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 passed December 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)