Brazil Southeast of Brazil Brazil SAELPA Área: Km 2 Costumers : 861 thousand Inhabitants: : mil Área: Km 2 Costumers : 137 thousand Inhabitants: 450 mil Área: Km 2 Costumers : 455 thousand Inhabitants: : mil Área: Km 2 Costumers : 390 thousand Inhabitants: : mil Sistema Cataguazes Market Share ,8% of Southeast 9,0% of Northeast 2,0% of Brasil REF: 2005mar

REVENUE PROTECTION IS PART OF A PERMANENT FINANCIAL POLICY Sistema Cataguazes- Leopoldina

Cash-flow consequences of NTLs : Vicious cycle Reduce Investment Capacity and Operational Efficiency Reduce CAPEX Reduce EBITDA NTLs reduce EVA EBITDA - Earnings Before Interest, Tax, Depreciation and Amortization; EVA - Economic Value Added; CAPEX - CAPital EXpenditures.

SCL –Corporate Management Process BOD BUSINESS MANAGEMENT UNIT DEPT. MANAGER OPERATOR GOALS PROJECTS ACTION PLANS REPORTS MONITORING RELPORTS MONITORING REPORTS MONITORING NEGOTIATION

SCL - Commercial Losses Main Activities and Results  Main Activities o Field Inspections o Fix Irregular connections o Fix Damaged Meters o Fix metering instalations o Fix bad registers  Results o +50% reduction of commercial losses since 2001 until % 2001 December 4,3% 2004 December

 PROFITABILY x AFFORDABLE SUPPLY RATES o Regulators push utilities to decrease commercial losses (refusing to transfer NTLs to the tariffs) o Shareholders push top-management to achieve positive EVA (profits greater than cost of capital) o Government, Regulators and Users push utilities increase quality of energy while reducing rates Challenge : Reduce NTLs

Challenge : How to Reduce NTLs  Lack of human and financial resources to perform all necessary actions o Field investigation, service orders  to reduce fraud / theft / commercial losses o Debt negotiation, consumer disconnection (where permited by law)  to reduce receivables losses o Internal process optimization and auditing  to reduce administrative losses

Challenge : Reduce NTLs  There are new distribution solutions

Distribution solutions

Meters installed on the pole

Challenge : Reduce NTLs  There are new distribution solutions o But they are expensive…  As time goes by, frauds has became more sophisticated  Criminal organizations selling “energy theft services”  Endless mouse-cat game

New Challenges  We need to increase the search frauds process efficiency o How much ? o Where? o How kind?  To optimize NTLs reducing process o What are the priorities? o How the actions must be doing? o What is the adequated solution? o How is the optimal mix (New installations X Inspections)

Data analyses o We have a lot of data Billing systems Meter systems Electrical Operation Measurement Systems Distribuition Electrical System Manegement Costumer Care system Irregularities detected by meter readers o Those data are usually separated o We need to put them together o We have to think, plan and act with intelligence

Loss Reduction Strategies employed  Which technologies should be employed, in what consumers ?  Limited financial resources  it is necessary to optimize the resources AMR with PLC Anti-theft cables, meters and seals Load balance up to transformers Change of pattern for input and distribution Which consumers should be inspected ? Universe of consumers

Graphs for productivity of inspections Productivity without RI Cost Energy  Recovered + Aggregated Optimal Point for energy / cost Increase of energy with same cost Productivity with RI

SAELPA – Revenue Intelligence results  Recovered Energy (MWhR) o MWhR (May/03-Dec/03)  before RI o MWhR (May/04-Dec/04)  after RI o Increasing  67,05%  Aggregated Energy (MWhA) o MWhA per Inspection o 0,028 MWh/month  0,048 MWh/month o Increasing  71%

Revenue Intelligence - SAELPA CompanyAnnual sales Recovered energy annual increasing Aggregated energy annual increasing Total energy annual increasing % of increasing in relation to annual sales Annual estimative of required energy reduction SAELPA2.280 GWh7,63 GWh11,98 GWh19,61 GWh0,86%3,6 GWh

Summary of Results in SCL-SAELPA  Results of RI in SCL (one year after implementation): o Find NTL, uncover unknown NTL o Productivity increased (energy recoveried / inspections) more then 67%, forecasting 0,86% annual increasing in total revenue o Increased efficiency of investigation team up to 36% (average); some rules already achieved 73% efficiency o Creation of a NTL Reduction Intelligence Dept. to reduce NTL and keep it low o Auditable results and statistics to demonstrate benefits to Management and Stockholders.

Marcos Aurélio Madureira da Silva Corporate Commercial Director www.scl.com.br