Electric Power: ‘MEM’ Supply Commitment Agreements

On July 24, 2008, the Secretariat of energy enacted Resolution No 724/2008 which enabled the celebration of MEM Supply Commitment Agreements associated to the repair and/or revamping of equipment and/or power generation generating groups, with Generating Agents of the Mercado Eléctrico Mayorista (“MEM”).

This measure was argued by the Secretariat of Energy on the grounds of the need to promote the necessary investments to ensure long term power supply in the following circumstances:

(i)            As a consequence of the current methodology of the MEM, the generators with debts in the “Spot” market have not enough security to dispose of the financial resources necessary to face the costs arisen from a major repair, the replacement or modification of a generation equipment and/or associated facilities for its revamping, since they may not be fully covered by the Production Variable Costs recognized in the MEM.

(ii)           Lately, there have been long term failures in different generation equipments or associated facilities that have increased the risk of demand supply.

Thus, the Secretariat of Energy decided to modify the regulation claiming the need to provide the necessary provision to the generator as regards the collection of its payment, when it is applied to high cost repairs or power generation equipment revamping.

To this end, in the cases that the amount of the expenditures exceeded by 50% the income expected by the generator in the Spot market, there is an additional financial alternative with the possibility of celebration of MEM Supply Commitment Agreements.

The MEM Supply Commitment Agreements shall have the following characteristics:

a)           Validity: up to a maximum of 36 months running with the option of one renewal for 6 more months.

b)           Parties: the Seller will be the MEM Agent and the Purchaser will be the Wholesale Energy Market Administrator Company (“CAMMESA”).

c)            Investment Project: the repair or revamping proposals shall be submitted and approved by the Secretariat of Energy and shall include, among others requirements: the units to be repaired or revamped; the term of the Agreement, the power availability compromised and the costs of the works to be performed.   

d)           The Seller’s compensation, as well as the Payment Conditions will be established in accordance to The Proceedings (Resolution No 61/92 from the Former Secretariat of Power Energy and its amendments), with the priorities of payment established in section e) of Resolution SE No 406/03.

e)           The Delivery Point of the power contracted will be the node of the Argentine Interconnection System (SADI) or the node of the Additional Provider of the Transportation Technical Function.

The Generators’ proposals for the celebration of MEM Supply Commitment Agreements shall be filed within the Secretary of Energy, which shall evaluate them and thereafter instruct CAMMESA on those authorized as to be contracted. The Secretariat of Energy shall also indicate the convenience of granting loans to generator agents to finance the repairing costs.