Highlights Of The Changes In The Brazilian Electric Power Sector

Author:Mr Rafael Villar Gagliardi and Daniel Hossni Ribeiro Do Valle
Profession:Demarest
 
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With the rationing crisis in year 2001, the then adopted model for the electric power system showed to be ineffectual in assuring the core objectives of any public utility service, that is, reliable supply, fair electricity rates and availability to all1.

Thus, a new - to some, the newest - model was put in place2 - based on its regulatory milestone, Provisional Measure (Medida Provisória - "MP") no. 144, of 12/11/2003, turned into Federal Act no. 10.848, of 3/15/2004.

However, recently enacted rules substantially changed this model, shown below, albeit in a succinct manner.

Ordinance MME 455, of 8/2/2012 - Registration of Energy Purchase and Sale Agreements within the Free Market Environment - ACL

Ordinance MME 455, of 8/2/2012, provides for the registration of Energy Purchase and Sale Agreements executed within the Free Market Environment - ACL.

The Ordinance above plays two essential roles: (i) to discontinue registration of ex post agreements (article 2 of the Ordinance) and (ii) to gather data on energy rates negotiated in the ACL, to enable CCEE (the Electric Energy Trading Chamber) to calculate and publish indicators to increase the levels of transparency and efficiency to the market (article 3 of the Ordinance).

For a more detailed clarification on the issues addressed in the Ordinance, some brief explanations are required.

As known, all electric power trading agreements, irrespective of the environment - whether Regulated or Free Market Environments - ACR or ALC, must be registered with CCEE, pursuant to Decree 5.163, of 7/30/2004.

The issue on registration was addressed in three different moments, allowing a gradual adjustment of the market to the new rules.

Prior to Ordinance MME 455, of 8/2/2012, and until 11/1/2012 (date set by the Ordinance), the energy trading agreements negotiated in the ACL had to be registered by no later than the month following the month of supply (MS+9du) - the so-called ex post registration - , while the quantity of energy for a certain month could be subject to adjustment after consumption metering up to the 11th business day following the month of supply (MS+11du). This registration was made every month at CCEE.

From that date through 6/30/2013, the electric power trading agreements negotiated in the ACL must be registered prior to the month of supply - thus becoming an ex ante registration -, however, the adjustment could be made after power consumption metering. To this effect, the agreements must also be registered monthly.

And lastly, as of 7/1/2013, the agreements must be registered prior to the month of supply - therefore, ex ante - and the contract amounts can only be changed before the beginning of the supply, as registration with CCEE will be on a weekly basis.

There were basically two reasons for such change: to end distortions and abuses identified upon registration of ex post agreements and make the market more efficient, as it happens in foreign energy markets, where shorter-frequency registrations allow correction of registrations...

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