November 1th, 2021, Carlos Augusto Tortoro Jr. is a partner at Tortoro, Madureira & Ragazzi Advogados. He is responsible for the electricity and strategic litigation area.

Law Nº 14.182/2021 creates operational problems that will hamper the work of the Electric System National Operator

The publication of Law nº 14.182, of 12 of July, was preceded by discussions during the processing of Provisional Measure nº 1.031/2021, regarding interferences of the Legislative Power in planning the electric energy sector. Now, with the law in force, apparently, such questions have been overcome. But there is still a dichotomy between planning and public policies.

Initially, the provisional measure converted into law only raised the issue involving the Eletrobras capitalization. First, it is not correct to call privatization what was already partly in the hands of private investors pulverized by freely traded shares. Second, does not seem coherent a privatization in which the federal government will still have almost half of the company’s share capital, in addition to special class preferred shares with veto power on specific topics.

Law Nº 14.182 creates operational problems that will hamper the work of the Electric System National Operator

The fact is that the law approval releases the Brazilian electricity sector of an issue that was happening since the 1990s, when the electricity industry mercantilization process in the country began with a competitive environment and greater participation of the private initiative in the process of expanding the system.

So, the Brazilian electricity sector can walk many steps towards the much-vaunted modernization, which ranges the free market opening consolidation, creating an organized sales and purchase counter to distributed generation, inserting greater electric mobility and intermittent sources of renewable energy, in addition to other issues no less important for a strategic and vital area of the economy.

However, Law nº 14.182/2021 raised a serious question about the dichotomy between planning and public policy, as a considerable number of parliamentary amendments included measures relating to the expansion of the electricity generation system in the legal text, with specification such of sources, fuel type and operation term.

By using a legislative technique that then prevented a veto, as it is legally unfeasible to veto only parts of the article of law if not its entirety, the Legislative Power created a true public policy to encourage the creation of the thermoelectricity market from natural gas and pipeline infrastructure in the country’s metropolitan regions, which determined the contracting of 8,000 MW by the granted authority until 2030. Furthermore, it established the extension of Proinfa for another 20 years and the need to contract hydroelectric plants of up to 50 MW for 50% of the declared demand of electricity distributors.

There is no question that the Legislative Power has the legitimacy to create public policies, enjoying constitutional support, and it is now up to the Executive and other public administration agencies to take care of the law regulation and compliance.

But, it draws attention that public policy goes into technical specificities, whose content is the existence of agencies linked to the Executive Power that are preceded by studies on the expansion of the national interconnected system. It has a centralized operation to obtain energy security at the lowest possible overall cost.

By imposing the contracting of energy generation sources and establishing an inflexibility of 70%, Law Nº 14.182/2021 creates operational problems that will only hinder the work of the Electric System National Operator (ONS), by imposing the operation of natural gas thermoelectric plants without taking into account the scenarios given by the operation planning mathematical models.

Even if the value established in the law for contracting natural gas thermoelectric plants is lower than the cost of current thermoelectric plants, the decrease in the discretion of the ONS operation and dispatch increases system costs, since the inflexibility of thermoelectric plants displaces the use of lower value generators, and increases the marginal cost of operating the national interconnected system.

Furthermore, imposing a generation expansion is contradictory to the current indicative planning system of generation and transmission contracting. Since the 2004 reform, the electricity sector lives with a policy indicative of the granting authority on the need to expand the generating complex, through studies by the Energy Research Company (EPE) and recommendations by the National Council of Energy Policy (CNPE). Studies are conducted on a schedule ten-year plan, with the elaboration of the Expansion Ten-Year Plan, in which it is possible to capture socioeconomic conditions that may or may not require investments in the electricity generating complex, avoiding unnecessary costs that are borne by all consumers in the country.

Public policy and planning must not be on opposite sides. On the contrary, both are vectors of social and economic development, with each institutional agent fulfilling a constitutional and legally established role. So, the Legislative Power must draw the limits and the line to conduct public policies and the Executive Power must plan to fulfill the democratically established goals, so that Brazilian society has energy security and low tariffs.

This article reflects the views of the author, but not the newspaper’s (Economic Value). The newspaper is not responsible and cannot be held responsible for the information above or damages of any nature as a result of using this information.