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 (Energy Plus) 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.

In January 2017 the SEE (‘Subsecretariat of Electric Energy’) published Resolution No. 19E/2017, establishing a new legacy energy remuneration system US$-denominated for power capacity and non-fuel energy applicable as from February 1, 2017, with gradual increases until November 1, 2017, as well as the elimination of remunerations in the form of receivables. It is worth mentioning that the purchase and dispatch of fuels remains centralized in CAMMESA.

However, in November 2018, Resolution No. 70/2018 of the SGE (‘Government Secretariat of Energy’) amended SE Resolution No. 95/2013, authorized power generators, co-generators and self-generators within the WEM to acquire fuels of any kind required for own power generation, originally for units with remuneration scheme under SEE Res. No. 19/17, and later being extended to units with differential remuneration. The cost of generation with own fuels will be valued according to the mechanisms for the recognition of CVP (‘Variable Production Cost’) standardized by CAMMESA. It should be noted that for agents which ‘do not or cannot’ make use of such capacity, CAMMESA will remain in charge of the commercial management and the dispatch of fuels.

Moreover, in March 2019, the remuneration system for legacy capacity of the SEE Resolution No. 19E/2017 was replaced by Resolution No. 1/2019 of the SRRYME (‘Secretariat of Renewable Resources and Electricity Market’), with a new remuneration in system US$-denominated applicable as from March 1, 2019, mainly affecting thermal power plants with lower power capacity remuneration for certain months of the year and according to the unit’s utilization factor, in addition to a lower remuneration for operation and maintenance.

On the other hand, as a result of the state of emergency in the national electricity sector, on March 22, 2016 the SEE issued Resolution No. 21/16 launching 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 for energy in Argentina should be covered with renewable sources of energy.

• MEyM (‘Ministry of Energy and Mining’) Resolution No. 71/16, issued on May 17, 2016, 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 on August 18, 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 WEM 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
• Finally, on December 27, 2017, Law No. 27,424 was published, which declares it of national interest the distributed generation of electric power from renewable sources destined to self-consumption and the possible injection of surpluses into the distribution network

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 Secretariat 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, 2018, Argentina had a nominal installed capacity as reported by CAMMESA of approximately 38,538 MW (+2,033 MW compared to 2017), composed by 63.7% of thermal, 28.0% of hydroelectric, 4.6% of nuclear and 3.8% of renewable. The main commercial commissioning were for units under SEE (‘Secretariat of Electric Energy’) Res. No. 21/16.

Moreover, during 2018 there was a 0.8% increase in power generation, with volumes of 137,199 GWh and 136,064 GWh, for the years 2018 and 2017, respectively.

• Thermal power generation remained as the main resource to meet the electricity demand, supplying an electricity volume of 87,725 GWh (64%), followed by hydroelectric power generation, which contributed 39,671 GWh net of pumping (29%), nuclear power generation, with 6,453 GWh (5%), and renewable power generation, with 3,350 GWh (2%). Additionally, there were imports for 344 GWh (53% lower than in 2017), exports for 280 GWh (higher than the 69 GWh recorded in 2017), and losses for 4,337 GWh (3% higher than in 2017).
• Hydroelectric power generation net of pumping’s contribution volumes experienced a slight increase compared to 2017 (+1%), whereas nuclear power generation recorded a 13% increase, and generation from renewable sources evidenced a 27% increase, mainly as a result of commissioning under the RenovAr program. These increases were moderately offset by a 1% thermal generation decrease compared to 2017.

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. Moreover, in March 2019, the Federal Government executed an agreement with the province of Buenos Aires and the Autonomous City of Buenos Aires for the transfer of Edenor and Edesur, still pending of completion.

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).

Electricity Prices

The energy authority has continued with the policy launched in the year 2003 whereby the spot price of the Wholesale Electricity Market (‘WEM’) is determined according to the variable cost of production with natural gas from available power generating units, even if said units are not generating electricity with such fuel (Former Secretariat of Energy (‘SE’) Resolution No. 240/03). The additional cost for the consumption of liquid fuels is recognized outside the specified market price as a temporary dispatch surcharge. Furthermore, pursuant to Resolution No. 25/18 of the Government Secretariat of Energy (‘SGE’), the WEM bears the costs of imported gas as from October 1, 2018.

As regards the generation capacity remuneration, the remuneration scheme established by SE Resolution No. 19/17 has remained unchanged since the economic transactions corresponding to the month of February 2017.

Until October 2018, the approved average monthly spot price for energy was AR$240/MWh, which is the maximum stipulated price pursuant to Subsecretariat of Electric Energy (‘SEE’) Resolution No. 20/17. As from November 2018, this price increased to AR$480/MWh pursuant to SEE Provision No. 97/18.

On the other hand, 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 not only the energy price, but also the power capacity fee, the generation cost, fuels such as natural gas, fuel oil or gas oil, and other minor items.

Source: CAMMESA.

Fuel Supply

SE Resolution No. 95/13 provided that power generators may not renew or extend their fuel supply agreements with their suppliers upon termination, and that fuel supply would be centralized in CAMMESA. This provision remained effective under SEE Resolution No. 19/17.
However, SGE Resolution No. 70/18 authorized power generators, co-generators and self-generators within the WEM to acquire fuels required for own power generation, originally for units corresponding to legacy capacity (with remuneration scheme under SEE Resolution No. 19/17), and later being extended to units under PPAs executed with CAMMESA. For its instrumentation, maximum natural gas prices at Transportation System Entry Point (‘PIST’) for the generation of electricity to be sold within the WEM —provided for by the former Ministry of Energy (‘MinEn’) Resolution No. 46/18 for the 2018 and SGE Note No. 66680075/18 for the year 2019— were observed.
On February 8, 2019, the SGE issued Note No. 07973690 instructing CAMMESA to recognize within CVPs (Costo Variable de Producción or ‘Variable Production Cost’) declared as from February 18, 2019, and for each subsequent two-week period, the maximum weighted average price of natural gas by basin that would have resulted if the total domestic natural gas production necessary to supply the electricity sector had been acquired under agreements entered into in CAMMESA’s last auction conducted through the Gas Electronic Market (‘MEGSA’).
It should be noted that for agents which ‘do not or cannot’ make use of such capacity, CAMMESA will remain in charge of the commercial management and the dispatch of fuels.

On February 2, 2017, the Secretariat of Electric Energy (‘SEE’) issued Resolution No. 19/17, which superseded the remuneration scheme set forth by Secretariat of Energy (‘SE’) Resolution No. 22/16, as amended, and established guidelines for the remuneration to power generation plants between February 1, 2017 and February 28, 2019.

Resolution No. 19/17 provides for remunerative items based on technology and scale, establishing U.S. Dollar-denominated prices payable in Argentine Pesos by applying BCRA (Banco Central de la República Argentina or the ‘Central Bank of the Republic of Argentina’)’s exchange rate effective on the last business day of the month of the applicable economic transaction; furthermore, the transaction’s maturity will be that provided for in CAMMESA (Compañía Administradora del Mercado Eléctrico Mayorista or the ‘Argentine Wholesale Electricity Market Clearing Company’)’s Procedures.

Remuneration for Available Power Capacity

Thermal Power Generators

Resolution No. 19/17 defines a minimum remuneration for power capacity based on technology and scale, and allows power generators, co-generators and self-generators owning conventional Thermal Power Plants (‘CT’) to offer Guaranteed Availability Commitments (‘DIGO’) for the power capacity and energy generated by their units and not committed under Energía Plus or under Power Purchase Agreements (‘PPAs’) executed with the Wholesale Electricity Market (‘WEM’) pursuant to SE Resolution No. 220/07.

The DIGO for each unit should be declared for a term of three years, together with information for the Summer Seasonal Programming, with the possibility to offer different availability values for the summer and winter six-month periods.

Finally, power generators will enter into a DIGO Agreement with CAMMESA, which may assign it to the demand as defined by the SE. The thermal generators’ remuneration for committed power capacity will be proportional to their compliance.

Minimum Remuneration

It applies to generators without DIGO:

Base Remuneration

It applies to generators with DIGO:

Additional Remuneration

This remuneration for the additional available power capacity aims to encourage DIGO for the periods with a higher demand of the system. Bimonthly, CAMMESA will define a Monthly Thermal Generation Goal for the set of qualified generators, and will call for additional power capacity availability offers with prices not exceeding the additional price.

Hydroelectric Generators

In the case of Hydroelectric Power Plants (‘CH’), a base remuneration and an additional remuneration for power capacity were established. Power capacity availability is determined independently of the reservoir level, the contributions made, or the expenses incurred. Furthermore, in the case of pumping hydroelectric power plants, the following is taken into consideration to calculate availability: i) the operation as turbine at all hours within the period, and ii) the availability as pump at off-peak hours every day and on non-business days.

Base Remuneration

It is determined by the actual power capacity plus that under programmed and/or agreed maintenance:

As provided by SE Resolution No. 22/16, in the case of CHs maintaining control structures on river courses and not having an associated power plant, a 1.20 factor will be applied to the plant at the headwaters.

Additional Remuneration

It applies to power plants of any scale for their actual availability and based on the applicable period:

As from November 2017, the allocation and collection of 50% of the additional remuneration is conditional upon the generator taking out insurance, to CAMMESA’s satisfaction, to cover for major incidents on critical equipment, as well as upon the progressive updating of the plant’s control systems pursuant to an investment plan to be submitted based on criteria to be defined by the Government Secretariat of Energy (‘SGE’).

Other Technologies: Wind Power

The remuneration is made up of a base price of US$7.5/MWh and an additional price of US$17.5/MWh, which are associated with the availability of the installed equipment with an operating permanence longer than 12 months as from the beginning of the Summer Seasonal Programming.

Remuneration for Generated and Operated Energy

The remuneration for Generated Energy is valued at variable prices according to the type of fuel:

The remuneration for Operated Energy applies to the integration of hourly power capacities for the period (over rotating units), and is valued at US$2.0/MWh for any type of fuel. In the case of CH, prices for Generated and Operated Energy are as follows:

Additional Remuneration for Low-Use Thermal Generators

SE Resolution No. 19/17 provides for an additional remuneration for low-use thermal generators having frequent startups based on the monthly generated energy for a price of US$2.6/MWh multiplied by the usage/startup factor.

The usage factor is based on the Rated Power Utilization Factor recorded during the last rolling year, which will have a 0.5 value for thermal units with a usage factor lower than 30% and a 1.0 value for units with a usage factor lower than 15%. In all other cases, the factor will equal 0.

Additional Remuneration for Thermal Generators having Frequent Startups

The startup factor is established based on startups recorded during the last rolling year for issues associated with the economic dispatch made by CAMMESA. It will have a 0.0 value for units with up to 74 startups, a 0.1 value for units recording between 75 and 149 startups, and a 0.2 value for units recording more than 150 startups. In all other cases, the factor will equal 0.

Repayment of Overhaul’s Financing

Resolution No. 19/17 abrogates the Maintenance Remuneration and provides that, as regards the repayment of outstanding loans applicable to CTs and CHs, credits already accrued and/or committed to the cancellation of such maintenance works will be applied first. The balance will be repaid by discounting US$1/MWh for the energy generated until the total cancellation of the financing.

Suspension of the Term Market (’MAT’) Contracts

SE Resolution No. 95/13 suspended the inclusion of contracts in the MAT (excluding those derived from a differential remuneration scheme), as well as their extension or renewal. Contracts in force under SE Resolution No. 95/13 will continue being managed by CAMMESA until their termination, after which Large Users (‘GU’) will have to acquire their supplies directly from CAMMESA pursuant to the conditions established by the SE to such effect. This provision is still effective under SEE Res. No. 19/17.

Implementation Criteria for SEE Resolution No. 19/17

CAMMESA classifications for our legacy units are detailed below:

Notes:
* Only 26 MW of the unit under this resolution
** 1.20 factor applies to its remuneration
GT = gas turbine
ST = steam turbine
CC = combined cycle
HI = hidroelectric

In the case of CTG’s unit GUEMTG01 and CTGEBA’s unit GEBATG03, pursuant to Section 6 of SE Resolution No. 482/15 and with the agreement of ‘Energía Plus’ power capacity, which generators, both the energy delivered to the spot market and the available power capacity not committed under the Energía Plus agreements in force during each period were remunerated based on the items set out by SEE Resolution No. 19/17, being the cost of the fuel provided by CAMMESA, thus not being part of the transaction.

On March 1, 2019, the Secretariat of Renewable Resources and Electricity Market (’SRRYME’) published Resolution No. 1/19, which abrogated Resolution No. 19/17 of the Subsecretariat of Electric Energy (‘SEE’) and incorporated modifications to the remuneration regime for the Wholesale Electricity Market (’WEM’)’s power self-generators, co-generators and generators not covered by agreements stipulating a differential remuneration scheme.

SRRYME Resolution No. 1/19 provides that the OED (Agency in Charge of Dispatch or Organismo Encargado del Despacho) will convert US$-denominated values into AR$ at the exchange rate published by Central Bank of the Republic of Argentina (’BCRA’)’s Communication ‘A’ 3500 (Wholesale) on the day preceding the economic transactions’ maturity date.

Thermal Power Generators

The remuneration under SRRYME Resolution No. 1/19 is still made up of a payment for power capacity and a payment for energy (generated energy and operated energy).

For generators without a Guaranteed Availability Commitments (’DIGO’) declaration, the following power capacity base prices will apply:

Furthermore, SRRYME Resolution No. 1/19 provides for a DIGO offer scheme for quarterly periods: a) summer (December, January and February); b) winter (June, July and August), and c) ‘Other’, which comprises two quarters (March, April and May; and September, October and November).

For agents with a DIGO declaration, the guaranteed power capacity price will apply, which will equal US$7,000/MW-month in the summer and winter quarters, and US$5,500/MW-month in the ‘Other’ quarters.

Additionally, the power capacity remuneration ―whether or not the agent has a DIGO declaration― will be affected by a usage or utilization factor equivalent to the average dispatch factor for the generating unit during the rolling year prior to the calculation month, applying a coefficient range between 70% and 100% of the power capacity price; in this sense, if the usage factor is: i) higher than 70%, 100% of the power capacity remuneration is paid; ii) lower than 30%, 70% of the power capacity remuneration is paid; and iii) between 30% and 70%, the power capacity remuneration is linearly associated with between 70% and 100% of the power capacity remuneration.

Generated Energy remuneration values have decreased by US$1/MWh for all technologies except for Internal Combustion Engines, in which the decrease amounted to US$3/MWh. The Operated Energy remuneration value was reduced from US$2/MWh to US$1.4/MWh.

In case the power generator has opted to self-procure fuels for power generation (pursuant to the option set forth by Resolution No. 70/18 of the Government Secretariat of Energy (“SGE”)) and at the moment of dispatching it does not have the fuel, the calculation of the power capacity availability will be reduced by 50% of the real availability. In a similar sense, it will lose the dispatch order and if the OED procures the fuel for power generation, it will only be remunerated for the Generated Energy, at 50% of the non-fuel variable costs approved.

The additional remuneration scheme to encourage DIGO offers during the periods with a higher demand in the grid and the additional remuneration of efficiency-based power generation variable costs were eliminated. Furthermore, the additional remuneration for low-use thermal generators was also eliminated.

Hydrological Generators

SRRYME Resolution No. 1/19 maintains the power capacity base prices established by SEE Resolution No. 19/17, as well as remuneration values for Generated Energy and Operated Energy. However, as regards the power capacity payment, as from March 1, 2019, the hours during which a hydroelectric generator is not available due to programmed and/or agreed maintenance will no longer be computed for the calculation of the power capacity remuneration.

Other Items

As regards generation from unconventional sources (wind, photovoltaic solar, biomass, biogas from urban solid waste), a single remuneration value for Generated Energy is established at US$28/MWh, irrespective of the source used. Energy generated by power generators from unconventional sources prior to their commissioning by the OED will be remunerated at 50% of the afore-mentioned remuneration.

As regards refunds to generators under the loan agreements for the execution of overhauls in their units, the Resolution established, firstly, the application of all receivables accrued in favor of generators for settlement, and secondly, a discount scheme in the generator’s revenues equivalent to US$1/MWh for each generated MW, or US$700/MW-month for the unit’s real availability, whichever is higher.

In September 2006, the Former Secretariat of Energy (‘SE’) approved Resolution No. 1281/06, which establishes certain restrictions on the sale of electricity and implements the Energía Plus service, with the objective to encourage the development of new power generation offers. These measures imply that:

• Power generators, co-generators and self-generators which, as of the date of the publication of SE Resolution No. 1281/06, are neither Wholesale Electricity Market (‘WEM’) agents nor have facilities or interconnection with the WEM, will qualify;
• These power plants should have fuel supply and transportation;
• The energy used by Large users with demands in excess of 300 kW (‘LU300’) in excess of the Base Demand (the electrical consumption for the year 2005) qualifies to contract Energía Plus within the Term Market (‘MAT’) at a price negotiated between the parties; and
• For new LU300 entering the grid, their Base Demand equals zero.

Within this framework, Güemes Thermal Power Plant (‘CTG’), EcoEnergía Co-Generation Power Plant (‘EcoEnergía’) and Genelba Thermal Power Plant (‘CTGEBA’) provide the Energía Plus service to different WEM clients, which represents a 283 MW gross power capacity.

If a power plant cannot meet its Energía Plus demand, it should purchase that power in the spot market at the operated marginal cost. On the other hand, the SE Note No. 567/07, as amended, provided that LU300 not purchasing their Surplus Demand within the MAT should pay the Surplus Demand Incremental Average Charge (‘CMIEE’ or Cargo Medio Incremental de la Demanda Excedente), and the difference between the real cost and the CMIEE would be accumulated in an individual account on a monthly basis for each LU300 within the Argentine Wholesale Electricity Market Clearing Company (‘CAMMESA’ or Compañía Administradora del Mercado Eléctrico Mayorista)´s scope.

Pursuant to SE Note No. 111/16, until May 2018, the CMIEE was AR$650/MWh for Major Large Users (‘GUMA’) and Minor Large Users (‘GUME’), and AR$0/MWh for Large Distribution Company Users (‘GUDI’). As from June 2018, pursuant to SE Note No. 28663845/18, the CMIEE became the greater of AR$1,200/MWh or the temporary dispatch surcharge. Additionally, it was provided that, until further instruction, movements in the individual account of each LU300 would temporarily not be recorded.

Energía Plus contract values are mostly denominated in U.S. Dollars; therefore, when expressed in Argentine Pesos, they are exposed to the nominal exchange rate. Due to the decrease in surplus demand resulting from the downturn in the economic activity, some LU300 choose not to enter into Energía Plus contracts and, consequently, generators have to sell their energy at the spot market with lower profitability margins.

In 2014, the National Government submitted a proposal to generators for the execution of a new thermal generation availability increase agreement through the application of LVFVDs (Liquidaciones de Ventas sin Fecha de Vencimiento a Definir or ‘Sales Settlements with Maturity Date to be Defined’) and the generators’ own resources. CTLL, CTG, CPB, HINISA and HIDISA entered into this agreement, which sets out the conditions for the incorporation of new generation capacity in CTLL through the installation of a high-efficiency gas turbine (105 MW), which was commissioned for service in July 2016, and two engines (15 MW), which are scheduled for commissioning during the third quarter of 2019.

In 2015, the National Government submitted a proposal to generators for the execution of a new agreement. CTLL, CTG, CPB, HINISA and HIDISA entered into this agreement, whereby CTLL would incorporate a new high-efficiency gas turbine (105 MW), as well as investments in renewable energies. However, this Agreement was canceled with the implementation of SEE (‘Secretariat of Electric Energy’) Resolution No. 19/17.

Notes: CTLL (‘Loma de la Lata Thermal Power Plant’), CTG (‘Güemes Thermal Power Plant’), CPB (‘Piedra Buena Thermal Power Plant’), HINISA (‘Hydro Power Plant Los Nihuiles’) and HIDISA (‘Hydro Power Plant Diamante’).

As a result of the state of emergency in the national electricity sector, on March 22, 2016 the SEE (‘Secretariat of Electric Energy’) issued Resolution No. 21/16 launching a call for tenders for new thermal power generation capacity with the commitment to making it available through the WEM (‘Wholesale Electricity Market’) for the 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 Eléctrico Mayorista or ‘Argentine Wholesale Electricity Market Clearing Company’), which acted on behalf of WEM’s distributors and large users.

Pampa was awarded CTLL (Loma de la Lata Thermal Power Plant’)’s 105 MW expansion project and the construction of CTIW (‘Ingeniero White Thermal Power Plant’) for a 100 MW capacity, which were commissioned for service in August and December 2017, respectively. Furthermore, Pampa acquired and developed the CTPP (‘Parque Pilar Thermal Power Plant’) project for a 100 MW capacity, which was commissioned for service in August 2017.

On May 10, 2017 the SEE (‘Secretariat of Electric Energy’) issued Resolution No. 287/17 launching a call for tenders for co-generation projects and the closing to 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), and the new capacity should not exceed the existing electric power transmission capacity; otherwise, the cost of the necessary extensions would be borne by the bidder.

Awarded projects will be remunerated under a PPA (‘Power Purchase Agreement’) which will be effective for a term of 15 years. The remuneration will be made up of the available power capacity price plus the variable non-fuel cost for the delivered energy and the fuel cost (if offered), less penalties and fuel surpluses. Power capacity surpluses would be remunerated pursuant to SEE Resolution No. 19/17.

Within this framework, in September 2017 the SEE issued Resolution No. 820/17 awarding only three co-generation projects for a power capacity of 506 MW, and in October 2017, pursuant to SEE Resolution No. 926/17, it awarded projects for a total power capacity of 1,304 MW. Genelba Plus’ closing to combined cycle, which will add an incremental capacity of 383 MW to CTGEBA (‘Genelba Thermal Power Plant’)’s current facilities, which commissioning at open cycle is expected for the second quarter of 2019 and at closed cycle for the second quarter of 2020, is among the awarded projects.

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 for energy in Argentina should be covered with renewable sources of energy. To meet such objective, WEM (‘Wholesale Electricity Market’)’s GU (Grandes Usuarios or ‘Large users’) and CAMMESA (Compañía Administradora del Mercado Eléctrico Mayorista or ‘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 the objective is met. The agreements entered into with GU and GUDI (‘Large Distribution Company Users’) may not have an average price exceeding US$113/MWh.

Additionally, the law provides for several incentives to encourage the construction of renewable energy projects, 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.

RenovAr Program

MEyM (‘Ministry of Energy and Mining’) Resolution No. 71/16 issued in May 2016 launched the RenovAr Round 1 Program’s open call for tenders. In October 2016 and pursuant to Resolution No. 213/16, the MEyM awarded 29 projects for a total 1,142 MW (97% of which were wind and solar energy projects), including our 100 MW Engineer Mario Cebreiro Wind Farm (‘PEMC’) project in the Province of Buenos Aires, which was commissioned for service in June 2018. Additionally, in October 2016 MEyM Resolution No. 252/16 was issued launching the RenovAr Round 1.5 Program’s call for tenders, and in the following month MEyM Resolution No. 281/16 was issued, whereby 30 projects for a total 1,281.5 MW (100% of them wind and solar energy projects) were awarded.

Furthermore, in August 2017 MEyM Resolution No. 275/17 was issued launching the RenovAr Round 2 Program’s call for tenders, and in December 2017 MEyM Resolution No. 473/17 and 488/17 were issued, whereby 88 projects for a total 2,043 MW (89% of them wind and solar energy projects) were awarded. Finally, in November 2018, Resolution No. 100/18 of the Government Secretariat of Energy (‘SGE’) launched the RenovAr MiniRen Round 3 Program’s call for tenders for smaller-scale renewable projects (between 0.5 and 10 MW) contemplating its connection to the facilities of the distribution company corresponding to the location, expecting a maximum 400 MW facility installation, of which 350 MW are wind and solar energy projects.

It is worth highlighting that in all projects under the RenovAr rounds, all and any reductions of greenhouse-gas emissions resulting from the power capacity installed throughout the national territory, including that resulting from any other project accounted for to reach the WEM’s renewable power capacity goals set in Law No. 27,191, will be recognized by the Federal Government for the fulfillment of the contribution goal under the United Nations Framework Convention on Climate Change and the Paris Agreement.

MAT ER

MEyM Resolution No. 281/17 issued on August 18, 2017 regulated the MAT ER (‘Term Market from Renewable Energy Sources’) regime, which sets the conditions for WEM’s GU and GUDI to meet their demand supply obligation from renewable sources through the individual purchase within the MAT ER or through self-generation from renewable sources. Furthermore, this Resolution regulates the conditions applicable to renewable power generation projects. Specifically, it created the RENPER (‘Registry of Renewable Electric Power Generation Projects’), where such projects will be registered.

Projects destined to supply the MAT ER may not be committed under other remuneration mechanisms (e.g., the Renovar Program). Surplus power generation exceeding commitments with MAT ER are remunerated until 10% of the power generation at the minimum price for the applicable technology covered by the RenovAr Program, and the balance, at the remuneration value for that type of technology set in Resolution No. 19/17 of the Subsecretariat of Electric Energy (‘SEE’).

Furthermore, agreements executed under the MAT ER regime will be administered and managed in accordance with the WEM Procedures. The contractual terms –life, allocation priorities, prices and other conditions–, notwithstanding the maximum price set forth in Section 9 of Law No. 27,191, may be freely agreed between the parties, although the committed electricity volumes will be limited by the electric power from renewable sources produced by the generator or supplied by other generators or suppliers with which it has purchase agreements in place.

Pampa registered Pampa Energía Wind Farm, also known as PEPE II, III and IV projects with the Registry of Renewable Electric Power Generation Projects (‘RENPER’). It also requested the corresponding dispatch priority under MEyM Resolution No. 281/17, which was granted for the whole 160 MW installed capacity of the three projects.

As regards the PEPE IV project, even though announced on May 23, 2018, the volatility of the economy and changes in the applicable legislation adversely affected the beginning of the project, and its feasibility is being assessed.

Renewable Energy Distributed Generation

On December 27, 2017, Law No. 27,424 was published, which declares the distributed generation of electric power from renewable sources destined to self-consumption and the possible injection of surpluses into the distribution network to be of national interest. The Law also establishes the distribution utility providers’ obligation to facilitate such injection by guaranteeing free access to the distribution network, notwithstanding the provinces’ own powers.

Furthermore, all national public building projects should contemplate the use of a distributed generation system leveraging the use of renewable sources after conducting, if applicable, an environmental impact study. Besides, the enforcement authority will carry out a study of existing national public buildings and will suggest incorporating power efficiency systems, including renewable distributed generation capacity.

The Executive Order No. 986/18 of the National Executive Branch (‘PEN’ or Poder Ejecutivo Nacional) issued in November 2018 and Resolution No. 314/18 of the Government Secretariat of Energy (‘SGE’) in December 2018 regulated the Regime Encouraging Grid-Integrated Renewable Energy Distributed Generation seeking to reach a 1,000 MW capacity within a term of 12 years.

As regards the billing scheme, it is expected that a balance will be reached between each user-generator’s consumption and injection. Moreover, distributors should file a monthly declaration to CAMMESA indicating the values corresponding to the electric power injected by users-generators.

The Public Emergency and Exchange Rate Regime Reform Law (Law No. 25,561) imposed the obligation on public utilities, such as Transener and its subsidiary Transba, to renegotiate their agreements in force with the Government while continuing supplying electricity services. This situation 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 Memorandums of Understanding provided for the performance of an RTI (‘Integral Tariff Review’) before the ENRE (Ente Nacional Regulador de la Electricidad or ‘National Electricity Regulatory Entity’) and the determination of a new tariff regime for Transener and Transba, which should have come into force in 2006, as well as for the 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 need to launch the RTI process. Furthermore, Transener and Transba filed their respective tariff claims for their assessment, the holding of 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 provided for the acknowledgment of a credit claim in favor of Transener and Transba for cost fluctuations incurred during the June 2005 – November 2010 period calculated as per the IVC (Índice de Variación de Costos or ‘Cost Variation Index’) established in the Memorandum of Understanding. These receivables were assigned in consideration of disbursements by CAMMESA (Compañía Administradora del Mercado Eléctrico Mayorista or ‘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. In view of the repeated delays in the implementation of the RTI provided for in the Memorandum of Understanding, the SE and the ENRE successively extended the recognition of higher costs up to and including November 2015. In May 2016, upon the expiration of the Renewal Agreement 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 last 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 credits for cost variations.

RTI

On September 28, 2016, pursuant to the instruction given by MEyM (‘Ministry of Energy and Mining’) Resolution No. 196/16, the ENRE passed Resolution No. 524/16 approving the program applicable to the RTI for Electric Power Transmission. The public hearing for the defense of the proposal was conducted in December 2016.

On January 31, 2017, the ENRE issued Resolutions No. 66/17 and No. 73/17 establishing the tariffs applicable for the 2017/2021 five-year period, the recognized capital base being AR$8,343 million and AR$3,397 million, and the granted regulated revenues amounting to AR$3,274 million and AR$1,499 million for Transener and Transba, respectively. Furthermore, 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.

Based on the discrepancy between Transener and Transba’s proposal and what was granted by the RTI, on April 7 and 21, 2017, Transener and Transba filed a Motion for Reconsideration against ENRE Resolutions No. 66/17, 84/17 and 139/17, and No. 73/17, 88/17 and 138/17, respectively. In consolidated terms, the Motion for Reconsideration mainly requested an additional 50% increase in the recognized capital base, and a 28% increase in regulatory income.

On October 25, 2017, the ENRE issued Resolutions No. 516/17 and No. 517/17 partially upholding the motions filed by Transener and Transba. As a result of this proceeding, the ENRE established, retroactively as of February 2017, a 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. Notwithstanding the foregoing, claims submitted by Transener and Transba regarding the capital base valuation, on which the profitability fixed by ENRE Resolution No. 553/2016 applied, as well as other issues which were not resolved favorably continued being heard before the SEE (‘Secretariat of Electric Energy’) under the appeal brought subordinately to the Motions for Reconsideration.

On the other hand, during fiscal year 2017, Transener and Transba requested the recognition of damages for the May 2013 – January 2017 period on account of breaches by the Federal Government in the adjustment of the remuneration for the supply of the high-voltage electric power transmission and main distribution service in the Province of Buenos Aires based on the actual cost variations under the Transition Tariff Regime and the failure to remunerate the capital base and the reasonable profitability which would result from the RTI.

Furthermore, the purpose of the semiannual adjustment mechanism stipulated in the RTI is to keep real-term values for remunerations collectable by Transener and Transba during the RTI’s five-year period. The adjustment formula takes into consideration 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 (‘National Institute of Statistics and Censuses’ or Instituto Nacional de Estadística y Censos de Argentina, 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 variation equal to or higher than 5%.

For the December 2016 – June 2017 period, the trigger clause amounted to 9.02%, and, therefore, the semiannual adjustment for Transener and Transba remuneration was activated; however, its application was 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.

On February 19, 2018, the ENRE issued Resolutions No. 37/18 and No. 38/18, which were later amended on April 5, 2018 by ENRE Resolution No. 99/18 and 100/18, respectively.These resolutions updated Transener and Transba’s remunerations by 24.15% and 23.39%, respectively (both including a 0.2% X Factor – factor stimulating efficiency which transfers cost reductions to users adjustment stimulating efficiency), accumulated during the December 2016 – December 2017 period and applicable to the remuneration scheme as from February 1, 2017.

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 (both including a 0.2% X-Factor adjustment), for the December 2016 – June 2018 period, applicable on the remuneration scheme as from August 1, 2018. As CAMMESA did not compute interests for the months of August and September 2018, Transener and Transba filed a claim before the ENRE and CAMMESA for the settlement of the applicable interests.

As of the publication of the 2018 Annual Report, the ENRE has still not issued the resolutions corresponding to the semiannual update for Transener and Transba’s remuneration, which, according to the RTI, should have been applied since February 1, 2019. Based on real data and estimates, the calculation of Transener and Transba’s updates would amount to 25.5% and 27%, respectively (including the 0.14% X-Factor adjustment), accumulated for the June 2018 – December 2018 period. Transener is currently conducting the applicable procedures to regularize this situation.

SEE Resolution No. 1085/17

SEE Resolution No. 1085/17 issued on November 28, 2017 and effective as from December 1, 2017, established the methodology for the distribution of costs associated with the remuneration of transmission companies among the Transmission Systems’ users. These costs are distributed based on the demand and/or contribution of energy by each WEM (‘Wholesale Electricity Market’) agent (distributors, large users, self-generators and generators), directly and/or indirectly associated to the DisTro (‘High-Voltage Electric Energy Transmission System and/or Main Distribution Electric Energy Transmission System’), after discounting costs assigned to generating agents as operational and maintenance costs for connection and transformation equipment.

It is worth highlighting that prices payable by distribution companies in consideration of electric power transmission within the WEM are stabilized for their payment by distributors, and are calculated together with each Seasonal Programming or Quarterly Reprogramming. In the case of distributing agents whose demand is connected to different DisTros, the demand percentage corresponding to each DisTro will be ascertained, and the price will contemplate the demand and the price on a weighted basis.

Furthermore, prices applicable to large users within the WEM are calculated in the economic transaction on a monthly basis. In the case of WEM large users not directly associated with the high-voltage transmission and/or DisTro, the applicable monthly value will be that corresponding to the connecting agent.

Memorandum of Understanding between Edenor and the Argentine Government

On February 13, 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 1, 2005, a 23% increase in the average distribution margin, which, however, may not result in an increase in the average utility tariff above 15%, as well as a 5% average additional VAD (‘Distribution Added Value’) increase to be allocated to certain specific investments in capital goods. Furthermore, it provided for the inclusion of a social tariff and established quality standards for the service to be rendered and a minimum investment plan in the electricity grid to be performed by Edenor, as well as the performance of an RTI (‘Integral Tariff Review’).

During the last few years following the execution of the Memorandum of Understanding and on account of 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 diclosed below.

SE Resolution No. 32/15

As a result of the delay in the implementation of the Memorandum of Understanding and in order to fund expenses and investments associated with the ordinary operation of the public utility, on March 11, 2015 the SE passed Resolution No. 32/15 granting Edenor a transitory income increase as from February 1, 2015 to be charged against the RTI to be timely performed. This income results from the monthly difference between a theoretical tariff scheme embodied in an annex to said resolution and the schemes then effective for each tariff category. Additionally, pursuant to this provision, the amounts collected under the PUREE (‘Program for the Rational Use of Electric Power’) program are deemed part of Edenor’s income. It should be pointed out that this resolution did not generate any increases in the tariff scheme applicable to customers, but was borne directly by the Federal Government. This resolution was rendered ineffective on February 1, 2016 with the issuance of SE Resolutions No. 6/16 and 7/16.

ENRE Resolution No. 347/12

ENRE Resolution No. 347/12 applied a differential fixed amount to each of the different tariff categories, with the only exception of 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 for the execution of 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’).

Subsequently, on January 29, 2016, ENRE Resolution No. 2/16 was passed declaring the termination of the FOCEDE trust on January 31, 2016 and establishing a new system for the funds collected pursuant to ENRE Resolution No. 347/12, which ceased being deposited into such trust and started being managed by Edenor. Finally, with the implementation of the RTI for Edenor in February 2017, these fixed amounts for works and maintenance stopped being charged as a special item on customer bills.

SE Resolution No. 250/13

Since May 2013, the SE has provided for the recognition of costs owed to Edenor resulting from the partial application of the MMC (‘Cost Monitoring Mechanism’), the result of which was lower than the actual increase stipulated in the 2007 Contractual Renegotiation Agreement, which was not duly passed on to tariffs. This measure was implemented with the passing of SE Resolution No. 250/13 and its subsequent extensions, which has allowed for the offsetting of this recognition with debts Edenor has generated under PUREE and with CAMMESA (Compañía Administradora del Mercado Eléctrico Mayorista or ‘Argentine Wholesale Electricity Market Clearing Company’) for energy purchases. This resolution was rendered ineffective on February 1, 2016 with the issuance of SE Resolutions No. 6/16 and 7/16.

Loan Agreements – Extraordinary Investments Plan

Due to the delay in obtaining the RTI, Edenor has secured the granting of loan agreements by the Federal Government to conduct the investments plan it may deem appropriate.

Pursuant to MEyM (‘Ministry of Energy and Mining’) Resolution No. 7/16, CAMMESA suspended, as from February 1, 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 will be financed exclusively with tariff proceeds.

Tariff Transition Process

On January 27, 2016, pursuant to Resolution No. 7/16, the MEyM instructed the ENRE to perform all necessary acts to fulfill Edenor’s RTI, annul the tariff schemes resulting from SE Resolution No. 32/15, and adjust the VAD to be charged against the RTI in Edenor’s tariff schemes, thus canceling the PUREE and suspending the loan agreements entered into with Edenor. Moreover, on the same date and pursuant to Resolution No. 6/16, the MEyM approved the quarterly summer reprogramming within the Wholesale Electricity Market (‘WEM’) for the months of February through April 2016. Consequently, on January 29, 2016, the ENRE issued Resolutions No. 1/16 and 2/16 granting a new tariff scheme for Edenor effective as from February 1, 2016.

Later, on September 5, 2016, Edenor filed a tariff proposal before the ENRE for its consideration under the RTI process. This presentation has pointed out that the proposal does not contemplate the value Edenor assigns to damages resulting from the failure to timely and properly implement the Memorandum of Understanding or the collection of income necessary to face the liabilities Edenor has incurred as a result of such breach. The public hearing was held on October 28, 2016.

RTI

On January 31, 2017, the ENRE issued Resolution No. 63/17, as amended by ENRE Resolutions No. 82 and 92/17, which established the final tariff schemes, the review of costs, required quality levels and other rights and obligations by Edenor for the five-year period beginning February 1, 2017.

These resolutions provide that the ENRE, as instructed by the MEyM, should limit the VAD increase as a result of the RTI process applicable as from February 1, 2017 to a maximum 42% of the VAD, and that the application of the new VAD’s balance value will be completed in two phases, the first one in November 2017 and the last one in February 2018. Additionally, the ENRE will recognize to Edenor the VAD difference resulting from the gradual tariff increase recognized in the RTI in 48 installments payable as from February 1, 2018, which will be incorporated into the resulting VAD value as of that date.

These tariff schemes include the prices established by Resolution No. 20/17 of the Secretariat of Electric Energy (‘SEE’) issued on January 27, 2017, which approved the WEM’s summer seasonal reprogramming for the February 1 – April 30, 2017 period.

On October 31, 2017, the ENRE, through Note No. 128,399 and upon the MEyM’s instruction, provided for the deferral until December 1, 2017 of the application of the VAD increase scheduled for November 1, 2017, as well as the CPD (‘Own Distribution Cost’ or Costo Propio de Distribución) adjustment which should have been made in August 2017; in both cases, the result of such deferral should be recognized pursuant to the adjustment mechanism provided for by ENRE Resolution No. 63/2017 of the RTI.

ENRE Resolution No. 603/17 dated November 30, 2017 established a new tariff scheme applicable to the December 2017-January 2018 two-month period, also contemplating, besides the 18% VAD increase and the 11.6% CPD update, a retroactive adjustment in real terms as of November 2017 and August 2017, respectively. Additionally, increases in power capacity reference prices, the energy stabilized prices and the transfer of stabilized transmission prices to the end user pursuant to SEE Resolution No. 1091/17 were also taken into consideration. Furthermore, the reference price for power capacity, the energy stabilized price and the transmission stabilized price were set for the December 2017 – January 2018, and February 2018 – April 2018 periods. For both periods, the power capacity reference price was set at approximately AR$3,157/MW-month, and the transmission stabilized price at AR$44/MWh for the extra high voltage system; besides, a price was defined for main distribution based on the distribution company, which, in the case of Edenor, amounted to AR$1.1/MWh.

Energy reference prices were applied making a distinction between customers with supplies higher than a 300 kW power capacity at AR$1,395/MWh for both periods, at AR$880/MWh for other users during the December 2017 – January 2018 period, and at AR$1,081/MWh for other users during the February 2018 – April 2018 period.

Furthermore, this resolution approved a new scheme applicable to users covered by the social tariff. This consisted of a bonus in the stabilized price of electric power within the WEM which was diclosed as a direct subsidy by the Federal Government in the bills of covered customers. For residential customers whose demand did not reach 10 kW, the discount scheme based on savings compared to the consumption recorded in the same month of the year 2015 remained in effect; if savings were equal to or exceeding 20%, a 10% discount would apply. Furthermore, the social tariff scheme for base consumptions pursuant to SEE Resolution No. 20/17 was kept in place, but with a 50% discount over the surplus until reaching 150 kWh/month over the base consumption.

ENRE Resolution No. 33/18 issued on January 31, 2018 published a new tariff scheme, effective as from February 1, 2018, which contemplated new power capacity and energy reference prices; applied the last 17.8% VAD increase and the 22.5% CPD update corresponding to the August 2017 – January 2018 six-month period, and considered a total amount of AR$6,343 million recoverable in 48 installments, which included the corresponding CPD updates as from February 2017, subject to an annual review in February 2019, 2020 and 2021.

It is worth highlighting that the 22.5% CPD update contemplated a -2.51% E-factor adjustment stimulating efficiency resulting from the RTI as an element geared at passing on to the distributor’s users expected efficiency gains as from i) factor X, which captures gains resulting from management optimization and the existence of economies of scale, which reduces the CPD; and ii) investments factor Q, 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.

On May 14, 2018, SEE Provision No. 44/2018 was issued, which ratifies, for the May – October 2018 period, the same reference prices than for the December 2017 – April 2018 period approved pursuant to SEE Resolution No. 1091/2017: the power capacity reference price was set at approximately AR$3,157/MW-month, the stabilized price for transmission in the extra high voltage system at AR$44/MWh, and a price for main distribution based on the distribution company, which, in the case of Edenor, amounted to AR$1.1/MWh. Besides, energy reference prices amounted to AR$1,395/MWh for Large Distribution Company Users (‘GUDI’) and to AR$1,081/MWh for the remaining users.

On July 31, 2018, Edenor agreed with the Former Ministry of Energy (‘MinEn’) to defer the application of 50% of the CPD update for the February – July 2018 period without this implying a negative economic impact for Edenor or affecting the service quality parameters resulting from the RTI implemented on February 1, 2017. Furthermore, the MinEn agreed to implement the actions necessary to regularize the Memorandum of Understanding entered into in 2007 and the Framework Agreement. Consequently, on August 1, 2018, ENRE Resolution No. 208/2018 was published in the Public Gazette (‘BO’ or Boletín Oficial); this resolution provided for a 15.85% update in the CPD, 7.925% of which is applicable as from August 1, 2018, and the balance in six monthly consecutive installments effective as from February 1, 2019, adjustable based on the CPD update applicable on that date.

On the other hand, on July 31 and October 24, 2018, the SEE issued Provisions No. 75/2018 and 97/2018, which established, for the August 2018 – January 2019 period, the power capacity reference price at AR$10,000/MW-month, the stabilized price for transmission in the extra high voltage system at AR$64/MWh, and a price for main distribution based on the distribution company which, in the case of Edenor, amounted to AR$0/MWh. Furthermore, energy reference prices were set at AR$2,283/MWh for GUDI and at AR$1,470/MWh for the remaining users. As regards the social tariff, SEE Resolution No. 1091/2017’s criteria regarding subsidies to users and discounts for savings remained in effect.

Furthermore, on December 27, 2018, Resolution No. 366/2018 of the Government Secretariat of Energy (‘SGE’) was issued, which abrogated SEE Resolution No. 1091/2017 and, consequently, the Federal Government’s social tariff and the savings discount scheme, fixing a power capacity reference price of AR$80,000/MW-month effective as from February 2019, with 25% and 20% increases in the months of May and August, respectively, effective until October 2019. The stabilized price for transmission in the extra high voltage system and the distributor-based main distribution price remained unchanged. Energy reference prices were set at AR$2,762/MWh for GUDI for the February – October 2019 period, and at AR$1,852/MWh for the remaining users as from February 2019, with 5% increases in the months of May and August, effective until October 2019.

Finally, on February 1, 2019, ENRE Resolution No. 25/2019 was published in the BO, which approved the tariff scheme effective as from its publication date and reflected the new seasonal prices described in SGE Resolution No. 366/2018. ENRE Resolution No. 27/2019 was published on the same date but effective as from March 1, 2019, which provided for a 24% retroactive adjustment as of February 2019 of the CPD for the August 2018 – January 2019 semester (including the -1.59% E-Factor adjustment stimulating efficiency) and the 7.925% CPD update which had been deferred in August 2018, with retroactive effects as of that date.