The EDP – Energias do Brasil risks management policy comprises all its business units and is aligned to the EDP Group strategy in its global operations. The Risk Committee, represented by the Business, Environment and Sustainability directorates, is in charge of ensuring the process governance and act as a link between the senior management and the routine operation. Its function is to manage and supervise all the risk factors which can cause impact in the activities and results of the Company, in addition to propose methodologies and improvements to the management system. The Risk Committee meets on a monthly basis and controls decisions taken through minutes of such meetings. For 2009, the goal is to structure the area with the creation of an Investment and Risk management Committee, which will be responsible for the integrated management of the risks.
In 2008, the Company created the Safety and Crisis Management Committee, which purpose is to manage, in an integrated way, the subjects related to the global safety of the Company. Its responsibilities include disseminating the strategic safety view, evaluate the scope of the safety requirements, ensure the awareness of people and review incidents, among others. In 2008, the Committee elaborated a crisis management plan, which implementation will take place in 2009. Through an Intranet Risks Portal, the Campaign maps and identifies the main threats to its performance. The analysis and the monitoring are based in methodologies and technologies developed specifically for each type of risk. The treatment takes place through mitigation or elimination, through defense mechanisms or contingency, always specified in the Portal. The Company’s routine activity risks, in their turn are monitored by the respective managers, through processes and procedures. Every material and report relevant for the risks follow up is also recorded in the Portal and updated according to the information periodicity.
THE MAIN RISKS UNDERTOOK AND MONITORED ARE:
Represented by the rationing risk, balance and energy planning. For its monitoring, the Company has as tools the Energetic Risk Subcommittee and, as practices, the evaluation of the supply and demand scenario in the different actuation regions, of the macro and microeconomic variables, and the specificities of each market, in a five-year horizon; in addition to the anticipation of potential impacts over the distribution, generation and commercialization areas, so as to prepare them to ensure the energy supply, minimize impacts on the income and avoid the clients lack of supply. In 2007 and 2008, the Strategic Planning Directorate made efforts to develop methodologies and mathematical-computer models to measure the energetic risk connected to the distribution and generation areas. Currently, there are policies which limit the values in energetic risk which can be considered aiming the optimization of the Group’s resources use. There is a monthly energetic risk control systematic of the distributors and the generators energetic risk model is under development.
Characterized by the regulated clients delinquency risk, the PLD (Differences Liquidation Price) risk, non-technical losses and variation in the energy prices. The market risk is mitigated by the distributors actuation in the states of São Paulo and Espírito Santo, with economic activities and specific characteristics. Its follow up takes place through monthly reports.
Incorrect forecasts of energy necessity in concession areas of distributors may adversely affect our operational results.
According to Law No. 10,848, dated March 15, 2004, as amended, there is a risk that electricity distributors may not fully pass on to customers the costs and expenses of energy purchases in case of mistake in the demand forecast. According to the “Lei do Novo Modelo do Setor Elétrico” (New Electric Sector Model Law), an energy distributor must contract in advance, through public bids, 100% of the requirements set forth in its contract to meet its market demand in the respective concession areas within five years. If the demand forecast is not accurate, causing the company to buys more or less energy than needed and the adjustments allowed by the legislation are not sufficient to compensate these forecast errors, the distributor may be censored from fully passing on to consumers the costs of purchases made in the short term market, also called spot market. The distributor may also be penalized for not having contractual coverage of 100% of its consumption. Notwithstanding our market research, we cannot guarantee that the electricity demand forecast will be correct.
The distribution and generation activities are regulated and inspected by Aneel, an autarchy of the Mines and Energy Ministry. The main regulatory risks come from the unpredictability of the fees reviews and investments determined by the regulating body. EDP Energias do Brasil maintains a Regulatory Issues area, which centralizes the relationship with Aneel and follows up the contractual aspects of the granting which might interfere with the business progress.
Comprises the risk of non-compliance with the environmental licensing requirements and exposure to natural disasters. All the undertakings and the generation and distribution activities are executed within parameters which ensure the minimization of environmental impacts. They follow, this way, the Group’s Sustainability Policy, which provided for the environment preservation commitment.
Involves the credit risk of financial counterparties. Through a formalized corporate policy, the company establishes the minimum ratings to be observed for the financial institutions in which the cash resources are applied and with which the derivatives operations are performed. In addition, the policy establishes concentration limits for investments in financial institutions, both due to the total amount of investments of the Group and net equity of the financial institutions, respecting the minimum rating levels.
The Financial Risks Management Policy establishes the conditions and the financial assets and liabilities market risk exposure limits. Associated to the financial Management of the Group (counterparties credit, financial assets and liabilities market and liquidity), the monitoring practices are controlled by specific policies and procedures defined by the company. Its policy foresees the minimization of the exposure to financial liabilities in foreign currency and the hiring of instruments for the protection against exchange variation.
The supply interruption risks, due to the lack of equipment, destruction of Operations center or Data Centers is managed through the IT Contingency Plan, with redundancy of the sites and servers, and Critical Materials Storage Plan. On the distributors, the System Operation Centers (COS) can be remotely operated from any unit, so as to minimize its operational risk.
The Company’s generating park is formed basic by hydroelectric power plants, which operation depends on the hydrological conditions. In addition, the sales income is associated to the ensured energy, which volume is determined by the regulating body and which is described in the granting agreement. The mitigation of this risk takes place through the Energy Relocation Mechanism (MRE) applied to all the plants dispatched in the national electrical system.
Generation Scaling Factor (GSF)
In periods of surplus hydraulic generation, the Energy Reallocation Mechanism (MRE) distributes gains to the plants in this system (secondary energy gain), and the opposite occurs in periods of hydrological shortage, in which the generation deficit is discounted from the physical guarantee, causing loss of revenue.