Anti-Theft Plan Boosts Eletropaulo Revenue as Rates Fall

Eletropaulo Metropolitana de Eletricidade de Sao Paulo SA, Brazil’s largest power distributor by market value, is giving away refrigerators and hooking up street lights in low-income communities to stamp out energy theft that reduces industry revenue by 10 percent.

The utility is spending as much as 90 million reais ($45 million) through 2016 to rewire power lines in 500 so-called favelas, according to Jose Luiz Cavaretti, Eletropaulo’s manager of new markets. The goal is to connect as many as 200,000 customers, including people who have been pilfering electricity for decades.

The new customers may generate as much as 170 million reais in annual revenue, Cavaretti said. When combined with the 500,000 favela residents who have become customers since 2004, Eletropaulo expects about 580 million reais in sales, or 5.9 percent of total 2011 revenue. The additional income will help counter the impact of government-ordered rate cuts that drove down Eletropaulo shares 29 percent since July 2.

“We do this because it’s a good business,” Cavaretti said in an interview.

Eletropaulo shares have lost more than half their market value this year through yesterday as President Dilma Rousseff is demanding that utilities lower rates to combat inflation and make companies more competitive. Brazil’s benchmark Bovespa index has gained 4.7 percent

Regulators ordered the Sao Paulo-based company to cut rates

9.3 percent on July 3, and Rosseff announced a plan yesterday to reduce power rates by an average of 16 percent for households next year and as much as 28 percent for producers.

Urban Growth

Cia. Energetica de Minas Gerais, based in Belo Horizonte, gained 18 percent this year before today while Sao Paulo-based CPFL Energia SA declined 13 percent. The two Brazilian utilities get more than half their revenue from delivering power, as does Eletropaulo. The Bloomberg World Utilities index has increased

8.2 percent.

Eletropaulo’s moves to combat power theft in favelas is a response to economic expansion in low-income areas that’s giving more favela residents the ability to pay monthly power bills, Gabriel Laera, a senior analyst at BES Securities, said in a telephone interview.

“Rapid urban growth in these areas demand investments” in power infrastructure, said Laera, who has a recommendation equivalent to hold. “They’re being compelled to do this.”

Lost Revenue

About 10 percent of electricity consumed in Brazil is stolen, compared to 0.5 percent to 2.5 percent in the U.S. and some western European countries, Ben Gardner, president of the Washington-based research company Northeast Group LLC, said in a telephone interview.

Eletropaulo, a unit of AES Corp., cut theft from 5.3 percent of delivered power in 2009 to 4 percent in 2011.

“One of the biggest problems Brazilian power utilities face is energy theft,” Nelson Fonseca Leite, president of the Brasilia-based Brazilian Association of Electric Energy Distributors, said in a telephone interview.

Eletropaulo is seeking to demonstrate that becoming an on-the-books utility customer brings more reliable power service and other benefits to communities, Cavaretti said. Street lights make neighborhoods brighter and safer, reducing crime.

Murder Rates

In Colinas D´Oeste, a low-income community on a hillside in western Sao Paulo city, an average of two people were murdered a day before Eletropaulo started helping the government light roads in 2009.

“Lots of people arrived and then left because they couldn’t deal with the violence,” according to Lucianete, a Colinas D´Oeste shop owner who didn’t give her family name for fear of reprisals from bandits. Public “lighting helped a lot. I’m not joking -- if someone shoots someone, everyone can see now.”

Lucianete and her husband now spend about a fifth of their joint 1,000-real monthly income on Eletropaulo power bills, she said in an interview at her shop, surrounded by racks of snacks and canned goods.

The utility also distributed about 30,000 refrigerators to favela residents from 2004 and 2011 and one million energy-efficient chloro-fluorescent lamps for household use, according to its annual sustainability report, using funds the government requires it to set aside for energy-efficiency projects.

Centrais Eletricas Brasileiras SA, which distributes energy in Brazil’s poorer northern regions, and Light SA in Rio de Janeiro are also hooking up favela customers to fight theft.

Smart Meters

Light will spend 75 million reais this year installing so-called smart meters that use wireless technology to remotely monitor usage of 40,500 customers in favelas, a project that may have an annual return on investment of about 22 percent, Mario Romano, director of community relations at Light, said in a telephone interview.

Light wasn’t paid for about 19.8 percent of the energy it delivered in 2011, the third-highest in the country, after Cia. Energetica de Alagoas and Cia. Energetica Piaui, both Eletrobras units, according to Brazil’s energy-distributors’ association.

Offering incentives may convince favela residents to become paying customers, boosting utilities’ revenue, Northeast Group’s Gardner said.

“If you go in offering free energy-efficiency audits, checking the safety of wiring in houses, customers are bound to be more loyal and pay bills,” he said.

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