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SAO PAULO, May 11 (Reuters) - Brazilian power distribution company Eletropaulo Metropolitana Eletricidade de São Paulo SA risks “financial collapse” if rules governing power purchasing contracts are not changed, it said in a letter to regulators last month.
AES Eletropaulo, as the company is known, said in the letter dated April 11 it is accumulating losses due to current contract rules that prevent it from reducing the amount of electricity it buys from generators. The company, a subsidiary of U.S.-based AES Corp, is selling excess supply at a loss in the spot market.
Asked to comment about possible developments since the letter was sent, AES Eletropaulo said it has not been informed of any regulatory modifications to date. Brazil’s electricity watchdog Aneel, which released the letter on its website on Wednesday, did not immediately respond to a request for comment.
Other power distribution companies in Brazil are facing similar problems as consumption falls amid the country’s worst recession since the 1930s and power sector regulations fail to address smaller-than-projected demand.
The nation’s power consumption fell 4.2 percent in the first quarter from the same period a year earlier.
Power distribution companies have long-term contracts including fixed amounts of power deliveries. The cost of excess supply of up to 5 percent can be passed on via tariffs but beyond that, the only option is selling the excess power on the spot market at a loss.
Last month, AES Eletropaulo sold excess supply at around 48 reais ($13.7) per megawatt hour (MWh) on the spot market. It paid the generator 147 reais per MWh for the electricity.
The company had 5.9 percent of leftover electricity in the first quarter and losses from selling on the spot market amounted to 40.3 million reais.
Eletropaulo estimates excess supply will reach 16 percent by the end of the year.
“There is an urgent need of revaluation of current rules, otherwise the company would be subject to the risk of a financial collapse,” it said in the letter.
Possible solutions include allowing companies to pass on to consumers the extra cost of excess power purchasing or reducing the amount it buys from generators.
Any solutions may take time since Brazil is on the verge of a new administration as the Senate is likely to vote on Wednesday in favor of suspending President Dilma Rousseff as she faces an impeachment trial. Vice President Michel Temer would take the post and form a new cabinet while she is on trial. ($1 = 3.46 reais) (Reporting by Luciano Costa; Writing by Marcelo Teixeira; Editing by Jeffrey Benkoe)