Brazil Offers Power Companies Deal on Generation Deficit Dispute

Brazil's government will present next week to companies operating hydro power plants a proposal to settle a growing legal battle that threatens to destabilize the regulated power market, Energy Minister Eduardo Braga said on Friday.

Braga said the government will publish a provisional decree next week and then open a period of consultations to define the best way to address companies' complaints regarding generating deficits.

Brasilia could offer companies extensions of their current concessions as a way to compensate them for losses from below-capacity operations.

Facing the worst energy crisis in 15 years, Brazil's Energy Ministry has restricted hydro plants' operations, keeping them way below capacity in order to save water in the reservoirs during the current dry season and reduce the risk of a supply collapse.

As a result, hydro generators that have contracts to supply power distributors need to honor them by buying power in the spot market at higher prices.

In the last weeks, several companies have gone to court to avoid or limit those payments, arguing it is not their fault if the government restricts operations to levels that are not enough to meet their contract obligations.

"We are now dealing with the final details of the decree that will set the basis for a new legal framework to deal with generating deficits," Braga told to reporters in Rio.

Brazil's Power Trading Chamber said last week that companies backed by court injunctions refused to pay some 890 million reais ($255 million) on negotiations in the spot market.

(Reporting by Marta Nogueira; Writing by Marcelo Teixeira; Editing by Leslie Adler)