Regulatory Process December 8 th, 2005 Rio de Janeiro – RJ JERSON KELMAN Head of ANEEL LATIN...

Regulatory Process

December 8th, 2005Rio de Janeiro – RJ

JERSON KELMANHead of ANEEL

LATIN ENERGY 2005

Which institution is in charge?

Policy

• Congress• National Council of Energy Policy – CNPE

Long Term Planning (supply and demand balance)

• Ministry of Mines and Energy – MME

• Energy Research Company – EPE

Regulation

• Brazilian Electricity Regulatory Agency – ANEEL

Which institution is in charge?

System Operation

• National Operator of the Power System – ONS

Monitoring and coordination

• Electric Sector Monitoring Committee – CMSE

Accounting and clearing• Chamber of Commercialization of Electric Power

– CCEE

• Independent decision-making by the Board in public meetings

• Administrative autonomy

• Board members are approved by the Senate and have mandates

• Responsibilities:

Legislative: regulation (rules)

Judiciary: settling disputes

Executive: auditing, authorizations & auctions

ANEEL

ANEEL’s equilibrium

ANEELANEEL

• Reasonable tariffs • Quality of service• Guarantee of rights

• Reasonable tariffs • Quality of service• Guarantee of rights

• Adequate remuneration• Contracts honored• Predictable and clear rules

• Adequate remuneration• Contracts honored• Predictable and clear rules

• Strategic interests• Development model

Universal service

• Strategic interests• Development model

Universal service

Consumers

Government Agents

Annual readjustmentAnnual readjustmentof the tariffsof the tariffs

Periodic revision Periodic revision of the tariffsof the tariffs

SignatureSignature of the of the contractcontract

Distribution tariffsAnnual Readjustment & Periodic Revision

1999 2000 2001 2002 20042003

Extraordinary revision Extraordinary revision of the tariffsof the tariffs

Distribution tariffsWho pays?

Service Revenue

B3B3

Distribution network charge

(taxes)

TETE

Distribution network charge (infrastructure)

Distribution network Distribution network chargecharge

B2B2 B4B4B1B1A4A4A3A3A2A2

captive consumerscaptive consumers

A3A3

Distribution network Distribution network chargecharge

A4A4A2A2

Free consumersFree consumers

Distribution network charge

(taxes)

Distribution network charge (infrastructure)

RS = Pass-through Costs + Controllable Costs

Distribution tariffsComposition

Energy Purchase

+

Transmission Cost

+

Public Charges

O&M+

Investors’ Payment+

Assets Depreciation

Controllable CostsControllable Costs

x

Investors´ Payment ($)Reintegration of depreciation

Expenses ($)+

Net Asset-baseNet Asset-base valuevalue

Net Asset-baseNet Asset-base valuevalue

Rate ofRate ofreturnreturn

Rate ofRate ofreturnreturn

O&M Costs ($)+

xGrossGross

Asset-baseAsset-baseValueValue

GrossGrossAsset-baseAsset-base

ValueValue

DepreciationDepreciationRateRate

DepreciationDepreciationRateRate

ReferenceReferenceFirm Firm

ReferenceReferenceFirm Firm

Distribution tariffsControllable Costs

Asset base valueGross

0%

20%

40%

60%

80%

100%

120%

140%

% Gross/IPCA Medium IPCA = 103.24% % Gross/IGPM Medium IGPM = 79.86%

Brazilian Index: IGP-M = General Market Price Index IPCA = Broad Consumer Price Index

Asset base valueNet

0%

20%

40%

60%

80%

100%

120%

140%

%Net/IPCA s/ ADM Medium IPCA = 89.13% %Net/IGPM s/ ADM Medium IGPM = 68.07%

Brazilian Index: IGP-M = General Market Price Index IPCA = Broad Consumer Price Index

Generation

Distribution 26,43%

Public Charges & Taxes

34,00%

Transmission 7,80%

Anatomy of the Electricity RatesElectricity Rates Composition

31,77%

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

Distribution tariffsDomestic consumers

R$

/MW

h

November 29, 2005

• Legal, institutional and macroeconomic stability

• Environmental Licensing

• Regulatory stability (ANEEL)

Risks of investments in infrastructure

ANNEL’s challenges

• Achieve administrative autonomy

• Maintain technically capable staff (presently underpaid)

• Improve regulation methodology based on the

first cycle of tariff reviews

• Establish a better connection between quality

of service and cost

(consumer’s desire X ability to pay)

Thank you !

www.aneel.gov.br

Phone: (+55) 61 2192-8603

Fax: (+55) 61 2192-8711

institucional@aneel.gov.br