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33 rd IAEE INTERNATIONAL CONFERENCE Energy theft

33 rd IAEE INTERNATIONAL CONFERENCE Energy theft From the regulator and the regulated viewpoints Jerson Kelman President of Light. June 2010. Energy Theft: The view of the regulator. Water regulator ANA (2001-2004). Electricity regulator ANEEL (2005-2008). Consumers.

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33 rd IAEE INTERNATIONAL CONFERENCE Energy theft

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  1. 33rd IAEE INTERNATIONAL CONFERENCE Energy theft From the regulator and the regulated viewpoints Jerson Kelman President of Light June 2010

  2. Energy Theft: The view of the regulator Water regulator ANA (2001-2004) Electricity regulator ANEEL (2005-2008) Consumers Reasonable tariffs Quality of service The regulator Government Utilities Adequate remuneration Predictable and clear rules Strategic interests Universal service

  3. Energy Theft: The view of the regulated Light Company at a glance (2009) • Founded in 1904 by Canadian entrepreneurs • Fourth DisCo of Brazil (out of 64 DisCos) • Distribution grid: 60 thousand km • Concession area: 11 thousand km² • 11 million inhabitants • 4 million consumers • Energy regularly distributed: 22 TWh* • Energy lost due to theft: 5 TWh • Work force ≈ 11 thousand • Net revenue ≈ US$ 3 billion • Installed capacity ≈ 855 MW * 19 TWh Captive, 3 TWh Free Consumers.

  4. Energy Theft: The Problem in Brazil Waste and Unfair Cost Allocation 22 TWh lost per year in Brazil -8% of Captive Consumption Cost Today Savings if Eliminated US$ 3.2 billion per year 50% of the stolen energy wouldn’t be consumed if properly paid US$ 1.6 billion per year US$ 1.6 billion per year Presently paid by honest consumers and DisCo To be paid by today’s dishonest consumers * Source: ABRADEE, 2008

  5. The Regulated DisCo’s Perspective Light’s Challenges Light’s Regulatory Gross Revenues: only 3% goes to Equity Holders • Regulatory WACC: • 15,05% Before Taxes • 9,95% After Taxes Only 21% of Light´s gross revenues is used to pay the distribution service Income Taxes 2% Distribution Equity Holders 3% Generation Delinquency 1% 21% 35% Debt Holders 3% O&M + SG&A 8% Taxes 30% Depreciation 4% Transmission 5% Sector Light’s 2009 Regulatory Income: ~ US$ 150 Million How much Light pays for 5 TWh? ~ US$ 250 Million* Charges 9% * Considering only Generation Costs

  6. Energy Theft: The Regulator’s Perspective What should the Regulator do? Let DisCo pay for everything • DisCo´s lack of financial sustainability would cause the return of the concession to Federal Government: Tax payers would pay the bill! Let honest consumers pay for everything • DisCo wouldn’t have incentives to reduce energy theft, that would increase over time: Honest consumers would pay an ever increasing bill! Find a solution consistent with Price-cap Regulation • Understand causes, compare companies’ performances, bring strong incentives to reduce energy theft: In the long run, honest consumers pay a smaller bill!

  7. Energy Theft: The Regulator’s Perspective A Solution Consistent with Price-cap Regulation Energy stolen ANEEL’s Methodology to Determine Regulatory Levels • Understand the causes of energy theft: • Econometric model to capture social complexity of concessions • Compare Companies’performances: • Yardstick Competition • Clusters Social complexity

  8. Energy Theft: The Regulator’s Perspective The Social Complexity of the Concessions Included in ANEEL’s Model Excluded from ANEEL’s Model Anomie Development Energy Usage Urban Informality Infrastructure Air Conditioning Violence Income Air conditioning usage statistically significant

  9. Energy Theft: The Regulator’s Perspective A Solution Consistent with Price-cap Regulation Social Complexity Index of concession areas similar to Light´s

  10. Energy Theft: The Regulator’s Perspective A Solution Consistent with Price-cap Regulation ANEEL’s Methodology to Determine Regulatory Levels • Strong incentives to reduce energy theft: • Trajectory for regulatory losses • Cost-benefit analysis

  11. The Regulated DisCo’s Perspective Light’s Challenge to Reach the Regulatory Loss Levels Light’s total expenditure in energy theft control: ~ US$ 80 Million per year* * OPEX + CAPEX

  12. The Regulated DisCo’s Perspective Light’s Challenge on Energy Theft • ~ 5 TWh stolen per year • 26% of captive consumption • 44% of low tension consumption Três Rios 5 GWh 0,1% Light LossbelowLight’sAverage LossaboveLight’sAverage Barra do Piraí 15 GWh 0,3% Light Penha 922 GWh 18,4% Light Volta Redonda 15 GWh 0,3% Light Caxias 967 GWh 19,3% Light Méier 471 GWh 9,4% Light Nova Iguaçu 857GWh 17,1% Light Santa Cruz 731 GWh 14,6% Light Centro 145 GWh 2,9% Light PENHA MÉIER JACAREPAGUA CENTRO SUL BARRA Sul 65 GWh 1,3% Light Barra 20 GWh 0,4% Light Jacarepaguá 801 GWh 16,0% Light * nov-07 a out/08 12

  13. The Regulated DisCo’s Perspective Light’s Challenge on Energy Theft Different Solutions for Different Areas Higher Income Areas: Conventional control Lower Income Areas: Electronic Meters + Anti-theft cables Risk Areas: To follow the effort of Rio’s State Government to regain territorial control and to improve general living conditions in these areas

  14. The Regulated DisCo’s Perspective Risk Areas: Where Energy Theft Control is Virtually Impossible • 40% of Light’s energy losses due to theft • 600 communities; 650,000 consumers (17% of total) • 1 policeman per 40 people • So far, 10 slums, 25,000 families (4% of total) • Before pacification: • above 90% of delivered energy is stolen • State Territorial Control: a necessary condition for adequate public services Rio’s effort to regain territorial control

  15. The Regulated DisCo’s Perspective The Santa Marta Community Experience Before Pacification • Number of families: 1,500 • Billed consumers: 80 • Total Revenues: US$360/month

  16. The Regulated DisCo’s Perspective The Santa Marta Community Experience Before Pacification • Transformers overcharged • Precarious low voltage grid

  17. The Regulated DisCo’s Perspective The Santa Marta Community Experience Interaction with local community

  18. The Regulated DisCo’s Perspective The Santa Marta Community Experience New grid, new technical solutions

  19. The Regulated DisCo’s Perspective The Santa Marta Community Experience Telemetric electronic gauging

  20. The Regulated DisCo’s Perspective The Santa Marta Community Experience Energetic Efficiency • Replacement of 7,000 incandescent bulb lamps • Replacement of 700 inefficient refrigerators • Substitution of internal wiring of 500 households

  21. The Regulated DisCo’s Perspective The Santa Marta Community Experience Billing • Cancelling of old debts • Electricity bill limited to 80 kWh per month during first 6 months • Gradual stepping up of 20kWh per month each two months Faturamento Escalonado

  22. The Regulated DisCo’s Perspective The Santa Marta Experience 1,500 families, US$ 2.2 millions in investments After Theft: 0% Delinquency: 5% Before Theft: 93% Delinquency: 76%

  23. Chapéu Mangueira e Babilônia

  24. Cidade de Deus

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