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This excerpt taken from the PBR 20-F filed May 22, 2009. Standby Availability
Non-base-load thermoelectric plants like ours are used to
supplement hydroelectric generation when needed. Historically,
Brazil’s power pricing regime made it difficult for such
plants, which operate at low average utilization rates, to cover
their operating costs and provide a return on capital. In 2004,
Brazil enacted the New Regulatory Model for the power sector,
under which public utilities are required to secure their
expected energy needs under long-term contracts through auctions
coordinated by the Ministry of Mines and Energy. Thermoelectric
power generators bid in these auctions to supply “standby
availability” up to their certified commercial capacity,
although they will not necessarily be called upon to generate
this power. Only that portion of our thermoelectric capacity
defined as New Energy under the New Regulatory Model for the
power sector is eligible to be sold through the auction system.
In the 2005 and 2006 auctions, we sold standby availability of
1,391 and 205 MWavg, respectively, on
15-year
contracts beginning in 2008 to 2011. Under the terms of these
contracts, we will be compensated a fixed amount whether or not
we generate any power, and we receive an additional amount for
the energy we actually generate at a price that is set on the
date of the auction and revised annually based on an
inflation-adjusted fuel oil basket. These contracts generate
losses when our actual costs of generating power increase and
our prices as adjusted by the formula do not rise accordingly.
In the 2007 auction, we did not sell all our eligible available
capacity because gas-fired plants were less competitive than
other sources of power. We did not participate in the 2008
auction due to a lack of eligible thermoelectric capacity.
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