BRAZIL Law and Practice Contributed by: Débora Yanasse, Bruno Salzano and Luisa Tortolano Barreto, Tauil & Chequer Advogados in association with Mayer Brown
Operator ( Operador Nacional do Sistema Elétrico or ONS), a non-profit private entity that co-ordinates and regulates power generation and transmission in the National Interconnected System ( Sistema Interligado Nacional or SIN) under ANEEL’s supervision. Power Shortage and Reforms After 2001 After a serious power shortage in 2001, the federal government reformed the power industry to attract more private investment in power generation, trans- mission and distribution, aiming to provide a sta- ble power supply at reasonable prices. Law No 10,848/2004 created: • the free and regulated power contracting markets and the Electricity Trading Chamber ( Câmara de Comercialização de Energia Elétrica or CCEE), a non-profit private entity responsible for registering, accounting for and clearing all energy transactions in both markets; • the Energy Research Company ( Empresa de Pes- quisa Energética or EPE), a federal public company conducting strategic studies and research in the energy sector; and • the Power Sector Monitoring Committee ( Comitê de Monitoramento do Setor Elétrico or CMSE), an executive branch committee monitoring power service conditions and recommending measures to ensure power supply safety. The law also expanded the National Energy Policy Council ( Conselho Nacional de Política Energética or CNPE) role in advising the president on national energy policy. Law No 10,848/2004 further unbundled the industry by prohibiting power distribution concessionaires from engaging in generation and transmission, sell- ing to free-market customers, holding equity in other companies, or performing activities unrelated to dis- tribution. In 2012, the government enacted: • Provisional Measure No 577, later converted into Law No 12,767/2012; and
• Provisional Measure No 579, later converted into Law No 12,783/2013 (the “Concession Renewal Law”). Law No 12,767/2012 required the granting authority to provide power services if a concession ended and to set new rules for intervention to ensure adequate utility service. The Concession Renewal Law changed the rules for renewing concession agreements. Generation and distribution concessionaires could renew agreements that had been effective since 1995, and transmission concessionaires could renew agreements effective from before and after 1995 for another 30 years, pro- vided they accepted a new tariff regime set by ANEEL. Re-Allocation of Hydrological Risks In 2015, Provisional Measure No 688/2015, later con- verted into Law No 13,203/2015, revised how hydro- logical risks are allocated among hydroelectric power plants under the Energy Reallocation Mechanism ( Mecanismo de Realocação de Energia or MRE). In 2014 and 2015, poor hydrological conditions caused MRE participants to generate less power than their assured energy ( garantia física ), decreasing their Gen- erating Scaling Factor (GSF), a measurement of the proportion of power generated by MRE participants against their respective assured energy. These gen- eration deficits resulted in losses for MRE participants, given their exposure to hydrological risks. Law No 13,203/2015 introduced an optional mecha- nism allowing each plant to transfer these risks to final customers by paying a risk premium to the govern- ment, along with temporary extensions of genera- tion concessions and authorisations to offset losses. However, this option mainly benefited generators in the regulated market, leaving those selling in the free market largely unassisted. New Re-Allocation of Hydrological Risks The Brazilian government launched a new framework with Law No 14,052/2020, and ANEEL Normative Resolution No 895/2020, to address additional struc- tural issues in the MRE, this time specific to the free market. In exchange for withdrawing certain lawsuits regarding the GSF, the hydropower generators who
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