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Abstract: This case examines the dilemma confronting the Brazilian electricity regulator in the period following power rationing. Brazil privatized about 65 percent of the distribution companies (DISCOs) in the 1990s, but the companies were hit hard financially, first by a dramatic fall in the currency exchange, and then by a supply crisis that forced the government to require consumers to reduce their consumption by 20 percent. The case explores the deliberations by the Brazilian regulatory agency, ANEEL, on whether to grant significant tariff increases to DISCOs during a period of economic turmoil. It also addresses several key regulatory issues: How to calculate the value of a regulated firms asset base; Should a regulated firm be compensated for changes in exchange rates? Similar problems are confronted by regulators in other sectors and other countries so that the lessons in this case are transferable.
Learning Objective: The case allows both for discussion of the best framework for the toll collection system and discussion of the pros and cons of inter-jurisdictional cooperation as they might have appeared from the point of view of public officials.