Understand the TCU's determination made to ANEEL and what will be the next steps

In a decision by its Plenary on November 18, the ministers of the TCU (Federal Court of Auditors) rejected a representation (Representation TC 037.642/2019-7) from the Public Prosecutor's Office, which alleges a possible violation of the Principles of Legal Certainty, Legitimate Trust and Good Faith in CP 25/2019 (Public Consultation No. 25/2019) of the ANEEL (National Electric Energy Agency).

As is already known to the market, the aforementioned consultation concerns the proposed amendment to REN 482 and 414 (Normative Resolutions). ANEEL No. 482/2012 and No. 414/2010), as well as Module 3 of PRODIST (Procedures for the Distribution of Electrical Energy in the National Electrical System), all of which are regulations applicable to micro and mini-distributed generation of electrical energy in Brazil.

The ministers of the TCU (Brazilian Federal Court of Accounts) objectively understood that there is no violation of the aforementioned principles, since the change proposed by... ANEEL in the public consultation is not abrupt or new, as it has already been signaled by ANEEL, since 2015. The TCU also did not observe any procedural flaws in CP 25/2019 that could lead to its invalidation.

Since 2010, the entire history of distributed generation (DG) regulation in Brazil has been properly documented and widely and unrestrictedly publicized through various means, including on the website of... ANEEL. The TCU also considered that the proposed new rule discussed in CP 25/2019 is legal and attempts to correct “side effects and negative externalities” of the rules for subsidizing micro and mini-generation that were in effect.

However, he pointed out that “any policy to encourage distributed generation that involves tariff subsidies must be established by formal law, in accordance with art. 175, sole paragraph, III, of the Magna Carta, making it clear who pays for and who benefits from this policy”.

The decision was that the ANEEL cannot decide on subsidy. The Court gave the agency 90 days to present a concrete plan to eliminate the alleged cross-subsidy that exists in distributed generation, which occurs due to the existing tariff model in Brazil that needs to be changed and is under discussion in the process of "modernizing" the energy sector.

Similarly, the TCU (Brazilian Federal Court of Accounts) recommended to the Ministry of Mines and Energy that, in light of the guidelines for micro and mini distributed generation to be issued by the CNPE (National Council for Energy Policy), it formulate a new public policy model to replace the compensation system currently provided for in REN 482, to be submitted to the evaluation of the National Congress.

The issue and the urgency surrounding the matter, as determined by the TCU (Brazilian Federal Court of Accounts), gain special relevance considering the new review process of REN 482 (Brazilian Regulatory Standard 482) that is underway and which will culminate in a change to the Energy Compensation system currently in force, with the sector expecting this review to be completed in the first half of 2021.

The aforementioned review process aims to improve the standard in order to verify the adequacy of the methodology for calculating the benefits currently received by consumers, in contrast to any potential "cross-subsidy" that would burden those who do not have distributed generation. Therefore, there is a discussion about the economic aspect of the standard.

The review of the energy compensation system is an important aspect for energy distribution companies, which claim revenue loss due to market reduction. Another argument used to justify such a review is that consumers who have not adopted or do not benefit from the option of generating their own energy end up paying for the costs of energy transportation, charges, and losses, which "distributed generation" is currently exempt from under existing rules and legislation.

In parallel to the discussions within the scope of ANEELThe Legislative Branch has indicated that it will submit draft laws to regulate the legal framework for distributed generation (DG), addressing points that differ from those advocated by the Regulatory Agency. The issue of cross-subsidization is addressed in these draft laws and will be tackled by the Legislative Branch.

Of particular note in this regard is Bill 2215 (Bill No. 2.215/2020), authored by federal deputy Beto Pereira, which proposes significantly different criteria compared to those proposed by... ANEEL for DG pricing, based on triggers of energy injected into the grid in comparison to the distributor's load (and not in relation to the installed power of DG plants, as in the proposal of ANEEL).

Pure remote generation (where generation occurs in a unit without load, for example in shared generation or remote self-consumption) would suffer immediate impacts with the approval of the bill, without a transition period, breaking with the transition logic established by... ANEEL and impacting projects already implemented with medium and long-term arrangements, under the logic of REN 482.

The media has also reported that another bill is expected to be presented by federal deputy Lafayette de Andrada, with rules also distinct from the proposal of... ANEEL and the PL presented by parliamentarian Beto Pereira, making it impossible to specify or compare which will be the eventual normative text eventually approved by the National Congress. According to the deputy's recent position:(…)

“I haven’t yet filed the bill proposing new regulations for distributed generation because we believe it’s much more feasible and practical to present it as a substitute amendment to a bill that is already being processed in the House. That’s what we agreed with the Speaker of the House. Furthermore, the Legislature is prioritizing the progress of projects directly related to the Covid-19 crisis,” Andrada explained.

Among the proposed changes to the legislation is the addressing of the controversial point regarding the impact of the indirect subsidy for distributed generation (DG), with an express provision that CDE (Energy Development Fund) will assume the impact of the cross-subsidy for distributed generation, with the charge being applied within the system already foreseen in the Regulated Market (those who do not have DG will bear the indirect increase in CDE, as already happens in practice), thus ending all the controversial discussion in our view.

Some in the sector expect this bill to "replace" the REN. ANEEL 482, being integrated into the CBEE (Brazilian Electric Energy Code), which is being created and would fulfill the role that currently falls to the ANEEL through a Regulatory Resolution.

In practice, the distributed generation (DG) segment, due to restrictions regarding the proposals of ANEEL[Company Name] is working on a legal framework to bring greater legal certainty to the sector, especially regarding the transition of rules for the new energy compensation regimes.

Finally, it is worth noting that the TCU recommended that the changes to the REN ANEEL 482 concerning “cross-subsidies” should preserve acts established based on current legislation and should operate for the future, establishing a transition period aimed at mitigating the burdens or losses of those subject to administration, preventing them from being abnormal or excessive.

The TCU (Brazilian Federal Court of Accounts) pointed out that the transition rules should be defined by the entity itself. ANEEL, which was well received by the segment that awaits a more serene position from the regulatory agency on the subject than what occurred with the closing of the last Public Consultation on the subject, and it is indisputable that the ANEEL has the authority and technical expertise to review the regulation that enabled the segment in the country.

The major point of uncertainty is that it's impossible to predict what will happen first. The amendment to REN 482 within the scope of ANEEL, or the enactment of a specific law that will regulate the distributed generation system in the country, which could generate contradictions between the provisions of the two systems if there is no alignment between the institutions in the energy sector and the National Congress.

In the view of the energy team at the Demarest law firm, a concrete definition of the direction and future of distributed generation in Brazil is fundamental to creating an attractive environment for investments in DG, with a dynamic, sustainable market that can operate within the deepest legal security.

There is a window of opportunity for structuring projects within the current energy compensation system, but necessary precautions should be taken to mitigate risks due to the uncertainty surrounding the issue, which is still open and should be concluded in the first half of next year.

This is an opinion article and does not necessarily reflect the opinion of the Canal Solar. Its publication aims to stimulate debate on topics related to the photovoltaic market.

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