CPFL Energia goes shopping for power assets

Brazil's largest private power group CPFL Energia (NYSE: CPL) is considering acquiring new generation, transmission and distribution assets, company CEO Wilson Ferreira said in a conference call to discuss Q1 results on Wednesday. The acquisitions would form part of an expansion plan that could include bidding for São Paulo state distribution company CTEEP. The company has earmarked 651mn reais (US$264mn), or 25% of its 2005-2008 capex budget, for expansion. This year alone CPFL Energia plans to invest 723mn reais, including 179mn reais in expanding its network and the rest in maintenance. Investment in transmission is the most recent expansion of the power group, which already has operations in generation, distribution and power trading. "We have to invest in transmission," said Ferreira. "We are studying the new lines that the government plans to tender [in June] this year, but buying an established asset will give us an advantage." São Paulo state government is mulling the sale of its transmission company CTEEP to raise money needed to capitalize its troubled generation company CESP. The sale still needs to be approved by São Paulo state legislators. In June, Brazil's federal government plans to tender 2,300-3,300km of transmission lines. CPFL plans to bid for lines in south and southeastern Brazil where all of its distribution and most of its generation operations are. The government's transmission tender this year will likely include a 50km 345kV line in southeastern São Paulo state, a 273km 525kV line crossing the southern states of Santa Catarina and Rio Grande do Sul and a 295km, 230kV line in Santa Catarina state, according to Aneel. GENERATION CPFL is also studying bidding for three hydroelectric generation projects to be tendered in the future generation capacity auction scheduled for the second half of this year, Ferreira said. CPFL has already said it plans to increase its participation in the generation market to 20% from 6% at present. This means an average expansion of 250MW a year from its 800MW existing capacity. The company is already participating in several hydroelectric generation projects that would bring its installed capacity to around 2,500MW in 2010. These include the 690MW Barra Grande project that should start commercial operations in October and the 429WM Campos Novos project scheduled to start up in January 2006. "We have to guarantee the expansion of our generation capacity at the same rate after 2010," Ferreira said. Although Ferreira declined to mention which projects in the upcoming generation tender CPFL is interested in, he said that the company could form a joint venture with federal and/or state power companies to bid. "The new regulations lead to this kind of partnership," he said. DISTRIBUTION Acquisitions in distribution are less certain since there are no important assets up for sale, Ferreira said. The company has, however, shown interest in acquiring small distribution companies that Brazilian power group Grupo Rede has announced it could sell. It also plans to buy a 32% stake in its distributor RGE from minority shareholder US power and gas company Public Service Enterprise Group (PSEG), bringing its stake to 100%, Ferreira said. Distribution assets need to offer a good return, he said, pointing out that CPFL already controls 12.5% of Brazil's distribution markets through its distribution units RGE, CPFL Paulista and CPFL Piratininga. "We will only buy more distribution assets if it is to make money, but not for market share," he said.