...Challenges Abound The Brazilian electricity sector will continue to face important challenges during second- half 2015. Although electricity rationing is no longer a concern in 2015, the lower generation level from hydroelectric plants will severely affect their operating cash flow. The implementation of minimal service quality metrics and financial requirements for distribution companies (DisCos) will challenge companies with poor performance track records -- mainly state-owned companies, including Eletrobras, Cemig and Copel. However, DisCos should mildly benefit from beginning the fourth tariff review cycle due to an increase in the WACC that remunerates their asset base. What to Watch Rationing Risk Postponed Above average rainfall during March has allowed partial recovery of hydroelectric plant reservoir levels. Fitch Ratings anticipates a 5% decline in electricity demand due to sluggish economic growth and higher electricity tariffs. These factors plus increased thermal plant dispatch...
