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This excerpt taken from the ENI 20-F filed Mar 16, 2006. Structure of the New Electricity Sector
The power industry was reviewed by Luiz Inácio Lula da Silva’s administration and it has been subject to significant changes. The federal Laws No. 10,847 and 10,848 of March 2004 established a new model for the Brazilian electricity sector. The new model seeks to provide cheaper tariffs for consumers and guarantee the expansion of the system, with the EPE (Power Research Company), a governmental body, responsible for the planning of generation and transmission activities. This new model has defined two contracting environments: the free contracting and the regulated environment.
In the free contracting environment the conditions for purchasing energy are negotiable between suppliers and their customers, maintaining essentially the same characteristics as the old model. In relation to the regulated environment, where energy distributors operate, the new model has introduced significant changes. Whereas the old model allowed self-dealing and allowed distributors to conduct their own auctions for their energy purchases, under the new model the purchase of energy in the regulated environment must be executed pursuant to the bidding process coordinated by ANEEL.
The new Brazilian model for the electricity sector creates a regulatory framework based on the principle of stability and low tariffs for consumers. It also seeks to guarantee the expansion of installed capacity to satisfy demand growth. Pursuant to this model, 100% of the energy demand of distributors must be satisfied through long-term contracts. Accordingly, several bidding processes have been and will be called by ANEEL and the Chamber of Energy Sales in advance of the expiration of current contracts in the regulated environment.
In the unregulated environment, participants may negotiate price, indexing, tenor of the contracts and energy volume.
Another change imposed on the electricity sector is the separation of the bidding process for “existing power” and “new project power”. Power plants that were in existence prior to 2000 are considered “existing power” and those that were developed after 2000 are considered “new power project”. Cachoeira Dourada and CIEN are considered existing powers. The government believes that existing power plants are able to provide power at more competitive prices, and therefore it should give priority in the bidding process to power generated by new project power companies. Under the new electricity sector, this priority will be in the form of more favorable contractual terms. For example, a generator considered a new project power is guaranteed a power purchase agreement with a twenty-year term if it wins the bidding process, while an existing power is not necessarily even guaranteed participation in the bidding process. Brazil has an excess supply of energy, and therefore existing power generators are adversely affected by the priority given to the new project power.
Additionally, the new model forces the creation of new sector agents, like Empresa de Pesquisa Energética (Power Research Company), or EPE, bound to Ministry of Mines and Energy. EPE will have the objective of researching the Brazilian Power Sector Planning. Other new sector agents will be the Cámara de Comercialização
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de Energia Elétrica (Power Commercialization Chamber), or CCEE, which will be the MAE’s substitute in contract administration and monitoring contractual warranties; and Comitê de Monitoramento do Setor Elétrico (Monitoring Committee of the Electricity Sector) or CMSE, which will monitor and evaluate the safety and security in the energy supply industry.
Moreover, the new model has established the separation of the sector activities by forbidding distribution companies to participate in generation and transmission activities and in other companies. This prohibition on vertical and horizontal integration in the electricity sector affected Ampla’s generation activities and its ownership in Coelce through Investluz. Ampla adjusted its structure, complying with this new requirement by separating its generation assets, as well as its ownership of Coelce, another distribution company.
Finally, the contracts in effect at the time of the enactment of the law will be respected, but amendments changing term, price and quantities to the mentioned contracts is forbidden.
As part of the regulations of the new model, energy contracting by distribution companies for supplying regulated customers must be performed through a centralized auctioning process.
The first auction took place in December 2004, in which energy to be produced by existing generating plants was contracted with distribution companies for a period of five to eight years. The first auction for energy to be produced by future plants took place in December 2005.
Also, during 2005, pending regulations were published concerning procedures to net complementary contractual positions among distribution companies (Mecanismo de Compensação de Sobras e Déficits). This procedure reduces the risk of paying penalties for distribution companies.
Finally, other regulations were also published specifying the pass through of costs when a new plant does not start its supply at the established date. In this case, the producer must cover its short-term position with a back-up contract, and the price to be charged to the distribution company will be the lowest of the original contract price, the spot price or the back-up contract price.
This excerpt taken from the ENI 20-F filed Jun 10, 2005. Structure of the New Electricity Sector
As expected, the power industry was reviewed by Luiz Inácio Lula da Silva´s administration and it was subject to significant changes. The federal Laws No. 10,847 and 10,848 of March 2004 established a new model for the Brazilian electricity sector. The new model seeks to provide cheaper tariffs for consumers and guarantee the expansion of the system, with the EPE (Power Research Company), a governmental body, responsible for the planning of generation and transmission activities. This new model has defined two contracting environments: the free contracting and the regulated environment. 54 In the free contracting environment the conditions for purchasing energy are negotiable between suppliers and their customers, maintaining essentially the same characteristics as the old model. In relation to the regulated environment, where energy distributors operate, the new model has introduced significant changes. Whereas the old model allowed self-dealing and allowed distributors to conduct their own auctions for their energy purchases, under the new model the purchase of energy in the regulated environment must be executed pursuant to the bidding process coordinated by ANEEL. The new Brazilian model for the electricity sector creates a regulatory framework based on the principle of stability and low tariffs for consumers. It also seeks to guarantee the expansion of installed capacity to satisfy demand growth. Pursuant to this model, 100 % of the energy demand of distributors must be satisfied through long-term contracts. Accordingly, several bidding processes have been and will be called by ANEEL and the Chamber of Energy Sales in advance of the expiration of current contracts in the regulated environment. In the unregulated environment, participants may negotiate price, indexing, tenor of the contracts and energy volume. Another change imposed on the electricity sector is the separation of the bidding process for “existing power” and “new project power”. Power plants that were in existence prior to 2000 are considered “existing power” and those that were developed after 2000 are considered “new power project”. Cachoeira Dourada and CIEN are considered existing powers. The government believes that existing power plants are able to provide power at more competitive prices, and therefore it should give priority in the bidding process to power generated by new project power companies. Under the new electricity sector, this priority will be in the form of more favorable contractual terms. For example, a generator considered a new project power is guaranteed a power purchase agreement with a twenty-year term if it wins the bidding process, while an existing power is not necessarily even guaranteed participation in the bidding process. Brazil has an excess supply of energy, and therefore existing power generators are adversely affected by the priority given to the new project power. Additionally, the new model forces the creation of new sector agents, like | EXCERPTS ON THIS PAGE:
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