New Lawsuit Against ANEEL and Furnas

As I indicated in my earlier phone-mail message, Elektro would like
authorization to bring two suits in Rio de Janeiro against ANEEL (the
Brazilian regulatory agency) and Furnas (a federal company acting as agent
for power sales from Itaipu). These suits would be based on these entities'
failure to allow Elektro to pass through certain increases in the cost of
electricity to its customers. Despite lengthy negotiations, the parties have
been unable to resolve their differences and it appears that a court
challenge is the only way forward.
As I mentioned (long-windedly) in my phone mail, the first suit would relate
to an 8% increase in the price of electricity which Elektro has been
prevented, due to the procedural wrangling and subterfuge of ANEEL, from
immediately passing on to its customers. By way of background, Elektro must
buy in excess of 4% of the electricity produced by Itaipu. ANEEL has
authorized Furnas to increase the cost of Itaipu's electricity by
approximately 8%. Elektro believes that, pursuant to its concession
contract, it should be able to immediately pass this extraordinary increase
along to its customers. Instead of allowing this pass-through, ANEEL has
required Elektro to wait for the date of its annual rate adjustment to
receive the increase. In the meantime, Elektro is required to absorb the 8%
increase with no retroactive adjustment available allowing it to recoup the
increase. It is my understanding that during the months before the rate
increase is authorized, Elektro loses approximately $80,000 per month.
Accordingly, Electro would like to file suit to obtain declaratory relief:
(i) supporting the immediate pass-through of any rate increase, and (ii)
injunctive relief to prevent imposition of sanctions and/or interest.
The second suit contemplated by Elektro would involve not just the 8%
increase mentioned above but also would involve other increases that Elektro
has had to bear without the benefit of an immediate pass-through to its
customers. Since 1999, in disregard of both the parties' agreement and the
law, Elektro has been denied immediate pass-throughs for a number of
increases in the cost of electricity, related taxes and other legal
encumbrances. According to Elektro's calculations, the amount in dispute in
this "bigger picture" litigation is approximately $42 million.
Mr. Bermudes' firm believe that the chances of winning both suits are very
high and, on the "bigger picture" suit has already provided this opinion in
writing. Other than the possible negative impact on Elektro's relationship
with ANEEL and the length of time the court in Rio could take to decide the
matter (5-6 years) the downside to initiating the litigation does not seem
great. According to Elektro, these suits would not jeopardize Elektro's
agreement to sell electricity and would result in nominal interest and
penalty should they prove unsuccessful.
Please let me know if Elektro is authorized to proceed as set forth above.
Thanks.