Copel: Tariff Adjustment

Companhia Paranaense de Energia (ELP - Analyst Report), also known as COPEL, recently announced that the company has been granted approval for an average tariff adjustment of 5.55% by the National Electric Power Agency (ANEEL), Brazil’s Electricity Regulatory Agency.

The company also added that the tariff adjustment was approved through a resolution 1,158 of June 21, 2011 and includes annual adjustment of 5.77% and (0.22%) related to the relevant financial components. The 5.55% tariff adjustment will have 2.99% average effect on captive consumers.

We believe Brazil’s economic outlook is strongly-favorable for the electric utility company as the country is investing to improve its infrastructure and power generation capabilities. In accordance with the company’s recently announced capital investment plans for 2011, R$1,024.8 million was allocated for generation and transmission, R$933.3 million for distribution, and R$102.4 million for telecommunications.

Moreover, energy consumption in Brazil is expected to rise by 5.9% annually with hydroelectric plants being the main source of power, according to the Ministry of Mines and Energy's (MME) ten-year plan till 2019. Besides, initiatives are being taken to raise Brazil’s total installed electricity generation capacity by 49% to 167 megawatts by 2019 and contribution of hydroelectric power from 83 megawatts to 117 megawatts.

However, despite these positives, growth momentum gets restricted due to rising operating expenses. Moreover, being a state-owned company, COPEL’s decisions are subject to political interference and unfavorable regulatory system. Also, the company faces stiff competition from its peers like Cia Energetica de Minas Gerais (CIG - Analyst Report) and Enersis S.A. (ENI - Snapshot Report).

Copel is one of the leading Brazilian electric utility companies, which accounts for approximately 7% of total electricity production in the country. We currently maintain a Neutral recommendation on the stock.