However, as opposed to Argentina, where interventionism is practiced for largely populist reasons, there is a clear-cut rationale in Brazil for reducing electricity rates.

As a result, Brazil’s utilities create great returns on equity and invested capital and are generally profitable, which is great for them and for investors. However, as economic growth has slowed in the country, the Brazilian government has come to see that as creating a serious competitiveness problem for its manufacturers, which have experienced a significant slowdown over the past year or so.

Over the long haul, lower electricity rates will help make the country’s manufacturing sector and economy much more competitive, as the world continues along the path of economic recovery. At the same time, I expect the already rapid pace of electricity demand growth in Brazil to pick up.

The price of anything, whether it’s a gallon of gasoline, a loaf of bread or a kilowatt of electricity, is basically a rationing mechanism. When the price of any particular good is high, less of that good is consumed. When prices are low, the good tends to fly off the shelves.

Because of that principal, higher taxes on electricity have long been a cornerstone of conservation strategy. There won’t be a one-to-one correlation in Brazil between the price cut and consumption growth; industries will see their rates fall by as much as 28 percent, while households will see a rate cut of as much as 16 percent. But consumption will certainly pick up as a result of the rate cut.

A return to growth and the accompanying increase in electricity consumption in Brazil should also offset the revenue loss from the cut over the next couple of years.

The share price of Companhia Energetica Minas Gerais (NYSE: CIG) has declined by nearly half since the cut was announced; it’s currently trading at about $11 from a high of almost $21 in April. However, I don’t share the market’s pessimism over the company’s prospects.

As one of the largest electricity producers in Brazil, 98 percent of the company’s generation derives from hydroelectric stations. While those stations have a high upfront fixed cost, Cemig (as the company is known in Brazil) doesn’t have to purchase coal or natural gas to fire its generators. Drought is a risk to an electricity generator reliant on rivers to power a turbine, but because Cemig doesn’t have recurring fuel costs, it can generate power more cost effectively.

Thanks to that cost advantage, Cemig runs an EBITA (earnings before interest, taxes and amortization) margin that averages better than 30 percent and a net income margin of 15 percent. It also uses its cost advantage to fund a generous dividend, typically paying out 90 percent or more of its net income to its shareholders.

It has also aggressively paid down debt in recent years, taking its debt-to-equity ratio down to just 0.7 over the past few years, while the industry average in Brazil runs about 1.5 times.

While Cemig will almost certainly have to reduce its dividend as a result of the rate cuts, at this point the market is pricing in a more than 50 percent cut in its payout. I think that’s an overly negative view, given the company’s steady payout history. I suspect it will likely deploy some of its BRL4.7 billion cash hoard to support its payout over the short term.

Investors can take advantage of this sell-off to lock in what will likely be a better than 10 percent yield, even after a possible dividend cut. Purchase shares of Companhia Energetica Minas Gerais under 15; I’m also adding the company to our portfolio.