The Argentine Electricity Sector

Electricity was first made available in Argentina in 1887 with the first public street lighting in Buenos Aires. The Argentine Government’s involvement in the electricity sector began in 1946 with the creation of the Dirección General de Centrales Eléctricas del Estado (General Directorate of Electric Power Plants of the State) to construct and operate electricity generation plants. In 1947, the Argentine Government created Agua y Energía Eléctrica S.A. (Water and Electricity, or ‘AyEE’) to develop a system of hydroelectric generation, transmission and distribution for Argentina.

In 1961, the Argentine Government granted a concession to the Compañía Italo Argentina de Electricidad (Italian Argentinean Electricity Company, or ‘CIADE’) for electrical distribution in a part of the City of Buenos Aires. In 1962, the Argentine Government granted a concession formerly held by the Compañía Argentina de Electricidad (Argentine Electricity Company, or ‘CADE’) to Servicios Eléctricos del Gran Buenos Aires (Electricity Services of Greater Buenos Aires, or ‘SEGBA’) for the generation and distribution of electricity to parts of Buenos Aires. In 1967, the Argentine Government granted a concession to Hidroeléctrica Norpatagónica S.A. (‘Hidronor’) to build and operate a series of hydroelectric generation facilities. In 1978, CIADE transferred all of its assets to the Argentine Government, following which CIADE’s business became state owned and operated.

By 1990, virtually all of the electricity supply in Argentina was controlled by the public sector (97% of total generation). The Argentine Government had assumed responsibility for the regulation of the industry at the national level and controlled all of the national electricity companies, AyEE, SEGBA and Hidronor. The Argentine Government also represented Argentine interests in generation facilities developed or operated jointly with Uruguay, Paraguay and Brazil. In addition, several provinces operated their own electricity companies. Inefficient management and inadequate capital spending, which prevailed under national and provincial government control, were in large measure responsible for the deterioration of physical equipment, decline in quality of service and proliferation of financial losses that occurred during this period.

In 1991, as part of the economic plan adopted by then President Carlos Menem, the Argentine Government undertook an extensive privatization program of all major state owned industries, including within the electricity generation, transmission and distribution sectors. In 1992, the Argentine Congress adopted Law No. 24,065, the Electricity Regulation Framework (a supplement to Law No. 15,336, Federal Electricity Law, and its Administrative Order No. 1,398/92), which was the keystone for the reform and privatization of the sector. The goal of the law was to modernize the electricity sector by promoting efficiency, competition, improved service and private investment.
It restructured and reorganized the sector, and provided for the privatization of virtually all business activities that had been carried out by Argentine state-owned enterprises. The law established the basis for the ENRE (Ente Nacional Regulador de la Electricidad or the ‘National Electricity Regulatory Entity’) and other institutional authorities in the sector, the administration of the Wholesale Electricity Market(‘WEM’), pricing at the spot, tariff-setting in regulated areas and for evaluating assets to be privatized. This law also had a profound, albeit indirect, impact at the provincial level, as virtually all of the provinces followed the regulatory and institutional guidelines of this law. Finally, this law, which continues to provide the framework for regulation of the electricity sector since the privatization of this sector, divided generation, transmission and distribution of electricity into separate businesses, each subject to segment-specific regulation.

Under Law No. 24,065, distribution and transmission activities are considered public services and defined as natural monopolies. These activities are completely regulated by the Government and require a concession. Although the concessions granted to distributors do not impose specific investment parameters, distributors are obligated to connect new customers and meet any increased demand. The expansion of existing transmission facilities by the respective concessionaires is not restricted. In contrast, generation, although regulated by the Government, is not deemed a monopoly activity and is subject to free competition by new market entrants. Operation of hydroelectric power plants requires a concession from the Government. New generation projects do not require concessions but must be registered with the Former Secretariat of Energy (‘SE’).

Many of the provincial governments, following the privatization path in the sector, have established their own politically and financially independent regulatory bodies at the provincial level. Local distribution in the provinces (except the City of Buenos Aires and certain areas of the Province of Buenos Aires that were served by SEGBA and today are served by Edenor and Edesur) is regulated by each province. Previously, the utilities themselves had played a major role in making sector policies and setting tariffs for the provinces.

At the end of 2001 and beginning of 2002, Argentina experienced an unprecedented crisis that virtually paralyzed the country’s economy through most of 2002 and led to radical changes in Government policies. The crisis and the Government’s policies during this period severely affected the electricity sector. Pursuant to the Emergency Law, the Argentine Government, among other measures:

• Converted electricity prices and transmission and distribution tariffs from their original U.S. Dollar values to Pesos at a rate of Ps. 1.00 per US$1.00;
• Froze all regulated transmission and distribution tariffs, revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including electricity transmission and distribution concessions), and empowered the Executive Branch to conduct a renegotiation of these concessions, including the tariffs for electricity transmission and distribution services; and
• Required that spot prices on the WEM be calculated based on the price of natural gas (which is also regulated by the Argentine Government), regardless of the fuel actually used in generation activities, even if gas is unavailable.

These measures created a huge structural deficit in the operation of the WEM and, combined with the devaluation of the Peso and high rates of inflation, had a severe effect on the electricity sector in Argentina, as electricity companies experienced a decline in revenues in real terms and a deterioration of their operating performance. Most electricity companies had also incurred large amounts of foreign currency indebtedness under the Convertibility regime. Following the elimination of the Convertibility regime and the resulting devaluation of the Peso, the debt service burden of these companies increased sharply, leading many of these companies to suspend payments on their foreign currency debt in 2002. This situation caused many Argentine electricity generators, transmission companies and distributors to defer further investments in their networks. As a result, Argentine electricity market participants, particularly generators, are currently operating at near full capacity, which could lead to insufficient supply to meet a growing national energy demand. In addition, the economic crisis and the resulting emergency measures had a material adverse effect on other energy sectors, including oil and gas companies, which has led to a significant reduction in natural gas supplies to generation companies that use this commodity in their generation activities.

In December 2004 the Argentine Government adopted new rules to meet demand growth, including the construction by the Argentine Government of two new 800 MW combined cycle generators. These generators commenced operations at full capacity in the first half of 2010. The costs of construction were primarily financed with net revenues of generators derived from energy sales in the spot market, deposited into a fund called the Fondo de Inversiones Necesarias que Permitan Incrementar la Oferta de Energía Eléctrica en el Mercado Eléctrico Mayorista (’FONINVEMEM’).

The construction of these new generators reflects a recent trend by the Argentine Government to take a more active role in promoting energy investments in Argentina. An example of this is the creation of Energía Argentina S.A. (‘ENARSA’) (Law No. 25,943), currently Integración Energética Argentina S.A. (‘IEASA’) with the purpose of developing almost every activity in the energy sector, from the exploration and exploitation of hydrocarbons, the transport and distribution of natural gas, to the generation, transmission and distribution of energy. In addition to these projects, in April 2006 the Argentine Congress enacted a law that authorized the Executive Branch to create a special fund to finance infrastructure improvements in the Argentine energy sector through the expansion of generation, distribution and transmission infrastructure relating to natural gas, propane and electricity. The special fund would obtain funds through cargos específicos (specific charges) passed on to customers as an itemization on their energy bills.

Finally, in September 2006 the Argentine Government, in an effort to respond to the sustained increase in energy demand following Argentina’s economic recovery after the crisis, adopted new measures that seek to ensure that energy available in the market is used primarily to service residential users and industrial and commercial users whose energy demand is at or below 300 kW and who do not have access to other viable energy alternatives. In addition, these measures seek to create incentives for generation plants to meet increasing energy needs by allowing them to sell new energy generation into the Energía Plus (Resolution No. 1281/06 of the SE (former Secretariat of Energy) system at unregulated market prices.

Continuing with the trend to encourage the installation of new generation, the SE by means of its Resolution No. 220/2007 and modifications thereto, allowed CAMMESA to execute WEM Supply Agreements with a generator agent of the WEM. The values to be paid by CAMMESA (Compañía Administradora del Mercado Eléctrico Mayorista or the ‘Argentine Wholesale Electricity Market Clearing Company’) in consideration for the capacity and the energy supplied by the generator must be approved by the SE. The generator shall guarantee certain availability of the generation units (established as a percentage), and if it fails to do so, penalties apply.

In 2008, the SE allowed CAMMESA to execute WEM Supply Agreements with generators the intention of which is to execute plans to repair and/or repower their generating equipment, and for the cost which would exceed 50% of the revenues that they expect to receive on the sales to the spot market.

Since 2013, the SE introduced material changes to the structure and operation of the WEM through Resolution No. 95/2013, as amended, establishing a different remuneration scheme in Pesos (payable in cash and receivables) for the whole generation sector, except certain power plants and electricity sold under contracts with differential remuneration, regulated by SE.

For generation not covered by contracts, through Resolutions No. 19E/2017 of the SEE (Subsecretariat of Electric Energy) and 1/2019 of the SRRYME (Secretariat of Renewable Resources and Electricity Market), from February 1, 2017 to January 31, 2020, a US$-denominated remuneration scheme was stablished, which provided for a remuneration for power capacity and non-fuel energy, as well as the elimination of remunerations in the form of receivables. It is worth mentioning that as from March 1, 2019, reductions were applied to remuneration, and a reduction coefficient was incorporated to the power capacity remuneration, according to the unit’s utilization factor of the unit.

Later, Resolution No. 31/2020 of the SE (Secretariat of Energy), converted the entire remuneration scheme to the local currency at a FX (Foreign Exchange) of AR$60/US$ with lower power capacity remuneration, effective as from February 1, 2020. An additional remuneration was incorporated in the hours of high thermal dispatch and an update factor was established as from the second month of its application, which follows a formula consisting of 60% CPI (Consumer Price Index) and 40% IPIM (Wholesale Domestic Price Index). However, the SE, through the Note NO-2020-24910606-APN-SE#MDP, instructed CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) to postpone until further decision the application of said update factor.

Regarding the fuel supply for power plants, the purchase and dispatch of fuels remained centralized in CAMMESA until October 2018, excluding generators with Energía Plus (SE Resolution No. 1281/06) contracts. In November 2018, Resolution No. 70/2018 of the SGE (former Government Secretariat of Energy) amended SE Resolution No. 95/2013, authorizing power generators, co-generators and self-generators within the WEM (Wholesale Electricity Market) to acquire fuels of any kind required for own power generation, originally for units with remuneration scheme under SEE Res. No. 19E/2017, and later being extended to units with differential remuneration. The cost of generation with own fuels would be valued according to the mechanism for the recognition of CVP (Variable Production Cost) standardized by CAMMESA. It should be noted that for agents which ‘did not or couldn’t’ make use of such capacity, CAMMESA continued being in charge of the commercial management and the dispatch of fuels. However, through Resolution No. 12/19 of the MDP (Ministry of Productive Development), as from December 30, 2019, SGE Resolution No. 70/18 was abrogated and the centralization of fuel procurement and supply in CAMMESA was restored, a measure that does not cover generators with Energía Plus contracts.

On the other hand, as a result of the state emergency in the national electricity sector, on March 22, 2016 the SEE through Resolution No. 21/16 launched a call for tenders for new thermal power generation capacity with the commitment to making it available through the WEM for the 2016/2017 summer, 2017 winter and 2017/2018 summer periods. Moreover, in line with the measures seeking to increase the electric power generation offer, on May 10, 2017 the SEE issued Resolution No. 287/17 launching a call for tenders for co-generation projects and the closing to combined cycles over existing equipment.

Regarding renewable energies, in October 2015, Law No. 27,191 (regulated by Executive Order No. 531/16) was passed, which amends Law No. 26,190 on the promotion of renewable sources of energy. Among other measures, it provided that by December 31, 2025, 20% of the total demand of energy in Argentina should be covered with renewable sources of energy.

• MEyM (former Ministry of Energy and Mining) Resolution No. 71/16, launched the RenovAr 1 open call for tenders, continuing with RenovAr 1.5 (MEyM Resolution No. 252-E/16), RenovAr 2.0 (MEyM Resolution No. 275-E17) and MiniRen Round 3 (SGE Resolution No. 100/18)
• MEyM Resolution No. 281-E/2017 issued in August 2017, regulated the MAT ER (Term Market from Renewable Energy Sources) regime, which aims to set the conditions for large users within the WEM and GUDI (Large Distribution Company Users) to meet their demand supply obligation from renewable sources through the individual purchase within the MAT ER or through self-generation from renewable sources

Transactions among different participants in the electricity industry take place through the Wholesale Electricity Market, or WEM, which was organized concurrently with the privatization process as a competitive market in which generators, distributors and certain large users of electricity could buy and sell electricity at prices determined by supply and demand, and were allowed to enter into long-term electricity supply contracts. The WEM consists of:

• a term market where quantities, prices and contractual conditions are agreed upon directly between sellers and buyers (after the enactment of former Secretariat of Energy (‘SE’) Resolution No. 95/2013, this was limited to the Energy Plus market, and later being added the Term Market from Renewable Energy Sources, also known as MAT ER, according to Resolution No. 281/2017 of former Ministry of Energy and Mining);
• a spot market where prices are established on an hourly basis as a function of economic production cost; and
• a stabilized pricing system of spot prices, which we refer to as the seasonal price, set on a semi-annual basis and designed to mitigate the volatility of spot prices for purchases of electricity by distributors.

The following chart shows the relationships among the various actors in the WEM:

CAMMESA

The creation of the WEM (‘Wholesale Electricity Market’) made it necessary to create an entity in charge of the management of the WEM and the dispatch of electricity into the SADI (Sistema Argentino de Interconexión or ‘Argentine Electricity Grid’). The duties were entrusted to CAMMESA (Compañía Administradora del Mercado Eléctrico Mayorista or ‘Argentine Wholesale Electricity Market Clearing Company’), a private company created for this purpose.

CAMMESA is in charge of:

• the dispatch of electricity into the SADI, maximizing the SADI’s safety and the quality of electricity supplied and minimizing wholesale prices in the spot market;
• planning energy capacity needs and optimizing energy use in accordance with the rules set forth from time to time by the Former Secretariat of Energy (‘SE’);
• monitoring the operation of the term market and administering the technical dispatch of electricity under agreements entered into in that market;
• acting as agent of the various WEM agents and carrying out the duties entrusted to it in connection with the electricity industry, including billing and collecting payments for transactions between WEM agents (upon enactment of SE Resolution No. 95/2013, this was limited to the contracts then in force and, thereafter, to those contracts executed under Energy Plus Program, and later being added those contracts executed under Term Market from Renewable Energy Sources (‘MAT ER’) according to Resolution No. 281/2017 of former Ministry of Energy and Mining);
• purchasing and/or selling electric power from abroad or to other countries by performing the relevant import/export transactions;
• purchasing and administrating of fuels for the applicable WEM generators; and
• providing consulting and other related services.

Five groups of entities each hold 20% of the capital stock of CAMMESA. The five groups are the Argentine Government, the associations that represent the generation companies, transmission companies, distribution companies and large users.

CAMMESA is managed by a board formed by representatives of its shareholders. The board of CAMMESA is composed of ten regular and ten alternate directors. Each of the associations that represent generation companies, transmission companies, distribution companies and large users are entitled to appoint two regular and two alternate directors of CAMMESA. The other directors of CAMMESA are the Under Subsecretariat of Electric Energy, who is the board chairman in virtue of the delegation of the Federal Government, and an independent member, who acts as vice chairman. The decisions adopted by the board of directors require the affirmative vote of the board chairman. CAMMESA’s operating costs are financed through mandatory contributions by the WEM agents.

Generators

Generators are companies with electricity generating plants that sell output either partially or wholly through the SADI. Generators are subjected to the scheduling and dispatch rules set out in the regulations and managed by CAMMESA. Privately owned generators may also enter into direct contracts with distributors or large users. However this possibility was suspended by SE Resolution No. 95/2013, limited to the contracts executed under Energy Plus Program, and later being added those contracts executed under MAT ER according to Resolution No. 281/2017 of former Ministry of Energy and Mining.

As of December 31, 2020, Argentina had a nominal installed capacity as reported by CAMMESA of approximately 41,951 MW (+2,247 MW compared to 2019), composed by 60.5% of thermal, 25.8% of hydroelectric, 9.5% of renewable and 4.2% of nuclear. This increase was mainly due to the commissioning of renewable units under the RenovAr and MAT ER programs for 1,408 MW. In the thermal area, 817 MW were commissioned, mostly under Resolution No. 287/17 of the MEyM (former Ministry of energy and Mining), including the first phase of Genelba Plus’ expansion project (199 MW)⁽¹⁾.

Moreover, 2020 recorded a 2% increase in power generation, with 133,584 GWh and 130,804 GWh volumes for 2020 and 2019, respectively, mainly due to the rise in exports, partially offset by the lockdown.

• Thermal power generation remained as the primary resource to meet the electricity demand, fired with natural gas or liquid fuels (gas oil (GO) and fuel oil (FO)) and mineral coal, supplying an electricity volume of 82,333 GWh (62%), followed by hydroelectric power generation, which contributed 28,505 GWh net of pumping (21%), renewable power generation with 12,734 GWh (10%), and nuclear power generation with 10,011 GWh (7%). Additionally, there were imports for 1,204 GWh (56% lower than in 2019), exports for 3,089 GWh (higher than the 261 GWh recorded in 2019), and losses for 4,392 GWh (1% higher than in 2019).
• Hydroelectric power generation net of pumping decreased its contribution volume by 18% compared to 2019, mainly due to the droughts that affected the Yacyretá and Salto Grande dams. This decrease was partially offset by the increase in renewable (64%), thermal (3%) and nuclear (26%) generation compared to 2019, mainly on account of the commissioning of the PPA (Power Purchase Agreements) under RenovAr, MAT ER (Term Market from Renewable Energy Sources) and MEyM Resolution No. 287/17, added to the higher nuclear generation as from the start-up of Central Nuclear Embalse’s reconditioning at the end of the first quarter of 2019.

Note: ⁽¹⁾ The second phase of this project was commissioned on July 2, 2020, completing the expansion for a total 400 MW.

The following chart shows the evolution of power generation by source (thermal, hydroelectric, nuclear, and renewable) in GWh:

Transmission companies

Transmission companies hold a concession to transmit electric energy from the bulk supply point to electricity distributors. The transmission activity in Argentina is subdivided into two systems: the High Voltage Transmission System (‘STEEAT’), which operates at 500 kV and transports electricity between regions, and the regional distribution system (‘STEEDT’) which operates at 132/220 kV and connects generators, distributors and large users within the same region. Transener is the only company in charge of the STEEAT, and six regional companies are located within the STEEDT (Litsa, Transnoa, Transnea, Transpa, Transba and Distrocuyo). In addition to these companies, there are also independent transmission companies that operate under a technical license provided by the STEEAT or STEEDT companies.

Transmission and distribution services are carried out through concessions. These concessions are re-distributed periodically based on a re-bidding process. Transmission companies are responsible for the operation and maintenance of their networks, but not for the expansion of the system. The transmission concessions operate under the technical, safety and reliability standards established by the ENRE (Ente Nacional Regulador de la Electricidad or ‘National Electricity Regulatory Entity’). Penalties are applied whenever a transmission concessionaire fails to meet these criteria, particularly those regarding outages and grid downtime. Generators can only build lines to connect to the grid, or directly to customers. Users pay for new transmission capacity undertaken by them or on their behalf. A public hearing process for these projects is conducted by the ENRE, which issues a ‘Certificate of Public Convenience and Necessity’. Transmission or distribution networks connected to an integrated system must provide open access to third parties under a regulated toll system unless there is a capacity constraint.

Distribution companies

Distributors are companies holding a concession to distribute electricity to consumers. Distributors are required to supply any and all demand of electricity in their exclusive areas of concession, at prices (tariffs) and conditions set in regulation. Penalties for non-supply are included in the concessions agreements. The three distribution companies divested from SEGBA (Edenor, Edesur and Edelap) represent more than 40% of the electricity market in Argentina. Only a few distribution companies (i.e., Empresa Provincial de Energía de Córdoba, Empresa de Energía de Santa Fé, and Energía de Misiones) remain in the hands of the provincial governments and cooperatives. Edelap has been transferred to the jurisdiction of the Province of Buenos Aires.

Each distributor supplies electricity and operates the electricity distribution network in a specific geographical area under a concession. Each concession determines, among others, the concession area, the quality of service required, the tariffs to be paid by consumers, and the extent of the obligation to meet the demand.

The ENRE monitors the compliance of the distributors at the federal level, and provides a mechanism for public hearings in which complaints against distributors can be heard and resolved. In addition, the provincial regulatory bodies control the compliance of the local distributors with their respective concessions and local regulatory frameworks.

The provincial authorities and the ENRE control the fulfillment of the concession agreements of these public services in the provinces. Many provincial governments that have launched reforms in the electricity sector have followed the terms and conditions of the concessions used for the distribution of public services at the national level.

Large users

The wholesale electricity market classifies large users of energy into three categories: (1) Grandes Usuarios Mayores (Major Large Users or ‘GUMAs’), (2) Grandes Usuarios Menores (Minor Large Users or ‘GUMEs’) and (3) Grandes Usuarios Particulares (Particular Large Users or ‘GUPAs’).

Each of these categories of users has different requirements with respect to purchases of their energy demand. For example, GUMAs are required to purchase 50% of their demand through supply contracts and the remainder in the spot market, while GUMEs and GUPAs are required to purchase all of their demand through supply contracts.

Large users participate in CAMMESA by appointing two acting and two alternate directors through the Asociación de Grandes Usuarios de Energía Eléctrica de la República Argentina (‘Argentine Association of Electric Power Large Users’ or AGUEERA).

Price of electricity

The energy authority has continued with the policy launched in the year 2003 whereby the WEM (Wholesale Electricity Market) spot price is determined according to the available power generating units’ CVP (Costo Variable de Producción or Variable Production Cost) with natural gas, even if these units are not generating electricity with such fuel (Res. No. 240/03 of the SE (former Secretariat of Energy)). The additional cost for consuming liquid fuels is recognized outside the specified market price as a temporary dispatch surcharge. Moreover, the WEM bears the costs of natural gas and its regulated transportation, in addition to the associated costs in the case of import (Res. No. 25/18 of the SGE (former Government Secretariat of Energy) and SE Res. No. 354/20).

As of November 2019, according to Res. No. 38/19 of the SEE (Subsecretariat of Electric Energy), the approved average monthly spot price for energy is AR$720/MWh. However, the following chart shows the average monthly price that all electricity system users should pay so that the power grid would not run into a deficit. This cost includes the energy price and the power capacity fee, the generation cost, fuels such as natural gas, fuel oil, gas oil and mineral coal, and other minor items.

Note: Average monthly monomic price in US$/MWh. Source: CAMMESA, converted to US dollars at the official exchange rate.

Fuel supply and consumption

According to Res. No. 12/19 of the MDP (Ministry of Productive Development), the fuel supply for power generation and fuel commercial management and procurement was centralized again in CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) as of December 30, 2019, except for generators with Energía Plus (SE Resolution No. 1281/06) and SEE Res. No. 287/17 contracts. Additionally, following the implementation of Plan Gas.Ar (Executive Order No. 892/20 and supplementary provisions), on December 2, 2020 SE Res. No. 354/20 was published, which, among other measures, established an optional scheme for the operating assignment of natural gas and its transportation to CAMMESA, effective as of January 2021 for such exempted generators. Pampa adhered to this scheme. This new scheme set a new thermal dispatch order centralized in CAMMESA, prioritizing units supplied with gas imported from Bolivia under a take or pay condition, followed by those provided under Plan Gas.Ar and, lastly, those with gas assigned to CAMMESA.

Regarding fuel consumption, the natural gas used for power plants amounted to 16.3 million dam ³ (cubic decameters) in 2020, representing a 5% decrease compared to the previous year, mainly accounted for by the 7% year-on-year decrease in domestic supply. Consequently, the shortage of fuel to meet electric power generation worsened. Therefore, the purchase of LNG (liquified natural gas) and its re-gasification in Escobar continued, as well as natural gas imports from Bolivia, which experienced an 8% year-on-year increase. Moreover, alternative fuels (fuel oil, gas oil and mineral coal) were used to meet the demand, in volumes significantly higher than in 2019. The use of fuel oil tripled to 0.6 million ton, whereas the demand for gas oil and mineral coal doubled.

Resolution No. 1/19 of the SRRYME (Secretariat of Renewable Resources and Electricity Market), which was in effect until January 31, 2020, reduced CT (thermal power plants)’ remuneration, both for power capacity and operation and maintenance. It also introduced an adjustment factor correlated to the average load factor per thermal unit over the last 12 months.

Thermal power generators

The following chart shows base prices for power capacity applicable to generators not offering DIGO (Guaranteed Availability Commitments):

For agents with a DIGO declaration, a remuneration scheme for seasonal power capacity was established: a) summer (December through February); b) winter (June through August), and c) ‘other,’ which comprises two quarters (March through May, and September through November). The power capacity price was set at US$7,000/MW-month in the summer and winter quarters and at US$5,500/MW-month in the ‘other’ quarters.

Additionally, whether or not the agent had a DIGO declaration, the power capacity weighed a load factor equivalent to the average dispatch factor for the generating unit during the rolling year before the calculation month and applied a coefficient to the power capacity remuneration if the load factor was: i) higher than 70%, 100% was paid; ii) lower than 30%, 70% was paid; and iii) between 30% and 70%, the power capacity remuneration was linearly associated with between 70% and 100%.

Generated energy remuneration values were reduced by US$1/MWh for all technologies except for internal combustion engines, where the reduction was US$3/MWh. The remuneration value for operated energy was reduced from US$2/MWh to US$1.4/MWh.

Finally, the additional remuneration schemes were abrogated: capacity remuneration to encourage DIGO during peak demand periods, variable remuneration for efficiency, and power capacity remuneration for low-dispatch CT.

Hydropower generators

SRRYME Resolution No. 1/19 maintained the base prices for power capacity established by Resolution No. 19/17 of the SEE (Subsecretariat of Electric Energy), as well as remuneration values for generated and operated energy. However, regarding the power capacity payment, the hours during which a hydroelectric generator was not available due to programmed and agreed maintenance were no longer computed to calculate the power capacity remuneration. However, to mitigate this impact, in May 2019, Note No. 46631495 of the SME (Subsecretariat of Electricity Market) provided a 1.05 factor on the capacity payment.

Other considerations

For generation from unconventional sources, a single remuneration value for generated energy was established at US$28/MWh, or 50% of this value if it is generated before commercial commissioning.

Regarding the refund of the amounts disbursed to generators under the loan agreements for the overhaul in their units, it was established the application of all accrued receivables in favor of agents, as well as a discount scheme in the generator’s revenues equivalent to the maximum between US$1/generated MWh or US$700/MW-month for the unit’s actual availability.

On February 27, 2020, Resolution No. 31/20 of the SE (Secretariat of Energy) was published in the Public Gazette, which modified certain aspects of the remuneration scheme set forth by Resolution No. 1/19 of the SRRYME (Subsecretariat of Renewable Resources and Electricity Market), effective as of February 1, 2020. The new Resolution converts the entire remuneration scheme to the local currency at an FX (exchange rate) of AR$60/US$ and establishes an update factor from the second month of its application, which follows a formula consisting of 60% CPI (Consumer Price Index) and 40% IPIM (Wholesale Domestic Price Index). Later on, through SE Note NO-2020-24910606-APN-SE#MDP dated April 8, 2020, the SE instructed CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) to postpone applying this factor until further decision. As of the issuance of this Annual Report, the Company has not been notified of any update.

Thermal power generators

Regarding the values of the previous remuneration scheme, SE Resolution No. 31/20 reduces the power capacity remuneration, whether base or guaranteed, depending on its technology. However, for CT (thermal power plants) with a total installed power capacity lower than or equal to 42 MW, the base power capacity values are set out by SRRYME Resolution No. 1/19 remain in effect.

Note: * It assumes an FX of AR$60/US$.

As regards the remuneration for the offered guaranteed power capacity, the following scheme is in effect:

Note: * It assumes an FX of AR$60/US$.

Moreover, SE Res. No. 31/20 maintains the dispatch factor formula. Still, if the usage factor is lower than 30%, 60% of the power capacity payment is collected (except for internal combustion engines ≤ 42 MW, which maintain the scheme provided for by SRRyME Res. No. 1/29).

The new scheme introduces an additional remuneration in the HMRT (hours of high thermal dispatch) of the month, which consists of the 50 recorded hours with the highest thermal generation dispatch each month, grouped in two blocks of 25 hours each. The following will be applied to the average generated capacity:

As regards the variable remuneration, it remained unchanged in US$ at an FX of AR$60/US$, and was set at AR$240/MWh for generated units with natural gas, AR$420/MWh with fuel oil, AR$600 with biofuels (except for internal combustion engines, AR$720/MWh) and AR$720/MWh with mineral coal. The remuneration for operated energy was set at AR$84/MWh.

Hydropower generators

SE Resolution No. 31/20 adjusted the capacity remuneration and added a new item for HMRT. The 1.05 factor over the power capacity to compensate for programmed maintenance’s impact remained unchanged, and the 1.20 factor for units maintaining control structures on river courses and not having an associated power plant.

Note: * It assumes an FX of AR$60/US$.

As regards the HMRT additional remuneration, the following will be applied to the average operated power capacity:

Weighted by the following coefficients:

The prices for generated and operated energy remained unchanged in US$ at an FX of AR$60/US$, being set at AR$210/MWh and AR$84/MWh, respectively. The remuneration for operated energy should correspond with the grid’s optimal dispatch. The provision does not indicate, as it does for thermal generators, which would be the consequence otherwise.

Other considerations

SE Res. No. 31/20 provides a single remuneration value of AR$1,680/MWh for energy generated from an unconventional source, which equals the previous remuneration converted at an FX of AR$60/US$, or 50% of this value if it is generated before commercial commissioning.

As regards the repayment of the loans for the execution of overhauls, the application of all receivables accrued in favor of generators is established, as well as a discount scheme in the generator’s revenues equivalent to the maximum between AR$60/MWh, or AR$42,000/MW-month for the unit’s actual availability. It is worth highlighting that all overhauls financing owed by Pampa were settled under the Agreement for the Regularization and Settlement of Receivables with the WEM, executed with CAMMESA in August 2019.

Implementation criteria for SE Resolution No. 31/20

CAMMESA classifications for our legacy units are detailed below:

Notes:1 Only applies the unit’s 26 MW. 2 It applied until the commissioning of Genelba Plus’ CC, on July 2, 2020. 3 A 1.20 coefficient applies to remuneration.

GT = gas turbine
ST = steam turbine
CC = combined cycle
HI = hidroelectric

With the agreement of Energía Plus (SE Resolution No. 1281/06) power generators, CTG’s GUEMTG01 and CTGEBA’s GEBATG03 units’ both energy and available power capacity delivered to the spot market and not committed under the Energía Plus contracts will be remunerated based on the items set out for legacy capacity, the cost of the fuel provided by CAMMESA being excluded from the transaction (SE Res. No. 482/15).

In September 2006, the SE (former Secretariat of Energy) approved Resolution No. 1281/06 implementing Energía Plus scheme to encourage the development of new power generation supply. Power generators, co-generators and self-generators, which as of the date of such Resolution are neither WEM (Wholesale Electricity Market) agents nor have facilities or interconnection with the WEM, may sell to GU300 (Large users with demands in excess of 300 kW) the energy used over the Base Demand (the electrical consumption for the year 2005), at a price negotiated between the parties. These power plants should procure fuel and transportation. New GU300 entering the grid consider their Base Demand equal zero.

Under this framework, CTG (Güemes Thermal Power Plant), EcoEnergía (EcoEnergía Co-Generation Power Plant) and CTGEBA (Genelba Thermal Power Plant) provide the Energía Plus service to different WEM clients, representing 283 MW gross capacity. It is worth highlighting that, effective as of May 2019, CTG transferred its contracts to CTGEBA, selling its electricity in the spot market. However, as of August 2020, CTG gradually began to sell energy under Energía Plus contracts.

If an agent cannot meet its Energía Plus demand, they should purchase that power in the spot market at the operated marginal cost. Moreover, SE Note No. 567/07, as amended, provided that those GU300 not purchasing their Surplus Demand in Energía Plus should pay the CMIEE (Surplus Demand Incremental Average Charge or Cargo Medio Incremental de la Demanda Excedente). The difference between the actual cost and the CMIEE would be accumulated in an individual account monthly for each GU300 within CAMMESA’s (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) scope. From June 2018, under SE Note No. 28663845/18, the CMIEE became the greater between AR$1,200/MWh or the temporary dispatch surcharge. Additionally, it was provided that movements in each GU300’s account would temporarily not be recorded until further instruction.

Energía Plus contract values are denominated in US$. In certain contracts, prices are adjusted by CAMMESA’s price variation. During the lockdown’s first months, a substantial drop in demand was evidenced, which recovered towards the end of 2020 until reaching 2019 levels. Additionally, Energía Plus continues to be affected by the migration to the MAT ER (Term Market from Renewable Energy Sources).

Finally, with the implementation of Plan Gas.Ar (Executive Order No. 892/20 and supplementary provisions), as of January 2021, generators have the option of assigning the operation of gas supply and transportation to CAMMESA, and a centralized dispatch order was set, taking into consideration the fuel designated for generation. Pampa adhered to this scheme.

Aiming to encourage new investments to increase the generation supply, the SE (former Secretariat of Energy) passed Resolution No. 220/07, which empowers CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) to enter into ‘WEM (Wholesale Electricity Market) Supply Commitment Agreements’ with WEM generating agents for the energy produced with new generation equipment. These are long-term PPA (Power Purchase Agreements) denominated in US$, and the price payable by CAMMESA should compensate the investment made by the plant at a rate of return to be accepted by the SE. CTLL (Loma de la Lata Thermal Power Plant), CTP (Piquirenda Thermal Power Plant) and CTEB (Ensenada Barragán Thermal Power Plant) have entered into PPA with CAMMESA under this Resolution for a gross power capacity of 856 MW⁽¹⁾.

It is worth highlighting that the 10-year term of the PPA for CTP (30 MW) and CTLL’s steam turbine TV01 (180 MW) expires in July and November 2021, respectively. On the other hand, CTEB has an expansion project underway to add 280 MW under this scheme, which commissioning is estimated for the first quarter of 2022.

Note: ⁽¹⁾ It includes CTLL’s gas turbine TG04 built under the Agreement to increase thermal generation availability executed in 2014, and which power capacity is partially remunerated under this agreement as from July 2016.

As a result of the state of emergency in the national electricity sector declared under Executive Order No. 134/15 of the PEN (Poder Ejecutivo Nacional or National Executive Branch), on March 22, 2016, the SEE (Subsecretariat of Electric Energy) issued Resolution No. 21/16 launching a call for bids for new thermal power generation capacity with the commitment to making it available through the WEM (Wholesale Electricity Market) for 2016/2017 summer, 2017 winter, and 2017/2018 summer periods. Successful bidders entered into a PPA (Power Purchase Agreement) for a fixed price (in US$/MW-month) and a variable price excluding fuels (in US$/MWh) with CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company), which acted as counterparty on behalf of distributors and WEM’s large users.

305 MW are remunerated under this scheme: CTLL (Loma de la Lata Thermal Power Plant)’s gas turbine GT05 for 105 MW and CTPP for 100 MW as of August 2017, and CTIW (Ingeniero White Thermal Power Plant) for 100 MW as of December 2017.

On May 10, 2017, the SEE (Subsecretariat of Electric Energy) issued Resolution No. 287/17 launching a call for tenders for co-generation projects and the closing to CC (combined cycle) over existing equipment. The projects should have low specific consumption (lower than 1,680 kcal/kWh with natural gas and 1,820 kcal/kWh with alternative liquid fuels). Moreover, the new capacity should not increase electricity transmission needs beyond the existing capacity; otherwise, the bidder would bear the cost of the necessary extensions.

Awarded projects will be remunerated under a PPA (Power Purchase Agreement) for a term of 15 years, for an available power capacity price plus the non-fuel CVP (Costo Variable de Producción or Variable Production Cost) for the delivered energy and the fuel cost (if tendered), less penalties and fuel surpluses. Power capacity surpluses would be remunerated as legacy capacity.

In September 2017 the SEE issued Resolution No. 820/17, Pampa was awarded the closing to CC in the Plus unit at CTGEBA (Genelba Thermal Power Plant) for 400 MW within this framework. Commercial operations at open cycle (201 MW) started in June 2019 with the incorporation of gas turbine GT02, and at closed cycle mode on July 2, 2020 with the installation of steam turbine ST02 (199 MW), meeting the originally committed term despite the impacts of COVID-19.

Moreover, and as previously indicated, with the implementation of Plan Gas.Ar (Executive Order No. 892/20 and supplementary provisions), as of January 2021, a scheme for the operating assignment of natural gas supply and transportation to CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) was established under the new centralized dispatch scheme. Pampa acceded to this scheme and agreed to execute an addendum to the PPA with CAMMESA to set the applicable modifications. This addendum has not been executed as of this date.

In October 2015, Law No. 27,191 (regulated by Necessity and Urgency Decree or Decreto de Necesidad y Urgencia No. 531/16) was passed, which amends Law No. 26,190 on promoting renewable energy sources. Among other measures, it provided that by December 31, 2025, 20% of the total demand for energy in Argentina should be covered with renewable energy sources⁽¹⁾. To meet such objective, WEM (Wholesale Electricity Market)’s GU (Large Users) and CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) should cover 8% of their demand with such sources by December 31, 2017, the percentage rising every two years until meeting this objective. The agreements entered with GU and GUDI (Large Distribution Company Users) may not have an average price exceeding US$113/MWh.

Additionally, said law stipulates several incentives, including tax benefits (advance VAT return, accelerated depreciation on the income tax return, import duty exemptions, etc.) and the creation of the FODER (Fondo para el Desarrollo de Energía Renovables or Fund for the Development of Renewable Energies), which is destined, among other objectives, to the granting of loans, capital contributions, etc. for the financing of these projects.

Note: (1) As from December 2016, CHs (hydroelectric power plants) with a power capacity lower than 50 MW are classified as renewable sources of energy.

In 2016, rounds 1 and 1.5 under the RenovAr Program were launched under Resolutions No. 71/16 and 252/16 of the MEyM (former Ministry of Energy and Mining), respectively. In round 1, 29 projects were awarded for a total of 1,142 MW (97% of which were wind and solar energy projects), including our 100 MW PEMC (Ingeniero Mario Cebreiro Wind Farm) project in the Province of Buenos Aires, commissioned in June 2018. In round 1.5, 30 projects were awarded for 1,281.5 MW (100% wind and solar energy projects). In 2017, round 2 was launched according to MEyM Resolution No. 275/17, under which 88 projects were awarded for a total of 2,043 MW (89% of which were wind and solar energy projects). Finally, in 2018, round 3 (MiniRen) was launched for smaller-scale renewable projects (up to 10 MW), and 246 MW projects were awarded.

It is worth highlighting that the greenhouse gas reductions resulting from the power capacity installed throughout the national territory under RenovAr—including any other project to meet the WEM (Wholesale Electricity Market)’s renewable goal set by Law No. 27,191— should be considered as the Federal Government’s contribution to the United Nations Framework Convention on Climate Change and the Paris Agreement.

Resolution No. 281/17 of the MEyM (former Ministry of Energy and Mining) issued on August 18, 2017, regulated the MAT ER (Term Market from Renewable Energy Sources) regime, which sets the procurement conditions for WEM (Wholesale Electricity Market) GU (Large Users) and GUDI (Large Distribution Company Users)’ demand obligation from renewable sources through the individual purchase within the MAT ER or self-generation from renewable sources. Furthermore, it regulates the conditions applicable to generation projects. Specifically, it created the RENPER (Registry of Renewable Electric Power Generation Projects), where such projects should be registered.

Projects destined to the MAT ER should not be committed under other remuneration mechanisms (e.g., the RenovAr Program). Surplus power generation exceeding commitments with MAT ER is remunerated for up to 10% of the power generation at the minimum price for the applicable technology under the RenovAr Program. The balance will be sold in the spot market.

Furthermore, agreements executed under the MAT ER regime should be administered and managed following the WEM Procedures. The contractual terms —life, allocation priorities, prices and others, except for the maximum price set forth by Law No. 27,191— may be freely agreed upon between the parties. However, the committed volumes should be limited by the generator’s renewable energy or supplied by other generators or suppliers with MAT ER agreements in place.

Pampa registered Pampa Energía Wind Farm, also known as PEPE II and PEPE III projects with the RENPER and requested the corresponding dispatch priority, which was granted for both projects’ total capacity. On May 10, 2019, CAMMESA gave the commissioning of PEPE II and PEPE III. The generated energy is sold under PPA (Power Purchase Agreements)in US$ with private parties; therefore, when expressed in AR$, they are exposed to nominal exchange rate variations. The average term amounts to approximately five years.

In terms of volume, the drop in energy demand by GU as a result of COVID-19 and the macroeconomic context has not significantly affected the MAT ER segment, as these contracts were mainly destined to meet the base demand. In this sense, on top of our own generation from PEPE II and PEPE III, the Company began commercializing third-party generators’ renewable energy for an approximate volume of 2 MW, contributing to increasing the MAT ER margin segment.

The Public Emergency and Exchange Rate Regime Reform Law (Law No. 25,561) imposed public utilities, such as Transener and its subsidiary Transba, to renegotiate their agreements in force with the Government while continuing to supply electricity services. This scenario has significantly affected Transener and Transba’s economic and financial situation.

In May 2005, Transener and Transba signed with the UNIREN (Public Utility Contract Renegotiation and Analysis Unit) the Memorandums of Understanding stipulating the terms and conditions for updating the Concession Agreements. The parties agreed to perform an RTI (Integral Tariff Review) before the ENRE (Ente Nacional Regulador de la Electricidad or National Electricity Regulatory Entity) to establish a new tariff regime for Transener and Transba, which should have come into force in 2006, and to stipulate a recognition of variations in operating costs incurred until the entry into effect of the new tariff regime resulting from the RTI.

Since 2006, Transener and Transba have repeatedly requested the ENRE to regularize compliance with the commitments stipulated in the Memorandum of Understanding, expressing the demand to launch the RTI process. Moreover, Transener and Transba filed their respective tariff claims for their assessment, holding a public hearing and the definition of the new tariff scheme.

Instrumental Agreement

In December 2010, Transener and Transba entered into an Instrumental Agreement to UNIREN’s Memorandum of Understanding with the SE (former Secretariat of Energy) and the ENRE, which mainly recognized a credit claim in favor of Transener and Transba for cost fluctuations incurred between June 2005 – November 2010, calculated as per the Cost Variation Index established in the Memorandum of Understanding. These receivables were assigned in consideration of disbursements by CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company), which were executed through loan agreements.

Upon collecting these receivables and still without the RTI, in May 2013 Transener and Transba, respectively, executed with the SE and the ENRE a Renewal Agreement, effective until December 31, 2015, which, among other provisions, acknowledged a credit claim for cost variations recorded during the December 2010 – December 2012 period. Given the repeated delays in implementing the Memorandum of Understanding’s RTI, the SE and ENRE successively extended the recognition of higher costs up to and including November 2015. The Renewal Agreement expired in May 2016 and, without any pending recognized receivables, Transener and Transba continued collecting the loans granted by CAMMESA, which were disclosed as liabilities. Finally, on December 26, 2016, Transener executed the final agreement with the SE and the ENRE, which recognized credits for cost variations in favor of Transener and Transba for the December 2015 – January 2017 period. On June 19, 2017, CAMMESA made the last disbursement, thus offsetting all receivables for cost variations.

RTI

ENRE Resolutions No. 66/17 and No. 73/17 in February 2017, as amended, established the 2017/2021 five-year period’s tariffs. Moreover, the ENRE established the remuneration update mechanism, the service quality system and applicable penalties, the reward system, and the investment plan to be executed by both companies during such period. In October 2017, the ENRE issued Resolutions No. 516/17 and No. 517/17 partially upholding the Motions for Reconsideration filed by Transener and Transba and establishing, retroactively as of February 2017, an AR$8,629 million and AR$3,575 million recognized capital base and AR$3,534 million and AR$1,604 million annual regulated income for Transener and Transba, respectively.

The purpose of the semiannual adjustment mechanism stipulated in the Integral Tariff Review (RTI) is to keep real-term values for remunerations collectible by Transener and Transba during the whole RTI’s five-year period. The adjustment formula considers the variations during such semester in the IPIM (Wholesale Domestic Price Index), ‘Manufactured Products’ item, the CPI (Consumer Price Index) and the Salary Index published by the INDEC (Instituto Nacional de Estadística y Censos de Argentina or National Institute of Statistics and Censuses), which are weighted based on the cost structure and average investments for the 2017-2021 period in the RTI. This mechanism contemplates a trigger clause that weighs the IPIM and the CPI semiannual variations published by the INDEC, ascertained at a deviation equal to or higher than 5%.

For the December 2016 – June 2017 period, the trigger clause reached 9.02%, and, therefore, the semiannual adjustment for Transener and Transba remuneration was activated, but deferred until December 15, 2017, when ENRE issued Resolutions No. 627/17 and No. 628/17 updating Transener and Transba’s remunerations by 11.35% and 10.96%, respectively, for the December 2016 – June 2017 period, retroactively to August 1, 2017.

ENRE Resolutions No. 37/18 and No. 38/18 issued on February 19, 2018, later amended by ENRE Resolutions No. 99/18 and 100/18 on April 5, 2018, updated Transener and Transba’s remunerations by 24.15% and 23.39%, respectively, for the December 2016 – December 2017 period as from February 1, 2018. On November 16, 2018, the ENRE issued Resolutions No. 280/18 and No. 281/18, updating Transener and Transba’s remunerations by 42.55% and 43.25%, respectively, for the December 2016 – June 2018 period, effective as from August 1, 2018.

On March 22, 2019, the ENRE issued Resolutions No. 67/19 and No. 68/19 updating Transener and Transba’s remunerations by 78.41% and 81.26%, respectively, for the December 2016 – December 2018 period, effective as from February 1, 2019. On September 25, 2019, the ENRE issued Resolutions No. 269/19 and No. 267/19 updating Transener and Transba’s remunerations by 112.41% and 115.75%, respectively, for the December 2016 – June 2019 period, retroactively to August 1, 2019.

The Solidarity Law (Law No. 27,541) and its supplementary provisions, which entered into force on December 23, 2019, provided that electricity tariffs under federal jurisdiction would remain unchanged for a maximum term of 450 days or until new transitory tariff schemes are in force. The PEN (Poder Ejecutivo Nacional or National Executive Branch) was vested with the power to begin an extraordinary review of the current RTI. The ENRE has not instructed CAMMESA regarding Transener’s semiannual update, which according to the RTI, should have been applied on February 1 and August 1, 2020, and February 1, 2021. On the other hand, on December 17, 2020, Necessity and Urgency Decree or Decreto de Necesidad y Urgencia No. 1020/20 was issued, launching the RTI renegotiation for a term that could not exceed two years from its publication. Finally, on March 3, 2021, the ENRE called for a public hearing to consider Transener and Transba’s transitory tariff regime, which will occur on March 29, 2021 (Resolution No. 54 and 55/21, respectively).

Distribution of transmission costs among WEM (Wholesale Electricity Market) users

Resolution No. 1085/17 of the SEE (Subsecretariat of Electric Energy) issued on November 28, 2017, and effective as of December 1, 2017, established the methodology for distributing costs associated with the remuneration of transmission companies among its users (distributors, GU (Large Users), self-generators and generators). These costs are allocated based on the demand and/or contribution of energy by each WEM agent directly and/or indirectly associated with the DisTro (High-Voltage Electric Power Transmission System), after discounting costs assigned to generating agents as operational and maintenance costs for connection and transformation equipment.

It is worth highlighting that distribution companies’ prices in consideration of electric power transmission within the WEM are calculated together with each Seasonal Programming or Quarterly Reprogramming. In the case of distributing agents whose demand is connected to different DisTros, their demand’s percentage corresponding to each DisTro will be established, and the price will contemplate the demand and the price on a weighted basis. Furthermore, prices applicable to GU within the WEM are calculated in the economic transaction monthly. In the case of WEM’s GU not directly associated with the high-voltage transmission and/or DisTro, the applicable monthly value will correspond to the connecting agent.

Memorandum of Understanding with the Federal Government

In February 2006, Edenor entered into a Contract Renegotiation Memorandum of Understanding with the UNIREN (Public Utility Contract Renegotiation and Analysis Unit), which established, effective as from November 2005, a 23% increase in the average VAD (Distribution Added Value), and a 5% additional VAD increase to be allocated to certain specific investments in capital goods. Furthermore, it provides for the inclusion of a social tariff, quality standards for the service to be rendered, and a minimum investment plan in the electricity grid to be performed by Edenor, and the performance of an RTI (Integral Tariff Review). Upon the failure to perform the RTI, the SE (former Secretariat of Energy) and the ENRE (Ente Nacional Regulador de la Electricidad or National Electricity Regulatory Entity) passed several transitory measures seeking to reduce Edenor’s operating and asset deterioration resulting from the tariff freeze. The background and the current tariff situation are disclosed below.

SE Resolution No. 250/13

Since May 2013, the SE provided the recognition of costs owed to Edenor resulting from the partial application of the MMC (Cost Monitoring Mechanism) which was lower than the actual increase. MMC was stipulated in the 2007 Contractual Renegotiation Agreement, which was not duly passed on to tariffs. SE Resolution No. 250/13 implemented this measure and its subsequent extensions, which allowed for the offsetting of this recognition with Edenor’s liabilities under PUREE (Program for the Rational Use of Electric Power) and with CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) for energy purchases. However, in February 2016 the SE issued Resolution No. 6/16 abrogating the MMC.

ENRE Resolution No. 347/12

ENRE Resolution No. 347/12 applied a differential fixed amount to each of the different tariff categories, except for customers exempt from paying the tariff scheme provided for by ENRE Resolution No. 628/08. Such amounts —which continued to be deposited in a special account and were used exclusively to execute infrastructure and corrective maintenance works in Edenor’s facilities within the concession area— were managed by the FOCEDE (Fondo de Obras de Consolidación y Expansión de Distribución Eléctrica or Fund for Electricity Distribution Expansion and Consolidation Works). ENRE Resolution No. 2/16 terminated the FOCEDE trust on January 31, 2016 and established a new system for the funds collected according to ENRE Resolution No. 347/12, which Edenor managed. With RTI’s implementation in February 2017, these amounts ceased to be charged as a special item on customer bills.

Loan Agreements – Extraordinary investments plan

Due to the delay in obtaining the RTI, the Federal Government granted Edenor loans to the investments plan it may deem appropriate. Under Resolution No. 7/16 of the MEyM (former Ministry of Energy and Mining), CAMMESA suspended, as from February 2016 and until receiving further instructions, all effects from the executed loan agreements and the transfer of resources to distribution companies on behalf of the FOCEDE trust and, therefore, the new works plan would be financed exclusively with tariff proceeds. The Federal Government offset the amounts owed by Edenor under loan agreements and works in the Liabilities Regularization Agreement entered on May 10, 2019.

SE Resolution No. 32/15

SE Resolution No. 32/15, passed in March 2015, implemented a transitory increase in Edenor’s income from February 2015 to be charged against the RTI. Moreover, according to this provision, the amounts collected under the PUREE program were deemed part of Edenor’s income. This Resolution did not generate tariff increases for customers but was directly transferred by the Federal Government.

However, in January 2016 ENRE Resolution No. 7/16 ordered the performance of all necessary acts to conduct Edenor’s RTI, annul the tariff schemes of SE Resolution No. 32/15, and adjust the VAD to be charged against the RTI, thus canceling the PUREE and suspending the investments loan agreements. Consequently, the ENRE issued Resolution No. 1/16 and 2/16 granting a new tariff scheme for Edenor effective as from February 2016. In September 2016, Edenor filed its RTI tariff proposal, clarifying that it did not contemplate the damages resulting from the failure to timely and adequately implement the Memorandum of Understanding or the collection of income necessary to face the liabilities Edenor had to incur as a result.

RTI

ENRE Resolution No. 63/17, as amended, established the final tariff schemes, the review of costs, required quality levels and other rights and obligations by Edenor for the five years starting February 2017. A 42% cap was set in the VAD increase resulting from the Integral Tariff Review (RTI) as from February 2017, the remaining increase being completed in November 2017 and February 2018. The VAD difference resulting from the gradual application was updated in real terms and incorporated in 48 installments payable as of February 2018. However, both the 11.6% CPD (Own Distribution Cost or Costo Propio de Distribución) update contemplated for August 2017 and the 18% VAD increase scheduled for November 2017 were deferred to December 2017 and adjusted retroactively (ENRE Resolution No. 603/17).

In February 2018, the last 17.8% VAD increase and the 22.5% CPD update were applied. The total deferred amount of AR$6,343 million was considered recoverable in 48 installments, subject to an annual review each February for 2019 through 2021. It is worth highlighting that the 22.5% CPD update contemplated a -2.51% E-factor adjustment stimulating efficiency passing on to the distributor’s users the expected efficiency gains as from i) X factor, which captures gains resulting from management optimization and the existence of economies of scale, which reduces the CPD; and ii) Q investments factor, which captures the impact of the cost of capital and the evolution of exploitation costs resulting from investments made by the company, which increases the CPD. In August 2018, the CPD for February – July 2018 was calculated at 15.85%. Still, in agreement with the MinEn (former Ministry of Energy), only 7.925% was applied, the balance being payable in six consecutive monthly installments effective as from February 2019 (ENRE Res. No. 208/18).

In March 2019, there was a 24%⁽¹⁾ CPD update corresponding to the July 2018 – January 2019 semester, retroactive to February 2019, and a 7.925% increase which was timely deferred in August 2018, retroactive to that date (ENRE Resolution No. 27/19). Compensatory amounts for the retroactivity were collected in five installments. In September 2019, Edenor agreed to postpone the 19.05% CPD update for August 2019 until January 2020, maintaining the retroactive amounts applied in March – July 2019 period for the CPD, the balance being recoverable in 7 consecutive monthly installments as from January 2020. Besides, the payment of penalties was postponed until March 2020 in 6 monthly installments.

With the entry into effect of the Solidarity Law (Law No. 27,541) and its supplementary provisions, on December 23, 2019, it was established that electricity tariffs under federal jurisdiction would remain unchanged for a maximum term of 450 days or until new transitory tariff schemes are in force, ratified by the ENRE on December 27, 2019. Edenor has not received instructions from the ENRE for the semiannual remuneration update, which according to the RTI, should have been applied on August 1, 2019, February 1 and August 1, 2020, and February 1, 2021. Moreover, the PEN (Poder Ejecutivo Nacional or National Executive Branch) was vested with the power to begin an extraordinary review of the current RTI. On December 17, 2020, Necessity and Urgency Decree or Decreto de Necesidad y Urgencia No. 1020/20 was issued, launching the RTI renegotiation for a term that could not exceed two years from its publication. Finally, on March 3, 2021, the ENRE called for a public hearing to consider Edenor’s transitory tariff regime, which will occur on March 30, 2021 (Resolution No. 53/21).

Note: ⁽¹⁾ Including the -1.59% E Factor stimulating efficiency.

Seasonal electricity prices

In February 2019, Resolution No. 366/18 of the SGE (former Government Secretariat of Energy) and ENRE Resolution No. 25/19 abrogated the Federal Government’s social tariff and the savings discount scheme. Moreover, the power capacity reference price was set at AR$80,000/MW-month, the stabilized price for DisTro (High-Voltage Electric Power Transmission System) and Edenor’s main distribution remained at AR$64/MWh and AR$0/MWh, respectively. Energy reference prices were set at AR$2,762/MWh for GUDI (Large Distribution Company Users) and at AR$1,852/MWh for the remaining users. This resolution provided for certain gradual increases in 2019, but they were suspended in April 2019, except for energy reference prices for GUDI and non-residential users at AR$2,911/MWh and AR$1,985/MWh as from May 2019, respectively, which as of this date have not been passed on to the tariff schemes (SRRYME Resolution No. 14/19).

As of March 2021, according to SE Resolution No. 131/21, the reference price for GUDI increases to AR$5,500/MWh (except for public health and education bodies and entities). In contrast, the rest of the prices applicable to the final demand have not been modified.

Regularization of liabilities and Edenor’s concession jurisdiction

As regards the debt for electricity purchases that distributors owe CAMMESA as of September 2020, on January 21, 2021, the SE established a Special Liabilities Regularization Scheme, aiming to grant a solution for a sustainable balance sheet and guarantee the service quality in the context of extended tariff freeze exacerbated by the pandemic. The Scheme recognizes receivables to offset debt equivalent to up to 5 times the monthly average bill for the last rolling year or reaching 66% of the existing debt and offers a payment plan for the surplus amount.

Moreover, on January 19, 2021, it was agreed to nullify the transfer of concession jurisdiction of Edenor from the Federal Government to the Province of Buenos Aires and the City of Buenos Aires. Consequently, the ownership and nature of the Granting Power of the public electricity distribution utility in the concession area of Edenor remain in the jurisdiction of the Federal Government.

New Framework Agreement

On December 16, 2020, the Agreement for the Development of the Preventive and Corrective Work Program for the Electrical Distribution Grid of the Metropolitan Area of Buenos Aires was entered into with the Federal Government. To guarantee electricity supply to said area’s low-income neighborhoods, the Federal Government’s amounts due to Edenor for electricity consumptions in shantytowns and low-income communities as of December 31, 2020, will fund the grids’ preventive and corrective maintenance Works Program.