Last Updated July 31, 2018

Law and Practice

Contributed By Morgan & Morgan

Authors



Morgan & Morgan ’s energy practice offers expertise in the full spectrum of projects from permits, development, financing and construction, to their operation. This allows them, when representing lenders, to have a more comprehensive perspective of the type of challenges faced by these projects. Lawyers advise both developers and lenders in all aspects related to the financing of energy projects, including the first post-privatization hydroelectric project to be developed in Panama (2003) and the first wind farm (2014). Expertise also extends to M&A and joint ventures, power purchase agreements, dispute resolution, environmental permits, taxation and regulatory matters.

Law 6 of 1997 is the principal law that governs the public service of electricity distribution in the Republic of Panama. Law 6 sets forth the general framework for determining the tariffs that the concession holders shall charge for such services, which are further developed and regulated in the Distribution and Commercialisation Regulations.

Pursuant to Law 6, distribution companies are mandated to grant the supply of energy required by their clients. Therefore, it is the contractual obligation of each of the distribution companies to have sufficient supply of energy to cover its area of concession. In principle, any deficiency in contracting energy supply renders the distribution company liable and subject to fines and penalties.

In order to acquire the required energy, distributors establish a bidding process for the purchase of energy and capacity. Usually the distributors establish a reference price approved by ASEP as part of its participation process in securing balanced tariffs to consumers.

Additionally, pursuant to Law 6 of 1997, ASEP must periodically define methodologies for establishing rates for distribution services, including minimum and maximum rates and the formulas for calculating them. These rates are established every four years (unless new rates are not established for the following four-year period before the current one expires, in which case the existing rates will continue in force until new rates are established). The distribution companies must submit their rate schedule proposals to ASEP for the approval thereof, along with proposals for the maximum permitted income (IMP) that, pursuant to applicable law, they are allowed to receive. The latter proposal is subject to public comment and input, prior to ASEP issuing a decision on said proposal. The current rate schedule entered into force in 2014, and thus expires later this year.

Costs incurred by distribution companies in purchasing energy from generation companies, as well as in paying transmission tariffs to ETESA, will all be factored into the cost structure of the respective distribution company and, thus, will be key components in setting the distribution fees to be charged to the end user. In other words, such costs are passed on to the end user.

Each rate schedule will establish general rate parameters for end users, depending on whether they are connected at low tension, medium tension or high tension. Generally speaking, the cost of each kWh of energy consumed may fall into different rates depending on the overall consumption of the end user. For instance, if two end users are connected at low tension, but one is consuming 15 kWh per month and the other is consuming 100 kWh per month, the latter will pay a higher cost per kWh than the former. Also, end users with a maximum monthly demand in excess of 15 kW will be subject to a different fee structure.

In addition to actual energy consumption, the end user will usually pay a fixed commercialisation charge for the first 10 kWh of energy consumed, distribution fees (including for energy losses in distribution) and a public lighting charge.

Regulatory Principles

As set forth above, Law 6 of 1997 provides the general framework for establishing distribution rates.

Usually the distributors establish a reference price approved by ASEP as part of its participation process in securing balanced tariffs to consumers.

Additionally, pursuant to Law 6 of 1997, ASEP must periodically define methodologies for establishing rates for distribution services, including minimum and maximum rates and the formulas for calculating them. These rates are established every four years (unless new rates are not established for the following four-year period before the current one expires, in which case the existing rates will continue in force until new rates are established). The distribution companies must submit their rate schedule proposals to ASEP for the approval thereof, along with proposals for the maximum permitted income (IMP) that, pursuant to applicable law, they are allowed to receive. The latter proposal is subject to public comment and input, prior to ASEP issuing a decision on said proposal. The current rate schedule entered into force in 2014, and thus expires later this year.

Morgan & Morgan

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Paseo del Mar Avenue
Costa del Este
Panama City
Republic of Panama

+507 265.7777

+507 265.7700

customerservice@morimor.com www.morimor.com
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Authors



Morgan & Morgan ’s energy practice offers expertise in the full spectrum of projects from permits, development, financing and construction, to their operation. This allows them, when representing lenders, to have a more comprehensive perspective of the type of challenges faced by these projects. Lawyers advise both developers and lenders in all aspects related to the financing of energy projects, including the first post-privatization hydroelectric project to be developed in Panama (2003) and the first wind farm (2014). Expertise also extends to M&A and joint ventures, power purchase agreements, dispute resolution, environmental permits, taxation and regulatory matters.

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