On June 22, the Ministry of Mines and Energy (MME) published Ordinance 737/GM/MME, which announced the Technical Note 14/23 for public consultation. The Note presents guidelines for treating electric power distribution concessions with a final term between 2025 and 2031. Considering the significant number of concession contracts reaching their final terms, the energy sector eagerly awaiting the new rules.

The technical note suggests the establishment of two minimum criteria that will guide the analysis of any requests for extension:

  • efficiency of the energy supply quality verified over the concession years, to be measured based on frequency indicators and interruptions duration; and
  • concession’s economic and financial management efficiency.

Regarding the service provision quality, MME proposes that the criteria be the same as those currently applied by the National Electric Energy Agency (Aneel) to characterize concessionaire’s contractual default, under articles 3, 4, and 9 of Annex VIII of Aneel Normative Resolution 948/21.

MME also brought up for discussion the inclusion of other mechanisms to mitigate the risks of discontinuity of public services. These mechanisms are the requirement of:

  • a recovery plan approved by Aneel; and
  • the proof of the technical capacity in distribution concessions management by the new controller in case of shareholder control exchange, as would occur in a new bid proceeding.

Technical Note 14/23 also mentions the financial contribution requirement for the concessions’ extension. The MME’s proposal is to allocate these resources to energy efficiency measures, such as improvements in lighting systems, digital meters popularization, investments to combat non-technical losses (energy theft), and photovoltaic panels installation in communities subject to water insecurity.

MME also foresaw the early extension possibility. In the case of concessionaires that have expressed their interest in the renewal before the new rules’ publication, MME will give 60 days to rectify or not the application. In cases where the concession is not extended, the compensation for the unamortized assets will continue to be calculated by Aneel based on the current methodology (Remuneration Regulation Base – BRR).

The technical note does not contemplate a proposal for a normative act, only general guidelines on extending concession contracts. These guidelines will be discussed between the granting authority and the sector agents through public consultation.

From the legal perspective, some of the main points of attention involve the concessionaries’ technical and economic-financial capacity measurement, the treatment of those requests that have already been submitted, and those that are to come, considering the concessions’ final date, the requirement of counterpart for the extension and the new context of innovation and technology in which the new distribution concessions are inserted.

This important debate should be closely monitored in the coming months. The new extension rules for energy distribution concessions definition will represent an important indicator for the distribution market’s future in Brazil and will serve as a precedent for other concessions in other public service segments.