Distribution:
Periodic Tariff Review
Methodology
Maura Galuppo Botelho Martins
WACC
PARAMETERS
Third Periodic Tariff
Review
(2011 to 2014)
2015 to 2017
Capital structure: (Debt / Debt+Equity) 55% 48.76% Risk free rate (rf) 4.87% 5.64% Expected market return (rm) 10.96% 13.20%
Average levered beta (β) 0,74 0,70
Country risk premium (rB) 4.25% 2.62% Credit risk premium (rc) 2.14% 3.37% Nominal cost of own capital (Ke) 13.43% 13.57%
Nominal cost of third party capital (Kd) 11.26% 11.62% Real cost of own capital after taxes (34%) 10.72% 10.90%
Real cost of third party capital after taxes (34%) 4.86% 5.14% Real WACC after taxes 7.50% p.a. 8.09% p.a.
WACC required to offset NPV negative effect
of Cemig D investments
Exclusion: | WACC: | |
WACC: | ||
Investments made during 3rd Tariff Review Cycle | 8% | 10% |
Valuation using Current Investments Rule made during 4th Tariff Review Cycle (Nov. 2012 - Apr. 2015) | (20) | 12% |
Valuation using 'Price Bank' Aneel Proposal for 3rd Phase Public Hearing 23/2014 Investments made during 4th Tariff Review Cycle (Nov. 2012 - Apr. 2015) | 4% | 9% |
ASSET BASE REMUNERATION (BRR)
3rd Public Hearing Phase 23/2014
Aneel Proposal:
• Adoption of the regulatory values for items like COM (Minor Components) and CA (Additional Costs) that comprise investments.
Adoption of
Price Bank
ASSET BASE REMUNERATION (BRR)
3rd Public Hearing Phase 23/2014
Non- standardization of inspection Need for more transparency in process ANEEL's reasons Unpredictability of results Information uncertainty There are no comparative analysis between companiesASSET BASE REMUNERATION (BRR)
3rd Public Hearing Phase 23/2014
Aneel Price Bank vs. Initial Book Value [VOC] Ratio of VNR (Price Bank) to VOC for large companies-3.6%
Source: Aneel Technical Note 071/2015 SGT of April 2, 2015.
TECHNICAL LOSSES
Public Hearing 26/2014
3rd Tariff Review Cycle Method 4th Tariff Review Cycle Method
Regulatory Technical Losses
Single statistical model Energy Balance General data table
Does not reflect the real technical losses of the distributors' electricity systemRegulatory Technical Losses
Network Simulation Metering campaign Geographical database
Tends to approximate the technical losses to the distributors' electricity systemNON-TECHNICAL LOSSES
3rd Tariff Review Cycle Method
New methodology
12 econometric models to calculate
the complexity index
3 econometric models to calculate
complexity index
Two complexity groups Single complexity group
Defining the loss of speed reduction
per cluster for each complexity
group
Defining the loss of speed reduction
per new clusters using a single
complexity group
Starting point for Cemig D: maximum value of 7.50% and lower value between regulatory target set
by the 3rd Tariff Review Cycle (7.63%) and the average of non-technical losses in past 4 years.
CEMIG D: DEBT PROFILE
Maturities timetable - Average tenor: 3.4 years Main indices
Total net debt: R$ 5.8 billion
OTHER
Average real cost of debt - % Leverage - %
Net debt
Ebitda
Net debt
Source: www.cemig.com.br
Stockholders'
equity + Net debt
OPERATIONAL COSTS
CYCLE | Lower limit | Middle band | Upper limit | |
3rd Tariff Review Cycle | Efficiency | 48% | 58% | 68% |
4th Tariff Revew Cycle | Efficiency | 65% | 69% | 73% |
4th Tariff Revew Cycle | Normalized Efficiency | 85% | 91% | 96% |
Investor Relations
Telephone: (55-31) 3506-5024
Fax: (55-31) 3506-5025
Email: ri@cemig.com.br
Website: http://ri.cemig.com.br
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