BRAZIL Law and Practice Contributed by: Débora Yanasse, Bruno Salzano, Luisa Tortolano Barreto and Julia Braga, Tauil & Chequer Advogados in association with Mayer Brown
5.5 Monopoly Rights for Electricity Distribution Entities The power distribution concessionaires and permissionaires have the exclusive right to con- struct and operate distribution facilities within a specified geographical territory. The concession or permission agreement indicates the areas subject to the concessionaire’s or permission- aire’s monopoly rights. 5.6 Electricity Distribution System Charges and Terms of Service The principal laws governing the provision of distribution services, as well as distribution charges and terms of service, are the same as those governing transmission services. See 4.6 Transmission Charges and Terms of Service . Distribution Tariffs ANEEL adopts the WACC methodology to review the distribution tariffs. The definition of remuneration base considers only the value of the assets which are effectively rendering ser- vices to the customers, compared to the refer- ential models established by ANEEL, specific to each company, which reflect the economic and geographic conditions of their respective con- cession or permission areas and the efficiency levels in services. In 2025, the current WACC of distribution companies is 8.03% (after taxes), as defined by ANEEL. Power distribution tariffs are subject to adjust- ments and reviews as provided in the conces- sion or permission agreements.
Annual adjustment In the annual tariff adjustments, non-managea- ble costs are fully passed on to the consumers and manageable costs are adjusted in line with inflation, based on the IGP-M or IPCA index, reduced by a factor – the so-called “X Factor” – determined by ANEEL so that distribution com- panies can share the gains of productivity with their consumers. Periodic tariff review Every four or five years, there is a periodic tar- iff review to ensure the necessary revenues to cover efficient operational costs and adequate compensation of investment. There is also an extraordinary tariff review, on a case-by-case basis, to compensate for unpredicted costs, including taxes and charges which significantly change the cost structure of the distribution company. In the process of review of the tariffs, ANEEL takes into account the costs and the compa- ny’s markets, comparing them and other similar companies abroad; the company’s efficiency; and the need for fairer tariffs and appropriate returns to shareholders. The tariff review process follows a procedure of public hearing, where the company, consumers and any other party may submit contributions to ANEEL prior to definition of the new tariffs.
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