results of operations of potential changes
to the Adjustment Escalator.
As
stated above, the electricity sales concessions provide for
an annual adjustment to the tariff, resulting in adjustments
based on several factors including inflation increases as measured
by different agreed upon indices. In certain situations, although
not including Brazil, there is also an explicit linkage through
the pricing provisions of the contract to a portion of the tariff
that reflects changes, either entirely or in part, in exchange
rates between the local currency and the U.S. Dollar. Such adjustments
are made in arrears at various regular intervals, and in certain
cases, requests for interim adjustments are permitted.
If
a foreign currency experiences a sudden or severe devaluation
relative to the U.S. Dollar (the Company's reporting currency),
such as occurred to the Brazilian Real in January 1999, because
of the lack of direct adjustment to the then current exchange
rate, the in arrears nature of the respective adjustment in
the tariff or the potential delays or magnitude of the resulting
local currency inflation of the tariff, the future results of
operations of AES's distribution companies in that country could
be adversely affected. Depending on the duration or severity
of such devaluation, the future results of operations of AES
may also be adversely affected. During 1999, the Brazilian Real
experienced a significant devaluation relative to the U.S. Dollar,
declining from 1.21 Brazilian Reais to the Dollar at December
31, 1998 to an average of 1.81 Reais to the Dollar for the year
ended December 31, 1999.
In
Brazil, AES has interests in four distribution companies or
integrated utilities (the Brazilian Businesses). These companies
have long-term concession agreements which, although varying
in term, have similar clauses providing for tariff adjustments
based on certain specific events or circumstances. These adjustments
occur annually (at different times) for each Brazilian Business
and, in certain instances, in response to specific requests
for adjustment. Adjustments to the tariff rates during the annual
proceedings are designed to reflect, among others, (i) increases
in the inflation rate as represented by a Brazilian inflation
index (IGPM), and (ii) increases in specified operating costs
(including purchased power costs), in each case as measured
over the preceding twelve months. The specific tariff adjustment
mechanism provides each Brazilian Business the option to request
additional rate adjustments arising from significant events,
such as the increase in cost of purchased power due to exchange
rate variations, which disrupt the economic and financial equilibrium
of such business. Other normal, or recurring, events are also
included as a specific tariff increase and may include normal
increases in purchased power costs, taxes on revenue generated
or local inflation. The |
|
|
Brazilian Business requesting relief has the
burden to prove the impact on its financial or economic equilibrium,
however, there can be no assurance that such adjustments will
be granted. Each Brazilian Business intends to recover the
specific rate adjustments pro- vided for in the concession
agreements, and approximately $30 million of these costs (representing
the Company's portion of such costs) that are expected to
he recovered through future tariff increases were deferred
In 1999.
1999 compared to 1998
Revenues. Revenues increased $855 million,
or 36%, to $3.25 billion in 1999 from $2.40 billion in 1998.
The increase in revenues is due primarily to the acquisition
of both new generation and distribution businesses, as well
as from the 'commercial operation of greenfield generation
projects.
Generation
revenues increased $557 million, or 39%, to $1.97 billion
in 1999 and accounted for 65% of the Company's total increase
in revenues in 1999. New businesses acquired during 1999 that
contributed significantly to the overall increase in generation
revenues include certain of the New York plants, Drax and
Panama. A full year of operations at Southland and Barry,
as well as the acquisitions of Tiete and CILCORP in the fourth
quarter of 1999 also contributed to the increase in generation
revenues.
Distribution
revenues increased $298 million, or 30%, to $1.28 billion
in 1999 and accounted for 35% of the Company's total increase
in revenues in 1999. New businesses acquired during 1999 that
contributed significantly to the overall increase in distribution
revenues include NewEnergy, CILCORP and EDE Este. A full year
of operations at Edelap also contributed to the increase in
revenues. Distribution revenues were negatively impacted at
Sul due to the effects of the devaluation of the Brazilian
Real in early 1999.
Gross Margin. Gross margin, which represents
total revenues reduced by cost of sales, increased $193 million,
or 24%, to $1.00 billion in 1999 from $811 million in 1998.
Gross margin as a percentage of revenues decreased to 31%
in 1999 from 34% in 1998. The decrease in gross margin as
a percentage of revenues is due to the decrease in the distribution
gross margin.
The
generation gross margin increased $203 million, or 35%, to
$779 million in 1999 from $576 million in 1998. The generation
gross margin as a percentage of revenues remained fairly constant
at 40% in 1999 and 41% in 1998.
The
distribution gross margin decreased $10 million, or 4%, to
$225 million in 1999 from $235 million in 1998. The distribution
gross margin as a percentage of revenues decreased to 18%
in 1999
|
|
