relevant and germane information about the energy industry
 | The Insider is a monthly newsletter which contains articles supplied by the well-renowned consulting company, Tendências. Through this newsletter, you will have access to relevant and germane information about the energy industry. The content of the article of this newsletter is provided by Tendências Consultoria Integrada.
|  | |
Law # 10,438, of April 26, 2002
The Conversion Project included in Law # 10,438 was sanctioned by the President. Among the questions related to the electric sector it is important to note:
1. An additional tariff for the rental of equipment to be available to the National Integrated Electrical System in case of emergencies - the so-called anti-blackout tariff;
2. The temporary tariff hikes to compensate losses incurred by the concessionaires during the energy-rationing program; 3. The creation of the Alternative Energy Source Incentive Program (Proinfa);
4. The extension of the Global Reserve Reversion (RGR) until the end of 2010;
5. The concession to Eletrobrás of the exclusive right of commercialization of the energy generated by the Itaipu plant; and
6. Authorization for Petrobras to include in its objectives activities related to energy.
| 1. Additional Tariff
The anti-blackout tariff - a measure adopted during the most critical period of last year's drought, when reservoirs were below acceptable levels - meant buying energy generating equipment to be used by emergency plants. This equipment will be available for the system and, if there is a period of below-average rainfall, it will be used to avoid a new rationing program.
The distribution of the costs to rent the generators, even if they are not being used, resulted in an increase of R$ 0.049/kWh in consumers' electric bills. The Law # 10,438 excluded from the additional tariff, "low-income" households whose consumption is less than 80kWh/month.
If there is the need to use the energy from these emergency generators, whose estimated average cost is of R$ 290.00MWh, the distribution of the cost will exclude those households which consume less than 350 kWh/month in the urban zone and less than 700 KwH/month in the rural regions.
Due to the levels of the reservoirs during the beginning of the dry season, it is unlikely that the emergency plants will have to be used. If this holds true, the additional tariff will be limited to the 0.049/kWh, which represents a 2.4% increase in residential energy bills compared to the average of January-March 2002, and a 3.6% hike over the average national tariff, which was of 0.1377/kWh during the same period.
| 2. Temporary tariff increases
In the original concession contracts, the concessionaires are guaranteed the preservation of a financial and economic equilibrium, while the market is still being regulated and the implementation of a competitive environment in the generation and commercialization areas are not completed. Since the measures to reduce consumption, determined by the Electrical Energy Crisis Administration Committee (GCE), resulted in significant losses to all companies in the sector, the government created a mechanism which would allow the recovery of these financial losses.
The mechanism created and approved by the sector, was a loan given by the BNDES (National Development Bank) to rebuild companies' cash-flow and a temporary hike in tariffs so that the loan could be repaid.
In the new law, the temporary energy price hikes will be of 2.9% for residential customers, rural regions and public lighting. Other customers, including industrial and commercial customers, will have an increase of 7.9% on their electric bills.
The GCE also determined that industrial consumers whose electric bill is more than 18% of their total expenditure will only have an increase of 2.9%.
| 3. Alternative Energy Source Incentive Program (Proinfa)
The creation of the Alternative Energy Source Incentive Program (Proinfa) seeks to increase the participation of independent producers and small hydroelectric plants.
This program created a new category of generators which had not yet been included in any sector law: the autonomous independent producers. It is understood that these agents should not be controlled by energy distribution and commercialization companies, but it is still not clear if it is possible to become a large independent generator, or if one of the concessionaires already in the country may be included in this new category.
During the first stage of Proinfa, Eletrobrás will purchase the energy from the alternative sources to implement plants with 3,300MW of capacity. These plants will be in operation by the end of 2006.
During the second stage, the program should allow these alternative sources to be responsible for 10% of the annual energy consumption in the country. The second stage should be completed by 2012.
| 4. Global Reserve Reversion (RGR)
Law # 10,438 establishes that the annual quota of the Global Reserve Reversion (RGR) should be extinguished by the end of 2010. The law also notes that Aneel should revise tariffs so as to have customers benefiting from the extinction of the RGR.
The RGR corresponds to a percentage of the energy concessionaires' assets which is collected by Eletrobras so that the state-controlled company may have resources to finance the expansion of the system and the improvement in the quality of the service.
A temporary measure, however, which authorizes the executive power to promote the restructuring of Eletrobras and its subsidiaries, establishes that the RGR should be extinct by the end of 2002. In other words, the new legislation extended the RGR for another 10 years.
| 5. Eletrobrás
The right to commercialize energy surplus coming from the Itaipu plant during the energy-rationing program, is one of the problems which has been limiting the operation of the Wholesale Energy Market (MAE). Both the distributors, which pay for the Itaipu plant without the right to choose its energy supplier, and Eletrobrás, controlled by Furnas Centrais Elétricas which transports energy to national distributors, want the right to commercialize the energy surplus. Since Aneel recognized the right of the concessionaires while the Justice Department agreed with Eletrobrás, negotiations in the MAE have been suspended and the liquidation of the transactions have become unfeasible.
The new law, however, establishes that Eletrobrás will be responsible for all the energy services coming from the Itaipu plant.
| 6. Petrobras
One of the most controversial articles in the new law is the one related to Petrobras, which has the monopoly of the petroleum and natural gas sectors. The law gives the state-owned company authorization to enter the electric energy sector, giving it a greater power over the electric sector, since any significant expansion of the system will be based on the utilization of natural gas for the thermoelectric plants.
Since Petrobras is the only company which produces natural gas in Brazil and monopolizes the transport of the product imported from Bolivia, it already has considerable power in the sector. If the company is unable to find buyers for its natural gas with the conditions it wants, the company may use the natural resource to generate electricity and compete with the concessionaires which should have been its clients.
The new law, by expanding the power of the state-owned company, goes against the spirit of the sector's reforms, which is to create a competitive atmosphere in the energy sector.
| | |
