1

Argentine Power Sector

CAMMESA

Wholesale Electric Market Management Company

APEX 2003 ConferenceCartagena, Colombia

2

Global figuresChanges in the demand and

supply Macroeconomic changes Impact of these changes in the

market and the operationExpectations - Concerns

Outline

3

Installed Capacity 24 GWGeneration 2002 80 TWh500 kV 9.100 km220/132 kV 12.000 km

WEM - ParticipantsGenerators 53Distributors 63Large Consumers Ma 302Large Consumers Mi 2006Transmission COs 10Traders 4

Wholesale Electrical Market -Wholesale Electrical Market - 2002 2002

CUYO

COMAHUE

CENTRO

NOANEA

LITORAL

BUENOS AIRES

GBA

PATAGONICO

Hydro51%Thermal

42%

Nuclear7%

77%

23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Spot Contract

4

Installed Capacity WEM

0

5,000

10,000

15,000

20,000

25,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

MW

HI

CC

TG

TV

NU

Capacity WEM: 1992 = 13267 MW

2001 = 23284 MW ~70%; 10000 MW increase in Generation Capacity

Outstanding Variables - GenerationOutstanding Variables - Generation

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Annual peak demand

9035 932510104 10213

11243 11776 12269 1273013754 14061 13481

14150

1050 1050 22002200

7000

8000

9000

10000

11000

12000

13000

14000

15000

16000

17000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

MW

LocalGrowth = 5000 MW

EXPGrowth = 2200 MW

Outstanding Variables – Peak DemandOutstanding Variables – Peak Demand

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Ev de la tasa de crecimiento de la demanda eléctrica

6.6% 6.3%

3.6%

7.5% 7.6%

5.6%4.7% 4.6%

2.3%

-2.0%

6.7%

-4%

-2%

0%

2%

4%

6%

8%

10%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Porcentaje de variación demanda mensual Grandes UsuariosAño 2002 vs 2001

-4.7%-6.7%

-1.6% -0.8%-2.4%

0.3%

-1.2%

2.3%

6.6% 6.2%

12.0%

-11.3%-15%

-10%

-5%

0%

5%

10%

15%

Ene-02

Feb-02

Mar-02

Abr-02

May-02

Jun-02

Jul-02

Ago-02

Sep-02

Oct-02

Nov-02

Dic-02

Industrial consumers

=>

AnnualDemand Growth

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Traded Energy

Energy Traded - Contract vs Spot

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

SPOT

CONTR

• High exposure to spot volatility

8

0

5

10

15

20

25

30

35

40

45

Ene-

00

Mar

-00

May

-00

Jul-0

0

Sep-

00

Nov

-00

Ene-

01

Mar

-01

May

-01

Jul-0

1

Sep-

01

Nov

-01

Ene-

02

Mar

-02

May

-02

Jul-0

2

Sep-

02

Nov

-02

Ene-

03

Mar

-03

u$s/

MW

h

0

0.5

1

1.5

2

2.5

3

3.5

4

Monomial $

Monomial u$s

rate $/u$s

SPOT PRICE EVOLUTIONSPOT PRICE EVOLUTION

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Outstanding VariablesOutstanding Variables

Wem Average Monomial Prices48.76

35.74

31.7829.73

28.56

25.25 24.3826.13

27.63

23.35

28.92

10.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

$/M

Wh

Competitiveness of the market and efficiency of generation units provoked a fall in spot prices of about 40% 48.8 $/MWh1992 to 28.5$/MWh2002

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Dic 2001 => political crisis with deep recession in economy led to the fall of the government; social instability

Austral summer 2002 New transition governmentDebt default; end of the fixed

exchange rate (1$=1u$S) and devaluationeconomic emergency law => pesification of economyProfound economic crisis; inflation

Macroeconomic Changes

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Since July 2002 => conditions begin to stabilize; relative normalization of the behaviour of economy

May 2003 => new elected government

Macroeconomic Changes

0

0.5

1

1.5

2

2.5

3

3.5

4

Dic

-00

Feb

-01

Abr

-01

Jun-

01

Ago

-01

Oct

-01

Dic

-01

Feb

-02

Abr

-02

Jun-

02

Ago

-02

Oct

-02

Dic

-02

Feb

-03

Abr

-03

Jun-

03

Sep

-03

u$s/

MW

h$/u$s

Evolution of exchange rate=>

Increase of industrial demand due to greater competitiveness to export and import substitutionJan02-oct03 Exchange rate => 200%Inflation => about 50%

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Tariffs to end consumers => social impossibility to increase tariffs due to economic crisis and people impoverishment

Pesification of natural gas, energy and capacity prices on the WEM

Increase of imported fuel and maintenance costs

Uncertainty related with exchange rate evolution and expected performance of the generation units

Electricity Sector Scenario

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Keep tariffs at the initial level, absorbing the difference with the stabilization fund

Cover variable costs (fuel, operation and maintenance) of each generator, permitting costs declarations each fortnight

Maintain short term marginal cost system, with a cap price of 120 $/MWh

Modify capacity payments, turning them independent of actual dispatch and include base payment for almost every thermal plant available, and increasing it from 10 to 12 $/MWh

Remunerate new reserves (competitive bids) against commitment to fulfill them, to ensure fuel (gas or liquid) and MW availability

Create a spot market in advance, similar to a contract, through competitive bids, to diminish volatility and risks. Decision based on minimum cost (+risk) criteria

Electricity Sector – Regulatory Decisions

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Results – Prices & Fund

Spot Price (Generators collect) vs Seasonal Price (Distributors pay)and Stabilization Fund Evolution

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Sep-02 Oct-02 Nov-02 Dic-02 Ene-03 Feb-03 Mar-03 Abr-03 May-03 Jun-03 Jul-03 Ago-03 Sep-03

$/M

Wh

-250

-200

-150

-100

-50

0

50

100

150

200

250

M$

Spot Price Generators Seasonal Price Distributors Stabilization fund

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Transition was managed, allowing to operate the system in good supply conditions

Higher marginal spot prices due to increase of maintenance and liquid fuel costs, with a cap price of 120 $/MWh. Differences between variable costs and maximum charged as uplift costs

Spot market in advance, allowing to hedge, from mar to oct-03, about 40% of the spot market to an energy price of 24,4 $/MWh. The average real price resulted 3 $/MWh higher => savings => about 60M$.

Generation availability performance similar as historical and new reserves fulfilled adequately

Stabilization fund exhausted since jul-03. Debt of the fund with generators of abut 280 M$ (1-2 months of payment). Priority of payment to cover variable costs (thermal units receive more money than hydro plants)

Regulatory Decisions - Results

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Increase of tariffs required to gradually normalize situation. Gas increase pending, when adopted it will imply an additional increase to the WEM

The whole situation seems very difficult to handle politically

Demand increase and exports to Brasil, along with default of the stabilization fund may lead to a significant increase of the deficit of supply risk

Medium and long term viability and the lack of new investments in generation is then one of the major concerns, until the regulatory framework may be adapted and political solutions adopted.

Expectations - Concerns

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From CAMMESA’s point of view

Be flexible enough to implement changes on rules and keep on running the system and the Market, in a delicate environment.

Study and analyse scenarios to identify and anticipate risks, in order to help in the search of solutions.

Next steps

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Quality, Technology & Transparency

For an Electrical Market without frontiers

¡Thanks for your attention!

Colombia, October 2003

Doubts => jluchilo@cammesa.com.ar More info => www.cammesa.com.ar