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This excerpt taken from the PBR 20-F filed May 22, 2009. Bilateral Contracts
We sell most of the commercial capacity that is not defined as
New Energy under long-term
bilateral contracts, primarily with power distribution
companies. Such contracts are subject to the regulations that
governed the power sector in Brazil before the enactment of the
New Regulatory Model for the power sector. Under these
agreements, we are compensated for our thermoelectric capacity
based on a combination of factors, including whether or not we
actually generate energy, the certified power generation
capacity of each power plant, and conditions of supply and
demand in Brazil’s power market. Each of these factors are
determined by the appropriate regulatory bodies in Brazil,
including the Ministry of Mines and Energy, the Operador
Nacional do Sistema Elétrico—ONS (National
Electricity System Operator), and the Câmara de
Comercialização de Energia Elétrica—CCEE
(Electricity Trading Board).
Our revenues under these contracts have been reduced by the
limited supply of natural gas, which affects the certified power
generation capacity of our gas-fired plants. Even as we increase
the available supply of natural gas, our earnings under these
contracts are difficult to predict because the net margins are
subject to adjustments coordinated by the CCEE. Additionally,
the contracts do not permit us to directly pass on to our
customers changes in the cost of acquiring natural gas. In 2009,
1,124 MWavg of our generating capacity will be subject to
the terms of these bilateral contracts, with 1,032 MWavg
committed in 2010, 1,030 MWavg in each of 2011 and 2012 and
1,029 MWavg in 2013. The agreements will run off gradually,
with the last contract expiring in 2028.
During periods of high international gas prices and low demand
for power in Brazil, it is often more profitable for us to sell
our gas directly to the market than to generate contracted
amounts of energy from our own gas-fired plants. Under these
circumstances, we have the flexibility to fulfill our
contractual commitments by purchasing power from third parties.
In the past, limited
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supplies of natural gas affected our ability to generate
electricity from our own thermoelectric plants, even when it
would have been profitable for us to do so. Problems with our
natural gas infrastructure also exposed us to fines when we were
unable to deliver contracted amounts of electricity. We paid
fines in the total amount of R$434 million
(U.S.$236 million) in 2008, R$89 million
(U.S.$48 million) of which related to events that occurred
in 2007. We expect to be able to fully supply our gas-fired
plants when our natural gas distribution network is completed in
2010. At that time, we expect to have even greater flexibility
to decide, on a weekly basis, how best to utilize our gas
resources in the thermoelectric or non-thermoelectric markets
based on prevailing economic conditions.
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