edp – energias de portugal, sa edp finance bv €12500000000 - CMVM

The increase of competition in electricity and natural gas supply in liberalised markets in the Iberian
Peninsula may reduce EDP’s margins and reduce its ability to sell electricity and natural gas to value-added
final customers.
All electricity consumers in Portugal have been free to choose their electricity supplier since 2006. After
2008, the liberalised markets increased considerably. In June 2011, accumulated electricity consumption in the
liberalised market represented about 45 per cent. of total consumption. EDP maintained its leading position in
the liberalised market, with a cumulative total consumption representing 41 per cent. of the total liberalised
market. EDP operates as the “last resort” supplier in the Portuguese electricity supply business through EDP
Serviço Universal, S.A. and acts as a common supplier in the liberalised market through EDP Comercial –
Comercialização de Energia, S.A.
All natural gas consumers in Portugal have been free to choose their gas supplier since the beginning of
2010. In June 2011, EDP has a cumulative total consumption representing 33 per cent. of the total liberalised
market. EDP operates as the “last resort” supplier in determined areas of Portugal through EDP Gás Servico
Universal. S.A. and acts as a common supplier in the liberalised market through EDP Gás. Com-Comércio de Gás
Natural S.A. In Spain, retail tariffs for electricity were phased out in June 2009, and substituted by a last resort
tariff system. Thus, since 1 July 2009, last resort consumers (low-voltage consumers whose contracted power is
less than or equal to 10 kw) have been able to choose between their last resort supplier and several common
suppliers in the liberalised market. All other consumers are supplied in the liberalised market. EDP’s subsidiary
HC Energia is the last resort supplier of electricity in the Asturias region. Gas retail tariffs no longer exist in
Spain, meaning that gas customers are able to choose between their last resort supplier and several common
suppliers in the liberalised market. EDP’s subsidiary Naturgas is the last resort supplier of gas in the Basque
Country and Asturias region. In the future, more competing suppliers are expected to enter the market and
engage in electricity sales. The effects of this increased competition could materially and adversely affect EDP’s
sales of electricity.
The implementation by Portugal and Spain of EU directives that are intended to create competitive electricity
and natural gas supply markets; for instance, the limitation of certain large clients’ access to the last resort
tariffs or the increase of competitiveness in such markets could have a material adverse effect on EDP’s
business, financial condition, prospects or results of operations. In July 2010, the Portuguese government
announced that high-, medium- and special low-voltage clients will no longer be able to benefit from electricity
regulated tariffs. These clients were transferred to the free market on 1 January 2011 in compliance with EU
directives on electricity tariffs, while last resort tariffs will continue to be applicable to low-voltage customers
(mainly households and small businesses).
In addition, EDP cannot anticipate the various risks and opportunities that may arise from the ongoing
liberalisation in the Iberian Peninsula’s electricity and natural gas markets. The complete implementation of
the liberalisation process, with the end of regulated retail tariffs, the eventual end of the role of last resort
suppliers, and the resulting competition could have a material adverse effect on EDP’s business, financial
condition, prospects or results of operations.
EDP’s renewable activities in the United States may be adversely affected by changes in current renewable
support schemes or the failure of such support to materialise due to adverse market conditions.
In the United States, the federal government currently supports renewable energy primarily through tax
incentives and a grant program to reimburse a portion of eligible capital costs. In addition, many state
governments have implemented Renewable Portfolio Standards (“RPS”) that typically require that, by a
specified date, a certain percentage of a utility’s electricity supplied to consumers within such state is to be
from renewable sources. Historically, the main tax incentives have been the federal production tax credit
(“PTC”) and the five-year depreciation for eligible assets under the Modified Accelerated Cost Recovery System
(“MACRS”). In February 2009, a new U.S. federal law allowed renewable energy projects that forego PTCs to
elect an investment tax credit (“ITC”), or a cash grant equal to 30 per cent. of the capital invested in the project.
Under the new law, renewable energy projects placed in service before the end of 2012 can choose among the
PTC, ITC or cash grant, although only projects that begin construction before the end of 2010 will be eligible for
the cash grant. The PTC legislation was first enacted in 1992 and has historically been extended by the U.S.
Congress for one- to four-year periods. While in the past the PTC has consistently been extended, it has been
allowed to expire three times before being subsequently extended, thereby creating a lapse period. In each
case, the U.S. Congress applied the PTC retroactively to cover such lapse period; however the periodic
expiration and uncertainty of the legislative process with respect to extensions affected industry participants.
No comparable legislative history exists for the ITC or grant program since they were not options for wind
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