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    The challenges of a Brazilian code of electricity

    The challenges of a Brazilian code of electricity

    Carlos Augusto Tortoro Jr., partner of Tortoro, Madureira & Ragazzi Advogados and attorney responsible for the energy and litigation department

    A special commission of the House of Representatives is currently discussing the drafting of a bill that will culminate in the creation of a Brazilian code of electricity. This initiative finds fertile ground for the unification of sparse standards, but, at the same time, also faces challenges related to the dynamics of technological development and the convergence of concepts with other legal codifications.

    It is no surprise that Brazil has a complex legislative framework, with a multitude of laws, decrees and resolutions in all spheres of the federation. Often, this myriad raises contradictions in addressing the same matter, which, consequently, generates the “well-known” judicialization and legal uncertainty, not to mention the impact on all sectors of national economy. It is also worth highlighting the existence of the casuistic treatment of certain matters that does not take into account the effects on civil society and the market.

    In the energy sector it is no different. Over the past three decades, regulatory developments have created a plethora of rules and resolutions that undermine or at least make the business environment unclear for investors and managers of the market players. One does not deny that a considerable part of the standards were and are intended to develop the segment, however, the multiplicity of legal treatment does not create an environment of legal certainty.

    Specifically, with regard to electricity, this situation becomes even more doubtful. This is because compared to other economic sectors, this specific market is multilateral, with episodes so peculiar that it cannot be compared to other industries, such as: natural monopolies; risk apportionment in the free market; international generation treaties; mandatory quotas; submarkets and a national interconnected system.

    Legal changes and the distribution of standards deeply affect the electricity sector, due to its multilateral nature that encompasses the entire production chain, as generation, transmission and distribution are interconnected.

    Therefore, the establishment of a Brazilian code of electricity can be a relief for the segment, as proposed by the special commission of the House of Representatives (Request No. 02/2019 – Congressman Arnaldo Jardim). However, the unification of laws cannot stifle the dynamics of a market that is undergoing enormous technological changes and is adapting to a disruptive new system of doing business.

    A draft bill (No. 1/2019) was submitted last October 9, to receive contributions from civil society and industry agents. The text, unfortunately, does not bring anything new or any innovation, it being a simple compilation of what already exists. Obviously, it was preliminary content, although more dynamism was expected.

    The structure of this code must integrate and encompass all production and consumption in order to provide equal treatment for those involved. In addition, it must make it possible for the market to improve and allow the absorption of innovative and technological resources, in order not to risk becoming an evolutionary obstacle and contrary to the modernization efforts of the electricity sector.
    On the other hand, the preparation of this draft must have as a premise consistency with the provision of other codifications, such as the Civil Code and the law on court-supervised reorganization and bankruptcy. This approach will allow the energy segment to be widely understood by civil society, despite its specificity, paving the way for opening up the free energy market to all consumers.

    It would also be prudent for framers to provide clear and definite treatment to the form of access, setting appropriate conditions and means. However, addressing defaults cannot be overlooked either because of their significant impact on the multilateral environment, the risks of which are apportioned among the creditors.

    Compliance with court-supervised reorganization and bankruptcy law is also of the highest order. It is undeniable that this is a fundamental input for any business activity. However, the access of companies undergoing financial recovery may add an enormous risk, if there is no provision for the privileged treatment of claims arising from electricity purchase contracts.

    Another sensitive and important point for the coexistence of a sector codification is its consistency with the Consumer Protection Code, without which its legitimacy will inevitably be challenged in court. Accordingly, it is essential to maintain all guidelines that govern consumer legislation, striving for a supplier-customer balance, in order to foster a mature and reliable relationship between economic agents and the civil society.

    At a time when distributed generation has been gaining more space and transformed consumers into independent agents, the Brazilian code of electricity cannot refrain from addressing the matter in detail. The key is to establish the characteristics of individuals who become an electricity supplier to the system and who remain the ultimate recipients of a service.

    Finally, the coalition and unification of a specific legislation of the electricity industry can generate good results, especially by making the business environment clearer and more comprehensible, providing legal certainty for investors and economic agents, as well as ensuring rights to society and consumers in general.

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