Publication of the Decree on the Renewal of Electric Power Distribution Concessions
On June 21, 2024, Decree 12,068/2024 was published in the Official Gazette of the Union, introducing new rules for the bidding and renewal of electric power distribution concessions. The Decree resulted from a process promoted by the Ministry of Mines and Energy (MME), including a public consultation held in 2023, and aimed to establish guidelines to be observed for the renewal or bidding of concession contracts expiring between 2025 and 2031, 20 grants, which account for about 62% of the Brazilian energy distribution market. The Decree will still be subject to regulation by ANEEL, but it is already possible to identify greater rigor in the criteria for renewing concessions. According to the text, for the renewal of the concession to be carried out, the adequate provision of the granted services must be inspected, based on the levels of continuity of supply efficiency and economic-financial management efficiency of the concessionaire. Such levels must be verified based on the five years preceding the renewal recommendation to be issued by ANEEL (excluding the years prior to 2021 for the economic-financial management criterion). Non-compliance with the economic-financial management criterion may be remedied by a capital contribution by the concessionaire, in an amount to be defined by ANEEL, which guarantees the financial sustainability of the concession. The Decree also establishes that the concessionaire interested in renewal must accept a series of contractual conditions that will be incorporated by ANEEL into the draft addendum to the concession contract, which essentially deal with obligations of an economic-financial and tariff nature, competitive, quality and universalization of service, adaptation to extreme climatic events, modernization and digitalization of the sector, energy efficiency, combating non-technical losses and delinquency, good governance, and protection of personal data.
The addendum must also enable ANEEL to limit the payment of dividends and interest on equity, as well as legal acts or business transactions between related parties and the concessionaire, as an administrative measure in case of non-compliance with the technical, commercial, and economic-financial quality indicators by the concessionaire. From a procedural point of view, the Decree determines that the extension of the concession period must be requested by the concessionaire at least thirty-six months in advance of the end of the original contact. ANEEL must then verify compliance with the renewal criteria and, at least twenty-one months before the end of the concession, forward a renewal recommendation to the MME, which must then issue a decision on the signing, or not, of the renewal of the concession within three months. The renewal will be concluded with the signing of the addendum between the concessionaire and the MME. Alternatively, those concessionaires wishing to anticipate the effects of the extension may submit a renewal application within thirty days of the publication by ANEEL of the draft addendum, which must occur within one hundred and twenty days from the date of publication of the Decree.
Those concessions that are not subject to renewal must be tendered, which will occur without the prior reversal of the assets and in a manner that ensures the continuity of service provision. Finally, it is worth noting that the Decree also addressed a topic that has been debated for some time and is of multi-sectoral interest: the sharing of distribution network poles with the telecommunications sector. The Decree mandates that the concessionaires must now cede space in the distribution infrastructure for the shared exploitation of networks, thus allowing a third party to centralize the exploitation and management of this service. It is important to highlight that this compulsory cession was precisely one of the points of deadlock in the deliberation of the ANEEL Board that prevented the approval of the draft of the new Joint Resolution on the topic, which has already been approved by Anatel.
Deliberations of the ANEEL Board at the 22nd Public Ordinary Meeting
The ANEEL Board held its 22nd Public Ordinary Meeting (RPO) on the last day of June, during which it deliberated on two notable topics. The first deliberation was regarding the conclusion of public consultation 31/2023, which collected inputs for the update of Submodules 9.1 and 9.2 of the Tariff Regulation Procedures – PRORET, which deal with the periodic review of the Allowed Annual Revenue (RAP) for transmission concessionaires.
The Board issued Normative Resolution No. 1,096/2024, thus approving versions 4.4 of Submodules 9.1 and 9.2. The second item of interest on the agenda of the 22nd RPO was the deliberation on a request for a Precautionary Measure, presented by the Brazilian Association of Electric Energy Distributors – Abradee, and related to the evaluation of the economic-financial management efficiency criterion for the year 2023. In this case, the Board issued Order 1,883/2024, which granted the Precautionary Measure, thus suspending the application of Normative Resolution No. 948/2021 and the clauses of the concession contracts, and consequently suspending the deadline for capital contribution for non-compliance with the economic-financial management efficiency criterion, until a decision on the merits of the Request for Reconsideration presented by Abradee against Order 3,478/2022 is made.
Energy Research Company Publishes Technical Notes on Offshore Wind
The Energy Research Company (EPE) published two Technical Notes on the regulation of offshore wind generation in Brazil at the end of June. The first Technical Note addresses considerations regarding the value due to the Union for the use of the seabed area for the implementation of wind projects. Decree 10,946/2022, which already provides on the topic, established that the use of the area should be carried out for a fee, and EPE conducted a comparison of international practices adopted for offshore wind projects, as well as practices adopted in Brazil for the exploration of water, oil, and gas resources.
The recommendation formulated by EPE to the MME was to adopt a flexible approach, which considers the various stages of the development of offshore wind projects (potential study, construction, and commercial operation), as well as the balance between the competitiveness of the projects and the curbing of speculation of the prism.
The second Technical Note addresses considerations on the limitation of the area to be ceded, and once again relied on international experience. EPE identified as relevant parameters that may be adopted in the regulation of the topic in Brazil: limits on area or installed power per interested party, values of power density, and spacing between wind projects. EPE also observes that the regulation may choose to adopt one or more explicit criteria.
The Energy team of FAS Advogados in cooperation with CMS continues to closely monitor the evolution of these impactful topics for the energy distribution and transmission sectors, as well as the formulation of the future regulatory framework for offshore wind generation.
