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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)
