ANEEL has put forward a public consultation on a proposal for new contracts for 20 distributors whose concessions expire in 2025. The agency will also discuss service performance and economic and financial management criteria for contract renewals. The consultation will receive contributions until December 2nd.

When revising tariffs, ANEEL re-evaluates all costs, analyzes investments and recalculates distributor tariffs. Changes to concession contracts are needed because many of them were signed in the 1990s and do not address the situations that arise today due to climate change. Moreover, companies are wary of committing large sums with the prospect of recognition of investments only five years after their placement.

During tariff revision, distributors submit investments made during the period. ANEEL analyzes the purchase of equipment, and if approved, the investment becomes part of the regulatory remuneration framework, the cost of which is taken into account in the tariffs.

“Cost recognition between tariff revisions could provide a model that reduces the concessionaire’s exposure to financial risk due to investments in large-scale assets,” ANEEL said in a technical note underlying the public consultation. The regulator also wants to discuss the need to take countermeasures to investments by distribution companies to avoid unnecessary cost pass-through to consumers. When contacted, ANEEL stated that it was not commenting as the matter was at the stage of public consultation.

“One way to address part of this equation is to provide recognition in a shorter time frame, because there really is a priority element of building resilience to ongoing and persistent climate events,” said Wagner Ferreira, a partner at the law firm Caputo. Bastos and Serra Advogados.

“In this way, the distribution company can simplify financial management and create an incentive for investment,” added Andre Edelstein, partner at the law firm Edelstein Advogados.

The public consultation is part of the provisions of Decree 12068/2024, which contains recommendations for the renewal of concession contracts for 20 distributors. The decree states that these companies must make an “immediate commitment” to achieving quality goals when restoring services and take measures to reduce the vulnerability and improve the resilience of distribution networks in the face of climate events, according to the ANEEL decree.

The idea is that the new rules will be extended to distributors that have already renewed their respective concessions in recent years. ANEEL is also preparing a position on investments in grid resilience. The agency launched a call for submissions (pre-public consultation) on the issue in March and is expected to appoint a rapporteur for the process this Monday (21).

Mr Edelstein noted that ANEEL’s call for input brings “interesting” aspects to the discussion, such as the introduction of underground networks and the establishment of times for restoring power supply in critical situations. A special consideration is the allocation of resources among concessionaires to respond to emergencies, which can reduce costs and speed up the restoration of services.

The debate comes amid a power outage that has left more than 3 million people without electricity in the Sao Paulo metropolitan region, much of which lies within Enel’s São Paulo concession area. The company is one of 20 distributors whose concession expires in June 2028.

At a press conference last week, Guilherme Lencastre, CEO of Enel São Paulo, said the concession contracts were awarded decades ago under a completely different climate scenario.