Power distributors seek clarity on returns under new concession model

The discussions stem from Decree 12,068 of 2024, which established the framework for extending expiring distribution concessions. Under those rules, 16 power distributors renewed their contracts with the federal government for an additional 30 years. The only major exceptions were some of the concessions held by Enel, the company at the center of a regulatory crisis related to its operations in São Paulo.

Other large concessions—including those held by Cemig in Minas Gerais and Copel in Paraná—were not among those renewed, but may consider adopting the new contractual framework depending on how the regulatory discussions evolve. Groups such as Energisa, Equatorial, and Neoenergia also have distribution concessions that were not included in the current renewal cycle.

The possibility of distribution companies whose contracts do not expire in the coming years opting into the new framework is expressly provided for in the decree. However, such adoption would not result in an extension of existing concession terms or a financial and economic rebalancing of contracts.

Paulo Machado, a lawyer at Machado Meyer Advogados, said it is natural that companies excluded from the initial renewal process would explore joining the new model. “The distribution sector is migrating toward a regulatory logic that is very different from the one in place when the contracts of these distributors that have not yet renewed were originally designed,” he said.

In his view, the discussion surrounding the renewals is not necessarily tied to extending concession terms. “What is at stake is adapting these concessions to a new technological, operational, and economic reality in the sector,” he said.

The decree allows, for example, the Brazilian Electricity Regulatory Agency (ANEEL) to recognize capital and operating costs between tariff reviews, which currently occur only every four or five years. This could accelerate the compensation of utilities for investments made in their networks.

The mechanism, known as “intracycle investment,” was discussed during the initial regulatory process implementing part of the decree, but a decision was postponed. The debate centers on whether distribution companies should receive annual compensation for investments through tariff adjustments rather than waiting for periodic tariff reviews, which take place every three to five years depending on the utility.

For Gustavo Estrella, CEO of CPFL Energia, the issue is one of the most important topics to emerge following the contract renewals. “With the contract renewals, we now have the ideal moment to discuss this,” Estrella said. CPFL operates four distribution companies, three of which were included in the latest renewal cycle.

Because technology evolves rapidly, the company has concentrated investments in projects such as smart meters during the fourth and fifth years of tariff cycles, he explained.

“Our view is that at least some types of investment should perhaps receive annual recognition. That would bring greater efficiency and agility to projects like these. I believe this is the major challenge and the major debate on the table today, and now we will have room to discuss it together with ANEEL,” he said.

According to the company’s calculations, although the mechanism would have some impact on electricity tariffs, the effect would be minimal. “Over the medium and long term, given the efficiency gains generated by the sector and the current regulatory model, tariffs tend to decline because of those efficiencies,” Estrella noted.

Another issue under discussion is the treatment of non-technical losses, commonly known in Brazil as electricity theft. The government has proposed new mechanisms to address such losses, including the possibility of differentiated tariffs for areas where utilities face greater challenges combating electricity theft and dealing with high levels of delinquency. Different tariffs could also be established based on location-specific or technical criteria.

For some concessionaires, however, the current focus is simply monitoring the debate. Copel CEO Daniel Slaviero said the company views the decree and the rules already defined positively but still lacks sufficient information to determine whether adopting the new framework would be advantageous. Copel’s concession does not expire until 2045.

According to Caio Alves, a power-sector specialist at Rolim Goulart Cardoso Advogados, even the draft contract prepared by ANEEL remains broad and largely mirrors the decree itself, creating a perception of regulatory risk among market participants.

“In general, the current perception is that there are more risks than benefits in these open-ended obligations contained in the addendum. Progress on rules related to the recognition of losses in complex service areas and the treatment of intracycle investments could reverse that perception and increase interest in signing,” Alves said.

According to people familiar with the matter, ANEEL is expected to launch a public consultation on intracycle investments in June. A separate consultation addressing energy losses is expected in July.

Energisa, which operates nine distribution companies, renewed the concessions of three of them. The company declined to comment on whether it would seek to extend the new framework to its remaining concessions but said the conditions established in the renewal process “raise the sector’s performance standards, strengthen legal certainty, and expand distributors’ capacity for long-term planning and investment.”

The company also noted that one measure included in the renewals involves differentiated tariff structures within concession areas. For that reason, it has been conducting tariff “sandboxes” in different regions since late 2024, testing alternative pricing models with specific groups of consumers.

Neoenergia renewed four of its five distribution concessions. The company has not yet decided whether to extend the framework to its Brasília distributor and, according to people familiar with the matter, is waiting for additional regulation of the decree’s provisions. Equatorial, which operates seven distribution concessions and renewed two of them, declined to comment on whether it might adopt the new rules for its remaining businesses.

Cemig noted that it renewed its distribution concession in 2015 for a 30-year term and therefore still has 19 years remaining on its contract. Regarding the decree, the company said only that it is “monitoring the matter.”

Asked about the issue, Brazil’s Ministry of Mines and Energy said that requests from distributors interested in renewing concessions should be addressed to ANEEL, as any extension would only be submitted to the federal government after review by the regulator.