Distribution Tariffs in
Brazil
Martín Rodríguez Pardina
Brazil: Main Characteristics
Area 8.5 M km2
Population 170 Millions
GDP pc U$ 3000
10th largest economy of
the World
Federal country
27 States
Electricity Coverage 93%
All electric activity is of
Federal Jurisdiction
Brazil’s Electricity Market
Characteristics of the Brazilian Market:
Large market with over 47 millions customers
Predominantly hydro generation
Very long transmission network
Market concentrate in the south south-east
region
North region served by small thermal units
(diesel)
Brazil: Distribution
Main Characteristics
Market served by 64 concessionaires (public service)
covering the whole country
20 State concessionaires under Federal, State and Municipal
control
44 Private companies controlled by large domestic and
international investors
47 millions customers of which 85% are residential
Coverage of over 99% of the towns and 93% of total
population (71% in rural areas 99% in urban)
Brazil: Regulatory Agency
(ANEEL)
Created by Law 9.427 passed December 26 1996 Agência Nacional
de Energia Elétrica - ANEEL, is an autarkic agency under the
Mining and Energy Minister
Main functions:
Regulate and control generation transmission and distribution balancing
the interest of consumers and other agents having as main goal the
public interest.
Arbitrate in any conflicts between market members or between a
member and consumers
Give concessions, permits and licenses for electric works
Guarantee fair and reasonable tariffs
Look after quality of service
Impose investments on regulated companies
Promote competition
Ensure universal service
Brazil. Distribution Tariffs
Price cap regulation of distribution
companies established by law (1996)
Indexed to inflation on an annual basis
Subject to efficiency factor (X-factor)
Periodic review every 4 years
Tariff divided into
Manageable costs (price cap)
Non-manageable costs (pass-through)
Brazil. Distribution Tariffs
(cont)
Non Manageable costs (Type A Costs)
Energy cost
Transmission costs
Fuel costs (CCC – fuel costs account)
Taxes
Financial contribution for hydro studies
Manageable costs (Type B Costs)
Total costs – A Costs
Brazil. Distribution Tariffs
(cont)
Indexation rule
VPB * ( IVI  X )
VPA
IRT 
RA
1
0
0
IRT: Tariffs Adjustment Index
VPA: Type A Costs
VPB: Type B Costs
IVI: Price index (70% wholesale 30% retail)
RA: Total Annual revenues
Brazil: Tariff Reviews
Only 2 companies have gone through the
4 year review so far
Busy schedule from now on:
17 Companies under review in 2003
26 Companies under review in 2004
27 Companies under review in 2005
1 Company under review in 2006
3 Companies with review date not defined
Brazil: Tariff Review
Main topics under methodological analysis by
ANEEL
Cost of Capital (Country Risk)
Capital Structure (leverage and U$ denominated
debt)
Benchmarking (alternative techniques and data
constraints)
Non regulated activities
Efficiency Factor (X)
Regulated Asset Base (main source of controversy
with private companies)