March /2006

Jerson KelmanDirector-GeneralANEEL

ELECTRIC SECTOR FRAMEWORK

ELECTRIC SECTOR FRAMEWORK

BRAZIL ENERGY OUTLOOK SEMINAR

2

Other Renewable Sources

4.5%

Uranium (U3O8) and Derivatives

1.5%

Mineral Coal and Derivatives

6.8%

Hydraulic Energy and Electricity

12.2%

Natural Gas16.3%

Petroleum and Derivatives

38.0%

Biomass20.7%

Brazilian Energy Matrix% in tePBrazilian Energy Matrix% in teP

Uranium (U3O8) and Derivatives

1.4%

Mineral Coal and Derivatives

6.7%

Hydraulic Energy and Electricity

14.4%Natural Gas

8.9%

Petroleum and Derivatives

39.1%

Biomass29.5%

2004

2015 Estimate

Source: MME / BEN 2005

56.4% Non Renewable

43.6% Renewable

62.6% Non Renewable

37.4% RenewableSource: EPE

3

João Pessoa

Jacui

Porto Alegre

Florianópolis

Curitiba

São Paulo

Rio de Janeiro

Paraíbado Sul

Uruguai

Vitória

BeloHorizonte

Itaipu

Grande

Paranaíba

Paraná/Tietê

Campo Grande

Iguaçu

Tocantins

Belém

São Francisco

Parnaíba

São Luís

Teresina

Fortaleza

Natal

Recife

Maceió

Aracajú

SalvadorCuiabá

Goiânia

Brasília

Paranapanema

Argentina

Installed Cap. = 92,865 MW• Hydroelectric = 71,060 MW - 76.5 %• Thermal = 19,798 MW - 21.3 %• Nuclear = 2,007 MW - 2.2 %

Consumption Units = 56.3 million Energy Production = 414.6 TWh/y (55% of South America) Peak Load = 60,910 MW (United Kingdom or Italy)

HV Transmission Lines = 84,512 km

Source: MME/ANEEL (Jan 2006)

Generation: 85% Public sector15% Private

sector Transmission: 26 utilities (15 private) Distribution: 64 utilities

80% private sector

Brazilian Electricity System OverviewBrazilian Electricity System Overview

4

Brazilian Electricity Mixin TWh (2005)

Source: MME / BEN 2005 / EPE

43.60 Non Renewable

291.81 Renewable

5

Water Resources Usepriority to the national policy on energy

Installed capacity in Brazil: 76.5% hydroelectric source Centralized and optimized dispatch

Cost-effective operation and safety in supply Robust transmission network

Percentage of potential hydroelectric use:100

83

64 61 6055

4537

21 18 1611 6 4 1

24

0

10

20

30

40

50

60

70

80

90

100

France

Germany

Japan

Norway

USA

Switzland

Italy

Canada

BRAZIL

India

Colombia

China

Russia

Peru

Indonesia

Congo

6

December 2002 December 2005

SITUATION AFTER THE ENERGY CRISIS

• Market retraction

• Supply excess

• Self-dealing

•No requirement of environmental license for

concessions

• 27.000 MW installed (1996- 2002)

NEW SECTOR MODEL

• Take up of planning

• Expansion monitoring

• End of Self–Dealing

• New power plants auctions with environmental

license

• 11.000 MW INSTALLED (2003-2005)

2006 – previsions• Addition of 6.6 thousand MW • Auction of 7.8 thousand MW of new power plants

Electricity Generation Overview

7

Energy Negotiated (MW average)

0

5000

10000

15000

20000

25000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

MW

ave

rage

Existing Energy Auctions New Energy Auction

Energy Auctions Results

Source: CCEE

1,287,409,824 MWh – US$ 39,1 bi

564,600,816 MWh – US$ 29,6 bi

Total 1.852,010,640 MWh – US$ 68,7 bi

8

Energy Auctions Results

100% 100% 100% 98,8% 94,3% 94,7%

0%10%

20%30%40%

50%60%70%80%

90%100%

2005 2006 2007 2008 2009 2010

Contracted Power Market

Power Purchase Agreements Existing plants: US$ 39 bi New plants: US$ 29,6 bi Total: US$ 68,7 bi

Medium Price (US$/MWh)

41.27 36.14

32.81 29.27 25.00

50.92 55.55 55.28

-

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010

Begging of Supply

US

$/M

Wh

Existing Energy Auctions New Energy Auction

9

Generation

Free Consumers Captive

ConsumersFree Consumers

Distribution

CCE****

Transmission

CCE

Distribution Distribution Tariff ***Tariff ***

Service Revenue

TUST**TUST**TUSD *TUSD *

* TUSD - * TUSD - Distribution network charge + taxes

** TUST – Distribution network charge + taxes***Distribution Tariff – Energy + TUSD***Distribution Tariff – Energy + TUSD

****CCE – Power Purchase Agreement

TUSTTUST

TUSTTUST

10

Institutional Roles of thePower Sector

Policies and directives:- National Congress- National Council of Energy Policy – CNPE – approval by the

President of the Republic- Chamber of Infra-structure Policies of the Government

Council

Planning and assurance of the balance between supply and demand:

- Ministry of Mines and Energy – MME

Research and studies for the planning of the energy sector- Energy Research Company - EPE

Regulatory Body and Delegation of Power- Brazilian Electricity Regulatory Agency – ANEEL

11

Institutional Roles of thePower Sector

Overview, control and operation of the systems:National Operator of the Power System – ONS

Monitoring and evaluation to assure the reliability and security of the supply:

Electric Sector Monitoring Committee – CMSE

Accounting and clearing Chamber of Commercialization of Electric Power – CCEE

Execution and service delivery to the costumers:Entities G, T, D e C

FOCUS: Public InterestFOCUS: Public Interest

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ANEEL

• Resonable tariffs • Quality of service• Guarantee of rights

•Adequate remuneration•Contracts honored•Predictable and clear rules

• Strategic interests• Development model• Budget balance

Universal service

Consumers/society

Government Agents

ANEEL’s Challenge

13

Federal Federal GovernmentGovernment

Federal Federal GovernmentGovernment

Draft of LawDraft of LawDraft of LawDraft of Law

Provisory Provisory ActAct

Provisory Provisory ActAct

National National CongressCongressNational National

CongressCongress

Draft of LawDraft of LawDraft of LawDraft of Law

Law Law Law Law Decree Decree Decree Decree

ANEEL ANEEL ANEEL ANEEL

Technical Technical Discussion Discussion Technical Technical

Discussion Discussion Public Hearing Public Hearing Public Hearing Public Hearing Official Public Official Public Position of ANEELPosition of ANEEL

Official Public Official Public Position of ANEELPosition of ANEELRegulatoryRegulatoryRegulatoryRegulatory

Regulatory Process

Monitoring and ControlMonitoring and Control

MediationMediation

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ATTRIBUTIONS

Monitoring the performance of the power sector

AUDITINGAUDITING

Where necessary - following the legal framework and specific policiesREGULATORYREGULATORY

Guide and advise – enforce penalties when unavoidable

Dispute settlementMEDIATIONMEDIATION

Delegation of authority (*)

Energy auctions

Auctions for new enterprises (G/T)(*)

Authorization(*)

(*) Delegation of authority by Federal Government, through MME, responsible to assure the supply of electricity

15

Decision-making independence

Administrative, financial and property management autonomy

Directors have a 4 year mandate – nominated by the

President, approved by the Senate

Directors cannot be fired without good cause

“Quarantine”(4 months)

Decisions are made by the Board of Directors (5)

No hierarchy subordination

Public Directors meeting

Regulation supported by the Law 9.784/99

Clarity, Transparency and Publicity of the Acts

Characterization of ANEEL

16

External control

Consumer Advocate - (organized by the Civil Society)

Legislative Body

• Senate• Public Hearings (~70)• Request information • National Accounting Tribunal

Judiciary (Review of the acts)

Public Ministry

Executive Body• Secretariat of Federal Control

• Contract Management

• Fulfillment of PPA goals

17

Regulator’s challenges

Achieve autonomy

Skilled and adequately paid in-house staff

Reduce asymmetry of information

Completion of the new regulation model

To support and enhance energy policies, to

identify improvements and to fill gaps

18

To be recognized as a “State Institution” that takes care of public interest

To look for continual improvement of ANEEL

To strive for the reduction of charges and tariffs

To consolidate the process of Periodic Tariff Review (develop guidelines for the basis of cost recovery)

To guarantee the consumers rights and take care of the compliance of the obligations and the rights of agencies

Regulator’s challenges

19

Legal, institutional and macroeconomic stability

Environmental Licensing

Tariffs compatible with:

Investments and operational costs

Quality of the service

Capacity of payment by the consumers

Necessary factors to attract investments

Thank you for your attention!

www.aneel.gov.br

Phone: (+55) 61 2192-8603

Fax: (+55) 61 2192-8711

institucional@aneel.gov.br