Electricity regulation in Argentina: overview
A Q&A guide to electricity regulation in Argentina.
The Q&A gives a high level overview of the domestic electricity market, including domestic electricity companies, electricity generation and renewable energy, transmission, distribution, supply and tax issues. It covers the regulatory structure; foreign ownership; import of electricity; authorisation and operating requirements; trading between generators and suppliers; rates and conditions of sale and proposals for reform.
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This Q&A is part of the global guide to energy and natural resources. For a full list of content visit www.practicallaw.com/energy-guide.
In 1991, the Argentine Government undertook an extensive privatisation programme, including the electricity sector, based on laws No. 23,696 (State Reform Law), issued in 1989, and No. 24,065 (Electricity Regulatory Framework (ERF)), issued in 1992. In turn, and based on the ERFs principles and guidelines, the provinces adopted their own regulatory frameworks, to be applicable within their own jurisdictions. The ultimate objective of the system, among other goals, was to:
Achieve a reduction in rates paid by final consumers.
Protect consumer's rights.
Improve quality of service.
Promote efficiency, reliability and open access.
The ERF, still in force but substantially altered in the last few years, divided generation, transmission and distribution of electricity into separate activities, and subjected each to appropriate regulation. The ERF declared generators, distributors, transmission companies, large users and brokers as "agents" of the wholesale electric market (WEM). The Secretariat of Energy regulated the WEM to allow electricity generators, distributors and other agents to buy and sell electricity in spot transactions or under long-term supply contracts at prices determined by the forces of supply and demand.
Under the ERF, distribution and transmission is considered a public service, and generation is considered an activity of general interest. Long term concession agreements were granted by the Federal or Provincial governments to distributors, transmission companies and to hydroelectric power plants. Large users were admitted as members of the WEM and were authorised to operate in this market through power purchase agreements (PPAs) directly agreed with the generation companies.
Tariffs for distributors and transmission companies were nominated in dollars, with adjustment twice a year according to US indexes and final approval by the regulatory entities (federal or local). In turn, generators operated in an open market, being dispatched under the marginal cost principle (the most efficient was the first to be dispatched, selling energy at marginal cost, that is, the hourly cost of the energy in the WEM at the time when it is selling energy, as calculated by the WEM administration company (Compañía Administradora del Mercado Mayorista Eléctrico SA) (CAMMESA).
The ERF also created a:
Spot market in which prices are established on an hourly basis as a function of economic production costs, represented by the short-term marginal cost of production measured the system's load centre.
Contractual or term market in which generators, distributors and large users enter into long-term agreements on quantities, prices and conditions for the transactions of purchase and selling energy in the WEM, both systems administrated by CAMMESA.
The WEM currently has an installed capacity of approximately 31.089 MW, composed of:
Thermal (natural gas and fuel): 61%.
Others such as renewable energy: 1%.
The WEM is wholly interconnected by more than 32.000 km of high voltage (500 kV) and medium voltage (220 kV, 132 kV) transmission lines and related facilities, called the National Interconnection System. There are two high voltage international interconnections to Chile and Brazil. The distribution sector is composed of:
Two distribution companies, Edenor and Edesur, that operate in the federal jurisdiction.
Provincial distribution companies operating in each of the 23 provinces.
Minor scale distributors called cooperativas, many of them operating within the municipalities' jurisdictions.
Due to the 2001/2002 economic crisis, and based on Law No. 25,561 known as the "Emergency Law", concession agreements were subject to renegotiation (in many cases, this renegotiation is still in process). The operation of generators and, in general terms, the operation of the WEM was substantially altered (Emergency Law):
Foreign currency, specifically, US dollars, for the payment of fees included in concession agreements were converted to pesos at a rate of one peso one dollar.
Tariffs of distributors and transmission companies were frozen for several years.
Indexation clauses were forbidden.
Provinces evidenced a similar situation. Since then, the Argentine Government has repeatedly intervened in and modified the rules of the WEM.
This situation caused many Argentine electricity generators, transmission companies and distributors to defer further investment. As a result, Argentine electricity market participants, particularly generators, are currently operating at near full capacity, which could lead to insufficient supply to meet growing national energy demand.
Currently, within the federal jurisdiction, distributors and transporters are still negotiating an integral tariff revision of their tariff schemes, as envisaged in the renegotiation agreements of their concessions. On the other hand, the provinces authorised increases of tariffs for their distribution companies, allowing them to receive adjusted prices for the energy sold to their customers.
Wholesale prices were virtually frozen and kept artificially below costs, therefore creating a structural deficit in the operation of the WEM, covered by means of subsidies paid by the National Treasury to CAMMESA.
These modifications have created a huge structural deficit in the operation of the wholesale electricity market. To face the crisis, the Government, through the Secretariat of Energy, has taken various measures, including, among others:
Leaving aside the application of the system marginal-costs system, setting caps on the prices paid by distributors for the purchase of electricity and determining that the prices charged by generators be calculated on the basis of the price of natural gas, regardless of the use of other fuel (Resolution No. 204/2003).
Setting a maximum (artificial) spot price of ARS120/MWh (Resolution No. 406/2003).
To promote investments in generation, creating a Fund for Investments Required to Increase Electricity Supply in the Wholesale Electricity Market, called Foninvemem. This funded the construction of two new 800 MW combined cycle generators. The Foninvemem was financed with the net revenues of generators derived from energy sales in the spot market and through specific charges from CAMMESA applicable to large users.
Creating the Energy Plus Programme, which aims to ensure that the energy available in the market is used primarily to serve residential customers and industrial and commercial customers (Resolution No. 1281/1206). In turn, large users (above 300 kW) must satisfy any consumption in excess of their base demand (the demand registered in 2005) with energy from the Energy Plus Programme at unregulated market prices. The Energy Plus Programme consists of the supply of additional energy generation from new power plants or generation units.
Renumerating generators at prices set by CAMMESA and approved by the Secretariat of Energy, according to the available capacity, percentage of availability and type of fuel used (Resolution 95/2013). Large users (except those who enter into PPAs under the Energy Plus Programme or similar) can only purchase energy directly from CAMMESA, at wholesale prices set by CAMMESA, virtually eliminating the original term marker.
As recently reported by the media, representatives from nearly all the regions of Argentina agreed with the Federal Government on the so-called Convergence National Tariff Plan to establish unified parameters for distribution rates throughout Argentina (see Question 24).
See Question 1.
The principal regulatory authorities are:
The Secretariat of Energy of the Ministry of Federal Planning, Public Investment and Services (Secretariat of Energy). The Secretariat of Energy is responsible for the application of general policy concerning the Argentine electricity industry, at federal level. In particular, the Secretariat of Energy can:
formulate federal policy and the strategic planning of the electricity sector;
approve rules and regulations about the technical dispatch of the WEM;
approve wholesale prices for electricity;
control the National Regulatory Commission for Electricity (Ente Nacional Regulador de la Electricidad) (ENRE);
approve imports and exports of electricity.
The ENRE is an autonomous agency created by the Regulatory Framework Law. Among others, the main faculties of the ENRE are:
enforcement of compliance with the Electricity Framework Regulation (ERF);
control of supply standards of electricity services and enforcement of compliance with the terms of concessions;
adoption of rules applicable to generators, transmitters, distributors, electricity users and other related parties concerning safety, technical procedures, measurement and billing of electricity consumption, interruption and reconnection of supplies and quality of services offered;
prevention of anticompetitive, monopolistic and discriminatory conduct between agents of the WEM;
imposition of penalties for violations of ERF, concession agreements and related regulations; and
arbitration of conflicts between WEM agents.
CAMMESA. CAMMESA was created in July 1992 by the Argentine Government, which currently owns 20% of CAMMESA's capital stock. The remaining 80% is owned by various associations that represent wholesale electricity market participants, including generators, transmitters, distributors, large users and electricity brokers.
CAMMESA is responsible for:
managing the national interconnection system;
determining the technical and economic dispatch of electricity;
maximising the system's security and the quality of electricity supplied;
minimising wholesale prices in the spot market;
planning energy capacity needs;
monitoring the operation of the term market and administering the technical dispatch of electricity.
Provinces have their own authorities.
See box, The regulatory authorities.
The main generation companies include the following:
Hydroelectric power plants:
Thermal power plants:
Loma de la Lata;
Nuclear power plants: Atucha I y Embalse Río Tercero.
The transmission companies include the following:
220/500 kV: Transener.
Independent transmission companies:
Líneas de Transmisión del Litoral;
Líneas del Norte;
Líneas del Comahue Cuyo;
Lineas Eléctricas del Sur Eclesur.
The main distribution companies are the following:
Federal level: Edenor and Edesur.
Empresa Distribuidora de La Plata (Edelap);
Empresa Distribuidora Buenos Aires Norte (Eden);
Empresa Distribuidora Atlántica (Edea);
Empresa de Energía de Córdoba (Epec);
Empresa de Energía de Santa Fe (Epe);
Empresa Distribuidora de Energía de Mendoza (Edemsa);
Empresa Distribuidora de Tucumán (Edet);
Empresa Distribuidora de Energía de Jujuy (Ejesa).
To preserve competition in the electricity market, participants in the electricity sector are subject to vertical and horizontal restrictions, depending on the market segment in which they operate.
The following vertical restrictions apply:
Neither a generation company, nor any of its subsidiaries or its holding company, can be an owner or a majority shareholder of a transmitter company or the controlling entity of a transmitter company.
A holder of generation units cannot own distribution concessions. However, the shareholders of the electricity generator can own an entity that holds distribution units, either as shareholders of the generator or through any other entity created with the purpose of owning or controlling distribution units.
Neither a transmission company nor any of its subsidiaries or its controlling entity can be owner or majority shareholder or the holding company of a generation company.
No transmission company, any company controlled by a transmission company or any company controlling a transmission company can be owner or majority shareholder or the holding company of a distribution company.
Transmission companies cannot buy or sell electric energy.
Neither a distribution company, nor any of its subsidiaries or its holding company, can be owner or majority shareholder or the holding company of a transmission company.
A distribution company cannot own generation units. However, the shareholders of the electricity distributor can own generation units, either directly or through any other entity created with the purpose of owning or controlling generation units.
Large users are entitled to execute power purchase agreements directly with generation companies or with traders, at prices and conditions freely agreed between the parties, paying the local distributor a fee for the use of its distribution network.
Import of electricity
Electricity generation and renewable energy
Sources of electricity generation
The main sources of electricity generation are thermal, hydroelectric and nuclear. The installed capacity in 2013 was total 31,089 MW as follows:
Thermal: 18,816 MW, composed of steam units (4451 MW), natural gas units (4061 MW), diesel units (1099 MW).
Hydroelectric: 11.095 MW.
Nuclear: 1.005 MW.
Solar: 8 MW.
Wind energy: 165 MW.
See above. A minor percentage of energy is generated by other sources of renewable energy, such as biomass, biofuels, biogas and minor (below 30 MW) hydroelectric units.
Both the federal and provincial governments have issued regulations to promote the use of renewable sources of energy.
At the federal level, there are two promotional laws:
Law No. 25,019 National Regime for Wind and Solar Energy. (Regimen Nacional de la Energia Eólica y Solar). This promotes wind and solar energy production and establishes that such activities do not require previous authorisation from the Federal Government. Capital investments destined for the installation of wind power and solar power plants or equipment can benefit from 15 year value added tax (VAT) deferral. Additionally, the law foresees a fiscal stability regime for a 15 year term.
Law No. 26,190 National Regime for the Use and Promotion of Renewable Energy. This specifically declares that the generation of electricity from renewable energy sources for the supply of public services is of national interest. Under this law, new capital investments have either one of the following fiscal benefits:
anticipated reimbursement of VAT;
accelerated amortisation of capital assets purchased for the project.
In addition, assets associated to these activities do not qualify as a taxable asset for Minimum Income Tax purposes.
A feed-in-tariff system is applied to renewable energy, consisting of a payment of an additional price per each MWh generated (Law No. 25,019 as amended by Act No. 26.190). The premium for wind energy is ARS15/MWh, and ARS900/MWh in the case of solar photovoltaic generation. To this end, the law created a Renewable Energy Trust Fund to be administrated and allocated by the Federal Council of Electricity.
Finally, the Federal Government has issued a resolutions 220/2007 and 108/2011 of the Secretariat of Energy, promoting the execution of power purchase agreements (PPAs) to be entered between companies and CAMMESA or with the state-owned company Energía Argentina SA (Enarsa). The main provisions of these resolutions include the requirement of previous approval by the Government of the following:
Long term PPAs (15 to 20 year term).
PPAs nominated in dollars.
Structure of price including costs of construction, operation and a reasonable rate of return.
At the provincial level, many provinces have adhered to the terms and conditions of Law 26,190. Some provincial regulations include other benefits such as:
Tax exemptions (stamp tax, rural, gross income tax).
Renewable energy targets
Law 26,190 foresees a contribution of 8% to the national energy consumption from renewable energy within ten years of its enactment (that is, by 2016). This 8% contribution of renewable energy is not mandatory, but is a goal.
See box, Common forms of renewable energy.
The Federal Government supports the development of power plants and is currently carrying out the completion of nuclear power plant Atucha II (renamed Dr. Carlos Néstor Kirchner Power Plant), a 745 MW nuclear power plant based on uranium and heavy water, located in the city of Zarate, 115 km away from Buenos Aires City.
According to publicly available information, the Government is planning to build in the short term, a fourth power plant in the city of Lima, close to Zarate, with similar capacity.
Authorisation and operating requirements
No specific regulatory authorisations are required for the construction of thermal and renewable energy power plants. The construction of large scale hydroelectric power plants and nuclear power plants is reserved to the Government and therefore requires special concessions from the different authorities involved, mainly for the use of water and for the construction of the facilities.
General environment and safety regulations, both federal and provincial, apply for the construction of power plants.
The operation of thermal and renewable energy power plants requires the authorisation of the Secretariat of Energy or the provincial authorities if the power plants are not connected to the National Grid.
Hydroelectric power plants above 500 kW require a concession for their exploitation.
Generators must periodically provide information about technical data, hourly costs and power purchase agreements to CAMMESA. In addition, environmental statements must be filed before the relevant authorities.
Prior authorisation of the transmission company is required for interconnection to existing capacity in power lines. If existing transmission capacity is not enough to cover the generator demand, a process to enlarge transmission capacity is necessary. Under this process, authorisation is required from the transmission company, CAMMESA and ENRE.
Authorisation and operating requirements
From a regulatory point of view, the construction of electricity transmission facilities requires the approval of:
The transmission company of the area.
CAMMESA who approves the technical feasibility of the connection.
ENRE who issues the Certificate of Public Need for the work.
In many cases, a public hearing is required and a bidding process is carried out, conducted and supervised by ENRE. ENRE finally approves the construction, operation and maintenance contract (COM contract) for the enlargement of the transmission facilities.
An environmental impact statement is required as a precondition to approving the construction.
Under the Electricity Regulatory Framework (ERF), transmission is considered a public service and operates as a monopoly. Therefore, the operation of transmission facilities requires a concession of the Government. Rates and conditions of service are entirely regulated by the enforcement authorities (ENRE and the Secretariat of Energy) according to the terms of the ERF and the concessions agreements. Under the ERF, tariffs must be fair and reasonable, and should allow the companies to obtain revenue to cover their costs of operation, taxes and depreciation. Transmission rates include fees for connection, transmission capacity and energy transmitted.
Concession agreements regulate matter such as:
Area of service.
Network associated to the company.
Quality of service.
Rights and obligations.
Open access to available capacity is one of the key obligations of companies. Under the original provisions of the ERF and under the concessions agreements, there were no specific investment obligations to expand existing facilities. However, under the renegotiation agreements based on Law 25,561, certain operations and maintenance investments are required.
Rates are regulated and approved by the ENRE, and must be revised every five years, under a process which includes a public hearing and an analysis of costs, applicable taxes to the transmission companies and the proposed rate of return. Renegotiation agreements modified these parameters, and an Integral Tariff Regime is under analysis and negotiation in the ENRE. Until the approval of this Integral Tariff Regime, transmission rates must be adjusted every six months if transmission costs increase above 10%.
Authorisation and operating requirements
Enlargement of distribution networks is primarily carried out by distributors, and no specific authorisation is required. In the case of large-scale expansions, the Electricity Regulatory Framework recommends prior authorisation from the National Regulatory Commission for Electricity (ENRE), a public hearing and the issuing of a Certificate of Public Need by (ENRE).
Depending on the amount involved in the project, some concession agreements include the financing of works directly from the user that requires the expansion. This contribution is in some cases reimbursed to the user.
Under the Electricity Regulatory Framework (ERF), distribution is considered a public service and operates under a monopoly. The operation of transmission facilities requires a Government concession. Rates and conditions of service are entirely regulated by the enforcement authorities (ENRE and the Secretariat of Energy). Currently, the largest distribution companies in Argentina operate under the ERF: Edenor and Edesur provide services in different areas of Buenos Aires City and Greater Buenos Aires (see Question 16 regarding concession agreements and open access to available capacity).
Approved distribution rates vary for different consumers (for example residential, commercial, industrial and government), and level of voltage demanded. Under the ERF:
Tariffs must be fair and reasonable, and should allow companies to obtain revenue to cover their costs of operation, taxes and depreciation.
Rates must be revised and new tariff schemes approved by ENRE, every five years, after a process that includes:
a public hearing;
an analysis of costs for the rendering of the service;
applicable taxes to distributors; and
the proposed rate of return.
The renegotiation agreements modified these parameters and an integral tariff regime is still under analysis and negotiation in the ENRE. Until its approval, transmission rates must be adjusted every six months if distribution costs increase above 10%.
Similar guidelines are included in many of the provincial distribution concession agreements.
Authorisation and operating requirements
Trading between generators and suppliers
Rates and conditions of sale
The Convergence National Tariff Plan is intended to establish unified parameters for distribution rates throughout Argentina (see Question 1). The Government's intention was to divide the country into eight regions that establish their own distribution costs or add the value of distribution for each of these regions. Once this parameter is set, provincial distributors with tariffs below this reference price can increase their rates. Those with tariffs that exceed the parameter must reduce their rates.
In exchange, the Federal Government has agreed to finance works to improve the transmission system. As an additional requirement, the provincial distributors must maintain their rates as at 31 December 2013. The details and binding conditions of this agreement have not yet been disclosed by the Government.
The regulatory authorities
Secretariat of Energy (Secretaria de Energia)
Main responsibilities. The Secretariat of Energy is responsible for the application of the general policies concerning the Argentine electricity industry, at federal level.
National Regulatory Commission for Electricity (Ente Nacional Regulador de la Electricidad) (ENRE)
Address. Avenida Madero 1020, 10th floor, Buenos Aires, Argentina
T +5411 4510 4600
F +5411 4510 4210
Main responsibilities. ENRE is responsible for:
- Enforcing the ERF and its regulations.
- Enforcing compliance with the concession agreements.
- Imposing penalties on companies under its jurisdiction.
- In the case of breach of obligations under the ERF and under the concessions agreements, controlling antitrust activities.
- Arbitrating controversies between WEM members.
- Approving transmission and distribution rates.
- Approving expansion of transmission and distribution facilities.
WEM administration company (Compañía Administradora del Mercado Mayorista Eléctrico S.A.) (CAMMESA)
Address. Avenida Madero 942, 1st floor, Buenos Aires, Argentina
T +5411 4319 7700
Main responsibilities. CAMMESA is responsible for programming operations in the WEM, from dispatching to calculating the wholesale prices of electricity.
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Description. Provides statistical, technical and legal information on the electricity sector, among other sectors within the energy field. This website is prepared and maintained by the Ministry of Federal Planning, Public Investment and Services.
Description. Provides statistical, technical and legal information on the electricity sector. This website is prepared and maintained by CAMMESA.
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