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Based on higher productivity and lower cost of capital, ANEEL (Brazilian National Agency for Electric Utilities) proposed a tariff adjustment for Companhia Paranaense de Energia, or COPEL (ELP) of 9.74% on average, effective June 2010. This rule is essentially designed to regulate a monopolistic environment.

We are concerned about the political influence on COPEL's affairs. The government of the State of Parana owns 58.6% of the company's outstanding voting shares, which gives it the power to control the election of the majority of the company's Board of Directors and appoint senior management.

Thus expecting any positive share driving catalysts, we downgrade our recommendation on the ADR to Underperform from Neutral. Our $22.00 target price is based on 11.1X 2010 earnings per ADR.

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