| REGULATORY FRAMEWORK | 2.1 Generation 2.1.1 Generation units The Company’s revenues from the electric
power generation activity come from: i) sales to the Spot market pursuant to the provisions applicable within the WEM administered
by CAMMESA (SEE Resolution No. 19/17, replaced by SRRYME Resolution No. 1/19 as from March 2019); ii) sales contracts with large
users within the MAT (Resolutions No. 1,281/06 and No. 281/17); and iii) supply agreements with CAMMESA (Resolutions No. 220/07,
No. 21/16, No. 287/17 and Renovar Programs). Furthermore, energy not committed under sales contracts with large users within the
MAT and with CAMMESA are remunerated at the Spot market. The Company’s generating units are detailed
below:
In operation:
Generator Generating unit Tecnology Power Applicable regime (2)
CTG GUEMTG01 TG 100 MW Energy Plus Res. No. 1281/06 (1)
CTG GUEMTV11 TV ≤100 MW SE Resolutions No. 1/19
CTG GUEMTV12 TV ≤100 MW SE Resolutions No. 1/19
CTG GUEMTV13 TV >100 MW SE Resolutions No. 1/19
Piquirenda PIQIDI 01-10 MG 30 MW SE Resolution No. 220/07 (1)
CPB BBLATV29 TV >100 MW SE Resolutions No. 1/19
CPB BBLATV30 TV >100 MW SE Resolutions No. 1/19
CT Ing. White BBLMD01-06 MG 100 MW SEE Resolution No. 21/16 (1)
CTLL LDLATG01 TG >50 MW SE Resolutions No. 1/19
CTLL LDLATG02 TG >50 MW SE Resolutions No. 1/19
CTLL LDLATG03 TG >50 MW SE Resolutions No. 1/19
CTLL LDLATG04 TG 105 MW SEE Res. 220/07 (75%), SEE Res. 1/19 (25%)
CTLL LDLATG05 TG 105 MW SEE Resolution No. 21/16 (1)
CTLL LDLATV01 TV 180 MW SE Resolution No. 220/07 (1)
CTGEBA GEBATG01/TG02/TV01 CC >150 MW SE Resolutions No. 1/19
CTGEBA GEBATG03 TG 188 MW Energy Plus Res. No. 1281/06 (1)
CTGEBA GEBATG04 TG >100 MW SE Resolutions No. 1/19 (3)
Ecoenergía CERITV01 TV Renewable = 50 Energy Plus Res. N° 1281/06 (1)
CT Parque Pilar PILBD01-06 MG 100 MW SE Resolutions No. 1/19 (3)
CTB EBARTG01 - TG02 TG HI – Small 50<P≤120 SE Resolution No. 220/07 (1)
HIDISA AGUA DEL TORO HI HI – Small 50<P≤120 SE Resolutions No. 1/19
HIDISA EL TIGRE HI HI – Small 50<P≤120 SE Resolutions No. 1/19
HIDISA LOS REYUNOS HB HB – Media 120<P≤300 SE Resolutions No. 1/19
HINISA NIHUIL I - II - III HI HI – Chica 50<P≤120 SE Resolutions No. 1/19
HPPL PPLEHI HI HI – Media 120<P≤300 SE Resolutions No. 1/19
P.E. M. Cebreiro CORTEO Eólica 100 MW Renovar (1)
PEPE II PAMEEO Eólica 53 MW SEE Resolution No. 281/17
PEPE III BAHIEO Eólica 53 MW SEE Resolution No. 281/17
(1)
(2)
(3)
In construction:
Generator Generating unit Tecnology Applicable regime
CTLL MG 15 MW SE Resolutions No. 1/19
CTGEBA CC 176 MW SE Resolution No. 287/17
CTB CC 280 MW SE Resolution No. 220/07 2.1.2 Remuneration at the Spot market On February 2, 2017, the SEE issued Resolution
No. 19/17, which superseded the remuneration scheme set forth by Resolution No. 22/16 and established guidelines for the remuneration
to generation plants as from the commercial transaction corresponding to February 1, 2017. Later, on March 1, 2019, SRRYME Resolution No.
1/19 was published in the BO, which abrogated, effective as from March 1, 2019, the remuneration scheme established by SEE Resolution
No. 19/17. Both resolutions provide for remunerative items
based on technology and scale, establishing U$S-denominated prices payable in pesos by applying BCRA’s exchange rate effective
on the last business day of the month of the applicable economic transaction, adjusted through credit or debit notes, as appropriate,
to consider the BCRA’s exchange rate of the day before the expiration date, in accordance with CAMMESA’s procedures. 2.1.2.1 Remuneration for Available Power Capacity 2.1.2.1.1 Thermal Power Generators The SEE Resolution No. 19/17 provides
for a minimum remuneration for power capacity based on technology and scale and allows generating, co-generating and self-generating
agents owning conventional thermal power stations to offer Guaranteed Availability Commitments for the energy and power capacity
generated by their units not committed under sales contracts with large users within the MAT and supply agreements with CAMMESA. Availability Commitments for each unit should
be declared for a term of three years, together with information for the Summer Seasonal Programming, with the possibility to offer
different availability values for the summer and winter six-month periods. The committed thermal generators’ remuneration
for power capacity will be proportional to their compliance. The Minimum Remuneration applies to generators
with no availability commitments, with prices ranging from U$S3,050 to U$S5,700/MW-month, depending on the technology and scale. The Base Remuneration applies to generators
with availability commitments, with a price of U$S 6,000/MW-month during the May-October 2017 period, and U$S 7,000/MW-month
as from November 2017. The Additional Remuneration is a remuneration
for the additional available power capacity aiming to encourage availability commitments for the periods with a higher system demand.
CAMMESA will define a monthly thermal generation goal for the set of qualified generators on a bi-monthly basis, and will call
for additional power capacity availability offers with prices not exceeding the additional price. The additional price amounts
to U$S 1,000/MW-month between May and October, 2017, and to U$S2,000/MW-month as from November 2017. The SRRYME Resolution No. 1/19 maintains in
effect a remuneration made up of a minimum or base power capacity payment for generators with no availability commitments, and
another for offered guaranteed power capacity, although with lower values than under the previous resolution:
- The minimum remuneration for power capacity was reduced from U$S 5,700/MW-month to U$S 5,200/MW-month for small steam turbine units (≤ 100MW) and internal combustion engines.
- The price of the remuneration for guaranteed power capacity decreased from U$S 7,000/MW-month to U$S 5,500 U$S/MW-month, only for the autumn and spring periods. Furthermore, the current remuneration scheme,
applies a coefficient derived from the unit’s average utilization factor during the last twelve months to the power capacity
remuneration: a minimum 70% utilization factor is required to collect 100% of the power capacity payment; if the utilization factor
ranges between 30% and 70%, the power capacity payment will range between 70% and 100%; and if the usage factor is lower than 30%,
70% of the power capacity payment will be collected. Additionally, Availability Commitments should be declared for each unit on
a quarterly basis. Finally, the current remuneration scheme, abrogates
the additional remuneration scheme to encourage the guaranteed power capacity offered in the periods with a higher system demand. 2.1.2.1.2 Hydroelectric Generators In the case of hydroelectric power plants, a
base remuneration and an additional remuneration for power capacity were established by the SEE Resolution No. 19/17. Power capacity availability is determined independently
of the reservoir level, the contributions made, or the expenses incurred. Furthermore, in the case of pumping hydroelectric power
plants, the following is considered to calculate availability: i) the operation as turbine at all hours within the period, and
ii) the availability as pump at off-peak hours every day and on non-business days. The base remuneration is determined by the actual
power capacity plus that under programmed and/or agreed maintenance, with prices ranging from U$S2,000 to U$S8,000/MW-month, depending
on the scale and type of power plant. In case of hydroelectric power plants maintaining
control structures on river courses and not having an associated power plant, a 1.20 factor will be applied to the plant at the
headwaters. The additional remuneration applies to power
plants of any scale for their actual availability and based on the applicable period, with prices ranging from U$S0 to U$S500/MW-month
between May and October 2017, and U$S500 or U$S1,000/MW-month as from November 2017 for pumping or conventional hydroelectric power
plants, respectively. As from November 2017, the allocation and collection
of 50% of the additional remuneration will be conditional upon the generator taking out insurance, to CAMMESA’s satisfaction,
to cover for major incidents on critical equipment, and the progressive updating of the plant’s control systems pursuant
to an investment plan to be submitted based on criteria to be defined by the SEE. SRRYME Resolution No. 1/19 maintains power capacity
prices set forth by SEE Resolution No. 19/17; nevertheless, the hours in which a hydroelectric generator is not available due to
programmed and agreed maintenance will no longer be computed for the calculation of the power capacity remuneration. However, in
order to mitigate such incidence, in May 2019, by means of SME Note No. 46631495/19, a 1.05 factor was applied to power capacity
prices. 2.1.2.1.3 Wind power The remuneration under the SEE Resolution No.
19/17 is made up of a base price of U$S7.5/MWh and an additional price of U$S17.5/MWh, which are associated with the availability
of the installed equipment with an operating permanence longer than 12 months as from the beginning of the summer seasonal programming. Later on, SRRYME Resolution No. 1/19 establishes
a single remuneration value for generated energy (see next item). 2.1.2.2 Remuneration for Generated and Operated Energy The SEE Resolution No. 19/17 establishes a remuneration
for Generated Energy with prices ranging between U$S5 and U$S10/MWh, depending on the technology, scale and type of fuel. Pursuant
to SRRYME Resolution No. 1/19, these values are reduced to U$S 4/MWh and U$S 7/MWh, respectively. Under the SEE Resolution No. 19/17, the
remuneration for Operated Energy applies to the integration of hourly power capacities for the period, and is valued at U$S2.0/MWh
for any type of fuel. Under the scheme set forth by SRRYME Resolution No. 1/19, the above-mentioned price is reduced to U$S 1.4/MWh. In the case of hydroelectric plants,
prices for Generated and Operated Energy under the SEE Resolution No. 19/17, are remunerated As regards energy generated from unconventional
sources, SRRYME Resolution No. 1/19 establishes a single remuneration value of U$S 28/MWh, irrespective of the source used.
Energy generated prior to the commissioning by the OED will be remunerated at 50% of the above-mentioned remuneration. 2.1.2.3 Additional Remuneration for Efficiency and for Low-Use
Thermal Generators The “Efficiency” incentive established
in the SEE Resolution No. 19/17 consists of the acknowledgment of an additional remuneration equivalent to the remuneration for
the generated energy by the percentage difference between the actual consumption and the reference consumption determined for each
unit and fuel type. This comparison will be made on a quarterly basis. In the case of higher consumptions, the general remuneration
will not be affected. The mentioned Resolution also provides for an
additional remuneration for low-use thermal generators having frequent startups based on the monthly generated energy for a price
of U$S2.6/MWh multiplied by the usage/startup factor. Under the scheme set forth by SRRYME Resolution
No. 1/19, the efficiency and low-use/frequent startups incentives are canceled. 2.1.2.4 Repayment of Overhauls Financing The SEE Resolution No. 19/17 provides that,
as regards the repayment of outstanding loans applicable to thermal and hydroelectric generators, credits already accrued and/or
committed to the cancellation of such maintenance works will be applied first. The balance will be repaid by discounting U$S1/MWh
for the energy generated until the total cancellation of the financing. Later on, as regards the repayment of funds
supplied to generators under the loan agreements for the execution of overhauls in their units, SRRYME Resolution No. 1/19 provides
for: (i) the application of all receivables accrued in favor of generators for their settlement, and (ii) a discount scheme in
the generator’s revenues equivalent to U$S 1/MWh for each generated MW or U$S 700/MW-month for the unit’s
actual availability, whichever is higher. The overhauls financing owed by the Company
were canceled under the Agreement for the Regularization and Settlement of Receivables with the WEM (see Note 2.1.7). 2.1.2.5 Suspension of contracts within
the MAT The suspension of contracts within the MAT (excluding
those resulting from a differential remuneration scheme) provided for by SE Resolution No. 95/13 was not modified by SRRYME Resolution
No. 1/19, this suspension thus remained in effect during 2019. 2.1.3 Sales contracts with large users within
the MAT 2.1.3.1 Energy Plus With the purpose of encouraging new generation
works, in 2006 the SE approved Resolution No. 1,281/06 establishing a specific regime which would remunerate newly installed generation
sold to a certain category of Large Users at higher prices. To such effect, it established certain
restrictions on the sale of electricity and implemented the Energy Plus service, which consists of the offer of additional generation
availability by the generating agents. These measures imply that:
- Generating, co-generating and self-generating agents which, as of the date of issuance of SE Resolution No. 1,281/06, are neither WEM agents nor have facilities or an interconnection with the WEM, will qualify;
- These plants should have fuel supply and transportation facilities;
- The energy used by GU300 in excess of the Base Demand (energy consumption for 2005 year) qualifies for Energy Plus agreements within the MAT at a price negotiated between the parties; and
- For new GU300 entering the system, their Base Demand will equal zero. Under this regime, the Company —through
its power plants Güemes, EcoEnergía and Genelba— sells its energy and power capacity for a maximum amount of 280
MW. The values of Energía Plus contracts are mostly denominated in U.S. dollars. It is worth pointing out that Güemes
has transferred, since May 2019, its contracts to Genelba, selling electricity in the spot market. If a generator cannot meet the power
demand by an Energy Plus customer, it should purchase that power in the market at the operated marginal cost, or, alternatively,
support the committed demand in case of unavailability through agreements with other Energía Plus generators. Currently, the Company has Power Availability
agreements in force with other generators whereby, in case of unavailability, it may purchase or sell power to support the contracts. Furthermore, SE Note No. 567/07, as amended,
provided that GU300 not purchasing their Surplus Demand within the MAT should pay the CMIDE, and that the difference between the
actual cost and the CMIDE would be accumulated in an individual account on a monthly basis for each GU300 within CAMMESA's scope. Pursuant to SE Note No. 111/16, until
May 2018, the CMIDE was $ 650/MWh for GUMA and GUME and $ 0/MWh for GUDI. As from June 2018, pursuant to SE Note No. 28663845/18,
the CMIDE became the greater of $ 1,200/MWh or the temporary dispatch surcharge. Additionally, it was provided that, until further
instructed, movements in the individual account of each GU300 would temporarily not be recorded. Due to the decrease in surplus demand
as a consequence of the decrease in economic activity, there are GU300 that decide not to make Energy Plus contracts (with higher
prices), and generators have to sell their energy at the spot market, thus reducing their profitability. Additionally, the Energy
Plus contracts were affected by the growth of Renewable MAT contracts, by the GU300 surplus energy. 2.1.3.2 Renewable Energy Term Market (“Renewable
MAT” Regime) Pursuant to Resolution No. 281/17, the
MEyM regulated the Renewable MAT regime with the purpose of setting the conditions for large users within the WEM and WEM distributing
agents’ large users covered by Section 9 of Law No. 27,191 to meet their demand supply obligation from renewable sources
through the individual purchase within the MAT of electric power from renewable sources or self-generation from renewable sources. Furthermore, this resolution regulates
the conditions applicable to projects for the generation, self-generation and co-generation of electric power from renewable sources.
Specifically, the RENPER was created for the registration of such projects. Projects destined to the supply of electric
power from renewable sources under the Renewable MAT regime may not be covered by other remuneration mechanisms, such as the agreements
under the Renovar rounds. Surplus energy will be sold in the spot market. Finally, contracts executed under the
Renewable MAT regime will be administered and managed in accordance with the WEM procedures. The contractual terms —life,
allocation priorities, prices and other conditions, notwithstanding the maximum price set forth in Section 9 of Law No. 27,191—
may be freely agreed between the parties, although the committed electricity volumes will be limited by the electric power from
renewable sources produced by the generator or supplied by other generators or suppliers with which it has purchase agreements
in place. For further information on the projects PEPE
II and PEPE III conducted under this resolution, see Note 16.1.1. 2.1.4 Supply Agreements with CAMMESA 2.1.4.1 SE Resolution No. 220/07 (“Agreement
Res.220”) Aiming to encourage new investments to increase
the generation offer, the SE passed Resolution No. 220/07, which empowers CAMMESA to enter into Agreement with WEM Generating Agents
for the energy produced with new equipment. These will be long-term agreements and the price payable by CAMMESA should compensate
the investments made by the agent at a rate of return to be accepted by the SE. Under this regulation, the Company, through
its thermal power plants Loma de La Lata, Piquirenda and Barragán, has executed Agreement Res.220 to sell energy and power
capacity for a total amount of 856 MW. For further information on the project to the
closing of the combined cycle at CTB conducted under this resolution, see Note 16.1.4. 2.1.4.2 SEE Resolution No. 21/16 As a result of the state of emergency in the
national electricity sector, the SEE issued Resolution No. 21/16 calling for parties interested in offering new thermal power generation
capacity with the commitment to making it available through the WEM for the 2016/2017 summer; 2017 winter, and 2017/2018 summer
periods. Successful bidders will enter into a
wholesale power purchase agreement with CAMMESA for a term of 10 years. The remuneration will be made up of the available power
capacity price plus the variable non-fuel cost for the delivered energy and the fuel cost (if offered), less penalties and fuel
surpluses. Surplus power capacity is sold in the spot market. Pursuant to this resolution, the Company, through
its Loma de la Lata, Ingeniero White and Pilar thermal power plants, has effective agreements with CAMMESA for the sale of energy
and power capacity for a total 305 MW. 2.1.4.3 SEE Resolution No. 287/17 On May 10, 2017 the SEE issued Resolution
No. 287/17 launching a call for tenders for co-generation projects and the closing to CC over existing equipment. The projects
should have low specific consumption (lower than 1,680 kcal/kWh with natural gas and 1,820 kcal/kWh with alternative liquid fuels),
and the new capacity should not exceed the existing electric power transmission capacity; otherwise, the cost of the necessary
extensions will be borne by the bidder. Awarded projects will be remunerated
under a wholesale power purchase agreement which will be effective for a term of 15 years. The remuneration will be made up of
the available power capacity price plus the variable non-fuel cost for the delivered energy and the fuel cost (if offered), less
penalties and fuel surpluses. Surplus power capacity is sold in the spot market. SRRYME Resolution No. 25/19 authorized
awardees of projects under SEE Resolution No. 287/17 to submit a new scheduled commissioning date, which will operate as the new
committed commissioning date under the wholesale power purchase agreements, with a limit of 180 days as from the originally committed
commissioning date. However, the Company has ratified the originally committed date. For further information on the project
to the closing of the combined cycle at Genelba conducted under this resolution, see Note 16.1.3. 2.1.4.4 Renovar Programs In order to meet the objectives, set by Law
No. 26,190 and Law No. 27,191 promoting the use of renewable sources of energy, the MEyM called for open rounds for the hiring
of electric power from renewable sources (RenovAr Programs, Rounds 1, 1.5 and 2) within the WEM. These calls aimed to assign power
capacity contracts from different technologies (wind energy, solar energy, biomass, biogas and small hydraulic developments with
a power capacity of up to 50 MW). Successful bidders will enter into renewable
electric power supply agreements for the sale of a committed annual electric power block for a term of 20 years. Additionally, several measures have been established
to promote the construction of projects for the generation of energy from renewable sources, including tax benefits (advance VAT
reimbursement, accelerated depreciation of the income tax, import duty exemptions, etc.) and the creation of a fund for the development
of renewable energies destined, among other objectives, to the granting of loans and capital contributions for the financing of
such projects. Under this regulation, the Company, through
Greenwind, has a supply agreement in place with CAMMESA for a total 100 MW. 2.1.5 Electricity transmission cost payable
by Generators On November 28, 2017, SEE Resolution No. 1,085/17
approved a new cost distribution methodology that represents the transmission service’s remuneration within the WEM. In this regard, the SEE amended the original
regulation of the WEM transmission system, which provided that transmission service costs would be allocated to the Demand and
electric power Generation, and resolved that generators should stop paying costs associated with transmission, and start paying
a charge representing operating and maintenance costs for connection and transformation equipment linking with the high-voltage
transmission system as from December 1, 2017. This amendment implied a cost reduction for the Company. 2.1.6 Fuel Self-Supply for Thermal Power
Plants SGE Resolution No. 70/18, published in
the BO on November 6, 2018, empowered generating, co-generating and self-generating agents within the WEM to acquire fuels, without
distinction, required for own generation. This resolution superseded Section 8 of Resolution No. 95/13 of the former SE, which
provided that the supply of fuels for electric power generation would be centralized in CAMMESA (with the exception of the generation
covered under the Energy Plus regime). Likewise, CAMMESA remained in charge of the commercial management and the dispatch of fuel
for generators which do not or cannot make use of such capacity. Under the scheme set forth by SGE Resolution
No. 70/18, the cost of generation with own fuels was valued according to the mechanism for the recognition of the Variable Production
Costs recognized by CAMMESA. For implementation, maximum prices at the PIST for natural gas destined to the generation of electricity
to be sold in the WEM, set by MINEM Resolution No. 46/18 and SGE Notes No. 66680075/18 and 07973690/19. In case the generator has opted to supply its
own fuel for generation and such fuel is not available at the time of dispatch, the calculation of the power capacity availability
will be reduced to 50% of the actual availability. Similarly, it will lose its dispatch order, and in case the OED assigns it fuel
for generation, the generated energy will be remunerated at just 50% of the approved non-fuel variable costs. In the seasonal programming conducted on November
12, 2018, the Company has opted to make use of this self-supply capacity and has destined a significant part of its natural gas
production as an input to its thermal units’ dispatch. The scheme set forth by SGE Resolution No. 70/18
was in effect during 2019; however, on December 27, 2019, the Ministry of Productive Development passed Resolution No. 12/19, which
abrogated, effective as from December 30, 2019, SGE Resolution No. 70/18, and re-established the validity of section 8 and section
4 of SE Resolutions No. 95/13 and 529/14, respectively, thus restoring the CAMMESA centralization scheme for the supply of fuels
for generation purposes. 2.1.7 Agreement for the Regularization and
Settlement of Receivables with the WEM On August 5, 2019 and under the call to Generators,
the Company and certain subsidiaries executed with CAMMESA an Agreement for the Regularization and Settlement of Receivables with
the WEM (the “Agreement”), as instructed through SGE Note NO-2019-66843995-APN-SGE#MHA. Pursuant to the Agreement, CAMMESA undertook
to pay the outstanding LVFVDs after discounting the debts taken on with the WEM under the Financing Agreements, Loan Agreements
and Receivables Assignment Agreements executed by generators, and applying a 18% write-off on the balance. In this sense, the parties
have agreed a total net settlement amount for the outstanding LVFVDs taking into consideration the interest update as of July 31,
2019 and the effects of the mentioned write-off, which amounts to $ 2,122.7 million, before tax withholdings for a total amount
of $ 392.9 million. Finally, on August 7, 2019, the total agreed amount was collected, net of tax withholdings, for an amount of
$ 1,729.8 million (U$S 39.4 million) corresponding to outstanding LVFVDs. In furtherance of the undertaken commitments,
the Company and certain subsidiaries have waived all submitted claims and have irrevocably dismissed their rights to file any kind
of claim (whether administrative and/or judicial) against the Federal Government, the SGE and/or CAMMESA regarding the outstanding
LVFDVs. As a result of the Agreement, the Company has
recognized revenues in the amount of U$S 5.9 million and net financial profits for U$S 71.1 million. 2.1.8 Loosening
up of charges and interests in late payment of the economic transaction SRRYME Resolution No. 29/2019 provided for a
relaxation in the application of penalty interest and charges in case of delays in the payment of economic transactions within
the WEM.
i.
Reduction of surcharges
ii. Compensatory and penalty interest
iii. Compensations 2.2
Transmission 2.2.1 Tariff situation During 2019, pursuant to the provisions of the
RTI, the ENRE continued applying the semi-annual tariff update mechanism in accordance with the applicable formula, which depends
on the IPIM, the IPC and the Salary Index, as long as compliance with the trigger clause is verified. On March 22, 2019, the ENRE issued Resolutions
No. 67/19 and No. 68/19 updating Transener and Transba’s remunerations by 25.15% and 26.53% against the previous semester,
reaching a cumulative 78.41% and 81.26% increase, respectively, for the December 2016 – December 2018 period, applicable
to the remuneration scheme as from February 2019. On September 25, 2019, the ENRE issued Resolutions
No. 269/19 and No. 267/19 updating Transener and Transba’s remunerations by 18.83% and 18.81% against the previous semester,
reaching a cumulative 112.41% and 115.75% increase, respectively, for the December 2016 – June 2019 period, applicable to
the remuneration scheme as from August 2019. On the other hand, on July 3, 2018, the ENRE
informed the beginning of the procedure to determine the remuneration of the Independent Carriers in exploitation stage: TIBA (Transba),
Fourth Line (Transener), YACYLEC and LITSA. In this regard, on October 8, 2018, the costs, investments and expected tariff corresponding
to Fourth Line and TIBA were presented to the ENRE. As of the date hereof, the ENRE has not issued the resolution with the results
of the analysis of the requested information. As of the date of issuance of these Consolidated
Financial Statements, the ENRE Resolution has not yet been issued with respect to the tariff update corresponding to the semester
July-December 2019, applicable to the remuneration scheme as from February 2020. 2.2.2 SADI Service Outage On June 16, 2019, at 07:07 a.m., the SADI experienced
a total outage. This total outage was a result of the concurrence
of multiple shortcomings within the SADI, some of them external to the Transmission System operated and maintained by Transener. As regards the transmission system under the
responsibility of Transener, the fault was due to a specific technical problem, and not to the lack of investment and maintenance.
Following the change in the configuration of the littoral corridor due to the 500 kV Colonia Elía – Campana / Colonia
Elía – Manuel Belgrano lines bypass, the DAG mechanism was not properly adjusted and failed to recognize signals sent
out by the protection system. This bypass was made on account of the relocation of tower 412 to support the highest possible power
transmission capacity in the littoral corridor. Due to the great volume of electricity dispatched
from this corridor and the DAG failure, there was an imbalance between supply and demand which could not be redressed by the system’s
other restraint barriers external to the electric power transmission service, resulting in a total outage. The 500 kV Transmission System was available
immediately after the disruption, and 100% of the transmission lines were available to come into operation and allow for the restoration
of the system. Service restoration was overall fast (within 8:30 hours, 75% of the country’s demand had been restored). Transener estimates that the above-mentioned
event will give rise to a U$S 0.1 million penalty, which has been registered by Transener. This estimate is based on the application
of the High-Voltage Transmission System’s Service Quality and Penalties Regime attached to Transener’s Concession Agreement
as sub-annex II-B. As of the date of these Consolidated Financial Statements, the ENRE has not applied the penalty to Transener,
which may differ from Transener’s estimates. This event will have an impact on 2020-year
figures related to penalties, which will be increased, and premiums, which will be reduced, due to the Additional Service Quality
and Sanctions Regime established by Resolutions No. 552/16 and No. 580/16. 2.3
Energy distribution 2.3.1 General Edenor Concession was granted in 1992 for a
95-year term, which may be extended for an additional maximum period of 10 years. The ENRE is empowered to control the quality
levels of the technical product and service, the commercial service and the compliance with public safety regulations, as provided
for in the Concession Agreement. If the Distribution Company fails to comply with the obligations assumed, the ENRE may apply the
penalties stipulated in the aforementioned Agreement. 2.3.2 Edenor’s economic and financial
situation In the last four years, Edenor recorded negative
working capital. This situation was not reversed after the application from February 1, 2017 of the new tariff arising from RTI,
due mainly to the constant increase of its operating costs, necessary to maintain the level of service, the Argentine economy’s
inflationary environment, and the sustained recession since mid-2018, with the consequent impact on the decline in income, the
extension of collection periods and the steady increase in levels of energy theft. (See Note 1.2). Despite the previously described situation,
it is worth pointing out that, in general terms, the quality of the electricity distribution service has been improved, both in
duration and in interruption frequency. In view of the continuous increase of the costs associated with the provision of the service,
as well as the need for additional investments to meet the greater seasonal demand, Edenor has taken a series of measures aimed
at mitigating the negative effects of this situation on its financial structure, minimizing the impact on the sources of employment,
the execution of the investment plan, and the carrying out of the essential operation, maintenance and improvement-related works
that are necessary to maintain the provision of the public service, object of the concession, in a satisfactory manner in terms
of quality and safety. Additionally, on December 23, 2019, the PEN
enacted Law No. 27,541, which has a direct impact on Edenor’s financial solvency. Taking into account that the realization of
the measures necessary to reverse the manifested negative trend depends on the occurrence of certain events that are not under
Edenor’s control, the Edenor |
