A Review of The Liberalization of the Argentinean Electricity Sector

1. A Review of The Liberalization of the Argentinean Electricity Sector Comisión Nacional de Energía Atómica Darío R. Gómez (CNEA) Eduardo Lerner (ENRE) Osvaldo Postiglioni (ENRE) Carlos F. Rey (CNEA)

2. Introduction At the beginning of the 90´s a deep reform was introduced in the electric power sector of Argentina. • To secure a reliable supply of electricity with appropriate quality conditions • To achieve efficiency in the usage of productive factors • To order an put on a sound financial basis the fiscal relationship between the electricity sector and the state • To establish a regulatory framework appropriate to encourage risk investment from the private sector

3. NATIONAL STATE Regulatory Commission SECRETARIAT OF ENERGY MARKET Generators Large Scale Users Transporters Distributors Electricity Sector Organization

4. TRANSMISSION Supply Demand Private Generators Distribution Companies 1 State-owned Generators WEM Large Scale Consumers Binational Generators 2 3 International Interconnections (exports) International Interconnections (imports) Wholesale Electricity Market 1. Long Term Agreements 2. Seasonal Market 3. Spot Market

5. Stakeholders in the Electricity Sector • Competition. Free Entry. Prices are not regulated. Declared as General Interest GENERATION Non Profit Organization. In charge of the administration of the Wholesale Market. Economic Dispatch. Hourly prices. Members: • Generating Companies • Distribution Companies • Transport Companies • Large Users • Natural Monopolies. Concessions. Regulated Prices. Third Party Access. No discrimination. Declared as Public Service TRANSPORT AND DISTRIBUTION LARGE USERS • Freedom to Contract. Members of the Wholesale Market. Their supply is competitive. CAMMESA

6. CAMMESA SECRETARY OF ENERGY FEDERAL ENERGY COUNCIL ENRE REGULATION CONTROL FEDERAL JURISDICTIONAL ECONOMIC DISPATCH OPERATION ISSUANCE OF RULES FOR THE ECONOMIC DISPATCH GIVES ADVISE TO E.P AND CONGRESS COMMERCIAL TRANSACTIONS ACTS AS AN INSTANCE OF APPEAL IN CASE RESOLUTIONS GIVEN BY ENRE ARE REJECTED ADMINISTER NATIONAL FUND OF ELECTRICITY Electric Regulatory FrameworkAct 24.065 - 1992

7. Regulation • Prices, like under perfect competition, are determined outside the firm. Therefore, profit maximization must be achieved through managerial efficiency (cost reduction, optimization of investment decisions etc). PRICE CONTROLS QUALITY CONTROLS The existence of captive demand (there are no alternative suppliers) creates the need for product and service quality controls OBLIGATION TO SUPPLY • Distribution companies have the obligation to meet all demand. They can not discharge this obligation on the basis of lack of generation or transport facilities. • Transport and Distribution companies must allow third party access to lines if there is spare capacity. THIRD PARTY ACCESS

8. 1 transmitter SEGBA HIDRONOR Aguay Energía Eléctrica 5 thermal 9 thermal power plants 8 hydropower plants 4 transmitters 5 hydropower powerplants plants 1 distributor 3 distributors Privatization Assets that belonged to several provinces were also privatized and incorporated to the WEM

9. Number of Members of the WEM Performance of the Electricity Sector under the Liberalization

10. Generation Installed Capacity (MW) Energy Generated (GWh) October 2000 January -October 2000 TOTAL 22.945 WEM + WEMPS TOTAL 65.476 GWh WEM Maximum capacity declared according to demand satisfied at WEM = 12.415 Self-generation and cogeneration. Imports not included.

11. Generation - Installed Capacity

12. Generation by company - 2000

13. Generation - Prices Energy Prices Sharply decreased from 1992 as result of a new Electric Market Design ENERGY AND SPOT MEDIUM PRICES

14. NOA NEA CUYO CENTRO BA-GBA Litoral COMAHUE MEMSP Installed and Demand Capacity by Area - 2000 Capacity Demand NOA 1225 MW 952 MW NEA 3248 MW 522 MW CUYO 1276 MW 722 MW CENTRO 2150 MW 1228 MW BA-GBA Litoral 8440 MW 9635 MW COMAHUE 5771 MW 476 MW MEMSP 836 MW 519 MW Source: ENRE

15. Transmission Grid Transmission Length in km Lines 500 kV 9.292 Lines 330 kV 1.100 Lines 220 kV 500 Lines 132 kV 6.000 Source: Enre

16. Transmission • 95 years concession & 15 year management periods. • Free access to purchasers & sellers. • Remove obstacles to purchase or sell energy. • Remuneration for the operation & maintenance. • Quality conditions compliance. • Different grid expansion mechanisms.

17. Distribution CHARACTERISTICS • Natural monopoly with regulated tariffs • Submitted to a regulatory framework • Obligation to meet demand and ensure adequate service. • Open access to third parties • Tariffs must be fair and reasonable covering operating costs, taxes, amortization and a rate of return • Quality standards established by concession contract.

18. Incorporation of a new generating units to the WEM and phase out of old ones Improvement of the efficiencies of dispatched thermal machines Environmental attitude of new business units Replacement of other types of energy by electricity Main aspects related to the environmental performance of the electricity sector

19. Decreasing technical and non-technical losses Role of the community Unrestricted fuel choice No interest for hydropower projects by part of the private sector Main aspects related to the environmental performance of the electricity sector

20. 3 Environmental Management Manuals for - hydropower plants - thermal power plants - ultra high voltage transmission lines The Advisory Council on Licensing of Nuclear Facilities of CNEA was in charge of the regulatory role for all nuclear activities Environmental Policy applied to the Electricity Sector - Until 1992

21. Environmental Controls since 1992 Transmission & Distribution: - Public security risks - Waste treatment Generation: -Gas effluents control - Liquid effluents control - Noise levels - Environmental monitoring of radioisotopes

22. Environmental Impact Assessment - Mandatory for new facilities - Mandatory to authorize modifications of power plants or extensions of the systems of transmission or distribution - Requires a public hearing where third party comments, objections and petitions are received

23. Environmental Legislation in Argentina - Amendment of National Constitution defines the division of roles on environmental protection of national and provincial authorities - Minimum standards must be established at National level - Neither roles or minimum standards are defined - Competence overlapping and impairment of the coordination of administrative environmental activities

24. Economic Incentives - No economic incentive apart from dispatch priority was included in the privatization scheme - Secretary of Energy maintained programs on rational use of energy and non-conventional energy sources - Act 25019 of 1998 assigns a special regime for wind and solar energy through tax benefits - ENRE has started a discussion process on the tariff for the distribution concessionaires

25. Trends in the Environmental Impact of the Liberalized Electricity Sector - An exercise on the prospective development of the generation sector of the WEM - Hypothesis: 5% annual increment of demand, 3000 MW exports to Brazil, no imports from Brazil, no exports to Chile, level increment of Yacyretá dam - Results: future installation before 2020 of 32000 MW mostly in thermal power units

26. G9 EE7 EE3 G4 EE4 G5 EE6 EE5 G8 EE1 G1 G10 G2 G3 P1 G7 G6 Energy Exchange GAS con CHILE : G1: GASANDES - 2,5/5 MMm3/día G2: SAN ISIDRO - 1,8 MMm3/día G3: AGUADA PICHANA/S.ROQUE - 1,58 MMm3/día G4: NORGAS - 3,7 MMm3/día G5: ATACAMA - 2,5 MMm3/día G6: METHANEX (1) - 2 MMm3/día G7: METHANEX (2) - 2,75 MMm3/día con BRASIL : G8: URUGUAYANA - 2,5 MMm3/día G9: BRASIL - 5 MMm3/día con URUGUAY : G10: URUGUAY- 1,5 MMm3/día ELECTRICIDAD con URUGUAY : EE1: Salto Grande (500kV) - CH Binacional 1890 MW C.Elía-San Javier (500kV) – Contrato 400 MW firmes con PARAGUAY : EE2: El Dorado-C.A. López (132kV) EE3: Clorinda-Guarambaré (220kV) – 150 MW no firmes EE4: Yacyretá (220kV) - CH Binacional 2700 MW con BRASIL : EE5: P.Libres-Uruguayana (132kV) – 50 MW no firmes EE6: Garabí (500kV) – Contrato 1000MW firmes con CHILE : EE7: Güemes-Atacama (345kV) - 630 MW, 5000 GWh/año PETROLEO con CHILE : P1: 15 Mm3-día