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Enron Mail |
As per Sergio's and Rick's request, please find enclosed a quick summary on
the ANEEL's "intervention" in the MAE. This note is organized in four main sections: a) What was it? b) Initial reactions c) Enron's view d) Next steps a) WHAT WAS IT? Aneel has recently issued a series of three Resolutions (160/161/162) significantly changing the structure and governance of MAE. It has also amended some of the MAE rules regarding penalties and guarantees on financial settlement. In terms of structure, ANEEL has empowered ASMAE to develop its responsibilities. ASMAE is the organization in charge of developing MAE's basic operational functions, such as metering, contract registering, spot price calculation and financial settlement. It also has a role in developing the MAE rules, an effort which started in November 1998 and has not yet come to fruition. ASMAE formerly reported to COEX, the MAE Board of Directors, According to the recently enacted Resolution ASMAE will have now a solid line relationship with ANEEL and it was empowered to develop it basic organizational functions more independently from the Board of Directors. In terms of governance, ANEEL has terminated COEX, a 26 stakeholder Board in charge or runinng MAE and preparing the MAE rules. The Resolution was effective immediately. In lieu of COEX, ANEEL has created COMAE, a new 6 member professional Board, in charge of overseeing ASMAE and developing MAE rules, on an ongoing basis. COMAE should be operational in two months. ANEEL,Distributors and Generators should appoint two voting members each. Similarly to COEX, COMAE will still report to the MAE General Assembly, where all stakeholdershave a seat (votes are equally split between generators and distributors) In terms of MAE rules, ANEEL has now imposed penalties and guarantees. Those were part of the MAE rules since the very beginning, but they have never been implemented. The original MAE rules encompassed a broader range of penalties. ANEEL has focused solely on the the penalties of financial nature, the ones strictly necessary to have the financial settlement up and running. There is a 60 day period to put the new organization and governance in place. In the meantime, ASMAE will continue its routine functions. If doubts arise, ASMAE will clarify directly with ANEEL b) INITIAL REACTIONS Most companies were shocked with the new Resolutions. The Resolutions were issued on a Friday, late afternoon, to allow agents to dissipate their anger over the weekend. The measures were considered a unilateral "coup-de-etat" kind of intervention. A lot of criticism was raised on the "legality" of the process. Initial reactions challenged ANEEL's ability to intervene in the MAE rules and terminate COEX. Similar reactions were expressed the following week. A COEX meeting (void in legal terms) was held the following week to verbalize people's angers and discuss next steps. An immediate General Assembly was scheduled. Several COEX members got really upset. Reasons vary: some are questioning the necessity of those actions, although most agree that COEX was not a functioning organic body. Some COEX member got very emotional: afterall, their hierarchical positions inside their organizations depend on the status granted by being a COEX member. ANEEL invited CEOs from all affiliated companies to explain the rationale behind those measures and avoid direct confrontation with COEX, whose members are motivated by more parochial views. The meeting was useful and most of the negative reaction was placated. No one is now is now considering any legal action against ANEEL. Most stakeholders agree that something had to be done, despite the fact that the way ANEEL invervened was disastrous and with doubtful legal validity. The issue now is to prepare a new Market Agreement, containing the basic mandates and addressing utility's concerns. c) Enron's view Enron thinks that the proposed changes were badly needed. Enron has publicly and in several occasions expressed its view about COEX role in MAE implementation. In Informativo Regulat?rio # 3, issued back in November 2000, we blamed the stakeholder nature of COEX for most of MAE problems. Nothing was being decided. COEX attempted to get the MAE rules in place for more than two years without success. No one (except a few, including Enron) was interested in getting MAE up and running. Rather, most agents were interested in conforming the MAE rules to meet their ad-hoc individual parochial interests. The COEX attempt to deal with the nuclear issue was a clear na<ve, retreat to objectives. Procrastination was the rule of the game. In sum, COEX was not working. The California experience served to surface and enlighten the maladies of stakeholder's Board. In several instances, we proposed a professional Board and some form of ANEEL's intervention, as it had the ultimate responsibility to have a functioning market. R ANEEL has reportedly taking our comments into account. Regulatory Affairs is proud to have influenced this process. However, we think ANEEL should have acted a long time ago. ANEEL now has a sense of urgency. It fully understands that a non-functioning market would be an obstacle to anyone's building new short term generation, on a merchant basis. This incremental generation is key to mitigate the impact of rationing. No one doubts that ANEELs intervention was a "coup-de-etat". Legally speaking, it is also questionable. ANEEL is backed by the Ministry of Energy and by other Federally owned generations, who have many votes in the MAE. Despite those deficiencies, we believe the changes are in the right direction. ANEEL has called Enron and asked for our individual support as well as to use our influence in the coalitions groups we are part of (ABRADEE, APINE, CBIEE and ABRACEEL), to help mitigate the anger and help get the new Market Agreement in place. Apparently ANEEL did not call any other private utility. We explained ANEEL how delicate the situation is. The only way to proceed is to shift the spotlight from the legal issues and try to focus on a new MAE Agreement, to be signed by all parties. This would require ANEEL some willingness to negotiate and compromise. They accepted our suggestion. We have also expressed our view that ANEEL should not further interfere in the MAE rules, spot pricing and contracts. Our support is contingent on the integrity of market and contracts, even during a serious rationing. The impending rationing indeed represents a temptation for the regulator to further interfere, set caps on spot and the like. We have focused most of our effort in examining the three Resolutions and proposing changes & improvements to be incorporated into a new MAE Agreement. There are many aspects which need to be clarified/improved in the new governance and structure as proposed by ANEEL. For example, the hierarchical lines between ANEEL, COMAE, ANEEL, General Assembly and Board of ASMAE need clarification. Similarly, the penalty rules need a lot of work to be ready to be implemented. We have prepared several suggestions and we have circulated among industry players, asking for inputs and feedback. No one is really focused on the new MAE Agreement. Discussions are still very emotional at this point in time. However, we feel that some progress has been made. Coalition groups are not talking about challenging the Resolution on legal grounds. This is unlikely to happen on an individual basis. The situation is relatively under control. d) Next Steps Despite the progress in mitigating the initial anger, there is still a long way to go. Our initial recommendations to improve the Resolutions, distributed to industry players, should be technically discussed and agreed. COMAE members should be appointed: ideally, utilities should agree on the COMAE members specs, on a slate of candidates and on a process for final COMAE members selection. Finally, a new MAE Agreement should be signed. None of them are trivial tasks from a political standpoint. ANEEL has established a 60 day transitional period and a safety net if nothing happens: ANEEL itself would choose the members and will maintain the Resolutions as they are. We are also going to use ABRACEEL to lobby for COMAE seats (one or two) to be appointed by traders. So far, this group has not been represented in the COEX and in any other MAE formal or informal discussion groups. We feel traders are handicaped and that this is detrimental to the market as a whole Distributors avoid retail competition while generators avoid wholesale compatition. Collectively, they avoid competition and therefore the implementation of the market. Traders are the only ones who strongly advocate competition, on a genuine basis. All of this will keep Regulatory Affairs busy for the next months.
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