Case Study on Loss Manegement in Brazilian Utilities

1. Case Study on Loss Manegement in Brazilian Utilities Marcos Aurélio Madureira da Silva Corporate Commercial Director Sistema Cataguazes-Leopoldina madureira@cataguazes.com.br

2. Agenda • Brazilian electricity market overview • NTLs concepts • SCL’s losses fighting history • New challenges to reduce NTLs • Revenue Intelligence case study in SCL

3. Introdução BRAZIL OVERVIEW 8,500,000 SQUARE KILOMETERS 62 ELECTRIC UTILITIES AROUND 180 MILLION INHABITANTS AROUND 53 MILLION CUSTOMERS • Informe o motivo da discussão • Identifique-se

4. Brazil – Electrical Sector • Electrical Companys • Generation (almost all State owned) • Trasmission(almost all state owned) • Distribuition (almost all privatized) • Regulatory and Control • ANEEL – Regulatory Agency • ONS – G and T • Independent System Operator • CCCE – Energy Trading • Contracts • Energy Bids • Spot Market • Free Customers

5. Sistema Cataguazes- Leopoldina 1905 - 2005 Área: 1.789 Km2 Costumers : 137 thousand Inhabitants: 450 mil Sistema Cataguazes Market Share 2005 0,8% of Southeast 9,0% of Northeast 2,0% of Brasil Northeast of Brazil SAELPA Área: 54.595 Km2 Costumers : 861 thousand Inhabitants: : 3.000 mil Área: 17.419 Km2 Costumers : 455 thousand Inhabitants: : 1.800 mil Brazil Southeast of Brazil Área: 17.331 Km2 Costumers : 390 thousand Inhabitants: : 1.200 mil REF: 2005mar

6. Sistema Cataguazes- Leopoldina 1905 - 2005 REVENUE PROTECTION IS PART OF A PERMANENT FINANCIAL POLICY

7. Cash-flow consequences of NTLs : Vicious cycle Reduce EBITDA NTLs reduce EVA EBITDA - Earnings Before Interest, Tax, Depreciation and Amortization; EVA - Economic Value Added; CAPEX - CAPital EXpenditures. Reduce CAPEX Reduce Investment Capacity and Operational Efficiency

8. SCL –Corporate Management Process BOD GOALS NEGOTIATION BUSINESS MANAGEMENT UNIT REPORTS MONITORING PROJECTS NEGOTIATION ACTION PLANS RELPORTS MONITORING DEPT. MANAGER NEGOTIATION REPORTS MONITORING OPERATOR

9. SCL - Commercial Losses Main Activities and Results • Main Activities • Field Inspections • Fix Irregular connections • Fix Damaged Meters • Fix metering instalations • Fix bad registers • Results • +50% reduction of commercial losses since 2001 until 2004 • 9% 2001 December • 4,3% 2004 December

10. Challenge : Reduce NTLs • PROFITABILY x AFFORDABLE SUPPLY RATES • Regulators push utilities to decrease commercial losses (refusing to transfer NTLs to the tariffs) • Shareholders push top-management to achieve positive EVA (profits greater than cost of capital) • Government, Regulators and Users push utilities increase quality of energy while reducing rates

11. Challenge : How to Reduce NTLs • Lack of human and financial resources to perform all necessary actions • Field investigation, service orders  to reduce fraud / theft / commercial losses • Debt negotiation, consumer disconnection (where permited by law)  to reduce receivables losses • Internal process optimization and auditing  to reduce administrative losses

12. Challenge : Reduce NTLs • There are new distribution solutions

13. Distribution solutions

14. Distribution solutions

15. Meters installed on the pole

16. Challenge : Reduce NTLs • There are new distribution solutions • But they are expensive… • As time goes by, frauds has became more sophisticated • Criminal organizations selling “energy theft services” • Endless mouse-cat game

17. New Challenges • We need to increase the search frauds process efficiency • How much ? • Where? • How kind? • To optimize NTLs reducing process • What are the priorities? • How the actions must be doing? • What is the adequated solution? • How is the optimal mix (New installations X Inspections)

18. Data analyses • We have a lot of data • Billing systems • Meter systems • Electrical Operation Measurement Systems • Distribuition Electrical System Manegement • Costumer Care system • Irregularities detected by meter readers • Those data are usually separated • We need to put them together • We have to think, plan and act with intelligence

19. Loss Reduction Strategies employed • Which technologies should be employed, in what consumers ? • Limited financial resources  it is necessary to optimize the resources Universe of consumers AMR with PLC Which consumers should be inspected ? Anti-theft cables, meters and seals Load balance up to transformers Change of pattern for input and distribution

21. Graphs for productivity of inspections Energy  Recovered + Aggregated Optimal Point for energy / cost Productivity with RI Increase of energy with same cost Productivity without RI Cost

22. SAELPA – Revenue Intelligence results • Recovered Energy (MWhR) • MWhR (May/03-Dec/03)  7.591 before RI • MWhR (May/04-Dec/04)  12.680 after RI • Increasing  67,05% • Aggregated Energy (MWhA) • MWhA per Inspection • 0,028 MWh/month 0,048 MWh/month • Increasing  71%

23. Revenue Intelligence - SAELPA

24. Summary of Results in SCL-SAELPA • Results of RI in SCL (one year after implementation): • Find NTL, uncover unknown NTL • Productivity increased (energy recoveried / inspections) more then 67%, forecasting 0,86% annual increasing in total revenue • Increased efficiency of investigation team up to 36% (average); some rules already achieved 73% efficiency • Creation of a NTL Reduction Intelligence Dept. to reduce NTL and keep it low • Auditable results and statistics to demonstrate benefits to Management and Stockholders.

25. Marcos Aurélio Madureira da Silva Corporate Commercial Director madureira@cataguazes.com.br 55-83-2106-7002 www.scl.com.br