Cemig Rates Rise 3% as Government Fights Surging Thermal Costs

Cia Energetica de Minas Gerais, Brazil’s third-largest power company by market value, will have its rates increased 2.99 percent for the next four years, less than initially suggested by the country’s regulator.

The regulator, known as Aneel, in January made a preliminary suggestion to raise rates for Cemig, as the Belo Horizonte, Brazil-based utility is known, by 6.36 percent, before yesterday announcing a 2.99 percent increase. Cemig forecast a 20 percent decline in earnings before interest, taxes, depreciation and amortization, Chief Financial Officer Luiz Rolla said April 6, before the announcement of the rate increase.

The rate review is part of a quadrennial revision that all companies go through. The current four-year revision cycle started July 3 when Eletropaulo Metropolitana Eletricidade de Sao Paulo SA had its rates slashed by 9.3. While rate reviews take into account depreciation and amortization of assets as well as investments, Cemig’s also took into account the higher cost of thermal energy being used in Brazil since the fourth quarter to compensate for lower than average hydro-power production due to a drought in parts of the country. Brazil consumes mostly hydro-electricity, which is cheaper to produce than thermal power.

Eletropaulo’s revision was perceived by analysts at the time as a first step in President Dilma Rousseff’s attempt to lower power tariffs. In September, the government announced a package to cut prices for consumers by as much as 32 percent, which became effective in January.

Cemig is already working to increase its Ebitda, given the impact the new rates will have on profit, and to take it back to its current level, Rolla said April 6. Reviews are rules of the game, he said.

Tractebel Energia SA and CPFL Energia SA are Brazil’s largest and second-largest power utilities by market value.

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