The new concept of inspection of the brazilian electricity sector

01May

May 1st, 2021, by Thiago Carvalho Fonseca, energy lawyer of the Tortoro, Madureira & Ragazzi Advogados

Completion work presented to the lato sensu Graduate Program of the Ribeirão Preto Law School of the University of São Paulo as a partial requirement for obtaining the title of expert in Administrative Law. Advisor: Professor Doctor Thiago Marrara de Matos.

THIAGO CARVALHO FONSECA

Lawyer. Expert in Civil Procedure and Administrative Law from the Faculty of Law of Ribeirão Preto, University of São Paulo (USP).

Summary: I. Introduction – II. The Brazilian “regulatory” State – 2.1. Liberal state – 2.2. Social state – 2.3. Regulatory state – 2.4. The Brazilian “regulatory” State – III. National Electric Energy Agency – ANEEL – 3.1. Legal nature of ANEEL – 3.2. New legal framework of regulatory agencies – 3.3. The supervisory and punitive actions of ANEEL – IV. Good regulatory practices and responsive inspection – 4.1. The beginning of the supervisory action – 4.2. The need for change – 4.3. OECD principles of good regulatory practice – 4.4. Responsive regulation – V. New concept of inspection – 5.1. Inspection on 3 levels – 5.2. Case studies – 5.3. The Normative Resolution No. 846, of 2019 – VI. Conclusion – VII. Bibliography.

Summary: Regulatory activity plays a prominent role in the electricity sector in pursuit of public and private interests. In addition, the supervisory and sanctioning powers of the National Electric Energy Agency – ANEEL are powerful tools of this action. Thus, this article aims to strengthen the research front related to the inspection process of ANEEL, notably after the Normative Resolution No. 846 of 2019, which, incorporating principles of good international regulatory practices of the Organization for Economic Cooperation and Development – OECD, approved the new procedures, parameters, and criteria for the imposition of penalties on agents in the electricity sector.

Keywords: 1. National Electric Energy Agency – ANEEL; 2. Inspection process; 3. Principles of good regulatory practices of the Organization for Economic Cooperation and Development – OECD; 4. Three-phase inspection model; and 5. Normative Resolution no. 846, of 2019.

Abstract: In pursuing public and private interests, regulatory activity plays a prominent role in the electricity sector. In fact, the inspection and sanctioning powers of the National Electric Energy Agency (Agência Nacional de Energia Elétrica – ANEEL) are powerful tools for this performance. Thus, this article intends to strengthen the research front related to the ANEEL inspection process, notably after the Normative Resolution No. 846, of 2019, which, incorporating principles of good international regulatory practices of the Organization for Economic Cooperation and Development – OECD, approved the new procedures, parameters and criteria for imposing penalties on agents in the electricity sector.

Keywords: 1. National Electric Energy Agency (Agência Nacional de Energia Elétrica – ANEEL; 2. Supervision Process; 3. Principles of good regulatory practice of the Organization for Economic Cooperation and Development – OECD; 4. Supervision three-phase model; 5. Normative Resolution No. 846, of 2019.

I – INTRODUCTION

In pursuit of public and private interests, regulatory activity plays a prominent role in the electricity sector, in the desire to ensure the greater efficiency of this regulated market. In addition, the supervisory and sanctioning powers of the National Electric Energy Agency – ANEEL are powerful tools of this action.

The work to be developed aims to strengthen the research front related to the new inspection process of ANEEL, consolidated after the publication of the Normative Resolution No. 846 of 2019, which approved the new procedures, parameters, and criteria for the imposition of penalties to agents of the electricity sector and provides for general guidelines of the agency’s inspection.

At first, the aim is to establish basic concepts and guidelines, capable of helping in the final understanding of the developed theme. For this reason, Item II of this article presents the narrative about State models. In comparison with the liberal and social models, the characteristics of the Brazilian “regulatory” State will be presented.

To this end, a brief examination will be made of the historical political and economic scenario in Brazil, from the former Brazilian president Fernando Collor, through the institution of the National Privatization Program, to the government of former president Fernando Henrique Cardoso, with the enactment of Law No. 8.987, of February 13, 1995, which provides for the system of decentralization of public services, through the regime of concession and permission for its provision. In addition to the large Brazilian privatizations that occurred in this period, in various sectors of the economy, there has been the birth and strengthening of regulatory agencies, constituted with the function of regulating and supervising economic activities under the public service regime.

Subsequently, in Item III, we intend to discuss ANEEL – then established in 1996, to regulate and supervise the production, transmission, and commercialization of electricity – as well as the new Brazilian legal framework of regulatory agencies (Law 13.848, 2019).

Moreover, concerning the supervisory action of ANEEL, it is appropriate to highlight that Article 16, of Decree No. 2.335, of October 6, 1997, already established that this “[…] will primarily aim at the education and guidance of the agents of the electricity sector, the prevention of conduct that violates the law and contracts and the decentralization of complementary activities to the States”.

In items IV and V, the study is directed to the inspection process of ANEEL. Particularly in Item IV, an analysis of the initial model of the ANEEL inspection process is established¹, which lasted for almost 20 years

Initially, ANEEL presented a more incisive approach to the market, with the practice of an evidently punitive administrative process.

The idea prevailed that the regulator should supervise as many agents and facilities as possible in compliance with all regulatory standards. And, in the event of non-compliance, use administrative sanctions (fines) as an instrument of persuasion to comply with the rules.

However, with the evolution of the state and society over the years, this essentially punitive administrative model proved obsolete, calling for changes by the actors involved. In the same period, the organization for Economic Cooperation and Development – OECD published a paper with eleven principles of good regulatory practices, which contributed to the formation of a new concept of regulation in Brazil.

Also in Item IV, other issues were considered, such as the OECD principles that were incorporated by the regulator, such as evidence-based execution, selectivity, risk focus and proportionality, responsive regulation, compliance promotion, and information integration.

Other principles were already present, such as the principles of transparent governance, a clear and fair process in inspection action and professionalism. And finally, some remain as challenges, being the long-term vision and coordination and consolidation.

For this reason, Item V, directing to the completion of the proposed work, presents the new three-phase ANEEL inspection model.

At the first level, the monitoring level, all the agents of the electricity sector are allocated. Thus, ANEEL will monitor these companies using databases and quality and performance indicators. From this inspection, accompanied by analytical intelligence, the regulator will carry out a diagnosis to identify possible ventures that present a potential risk to the sector. In addition, monitoring agents will allow the establishment of reference or quality standards for the sector.

In the second level, or action at a distance, the universe of agents is significantly smaller and contemplates the projects selected through the preliminary risk analysis. Thus, for these agents, inspection will continue more rigorously with a close examination of detailed qualitative information. According to the regulator, at that moment, it is possible the emergence of occurrences in which the initial risk assessment is not confirmed, the so-called “False Positive”.

Finally, in the third and last level, we note the face-to-face action of the regulator on certain agents to collect evidence or, even, inspect a certain type of inspection. However, the intelligence of this model shows that this type of incisive action will be carried out after the previous steps, in a residual way. Including, for this reason, with the exhaustion of the information diagnosis, the performance in loco will be more directed and objective to the possible points of attention.

After and objectively, also in Item V, some case studies were presented by a Regulatory Expert and Deputy Superintendent of Inspection of the Generation Services of ANEEL, in her academic work on the reform of the traditional model of inspection of the Brazilian electricity sector, with some surprising and satisfactory results to the aforementioned three-phase model.

Following and finally, the work contemplated an analysis of the Normative Resolution No. 846 of 2019, which approved the new procedures, parameters, and criteria for the imposition of penalties to the agents of the electricity sector and provides general guidelines of the inspection of ANEEL.

In this examination, some regulatory innovations were pointed out, such as the establishment of general guidelines of the ANEEL inspection process, with emphasis on the exception that the “supervision will primarily aim at the education and guidance of agents in the electricity sector, the prevention of conduct that violates the law, regulations and contracts” (Article 2).

Among other points, it was found that Chapter II of the aforementioned Normative Resolution ratified the implementation of the principles of good regulatory practice validated by the OECD, notably evidence-based implementation, selectivity, responsive regulation, and information integration.

For these reasons, in conclusion, it is understood that it is not only the establishment of a new rite to be observed by the regulator and the regulated agents. Quite the opposite. This new regulation embodies a new concept of the regulator’s performance, which will be more active and guiding, which may reflect in a reduction in the number of fines and administrative appeals, which often result in legal disputes.

Thus, from then on, the entire conduct of the regulator in the inspection process should be revisited and conducted by the aforementioned precepts, under penalty of delegitimizing the administrative act itself, making it null and void in its own essence.

Finally, it should be noted that this work was developed basically by bibliographic and documentary research in the legal area. To this end, normative diplomas of the domestic legal system were analyzed and raised, followed by the analytical comparison of doctrinal research and articles extracted from the electronic pages of ANEEL and OECD.

ITEM II – THE BRAZILIAN “REGULATORY” STATE

2.1. LIBERAL STATE

The liberal State presented as a guideline the natural, self-regulated market, in which the employment relationship was essentially conducted by the will of the parties, without state interference.

The limitations on the power of the sovereign imposed by the Liberal State model are a fundamental point of its nature. Such limitations constitute the primary objective of the movement that culminated in the Liberal State because the ideological current that ultimately prevailed within the French Revolution aimed to create a self-regulated market immune to any kind of state interference. Thus, through the conception of “general and abstract” law, carrying strictly formal equality and economic abstentionism, the Liberal State attributed legal certainty to mercantile exchanges, created a labor market full of cheap labor (POLANYI, 1957, p. 73), and ensured the private initiative to carry out any potentially profitable activity².

Thus, it sought to counter state sovereignty and absolutist regimes, establishing as precepts the right to property and freedom of the individual. And, thus, it was intended to situate a dichotomy between political and economic decision-making plans.

On these premises, until the beginning of the twentieth century, the idea of a natural and self-regulated market prevailed, immune to state interference of any kind, in which free competition and the agents themselves tended to direct the factors of production.

The natural character of how the market works, as Araujo recorded very well, “it came to be called by Adam Smith, in the classic work The Wealth of Nations, as the invisible hand. In the market, a kind of invisible hand would guide its operators to the correct applications of resources”³.

However, the negotiating equality on which liberalism was founded was merely formal, in the face of the economic, social, and political hegemony of the (bourgeois) ruling class concerning the proletariat. In addition, some structural issues were placed in the background, such as working conditions, the mobility of people and goods, incentives in production, among others. This situation contributed to the collapse of this State model.

2.2. SOCIAL STATE

Contesting the consequences arising from the classical liberal market model, after the First World War (1914-1919) and the Great Depression, also known as the crisis of 1929, the Social State manifests itself in the search for balance between capital and labor, as well as in the mitigation of social conflicts.

This peak period will last for another half-century and will only go into decline from 1880, along with the end of this phase of capitalism. The liberal spirit will be strongly shaken by the First World War, when a strong tendency towards the Welfare State begins to exist (LASKI, 1973, p. 172), and it will no longer be possible to speak of a Liberal State in the above molds described⁴.

Therefore, the dichotomy that once prevailed between political and economic decision-making plans ceased to exist. And, thus, the State began to exert its direct influence in various sectors of the economy through induction, direction, and absorption of its own activities.

In this regard, it is appropriate to highlight the assertiveness of social rights, such as education, health, work – such as the establishment of minimum wage, maximum working day, labor charges–, security, social security, among others.

It was a significant change in the State’s own legal structure, which began to follow, participate and define the developments of the economic structure itself. Including, the constitution of public entities and companies.

As stated both by Nusdeo (2005) and by Araujo (2013, p. 27), this new scenario also had some reservations, namely: (a) own interests and possibly distinct from the State and the ruling class; (b) pressure groups; (c) the power of bureaucracy and juridification, the latter being a phenomenon of multiplication of legal and regulatory norms, which eventually cannot be absorbed naturally by the market; (d) the absence of a clear and objective boundary between the areas proper to each of the decision-making centers – State and Market –; (e) public debt.

2.3. REGULATORY STATE

It also sought to reduce the ”weight” of the State to the extent that the level of public debt was not necessarily reflected in the quality of services made available to the population.

Thus, notably in Latin America and Europe, we are faced with a wave of privatizations of state entities and companies, as well as with the liberalization of the market (NUSDEO, 2005) (ARAUJO, 2013, p. 27).

The last decade of the twentieth century saw the reappearance of liberal concepts, intending to contain the State’s role in the economy as a direct producer of goods and services. The idea was propagated that state-owned enterprises would be more efficient if they were controlled privately by the market.

However, the concessions, permits, and authorizations of certain services of public interest were essentially accompanied by regulation as a means of the state intervening indirectly in the activities without exercising its political interference.

Thus, in the same period, notably following the Anglo-American model, in which the State delegates the management of public services to private companies, there has been the establishment and strengthening of independent administrative agencies, called regulatory agencies, then instituted with the function of regulating and supervising certain sectors of the economy (Cruz, 2009, p. 55).

Hence, an inductive action of the State follows, with the issue of regulatory norms, to the detriment of public property as a means of direct exploitation of economic activity and the possible vices previously detected in the social State.

This State model has gained strength in recent years, and, in Brazil, there has been the establishment of several regulatory agencies in the most different sectors of the economy, in the fields of Electricity, Petroleum, Natural Gas and Biofuels, Telecommunications, Health Surveillance, Supplementary Health, Water, Water, and Land Transport, among others. In any case, it is appropriate to highlight that the Brazilian State remained the holder of the activities considered exclusive and strategic.

2.4. THE BRAZILIAN “REGULATORY” STATE

The Federal Constitution of 1988, in its Article 174, establishes that “as a regulatory agent and regulator of economic activity, the State will exercise, in the form of law, the functions of supervision, incentive, and planning, this being determinant for the public sector and indicative for the private sector”. And, as a result, article 175 provides that “it is the responsibility of the Government, under the law, directly or under the regime of concession or permission, always through a bidding process, to provide public services”.

Supported by these constitutional permissibles, in the government of former president Fernando Collor, through Law No. 8.031, of April 12, 1990, the National Privatization Program – PND was established, which aimed to reorganize the strategic position of the State in the economy.

The concept was to contribute to the reduction of the size of the State and the public debt itself, as well as to allow the resumption of investments in companies and activities that would be transferred to private initiatives. Collaborating, also, for the modernization of the Country’s industrial park.

Thus, between the years 1990-1992, 18 companies operating in the extraction industry of the economy, especially in the steel sector, were privatized. And, in the year 1993, now in the government of former President Itamar Franco, there was the privatization of the National Iron and Steel Company – CSN.

About this historic meander, Araujo adds that “between 1990 and 1994, 33 companies in the steel, fertilizer, and petrochemical sectors were privatized, and eight billion and five hundred million dollars were raised”⁵.

However, the idea of the regulatory State gained strength in the government of former president Fernando Henrique Cardoso, after the edition of Law No. 8.987, of February 13, 1995, which provides for the system of decentralization of public services, through the regime of granting and permitting their provision, provided for in the aforementioned article 175 of the Magna Carta. And, also, after Law No. 9.074, of July 7, 1995, which establishes rules for granting and extensions of concessions and permits for public services.

There were several aspects regulated in the law, such as those related to contracting, specifying the charges of the grantor and the concessionaire, the bidding, the users, the tariff policy, and, finally, those that indicate the profile of the institute. Although somewhat laconic, it was also intended discipline for public service permits⁶.

For Maria Sylvia Zanella Di Pietro, the concession scheme was a pioneer in the transfer of the execution of public service by the private.

The concession of public service was the first form that the Public Authority used to transfer the performance of public service to third parties. This occurred from the moment when, coming out of liberalism, the State was taking on new burdens in the social and economic field. From there, it was felt the need to find new ways of managing the public service and the private activity exercised by the Administration. On the one hand, the idea of specialization, to obtain better results; on the other hand, and with the same objective, the use of private management methods, more flexible and more adaptable to the new type of activity assumed by the State⁷.

Under that legislation, a public service concession shall be deemed to “delegation of its provision, made by the granting authority, by tender, in the competition mode, to the legal entity or consortium of companies that demonstrate the capacity for its performance, at its own risk and for a specified period” (Article 2, paragraph II). Permission, in turn, is the “delegation, on a precarious basis, by tender, of the provision of public services, made by the granting authority to the natural or legal person who demonstrates the capacity for its performance, at its own risk” (Article 2, paragraph IV).

Concerning the government of former president Fernando Henrique Cardoso, there is the edition of Law No. 9.491, of September 9, 1997, which, in addition to changing the procedures relating to the National Privatization Program – PND, expressly repealed Law No. 8.031, of 1990.

In addition, the new legislation, Article 1, Paragraph V, establishes that the NDP presents as a fundamental objective “allow the Public Administration to focus its efforts on activities where the presence of the state is fundamental to the achievement of national priorities”.

During this period, large Brazilian privatizations were implemented in various sectors of the economy, such as Companhia Vale do Rio Doce (CVRD), Telebrás, Eletropaulo, among others.

In fact, from 1997, the major privatizations were carried out, with the sale of Companhia Vale do Rio Doce, the termination of the privatization of Rede Ferroviária Federal S.A. (RFFSA), the sale of Malha Nordeste, the lease of the container terminal 1 of the Port of Santos, the sale of Banco Meridional do Brasil S.A., with the collection, in total, of more than four billion and two hundred and sixty-five million dollars (ARAUJO L. E., 2009). Emphasis was also placed on state-level privatizations. The sale of the Union-owned telecommunications companies became possible with the edition of the General Telecommunications Act on July 16, 1997. In the same year, cellular mobile telephony concessions were tendered for three areas of the national territory in the amount of four billion dollars⁸.

And, with this, there is the end of the state monopoly in certain activities of the economy, redefining its role of action. On the other hand, in the same period, we note the establishment and strengthening of regulatory agencies, then instituted with the function of regulating and supervising economic activities under the public service regime.

Although regulation in Brazil is relatively new, as it began in the second half of the 1990s, it introduced a new phase in the economy. From then on, an efficient regulatory system was needed, which is fundamental, as the privatization process reached essential services. The regulatory function is essential for the privatization process since, most of the time, these are complex processes that are carried out through long-term contracts⁹.

Thus, in 1996, the National Electric Energy Agency – ANEEL was established, “municipality under a special regime, linked to the Ministry of Mines and Energy, with headquarters and forum in the Federal District and term of indefinite duration”, with the “purpose to regulate and supervise the production, transmission, and commercialization of electricity, under the policies and guidelines of the Federal Government” (respectively, Articles 1 and 2 of Law No. 9.427 of December 26, 1996).

In the following years, other regulatory agencies were created, such as the National Telecommunications Agency – ANATEL¹º and the National Petroleum, Natural Gas, and Biofuels Agency – ANP¹¹.

The process of denationalization (or privatization of state-owned enterprises), as we have seen, has led to the expansion of the concessions regime by transferring various public services to private companies and has led to the rising of regulatory agencies. These entities, depending on the law regulating the service granted, may both have the nature of licensees in the contract and may have been created solely to exercise control over the activities granted and the performance of the concessionaires. Whatever their position, it is fundamental and unfathomable the function that the law grants them: they are responsible for exercising strict supervision over the execution of the service and the performance of the concessionaire, as one cannot forget that the service needs to be adequate and this represents a guarantee for users, who cannot be harmed by the oversight omission of the Public Authority¹².

In addition, Lucia Helena Salgado argues that the function of regulation in the economy:

[…] is to promote the public interest, ensuring, on the one hand, the profitability that makes private investments possible, and, on the other, the well-being of consumers through the provision of the service, in appropriate conditions of quality and price. The major challenge for the regulator is to find the optimal point that balances the operation’s profitability and well-being¹³.

Moreover, the option of this model, in the perception of Araujo (2013, p.39) and Binenbojm (2008, p. 253), was based on the autonomy of regular agencies, which lead to potential external investors the signs of transparency and technicality.

In any case, there are some well-founded criticisms about the implementation of this neoliberal model in Brazil, notably the fact that the State is still present, either because of the notable rise in public spending in recent years or because of the high and complex tax burden. According to Araujo¹⁴:

[…] the application of the neoliberal ideology in Brazil did not mean the change from the Social State model to the regulatory State model. Rather, it represented the insertion of some ingredients of the regulatory State model, giving rise to a hybrid figure in which a State still presents itself with large proportions and influence not only through taxation and public expenditure but now also through the issuing of norms […]. In fact, by adopting characteristics of the regulatory State, the Brazilian State disengaged from some obligations, which began to be adequately charged by private investors, and the citizen found himself in the contingency of having to pay taxes and tariffs for services that were originally the obligation of the State.

However, without entering into ideological discussions, it is understood that this neoliberal model, even if implemented in a hybrid way in Brazil, represented a significant change for the country, as it allowed a new conception of the role of the State. After all, faced with the diversity and complexity of the economic and social demands that are directed to the State, the regulatory agencies represent a manifest improvement of the institutional disposition, in the sense of providing a shorter, effective, and technical response of the Public Administration.

On these grounds and for hindering the illegal use of the State for private purposes, given the scenario of systemic corruption evidenced in Brazil, it is understood that this model reflected in a significant improvement in the National reality and in the very provision of certain public services by private agents.

ITEM III – NATIONAL ELECTRIC ENERGY AGENCY – ANEEL

3.1. LEGAL NATURE OF ANEEL

On the legal nature of regulatory agencies, Odete Medauar clarifies that¹⁵:

Brazilian regulatory agencies, at a federal level, began to be created from the end of 1996, with the nature of special municipalities, members of the indirect Administration. Although Brazilian antecedents of regulatory agencies are sought (especially in bodies created in the first decades of the 20th century), or it is claimed that there have always been public entities endowed with regulatory, supervisory, and normative functions, the current regulatory agencies emerged in a different context from the existing framework in the early days of the 20th century; and are endowed with different characteristics concerning old figures, for example, the attribution of composing conflicts, between users and service providers, between service providers, between consumers and suppliers, etc.

In fact, given Article 37 (XIX) of the Federal Constitution¹⁶, the National Electric Energy Agency – ANEEL was instructed via Law No. 9.427, of 1996, as “municipality under a special regime, linked to the Ministry of Mines and Energy, with headquarters and forum in the Federal District and term of indefinite duration” (Article 1) with the “purpose to regulate and supervise the production, transmission, and commercialization of electricity, under the policies and guidelines of the Federal Government” (Article 2).

Thus, concerning the legal nature of ANEEL, there was no novelty in its institution like a government agency. On the other hand, this specialty must be noted in its regime, which confers its technical, financial, and administrative autonomy.

As previously noted, regulatory agencies were established to adjust the possible failures of the free market in order to provide favorable conditions for its development. For this reason, the technicality and independence of regulatory agencies must prevail in every regulatory process.

Sometimes, it is noted the establishment of public policies coming from beliefs and preferences, regardless of ideological bias, which is eventually in the margin of one’s own social interest. Thus, the importance of ANEEL’s specialty prevails, with the scope of establishing a legally healthy and predictable environment, in principle, without political and partisan interference, with a commitment to credibility, in the search for balance between economic and social factors (CHINI and VINHAS, 2019, p. 85).

For Alexandre Chini and Guilherme Barbosa Vinhas, the decision-making independence of the regulatory agency is the particularity that distinguishes it from other state power structures, allowing the establishment of minimally perennial market rules (2019, p. 85).

For these reasons, it was necessary to establish some special attributes for the regulator, namely: its own legal personality; decision-making autonomy; own equity, and income; its directors are appointed for fixed terms; among others.

The main characteristics of regulatory agencies are administrative independence, financial autonomy, absence of hierarchical linkage − subordination − to the supervising Ministry, and stability and fixed term of office of the directors. However, it should be emphasized that only the last characteristic can be configured as distinctive of the regulatory agencies, since the others, to a greater or lesser degree, are found in any other Brazilian Public Administration municipality¹⁷.

This situation was no different with ANEEL.

In articles 3 and 3-A of Law No. 9.427 of 1996, the legislator established the various powers of the regulator, without prejudice to those established in other special laws-thus confirming its Expertise. Then, we note some provisions about the organizational structure of the entity, such as the fact that it is headed by a general director and four Directors, in a collegiate regime, with non-coincident terms of 5 (five) years – preserving its administrative autonomy –. Among other provisions, there is still a chapter on the revenues and collections of the municipality, ensuring its financial autonomy.

To detail the general provisions of the Law of No. 9.427, of 1996, based on Article 84, subparagraphs IV and VI, paragraph a, of the Federal Constitution¹⁸ Decree No. 2.335 of October 6, 1997, which confirmed the legal nature of ANEEL, as “[…] municipality under a special regime, with legal personality of public law and patrimonial, administrative and financial autonomy, with headquarters and forum in the Federal District […]” (Article 1).

Without going into the details, Decree No. 2.335, of 1997, preserved the technicality and independence of ANEEL.

3.2. NEW LEGAL FRAMEWORK OF REGULATORY AGENCIES

In the desire to improve the functioning and articulation of regulatory agencies, especially in the face of the bureaucratic isolation generated by excessive sectorization at the federal level, on June 25, 2019, Law 13.848 was sanctioned, which provides for the management, organization, decision-making and social control of regulatory agencies.

Considered as a new legal framework of regulatory agencies in Brazil, Law 13.848 of 2019 ratifies that the special regime conferred on the regulatory agency is “characterized by the absence of guardianship or hierarchical subordination, by the functional, decision-making, administrative and financial autonomy and by the term investiture of its leaders and stability during the mandates” (Article 3).

Continuous act, Articles 4 and 5 of Law 13.848, of 2019, confirm that, in the preservation of the public interest, the decision-making process of the regulator will be accompanied by some constitutional principles, namely: proportionality, reasonableness, and motivation (FONSECA, 2019).

There is also concern about the regulatory power, considering the systemic and economic problems that the definitions of these specific bodies may cause. Thus, standardizing some governance practices, Law 13.848 of 2019 states that changes in normative acts of general interest of economic agents, consumers, or users of the services provided must be preceded by a Regulatory Impact Analysis (AIR), public consultation, and, eventually, public hearing (FONSECA, 2019).

Article 7 establishes that the decision-making process of the agencies shall be collegial, in the case of regulation. The caput of article 8 protects the publicity of the act, insofar as “the deliberative meetings of the board of directors or of the collegiate board of the regulatory agency shall be public and recorded electronically”. Necessarily, “the minutes and proposals for amending normative acts of general interest to economic agents, consumers or users of the services will be subject to public consultation, before the decision being taken by the board of directors or the collegiate board” (article 9). However, if the case, “the regulatory agency, by collegiate decision, may call a public hearing to form a judgment and make a decision on a matter considered relevant” (Article 10).

Specifically for the electricity sector, reasoning about the importance of the company’s participation in the decision-making process of ANEEL, Urias Martiniano Garcia Neto warns that¹⁹:

Considering the existence of these mechanisms, it should be clarified that there is no point in submitting the relevant topics of the electricity sector to the population for the contribution without ANEEL actually listening to the lawsuits of the agents and seeking to understand the need for the market, otherwise, these instruments are innocuous.

This is a legitimate concern, which aims to preserve Law 13.848 of 2019, notably the importance of contributions arising from public consultations and hearings. Thus, it is understood that the regulator should evaluate and weigh, in a motivational way, all the manifestations of the agents.

In addition, because of the regulator’s decision-making autonomy, Article 13 provides that the agency must necessarily decide the matters submitted to its consideration within time limits laid down in the legislation or its rules of procedure.

Other important aspects were regulated in the law, such as the establishment of counterweights to the action of regulators. Initially, on the external control of regulatory agencies, Article 14 describes that this will be exercised by the National Congress, with the aid of the Court of Auditors of the Union.

On the other hand, in addition to the Strategic Plan, with the description of the objectives, the goals, and the expected results for each quadrennial period, the regulator should draw up annually its management plan, with the definition of actions, results, and goals related to the finalistic and management processes. There is also the obligation to establish a Regulatory Agenda, which will contain all the priority topics to be regulated in the period.

Another important counterweight is the establishment of an ombudsman in each regulatory agency, without hierarchical subordination, which cares for the quality and timeliness of the services provided, as well as monitors the internal process of ascertaining complaints and complaints of the regulated against the action of the regulator itself. It is also responsible for drawing up an annual ombudsman’s report on the activities of the agency (Article 22).

Finally, the new legal framework deals with the operational interaction between regulatory agencies – such as the possibility of “[…] edit joint normative acts providing on the matter whose discipline involves economic agents subject to more than one sectoral regulation” (Article 29) – and between the competition, consumer and environmental protection bodies.

From this perspective, given the possible obstacles caused by the excess of state bureaucracy, it is understood that Law No. 13.848, of 2019, in addition to standardizing the form of action and articulation, strengthens the role of regulatory agencies in Brazil.

3.3. OF ANEEL’S SUPERVISORY AND PUNITIVE ACTIONS

Without submerging in the doctrinal discussion on the extension of the normative power conferred on regulatory agencies, in the face of strict or non-binding submission to the principle of legality (Article 5, paragraph II, of the Federal Constitution²º), it is considered that the Law No. 9.427, of 1996, specifies the scope of ANEEL’s activity.

Promptly in articles 3 and 3-A, the legislator established the various powers of ANEEL without prejudice to those established in other special laws. Concerning this work, it is worth highlighting item X, of Article 3, which contemplates the competence of ANEEL to fix the administrative fines to be imposed on concessionaires, permitees, and authorized people of electrical installations and services. The said legal device is transcribed:

X – set the administrative fines to be imposed on concessionaires, authorizing person and authorized electric energy installations and services, observing the limit, for infringement, of 2% (two percent) of the billing, or the estimated value of the energy produced in the cases of self-production and independent production, corresponding to the last twelve months before the issuance of the infraction notice or estimated for a period of twelve months if the infringer is not in operation or has been operating for a period of fewer than twelve months. (Included by Law No. 9.648 of 1998)

In addition, the Decree of No. 2.335, of October 6, 1997, in Articles 16 and 17, regulates the supervisory action of ANEEL, which presents intending to guide the agents of the electricity sector, preventing possible violations of the law and contracts, as well as preserving the decentralization of activities complementary to the States.

Article 16 provides, in its paragraphs, that the supervisory action of ANEEL will “instruct agents and consumers in compliance with their contractual and regulatory obligations” (subparagraph I), “enforce contracts, rules and regulations for the operation of electricity services and installations” (subparagraph II), “ensure compliance with quality, cost, time and safety standards consistent with the regional and specific needs of each category of the agent involved” (subparagraph III), “ensure compliance with the requirements of quantity, suitability and purpose of electricity services and installations” (subparagraph IV) and “subsidize, with necessary information and data, the regulatory action, aiming at the modernization of the institutional environment of ANEEL” (subparagraph V).

Consequently, Article 17 reaffirms the punitive competence of ANEEL, establishing that the agency may adopt, under the regulatory norms and the respective contracts, the following administrative sanctions: (I) written warning; (ii) fines; (iii) temporary suspension of participation in tenders for obtaining new concessions, permits or authorizations; (iv) impediment to contract with the Municipality, in case of total or partial non-performance of obligations defined by law, in contract or an authorizing act; (v) administrative intervention; (vi) revocation of the authorization; and (vii) expiration of the grant or permit.

In addition, Articles 32 and et seq. of Law No. 8.987, of February 13, 1995, which provides for the system of decentralization of public services through the regime of granting and permitting their provision.

As an example, Articles 32 and 38 of the said Law are mentioned. The first prescribes the possibility for the granting authority to intervene in the concession to ensure the adequacy of the provision of the service, as well as the faithful compliance with the relevant contractual, regulatory, and legal norms. The second provides for the consequences of the total or partial non-performance of the contract by the concessionaire or permitee, which may justify, at the discretion of the granting power, the declaration of expiration of the concession or permit or the application of contractual sanctions.

With the subsidiary application, there is Law No. 9.784, of January 29, 1999, which “establishes basic rules on the administrative process within the scope of the direct and indirect Federal Administration, aiming, in particular, at the protection of the rights of the administered and the better fulfillment of the purposes of the Administration” (Article 1). Article 68, in addition to reaffirming due legal process in the administrative field, provides that sanctions will be monetary in nature or consist of an obligation to do or not to do.

Given this legal framework, taking advantage of its prerogatives, ANEEL edited the Normative Resolution No. 846 of 2019²¹, then object of this study, which approved the new procedures, parameters, and criteria for the imposition of penalties on agents of the electricity sector, and also provides for general guidelines for inspection of ANEEL.

ITEM IV – GOOD REGULATORY PRACTICES AND RESPONSIVE INSPECTION

4.1. THE BEGINNING OF THE SUPERVISORY ACTION

As mentioned, ANEEL was established through legal order to regulate and supervise the production, transmission, distribution, and commercialization of electricity under the policies and guidelines of the federal government.

Notably concerning the supervisory action of ANEEL, Decree No. 2.335, of October 6, 1997, in Articles 16 and 17, regulates the supervisory action of ANEEL, which presents intending to guide the agents of the electricity sector, preventing possible violations of the law and contracts, as well as preserving the decentralization of activities complementary to the States.

On this panorama, on October 06, 1998, Resolution No. 318 was instituted²² to introduce the procedures for determining infringements and applying penalties to delegated agents.

According to Camilla de Andrade Gonçalves Fernandes, then a member of ANEEL’s Superintendence of Inspection of Generation Services, other administrative measures were adopted by the regulator, especially between 1998 and 1999, such as the establishment of a task force for inspection of facilities and service providers in the Brazilian electricity sector.

In addition to the objective of modeling the inspection activity itself, establishing procedures for this, the ostensible presence of civil servants with regulated companies also fulfilled the role of making the new agency known, of establishing the first relationship links between regulated agents and the regulator and to inventory the sector through data and information collection. As pointed out by the Accounting of the first years of the agency’s operation, the scope of the supervisory action was determined mainly in terms of the amount of face-to-face inspections carried out and the goal then established by the agency itself to inspect 100% of delegated agents and facilities in the sector was met²³.

The idea prevailed that the regulator should supervise as many agents and facilities as possible in compliance with all regulatory standards.

Subsequently, if any non-compliance was identified, with its classification in a list of infringement modalities, the penalty was applied to the agent by issuing a Notice Agreement – TN. And, given this, the inspection officer had the power to present the clarifications and relevant documents, which, in conjunction with the inspection report, were submitted for analysis and deliberation by the superintendent of ANEEL responsible for the supervisory action.

This construction was based on the belief that regulated companies act as rational actors that respond predominantly to economic incentives. As a consequence, the traditional inspection model of the electricity sector exercised by ANEEL can be classified as punitive and was structured following linear ordering based on three steps: programming, execution, and judgment (see Figure 1), without structural connection with the process of elaboration of rules and standards²⁴.

Even in the face of a normative evolution, evidenced in the publication of the Normative Resolution No. 63, of May 12, 2004²⁵, which repealed the previous rule, prevailed this eminently punitive action of the regulator.

In the years that followed, the agency evolved this model incrementally, creating tools, improving ways of execution, and dealing with the advantages and disadvantages of the adopted archetype. In summary, in the traditional model, the main inspection performance criterion meant: supervise more (inspect as many agents and facilities as possible); supervise everything (verify compliance with all standards) and punish many times (use administrative sanctions as a preferential instrument for persuading agents towards compliance with standards). Such a model was then consolidated and became traditional after 15 years of practice²⁶.

It was clearly a more forceful approach, characterized as an evidently punitive administrative process, which essentially did not observe the educational and preventive precepts that should guide ANEEL’s conduct, under the aforementioned articles 16 and 17 of Decree No. 2.335, 1997.

4.2. THE NEED FOR CHANGE

The state and society have undergone several significant changes in the last two decades. Today, we are experiencing a new age of information, in which technology influences the very way we face our reality. Social, economic, political relations have become even more complex.

For the electric power segment, this situation was no different, for example, from the various special laws that were published in this period²⁷.

This scenario also prompted a new reflection on how ANEEL should approach its inspection activity. The fact is that the idea of an essentially punitive administrative action proved obsolete, calling for changes by the peers involved.

This context has led to the expectation of the various stakeholders if it changed substantially. Consumers began to demand higher quality standards for electricity services in terms of quantity, continuity, price, safety, and deadlines. The regulated companies began to demand the reduction of charges arising from the supervisory activity and to complain about the purely punitive action. The government, in turn, qualified its requirement for alignment of the agency’s performance with its guidelines and public policies. On the other hand, the civil servants, in the condition of effective and with the maturity of the acquired practice, began to re-evaluate and criticize more vehemently the objectives, goals, and work procedures. The control bodies that, in this period, have significantly strengthened, and expanded and deepened their audits, charging especially higher levels of efficiency and effectiveness, transparency, and accountability.And, finally, society, in general, began to demand access to information, participation, treatment of complaints and claims²⁸.

Other factors also influenced ANEEL’s thinking, such as the maintenance of high costs, which did not necessarily reflect an improvement in the quality of the inspection process – the legal treatment was basically the same for companies that did not comply with the regency legislation, with those that did –. Also, in terms of management, according to the perception of Camilla de Andrade Gonçalves Fernandes²⁹:

[…] the performance of the activity continued to be evaluated in terms of the number of actions performed, measurement, therefore, without direct relation to the impact generated by the activity. With this traditional mental model, to improve performance it was necessary, therefore, to increase the number of inspections carried out. And, since the electricity sector has grown consistently in recent years, greater and greater efforts were needed to ensure the presence of the inspection in not too long cycles for each inspected company. Thus, the limit of the ratio “number of tax officers versus quantity of facilities/agents” was exceeded for the application of the traditional model.

All these conjunctions contributed to a significant change in understanding. Thus, the regulator sought a new benchmark to be followed.

4.3. OECD PRINCIPLES OF GOOD REGULATORY PRACTICE

In the same period, the Organization for Economic Cooperation and Development – OECD, intergovernmental forum, devoted to the rise of convergent standards in various themes, notably in the economic area, published the Regulatory Enforcement and Inspections – Best Practice Principles for Regulatory Policy³º, which contributed to the formation of a new intelligence by the agents of ANEEL.

The main theoretical framework used in the reform was the 2014 OECD publication “Regulatory Enforcement and Inspections – Best Practice Principles for Regulatory Policy”, which presented eleven principles of good regulatory inspection practices. The content of this material and its bibliographic references fit like a glove for the elaboration of change projects. In addition to the complete adherence with the collection of articles and books studied, the material offered a pragmatic and applied view of the theoretical concepts addressed. Furthermore, the material offered the team courage and encouragement in the face of the need for change by pointing out that the challenge of adopting better inspection practices is current and universal and that few countries in the world have carried out significant reforms in this field, revealing a fertile field for innovation in the inspection role in the public sector³¹.

As allocated above, eleven principles of good regulatory practice have been established by the OECD, namely³²: (I) Evidence-based execution; (ii) Selectivity; (iii) Risk focus and proportionality; (iv) Responsive Regulation; (v) Long-term vision; (vi) Co-ordination and consolidation; (vii) Transparent governance; (viii) Information integration; (ix) Clear and fair process; (x) Compliance promotion; and (xi) Professionalism.

The concept of evidence-based enforcement suggests that regulatory inspections and inspections should be based on evidence. And after that, the collected data should be evaluated regularly.

Selectivity guides that, where possible, the promotion of compliance and enforcement of regulatory standards should be left to market forces, the private sector, and civil society. The regulator is not able to make itself present at all times, in all fields of its competence. The idea is to optimize the allocation of resources judiciously. In addition, always seeking this optimization, the principle of information integration indicates that information and communication technologies should be used to maximize the risk focus, assisting in coordination and sharing of information.

The OECD recommends the inspection should be based on risk and proportionality, i.e., the assiduity of inspections and the resources employed should be proportionate to the level of risk. Actions should be designed to mitigate the risk posed by infringements.

The principle of responsive regulation, which will be detailed in due course, prescribes that the supervisory actions need to be segmented under the history and behavior of the supervised companies.

The long-term vision principle indicates the need to establish clear and strategic long-term supervisory planning.

In turn, the principle of coordination and consolidation recommends that inspection functions should be coordinated and consolidated, if necessary, since reducing the number of duplications and overlaps saves public resources. The principles of transparent governance and professionalism were already present in the Brazilian legal system, and they contemplate the idea of transparency in the autonomous administrative and decision-making of regulatory agencies, as well as operational expertise.

The clearer and more consistent the definition of regulatory policy by governments, the greater the chance that regulatory agencies can be effectively held accountable by political power and citizens. This will ultimately increase the transparency and credibility of the regulatory system and government with society, feedback regulatory policy, and enhancing its efficiency. The OECD values and encourages the participation of society in the process of building the decisions and regulations necessary for regulation. It argues that such participation gives legitimacy to the process, in addition to increasing its effectiveness, through the identification of factors associated with its implementation that escape the knowledge of regulators or do not have due attention during the formulation of proposals that go to public consultation³³.

Next, we note the concept of clear and fair process, which in Brazil stems from the principle of due process, then present in Article 5, paragraph LIV, of the Federal Constitution³⁴. This principle signals the need to establish clear and objective procedural rules with the rights and obligations of the regulator and the regulated agent.

Finally, the promotion of compliance, with the establishment of instruments that assist in the pursuit of this end, such as the development and publication of notes and guidance materials, toolkits, checklists, among others.

On these concepts, in comparison with the Brazilian reality, it is understood that the principles of transparent governance, a clear and fair process in supervisory action, and professionalism were already present in the Normative Resolution No. 63 of 2004.

Other principles were incorporated by Normative Resolution No. 846, of June 11, 2019, such as evidence-based execution, selectivity, risk focus and proportionality, responsive regulation, compliance promotion, and information integration.

And, finally, some remain as challenges, being the long-term vision and coordination and consolidation. At this point, it is emphasized that: (a) the establishment of a clear and long-term strategic plan, which goes beyond the idea of a two-or three-year Regulatory Agenda, will contribute to legal certainty in the sector; (b) the regulatory agency’s own organizational structure and the hiring regime of its officers make it difficult to observe the principle of coordination and consolidation in Brazil.

In any case, progressing the eight years of studies, discussions, and administrative contributions, accompanied by two phases of the Public Hearing No. 77/2011, was published the Normative Resolution No. 846 of 2019, which signaled for the regulated a more educational and preventive action of ANEEL.

4.4. RESPONSIVE REGULATION

According to the OECD, responsive regulation was developed in 1992 by Ian Ayres and John Braithwaite, advocating the idea of segmenting the regulated in the inspection process, i.e., not treating everyone in one way or all similar violations the same. On the contrary, inspection should be based on the general behavior of regulated subjects, on their histories, on possible patterns of violations³⁶.

This principle, in addition to reducing the burden imposed on those regulated that already have satisfactory performance, concerning compliance with the governing rules, will result in compliance more effectively about the others. This is because the publicity of this supervisory policy will serve as an additional incentive to the regulated since compliance will ensure not only a positive relationship with the regulator but less onerous supervision.

According to OECD³⁶, the evidence demonstrates that this combination of persuasion, as support for compliance, and deterrence, by coercion, with the proper articulation between the two, is the most effective approach in the inspection process.

In their book, Ian Ayres and John Braithwaite structured this idea in the following pyramid of strategic execution – non-literal translation – (1992, p. 39)³⁷:

Figure 1 – Enforcement pyramid

Source: Responsive Regulation: Transcending the deregulation debate.

Reflecting on the Brazilian scenario, it is appropriate to highlight the pyramid of supervision presented by ANEEL, within the framework of the work “3-levels Supervision – applying the concept of ‘regulatory risk differentiation’ in the supervision of energy generation enterprises”³⁸, then defended at the IX Brazilian Congress of Regulation – 3rd ExpoABAR, held between August 17 and 20, 2015 in Brasilia:

Figure 2 – Pyramid of inspection

Source: ANEEL, within the scope of the work “Fiscalização em 3 níveis – aplicando o conceito de ‘diferenciação de risco regulatório’ na fiscalização de empreendimentos de geração de energia”.

Thus, at the base, are allocated those agents who yearn for regulatory adequacy and “want to do the right thing”. In principle, on this first level of the pyramid lies most of the companies. For the regulator, a more simplified action is appropriate, which minimizes the burdens for the agency itself and the regulated, such as the preparation of tutorials and resources for clarification of doubts.

Next, on the second level of the pyramid, are the agents who try, but do not always succeed in complying with the regulation. In this scenario, the action of the regulator should be based on the educational character of supervision – instructing and assisting –, such as the use of improvement notices, verbal warnings – whenever possible and in the case of minor violations –.

At the third level of the pyramid, the regulated companies that do not want to cooperate are allocated, that is, they do not want regulatory adequacy, eventually motivated by some subterfuge to maximize results. For this reason, in the enforcement action, the performance should be more incisive of the regulator, such as the adoption of coercive measures, such as warnings and fines.

Finally, at the last level of the pyramid, the minority of agents are allocated, those predisposed, deliberately, to regulatory non-compliance. From the background, it is possible to observe that those regulated are already determined not to cooperate. Thus, intervention measures, revocation of the authorization, or even the declaration of expiration of the concession or permit are more appropriate in the action of the regulator.

Contrasting the indeterminate application of this principle, it is appropriate to highlight the weighting of Camilla de Andrade Gonçalves Fernandes, with reference to the understanding expressed by Melo da Silva.

Some criticisms and improvements have been presented since the proposal of the theory, including the authors themselves, as compiled by Melo da Silva (2017). One of them, quite applicable to the context of the electricity sector, is that when there is already a very clear and evident assessment about the behavior of companies, which allows them to rank at the highest levels of the pyramid, the escalation of actions starting from softer measures of persuasion are not the most appropriate. Thus, the escalation of actions is not always recommended and, for the choice of the most effective and efficient supervisory action strategy, it should also differentiate the level of risk of infringements, the degree of recidivism, and severity of damage caused by violations, in addition to differentiating violations of new entrants from violations of old companies in the market³⁹.

Nevertheless, it is understood that this approach based on responsive regulation presented itself as a determining factor in the repeal of the Normative Resolution No. 63 of 2004, in which punitive supervision predominated.

ITEM V – NEW INSPECTION CONCEPT

5.1. THE 3-LEVELS INSPECTION

Supported by the idea that persuasion, as support for compliance, and deterrence, by coercion, with the proper articulation between the two, is more effective in the inspection process, ANEEL has developed its own model, then segmented into three levels.

Figure 3 – 3-level Inspection Model

Concluding this reasoning, we have the presentation of the following flowchart, which contemplates structurally the procedures and steps that are part of this 3-level inspection model:

Figure 4 – General Flow Chart of 3-level Inspection Steps

In addition, during the inspection, an analysis is made on the severity of any non-conformities verified, as well as the behavioral history of the company, in compliance with regulatory standards.

Figure 5 – The application of the Methodology

Source: ANEEL⁴²

It shall then be decided internally whether inspection will be carried out by persuasion, through prevention or promotion of compliance, or by deterrence, through coercion, with the application of possible penalties.

If the chosen strategy is the prevention/promotion of compliance, actions are carried out such as: publication of reports indicating the category of performance of each company for the market and society; issuance of alerts to companies with inadequate performance and correction guidance; and establishment of improvement/result plans for companies with insufficient performance and intermediate risks to the quality of the provision of services.

If the monitoring and investigation steps indicate high risk and/or uncooperative behavior of the company in front of the actions already carried out to prevent/promote compliance, the supervisory action follows with a coercive character. Depending on the category of non-compliance/infringement and also on the historical behavior of the company, penalties of warning, monetary fine, suspension, intervention, revocation of grants, temporary impediment of market participation, typical activities of the classic application of the sanctioning process can be applied⁴³.

It is understood that this model judiciously optimized the allocation of resources by the regulator, according to previous risk analysis. In addition, given the active and guiding action of ANEEL, the establishment of supervision routines will contribute to the improvement of performance in the search for regulatory compliance and, thus, in the quality itself in the provision of services.

The case studies prepared by ANEEL, detailed below, show that this new inspection model is effective for the sector.

5.2. CASE STUDIES

In the article developed by Camilla de Andrade Gonçalves Fernandes, on the reform of the traditional model of supervision of the Brazilian electricity sector, the Expert in Regulation and Deputy Superintendent of Supervision of Generation Services of ANEEL presented some case studies, then carried out within the scope of the regulator, which deserves due emphasis in this article.

Initially, regarding the index of compliance with the obligation to send information about the deployment of new plants to ANEEL, the expert describes that the methodology, then based on three levels, was evidently satisfactory, with an increase of forty-five percentage points in the performance of regulated, in just two years.

In August 2015, at the monitoring stage, it was verified that 51% of the companies complied with the obligation to forward the required information within the established deadline, an unsatisfactory index of compliance. Based on the new structure, a supervisory procedure was developed to guide the performance of the inspectors with a strongly preventive character and aimed at promoting compliance. The new procedure was carried out over the years 2015, 2016, and 2017, which resulted in the following measurements of the rate of information received in the given time frame: 69% in August 2016 and 96% in August 2017⁴⁴.

It also clarifies that this result can be divided into forty-one percentage points resulting from preventive and persuasive mechanisms – such as the implementation of guides, telephone support, automatic alerts via e-mail, among others -. And the rest, the four percentage points, are due to dissuasive mechanisms (coercion), such as sending notifications and applying penalties.

Figure 6 – Improvement of the level of regulatory compliance regarding the obligation to send information about the deployment of new plants to ANEEL.

Source: “A reforma do modelo de fiscalização do setor elétrico brasileiro” and ANEEL, according to the expert.

Subsequently, the expert reports a significant result in the energy transmission segment, notably in the identification of causes of forced shutdowns on transmission lines in the country, with the incorporation of the OECD principles of selectivity, risk focus, and proportionality and the promotion of regulatory compliance.

After carrying out monitoring and selection of companies with worse performance in the subject, they were urged to draw up plans for improvements with the agency, to improve the rates of identification and solution of causes of forced shutdowns, through correction of operation and maintenance procedures, replacement of equipment, training of teams, investments, etc. After the application of mechanisms of the new inspection model, there was a 45% reduction in cases of non-identification of the causes of shutdowns in transmission lines between 2014 and 2017. In the 2014/2015 calculation cycle, 29% of the shutdowns had no identified cause; in the 2015/2016 cycle, 22%; and in the 2016/2017 cycle, 16%⁴⁵.

In conclusion, he adds that this work may reflect, both in the quality of the service provided to the final consumer and in the planning of the operation itself, with the establishment of a consistent plan for the maintenance of the transmission system.

Figure 7 – Reduction in the percentage amount of classification of forced shutdowns as “without determining cause” in the electric power transmission system in Brazil.

Source: “A reforma do modelo de fiscalização do setor elétrico brasileiro” and ANEEL, according to the expert.

Finally, in the energy distribution segment, sensitive results were also observed, the expert proposes.

From the activities of monitoring performance indicators, selection of companies with worse performance, and establishment of results plans with defined goals and accompanied, by quarterly reporting from the senior management of concessionaires to the senior management of the regulatory agency, we can see cases of companies that responded positively to the inspection strategies according to the reformed model⁴⁶.

For this reason, selected companies, which committed and carried out activities then defended by ANEEL, had their indicators of frequency and duration of power supply interruptions reduced by 24% and 20%, respectively, between the years 2014 and 2016 (FERNANDES, 2018, p. 21).

Figure 8 – Reduction of frequency and duration of power supply interruption in the Federal District (state concessionaire) and in the state of Pernambuco (private concessionaire) between 2014 and 2016.

Source: “A reforma do modelo de fiscalização do setor elétrico brasileiro” and ANEEL, according to the expert.

All these studies contributed to the formation of a new inspection model in the electricity sector, then consolidated in the Normative Resolution No. 846 of 2019.

5.3. THE NORMATIVE RESOLUTION OF No. 846, OF 2019

At first, it is appropriate to highlight that, within the framework of the Administrative Procedure No. 48500.006118/2009-83⁴⁷, Mr. Romeu Donizete Rufino, at the time General Director of ANEEL, when the manifestation of his Vote, who ran for approval of the final draft of the Normative Resolution No. 846, of June 11, 2019, considered that:

13. It is important to highlight that the norm resulting from this process is aligned with the evolution through which the inspection strategy adopted by ANEEL has been passing, constituting its legitimizing element in the search for responsive action. In fact, the scope of the standard extrapolates that of the Normative Resolution No. 63/2004, dealing, in addition to the ” procedures, parameters and criteria for the imposition of penalties on agents of the electricity sector”, also the “general guidelines of the Agency’s inspection”.

14. These guidelines corroborate the guiding and educational functions of Inspection, as well as consolidate tools for the prevention and correction of irregular practices, such as monitoring and the establishment of results plans. In addition, the norm provides for mitigating circumstances for the penalty of fine, which are applied under the efforts undertaken by the agent to mitigate the harmful effects of the infringement committed.

In fact, progressing the years of studies, discussions, and administrative contributions, accompanied by two phases of the Public Hearing No. 77/2011, the aforementioned resolution was published, which approved the new procedures, parameters, and criteria for the imposition of penalties on agents of the electric energy sector and provides for general guidelines for the supervision of the National Electric Energy Agency – ANEEL.

It is not just the establishment of a new rite to be observed by the regulator and regulated agents. Quite the opposite. This new regulation concretizes a new concept of action of the regulator, which will be more active and indicative, which may reflect in a reduction in the number of fines and administrative appeals, which often result in legal disputes.

Initially, Chapter I defines the objective and scope of the resolution, such as its impact on the concessionaires, permitees, and authorizers of electricity services or installations, except the Itaipu Binacional hydroelectric plant, by the Brazil–Paraguay Treaty and the entities responsible for the operation of the system, the commercialization of electricity or the management of resources from sectoral charges.

Next, Chapter II contemplates the general guidelines of the ANEEL inspection process, with emphasis on the exception that the “inspection will primarily aim at the education and guidance of agents in the electricity sector, the prevention of conduct that violates the law, regulations and contracts” (Article 2).

Including, in the caput of Article 3 and its items, there is the establishment of the very previous procedure for monitoring and controlling the agents, intending to provide ANEEL with relevant data or information, analyzing the performance of the former, preventing irregular practices, and encourage continuous improvement in the provision of electricity services, work to correct irregular practices, among others.

Also, as a guideline, Article 4 contemplates the possibility for the regulator to establish profit plans with sectoral agents for performance improvement, based on evidence that points to possible non-conformities with the provision of the service or with the financial-economic balance of the concession or permits instrument itself.

Basically, in this chapter, there is the affirmation of the principles of good regulatory practices validated by the OECD, notably of evidence-based execution, selectivity, responsive regulation, the promotion of compliance, and the integration of information.

Next, Chapter III deals with infringements and penalties. Initially, Article 5 presents a list of penalties, namely: warning, fine, an embargo of works, prohibition of facilities, obligation to do, an obligation not to do, temporary suspension of participation in tenders to obtain new concessions, permits or authorizations, as well as impediment to contract with ANEEL and to receive authorization for services and installations of electricity, revocation of the authorization, intervention for adequacy of the public service of electricity and expiration of the concession or permit.

As a novelty, there is the establishment of an obligation to do or not do, alternatively or concomitantly with another penalty, as a means of inhibiting the commission of a new infraction. Including, non-compliance may entail a daily fine, depending on the size of the sectoral agent or the nature of the entity.

At this point, despite the desire of the regulator to strengthen its field of action, it must be affirmed that this legal innovation is not supported by the tax code provided for in Article 17 of Decree No. 2.335 of 1997, as well as in Law No. 9.427, of 1996, which established ANEEL and disciplined the regime of concessions of public electricity services, which may reflect in any discussion about the constitutionality and legality of this sanction, despite a possible subsidiary application of Article 68 of Law No. 9.784 of 1999⁴⁸.

Also in Chapter III of the Normative Resolution No. 846, of 2019, in the subsequent articles, the non-conformities are detailed, with the respective penalties. For example, according to Article 8, the agent who fails to provide information to consumers or users, when requested or as determined in the legal, regulatory, or contractual provisions will be subject to a fine penalty, in the order of up to 0.125% of its net operating income – ROL (joint interpretation of Articles 8, 9, and 21).

Another novelty is the division of infractions subject to a fine penalty into five groups – and no more into three, as established by the Normative Resolution No. 63 of 2004 –.

The caput of Article 21 provides that the calculation basis for the application of a fine will be the value of the Net Operating Revenue – ROL or the estimated value of the energy produced in the cases of self-production and independent production, both corresponding to the twelve months prior to the issuance of the Notice of Infraction – AI. Despite this, paragraph 6 of the aforementioned article outlines that the basis for calculating the fine will be calculated by the segment of activity of the agent – generation, transmission, distribution, and commercialization of electricity –, in which the infringement is identified, provided that it can be associated with only one of the segments.

Thus, following the idea of establishing a prior risk analysis, faced with a more strategic and segmented action of the regulator, considering the three levels of supervision, the gradual norm infringements according to their severity. In fact, especially concerning the infringements and penalties then provided for in the chapter in reference, it is appropriate to highlight that there is conflict about the extent of the normative power conferred on regulatory agencies, in the face of closed or not submission to the principle of legality (Article 5, paragraph II, of the Federal Constitution⁴⁹).

For Thiago Marra, when it comes to the exercise of police power⁵º in the restriction to the rights of the regulated, as to their assets and their freedoms, the subjection of the Public Administration to the principle of administrative legality prevails (2018, p. 537).

Because of the principle of administrative legality and the consequent need for legal provision of sanctions and the infringing conduct resulting from them, it is not possible that these measures will be created by administrative act or by a normative act of the administration. However, as mentioned above, this logic is mainly valid for sanctions based on the power of the police, an extroversial power of the State in restricting private life⁵¹.

In the same vein, Celso Antônio Bandeira de Mello argues that:

Therefore, the Administration may not prohibit or impose any behavior on a third party unless it is previously based on a certain law that allows it to prohibit or impose something on anyone. It is worth saying that it can’t issue a regulation, instruction, control, ordinance, or whatever action it may be to restrict the freedom of the administered unless the law already exists for the containment or imposition that the administered act will detail⁵².

On the other hand, in disciplinary or contractual matters, it is not essential to establish law in the formal sense to dispose of the types of infringements and the sanctions then arising. However, the law should give the corresponding Public Administration the power to institute punitive measures (MARRARA, 2018, p. 538).

On these premises, it is legitimate the punitive action of ANEEL, in light of the Normative Resolution No. 846, of June 11, 2019, provided that conformed by the constitutional and legal order in force.

In turn, Chapter IV provides for the procedures concerning the parameters and criteria for fixing the amount of the fine, the supervisory action, the procedure for applying penalties within the competence of the Supervisory Superintendencies, the procedure for applying penalties within the competence of the board of ANEEL or the granting power, the appeal and the payment of the fine.

In this chapter, some points deserve to be highlighted.

At first, the caput of Article 22 provides that “in setting the value of the fines, the scope, severity, resulting damages to the service and users, the benefit gained and the aggravating and mitigating circumstances of the infringement shall be considered”. However, paragraph 5 states that the application of the fine does not remove the obligation of reparation to harmed consumers or users.

Nevertheless, paragraph 6 of Article 22 still allows ANEEL, even if exceptionally and in a reasoned way, to depart from the methodology for calculating the base value of the fine, when the result does not meet the principles of reasonableness and proportionality. It is understood that the possible exercise of this power, even if motivated by the regulator, may promote legal uncertainty.

Articles 24 and 25 set out the aggravating and mitigating circumstances and the percentages resulting from them relating to the base amount of the fine. Regarding mitigating factors, the actions taken by the infringing agent were preserved, which bring benefits to the parties harmed by their conduct.

In addition, innovating concerning the rule then revoked, paragraph 2, of Article 38, states that the express waiver of the appeal will result in a reduction of 25% (twenty-five percent) in the amount of the fine applied if the infringer makes the payment within the regulatory period, payment in installments is prohibited. However, it is understood that paragraph 2 relativizes the consecration of the broad defense by opposing a possible economic benefit to the infringing agent to the right of appeal itself. It also imposes a differentiation in the treatment of agents, as it makes it impossible to fully exercise the adversary system in the administrative sphere, as well as the possibility of paying the debt in up to thirty-six monthly and successive installments (Article 41).

Finally, in Chapter V, the Regulation deals with some final and transitional provisions, such as the fact that the standard comes into full force after six months of its publication, on 06.18.2019. And, also, that the resolution in question will be the subject of regulatory outcome evaluation within five years after its entry into force.

This analysis aimed to present the main changes induced by the Normative Resolution No. 846, of 2019, as well as situate this new concept of supervision introduced by ANEEL in the Brazilian scenario. After all, from then on, the entire conduct of the regulator in the inspection process must be revisited and conducted by the aforementioned precepts, under penalty of delegitimizing the administrative act itself, making it null and void in its own essence.

ITEM VI – CONCLUSION

In pursuit of public and private interests, regulatory activity plays a prominent role in the electricity sector, in the desire to ensure the greater efficiency of this regulated market. In addition, the supervisory and sanctioning powers of the – National Electric Energy Agency – ANEEL are powerful tools of this activity.

Thus, the work carried out aimed to strengthen the research front related to the new ANEEL inspection process, consolidated by the Normative Resolution No. 846, of 2019, which approved the new procedures, parameters and criteria for the imposition of penalties to the agents of the electricity sector and provided on the general guidelines of the agency’s inspection.

Therefore, the initial model of the ANEEL inspection process was evaluated⁵³, which lasted for almost 20 years, which had as its characteristic a more incisive approach in the market, with the practice of an evidently punitive administrative process, which did not observe the educational and guidance precepts provided for in Article 16 Decree No. 2.335, of 1997. The idea prevailed that the regulator should supervise as many agents and facilities as possible in compliance with all regulatory standards. And, in the event of non-compliance, use administrative sanctions (fines) as the main instrument of persuasion to comply with the rules.

However, over the years, with the evolution of the state and society, this essentially punitive administrative model proved obsolete, calling for changes by the actors involved.

In the same period, the organization for Economic Cooperation and Development – OECD published a paper with eleven principles of good regulatory practices, which contributed to the formation of a new concept of regulation in Brazil.

Thus, the OECD principles that were incorporated by the regulator were evaluated, such as evidence-based execution, selectivity, risk focus and proportionality, responsive regulation, compliance promotion and information integration. Other principles were already present, such as the principles of transparent governance, a clear and fair process in inspection action and professionalism. And, finally, some remain as challenges, in the face of the Brazilian reality itself, being the long-term vision and co-ordination and consolidation.

The new three-phase inspection model presented by ANEEL, then developed on the basis of the aforementioned OECD principles, was highlighted.

Considering the case studies then presented and the international expertise of the OECD, it is understood that this three-phase model optimized the allocation of resources judiciously by the regulator, according to a previous risk analysis.

On the other hand, given ANEEL’s active and guiding action, with the establishment of supervision routines, it is considered that this new model will contribute to the improvement of performance in the search for regulatory compliance and, thus, in the quality itself in the provision of services. In addition, it is understood that this three-phase strategy of action may reflect a decrease in administrative and judicial litigation in the electricity sector, mitigating costs in this sense, with the redirection to other priorities.

On these premises, the present study contemplated an analysis of the Normative Resolution No. 846, of 2019, which approved the new procedures, parameters and criteria for the imposition of penalties to the agents of the electric energy sector and provides on general guidelines of the inspection of ANEEL.

It was found that Chapter II of the aforementioned Normative Resolution ratified the implementation of the principles of good regulatory practice validated by the OECD, notably evidence-based implementation, selectivity, responsive regulation and information integration.

Among other points, the conflict was highlighted about the extent of the normative power conferred on ANEEL, in view of its strict or not submission to the principle of legality, especially in relation to the infringements and penalties provided for in Chapter III of the aforementioned Resolution. In this direction, the establishment of an obligation to do or not to do – regulatory innovation–, alternatively or concomitantly with the other penalty, as a means of inhibiting the commission of a new infringement, was also the subject of study.

For these reasons, it is understood that it is not just the establishment of a new rite to be observed by the regulator and the regulated agents. Quite the opposite. This new regulation concretizes a new concept of action of the regulator, which will be more active and indicative, which may reflect in a reduction in the number of fines and administrative appeals, which often result in legal disputes.

Therefore, from then on, the entire conduct of the regulator in the inspection process should be revisited and conducted by the aforementioned precepts, under penalty of delegitimizing the administrative act itself, making it null and void in its own essence.

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