CAN BRAZIL LEARN FROM CALIFORNIA?

CHALLENGES OF POWER
DEREGULATION IN A PREDOMINANTLY HYDROELECTRIC SYSTEM
Luiz Augusto N. Barroso, Mario Veiga F. Pereira, Rafael Kelman, Priscila Line, Power
Systems Research Inc., Rio de Janeiro, Brazil

Summary

Most of the countries which recently reformed their energy sectors are looking carefully at
California, as an unprecedented electric power deficit affects one of the more developed
economies of the world, threatening to bankrupt two traditional utilities and having a
devastating impact on the other economic activities.
In Brazil, government hurries up to point out the differences between our situation and
California’s, For example, instead of having a bid-based system we have a cost-based central
dispatch for our hydro plants, which account for 95’XOof the country’s generation. Therefore,
government argues, Brazilian hydro plants cannot exercise market power to increase spot
prices, Another important difference is that Brazilian distribution utilities are 10O?XOcontracted
and, therefore, mostly immune from spot price fluctuations that have affected the California
utilities. Finally, high load growth rates are not an unexpected phenomenon for an
industrializing nation such as Brazil. Therefore, incentives for adding new generation have
always been at the forefront of regulators’ concern. In particular, all loads are required to
contract at least 85’% of their consumption (due of high price volatility, in practice they
contract 10OO/O).If they forecast load growth, they have to make arrangements for new
generation to come into the system well in advance, so they can contract it.
In summary, it seems that Brazil has done the opposite of California in almost all respects,
being much more careful about market power, contracting and assuring new power. The
result? A huge risk of rationing in 2001 and 2002, high tariffs and widespread consumer
opposition to the reform. It seems that there is more than one way to demoralize power sector
deregulation,,,
The objective of our presentation is to diagnose what went wrong with the Brazilian
reform, contrasting our approach with California’s, and discussing alternatives to improve the
situation. In particular, we will address some of the criticisms that have been made to
Brazilian sector reform: half the critics say the solution is more market; the other half, that we
should go back to state-owned enterprises, In addressing the more-market side, we will
discuss some problems such as bid-based dispatch in a cascade of hydro plants and the
concept of Wholesale Water Market (an extended spot market where water transactions are
recognized); pricing of transmission services

Luiz Augusto N. Barroso has a BSC in Mathematics and a MSC degree in Operations
Research, both from the Federal University of Rio de Janeiro. He joined PSRI in 1999, where
he has been working in mvcmal projects related to hydro and thermal economic project
evaluation, market power in energy industry, computational models to address hydrothermal
scheduling problem ans system planning studies. His research interests include market power,
stochastic optimization and finance. He is a member from IEEE-PES.

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 Mario V.F. Pereira has a BSC degree in Electrical Engineering (power systems, optimization
and computer science) and MSC and DSC degrees in Systems Engineering (optimization).
From 1975 to 1986, he worked at Cepel, where he coordinated the development of
methodology and software in power system planning and operations (PSPO). From 1983 to
1985, Dr. Pereira was a project manager at EPRI’s PSPO program. In 1987, he co-founded
Power Systems Research Inc. (PSRI), where he has developed computational tools and
methodologies for planning and operations for several worldwide, plus multilateral
institutions such as the World Bank and IDB. Dr. Pereira has also been an advisor on
privatization and power sector restructuring issues in Brazil, Colombia, Venezuela and South
of China. He has been a professor at the Catholic University in Rio and has authored and co-
authored about 200 papers and three books on power system planning, operation and
economics.

Rafael Kelman has a B.SC degree in Water Resources Engineering from the Federal
University of Rio de Janeiro and a MSC degree in Operations Research (COPPE). He joined
PSRI in 1997, where he has worked in several projects related to economic evaluation of
hydro and thermal projects, strategic bidding and water pricing. He has been working in the
development of computer models for energy systems. Mr. Kelman has been an instructor of
PSRI courses in Europe, Latin America and the US. He is a member from IEEE-PES,

Priscila Lino has a BSC degree in Mathematics and is finishing her MSC in Operations
Research, both from the Federal University of Rio de Janeiro, She joined PSRI in 2000, where
she has been working in bid-based hydrothermal dispatch and system planning studies. Her
research interests include water resources, stochastic optimization, planning under uncertainty
and finance.

0-7803-7173-9/01/$10.00 © 2001 IEEE 382

0-7803-7031-7/01/$10.00 (C) 2001 IEEE

Authorized licensed use limited to: INTERNATIONAL ISLAMIC UNIVERSITY. Downloaded on July 30,2020 at 08:24:23 UTC from IEEE Xplore. Restrictions apply.