The New Model of the Electric Sector

During the years of 2003 and 2004, the Federal Government launched the bases of a new model for the Brazilian Electric Sector, sustained by Laws number 10.847 and 10.848, of March 15, 2004, and by Decree number 5.163, of July 30, 2004.

The new model defined the creation of three new institutions: Empresa de Pesquisa Energética (EPE), responsible for the planning of the electric sector in the long term, the Committee of Monitoring of the Electric Sector (CMSE), with the task of evaluating permanently the safety in the supply of electric energy, and the Chamber of Commercialization of Electric Energy (CCEE), an institution relative to the commercialization of electric energy in the Interconnected System. Other important changes include the definition of the exercise of the Granting Power to the Ministry of Mines and Energy - MME and the expansion of the autonomy of the Operador Nacional do Sistema - ONS.

With regard to the commercialization of energy, two environments were established to celebrate purchase and sale energy contracts: the Ambiente de Contratação Regulada - ACR, in which energy Generation and Distribution Agents participate, and the Ambiente de Contratação Livre - ACL, which count on the participation of Agents of Generation, traders, importers and exporters of free energy and consumers.

The new model of the electric sector has three main objectives:

• Guarantee the safety in the supply of electric energy.
• Promote the reasonableness in prices.
• Promote social insertion in the Brazilian Electric Sector, especially through the programs of service universalization.

The model foresees a set of measures to be observed by the Agents, with the requirement of contracting the entire demand by the free distributors and the consumers, new methodology of ballast calculation for generation sale, contracting of hydroelectric and thermoelectric plants in proportions that assure a better balance between guarantee and cost of supply, as well as the permanent monitoring of continuity and safety in supplies, aiming at detecting conjuncture unbalances between supply and demand.

In terms of price reasonableness, the model foresees the purchase of electric energy by the distributors in the regulated environment by means of auctions, in which it is observed the criterion of the lowest price, aiming at reducing the acquisition cost of electric energy to be repassed to the captive consumers' price.

The new model seeks to encourage social inclusion through the universalization of access to the electric energy network. It creates conditions for the benefits derived from electricity are made available to the citizens that still do not rely on this service and to guarantee subsidy to the low-income consumers, in such a way that the latter can honor the costs of electric energy consumption.

COMMERCIALIZATION

The Commercialization process of Electric Energy is held in accordance with parameters established by Law number 10.848/2004, by Decrees number 5.163/2004 and number 5.177/2004 (which established CCEE), and by Normative Resolution ANEEL number 109/2004, which established the Convention of Commercialization of Electric Energy.

The commercial relations between the agents who participate in the CCEE are ruled predominantly by energy purchase and sale contracts, being that all the contracts celebrated among the agents in the scope of the National Interconnected System must be registered at the CCEE. This registration includes only the stakeholders, the volume of energy and the period of effectiveness. The prices of the energy contracted are registered at the CCEE, being specifically used by the parties involved in their bilateral liquidations.

CCEE accounts for the differences between what was produced or consumed and what was contracted. The positive or negative differences are liquidated in the Short-Term Market and valued at the PLD (Price of Liquidation of the Differences), establishing, each week, for each level of charge and for each submarket, having as base the marginal cost of operation of the system, the latter being limited by a minimum price and by a maximum price.

TRANSMISSION

The transportation service of large amounts of electric energy for long distances, in Brazil, is done through a network of transmission lines and substations at tension equal or above 230 kV, called Basic Network.

Any agent from the public sector, producing or consuming electric energy, is entitled to the use of this Basic Network, as well as the free consumer, as long as certain technical and legal requirements are met. This is the so-called Free Access, assured by Law and guaranteed byANEEL.

The operation and the administration of the Basic Network is an attribution of theONSlegal entity of private law, authorized by the Granting Power, regulated and inspected by ANEEL and integrated by the bearers of generation, transmission, distribution, commercialization and also by the free consumers. The ONS has the responsibility of managing the dispatching of electric energy from the plants under optimized conditions, involving the use of the reservoirs of the power plants and the fuel of the thermoelectric plants of the national interconnected system.

The prices for the use of the transmission system - TUST - are calculated with the nodal methodology, which gives a regional economic sign, as foreseen by law. The prices are readjusted each year on the same date when the readjustments of the Receitas Anuais Permitidas - RAP of the transmission concessionaires. This price period starts on July 1st of the year of publication of the tariffs and goes up to June 30 in the following year.

With the publication of Normative Resolution number 067, of June 8, 2004, improvements were included in the composition rules of the Basic Network, which started to envisage the transformation facilities required to lower the high and extra-high transmission tensions - just like or above 230 kV - to the distribution tensions. Another important aspect associated with this new regulation is that the transmission service provided by these transforming facilities starts to be paid once and exclusively by the distribution concessionaires that benefit from it, according to the creation of a specific parcel of TUST, called TUST-FR, which further incorporates the transportation costs associated to the Other Transmission Facilities - DITs shared among the distribution concessionaires.

The main parcel of TUST, TUST-RB refers to the facilities of transmission that belong to the Basic Network with tensions equal or above 230 kV, used to promote the optimization of the electric and energetic resources of the system and, therefore, generates tariffs applicable to all the users. Its calculation is performed as of the simulation with the Nodal Program, which uses as entry data, the configuration of the network, represented by its transmission lines, substations, generation and charge, a total income to be collected and a few parameters established by means of Resolution number 117, of 2004. This revenue consists of the RAP to be paid to the transmission concessionaires, of part of the ONS budget, of an Adjustment Parcel, corresponding to the differences in collection from the previous period and of the forecast for the revenue for payment of transmission facilities that will be in operation in the course of the period under consideration.

GENERATION

The generation companies sell energy especially to distributing companies, but compete with these and with the traders in the sales for free consumers, that is, for consumers who have demand equal or above 3 MW, independently of the tension in the service, as established by Law number 9.074/95.

The regimen in which most of the generating plants operates is the one established by Decree number 2.003/96, where both the hydraulic generators and the thermoelectric plants act as Independent Producer of Electric Energy (PIE) through a Concession Contract for the Use of Public Asset, or through the authorization for the production of energy, which contains essential clauses on their rights and obligations.

The operation of the system is coordinated by the ONS. The operator is responsible both for the planning of the medium-term electric operation, which aims at performing the diagnosis of the performance of the SIN, and for the short-term operations, which serve as the base for the definition of the electrical-energetic goals, which follow in the daily schedule and in the operation in real time.

DISTRIBUTION

The rendering of public service of distribution is held according to concession or permission. The concessionaire or permissionaire explores the distribution service in a very delimited geographic area, in a monopoly regimen, that is, it concentrates all the rendering of network service to the accessors in that region, accounting for the operation, maintenance and expansion of this network.

The distribution system is subject to the quality control based on the technical standards and on the network regulations and procedures approved by ANEEL, having, as counterpart the revenue derived from the sale of energy. It is further up to ANEEL to establish prices that both assure the consumer as to the payment of a fair value, as well as warrant the economic-financial balance of the distribution concessionaire, so that it can provide a service with the necessary quality, reliability and continuity.

The income of the distribution concessionaire consists of two parcels, as visualized in the chart below:

The first set of the income refers to the repassing of the costs considered as non-manageable, whether because their values and amounts, as well as their variation in time, do not depend on the company's control (such as, for instance, the value of the expense with the energy purchased by the distributor for resale to its consumers), or because they refer to encumbrances and taxes legally established (such as the Account of Energetic Development, Rate of Electric Energy Service Inspection, etc.). This first set is identified as "Parcel A" of the distribution concessionaire's income.

The second set refers to the coverage of the costs of personnel, of material and other activities connected directly with the operation and maintenance of the distribution services, as well as the costs of depreciation and remuneration of the investments made by the company for compliance with the service. These costs are identified as manageable costs because the concessionaire is fully capable of managing them directly and were understood as components of the "Parcel B" of the Annual Income Required of the company.

The competences of each agency
Regulation is essential where there are market failures, natural monopolies and the investments require a long maturation period. The quality of the institutional design, where each institution has its functions, attributions and responsibilities clearly defined is an essential condition for the system to work complying with its objectives of efficiency and efficacy.

Understand, in a summarized way, the extent of the responsibility of each acting agency in the Brazilian Electric Sector:

Conselho Nacional de Política Energética – CNPE [National Council of Energetic Policy]
> proposition of the national energetic policy to the President of the Republic, in articulation with the other public policies;
> proposition of the individual bidding of special projects from the electric sector, recommended by the MME;
> proposition of the supply structural guarantee criterion.

Ministério de Minas e Energia – MME [Ministry of Mines and Energy]
> formulation and implementation of policies for the energetic sector, in accordance with CNPE guidelines;
> monitoring of the supply safety in the electric sector, through CMSE;
> definition of preventive actions for the restoration of supply safety, in case of unbalances between supply and demand, such as management of the demand and/or contracting of a conjunctural reserve of energy of the interconnected system;
> recapture of the exercise of the role of sector planning, with public impugnment;
> exercise of the Granting Power;
> it permits that possible stakeholders, such as concessionaires, universities, social movements, consumers and investors, have the opportunity to be manifested, aiming at contributing on:
- the premises used in the studies (for instance, growth of the economy, forecast of the demand for energy);
- the strategy chosen for the expansion of the system;
- the expansion plan per se (for instance, possibilities of expansion of the supply not considered or discarded).
> it permits alternative projects to the ones suggested by the planning be presented by investors in the bidding process for the lowest price. The objective is to guarantee the efficiency and the transparency of the bidding process.

Agência Nacional de Energia Elétrica – ANEEL [National Agency of Electric Energy]
> mediation, regulation and inspection of the operation of the electric system;
> performance of concession auctions of generation and transmission undertakings by delegation of the MME;
> performance of bids for the acquisition of energy for the distributors.

Operador Nacional do Sistema Elétrico – ONS [National Operator of the Electric System]
> coordination and control of the generation and transmission operation in the interconnected electric system;
> administration of the transmission facilities contracting.

Centrais Elétricas Brasileiras S.A. – ELETROBRÁS [Brazilian Electric Centrals]
> exercise of the role of holding of federal state companies;
> administration of encumbrances and sectorial funds;
> commercialization of ITAIPU Binacional's energy;
> commercialization of the energy from alternative sources envisaged by the Programa de Incentivo de Fontes Alternativas – PROINFA [Incentive Program of Alternative Sources];
> creation of new institutions, with the objective of complementing the regulatory landmark, establishing new functions and activities.

Empresa de Pesquisa Energética – EPE [Energetic Research Company]
> execution of studies for the definition of the Energetic Matrix with indication of the strategies to be followed and of the goals to be reached, within the long-term perspective;
> execution of the studies of integrated planning of the energetic resources;
> execution of the studies of expansion planning of the electric sector (generation and transmission);
> promotion of the energetic potential studies, including inventory of hydrographic basins and of oil and natural gas fields;
> promotion of the technical-economic viability studies and social-environmental studies of the plants and obtaining of the Previous License for hydroelectric utilization.

Câmara de Comercialização de Energia Elétrica – CCEE [Chamber of Commercialization of Electric Energy]
> administration of energy contracting in the scope of the ACR;
> act as intervenient:
- in the bilateral contracts of supply that each generator will sign with each distributor, in the way of a pool, allowing the appropriation, in the price, of economies of scale in the purchase of energy, sharing the risks and benefits of the contracts and equalizing the price of the energy for the distributors;
- in the contracts of establishment of guarantees that each distributor will have to sign, so as to reduce default;
> exercise of the present roles of accounting and liquidation of the Mercado Atacadista de Energia - MAE, in the two contracting environments, the ACR and the ACL.

Comitê de Monitoramento do Setor Elétrico – CMSE [Committee of Electric Sector Monitoring]
> monitoring of the conditions of service in the horizon of five years;
> recommendation of preventive actions to restore the safety of the supply, including actions on the side of the demand, contracting of conjunctural reserve and others.