UPDATE 1-Brazil, banks consider second emergency utility loan -source

Thu Jul 10, 2014 1:43pm EDT

(Adds background on electric utilities' problems, extension of payment deadline, stock prices, other details)

By Leonardo Goy

BRASILIA, July 10 (Reuters) - Brazil's government is in talks with commercial banks to lend at least 2 billion reais ($900 million) in emergency credit to electricity distributors as drought causes power rates to soar, a source with direct knowledge of the talks told Reuters on Thursday.

Without new capital, the utilities may be unable to pay the 1.3 billion reais they owe to the CCEE, the country's spot market electricity clearinghouse. Brazil's energy regulator on Wednesday extended the deadline for payment to the end of the month.

Brazilian electrical utility shares were up 1.5 percent in Sao Paulo at midday on Thursday. On the Sao Paulo BM&FBovespa stock exchange, shares of Cia Energetica de Sao Paulo were up 2.6 percent at 23.70 reais and Cia Energetica de Minas Gerais SA shares were up 4.5 percent at 17.78 reais. Both were on track to be among the day's biggest gainers.

A drought has reduced the power available from hydroelectric dams, normally responsible for about two-thirds of the country's electricity, against a backdrop of rising demand. Distributors have had to buy spot market power, much of it generated by expensive natural gas or fuel oil, to meet consumer obligations.

In peak periods, power in Brazil's southeast-central west region CCEE-HVYSE-PLD1 rose to 564.61 reais per kilowatt hour last week, more than three times the average of the last five years.

The loan talks come as cash from a 11.2 billion real ($5.06 billion) loan extended in April has run out. Energy Ministry officials were not immediately available for comment on Thursday. Representatives of Brazil's electrical energy regulator, Aneel, had no comment.

Brazil's electricity industry is facing its biggest crisis in more than a decade. In 2012, hydroelectric generators were forced by the government to slash rates, reducing revenue for investment.

Meanwhile, low water levels have driven up the cost of alternative power, crimping the cash flow of distributors who can only pass on higher costs to consumers at once-yearly rate reviews overseen by a government wary of boosting inflation.

Government auctions to build new, cheaper generation capacity have been delayed, sometimes by years, and licenses for power lines to connect new power plants to the grid have been held up, driving more utilities to the spot market.

Analysts believe that the country faces power rationing by the end of the year if water levels do not rise soon.

Water levels in Brazil's southeast-central west and north-eastern regions, which contain the majority of Brazil's population and electricity demand, are at their lowest since 2001 when the country was forced to ration power.

If granted, the new loan, like the previous credit, will be made to the CCEE - a nonprofit organization controlled by the power generators and distributors who use it. ($1 = 2.2140 Brazilian reais) (Additional reporting by Jeb Blount; Writing by Guillermo Parra-Bernal and Jeb Blount; editing by Jeffrey Benkoe and Matthew Lewis)