Brazil's Cemig Profit Jumps As Spot Market Offsets Price Cuts

SAO PAULO--Brazilian utility Companhia Energetica de Minas Gerais (CMIG4.BR, CIG) reported Thursday a 37% jump in first-quarter profit as higher spot-market electric prices offset a cut in revenue coming from contractual customers.

Cemig, as the company is known, reported first-quarter profit of 865 million Brazilian reais ($427 million), up from net income of BRL631 million in the year earlier quarter. Revenue climbed 15% to BRL3.68 billion, from BRL3.19 billion a year earlier.

Brazil last year pushed through cuts in electricity prices in exchange for a government renewal of expiring generation and transmission licenses. Cemig agreed to renew part of its licenses, and cut prices by about 18% to customers it has supply contracts with, the company said in a regulatory filing. Overall volume sold to customers fell 1.8%, in part the result of slowing demand from industrial customers as Brazil's manufacturers struggle to compete in global markets.

That drop in revenue was offset by a jump in prices at which the company sells energy on the spot market. Unusually dry weather at the end of last year led to a drop in reservoir levels at the country's hydroelectric dams. Because Brazil is overwhelmingly dependent on hydroelectric power, the government was forced to turn on more costly thermoelectric plants--fired by natural gas and other fossil fuels--to make up for the drop in hydroelectric generation. The resulting rise in spot market prices boosted Cemig's revenue from spot market sales by 21%, to BRL467.7 million, the company said.

Thanks to the better spot prices, earnings before interest, taxes, depreciation and amortization, or Ebitda, rose 28% to BRL1.59 billion.

Write to Paulo Winterstein at [e-mail]