Introduction to ANEEL
ANEEL regulates and establishes conditions so that electricity related services are provided with an acceptable quality and safety, while preserving sustainable pricing. The Electricity Regulatory Agency also monitors that all their regulations, as well as the contracts signed with other companies, are followed.
Overview
The Agência Nacional de Energia Elétrica, Portuguese for Brazilian Electricity Regulatory Agency, ANEEL, is an autarchy of the government of Brazil linked to the Ministry of Mines and Energy. ANEEL was created in December 1996
Its stated goal is to "provide favorable conditions for the electricity market to develop in a balanced environment, amongst other agents, for the benefit of society."
ANEEL regulates and establishes conditions so that electricity related services are provided with an acceptable quality and safety, while preserving sustainable pricing. The Electricity Regulatory Agency also monitors that all their regulations, as well as the contracts signed with other companies, are followed.
Organization
The ANEEL is administered by an executive board, composed of a Managing Director and four other Directors. Among these other Directors is an Ombudsman. All of ANEEL’s executive functions are carried out by 20 Managers who administer different sectors that concentrate mainly on technical activities such as regulation, supervision, intermediation, and concession. A smaller number of these sectors carry out duties related to the relation between ANEEL, its employees and the customers. On judicial matters, it is up to the Attorney General of Brazil to represent ANEEL.
An interesting feature of ANEEL organization is that it has Cooperation Agreements with every Brazilian State, decentralizing its activities. This way, each state has his own convened regulatory agency, delegated to ANEEL. In this decentralized system, the consumer has his complaints answered and doubts clarified more precisely and in a more efficient way.
Regulatory Objectives
ANEEL powers include:
- Implementation of policies and guidelines for energy exploration and exploitation of hydroelectric potential
- Promoting bids for new concessions on electricity generation, transmission, and distribution
- Management and supervision of the concession contracts, as well as the provision of electricity services
- Acting as a supervisor of administrative decisions by each State regulatory agency and resolving disagreements between concessionaires, licensees, independent producers, as well as between these agents and their customers
- Setting the criteria for calculating the Tariffs for the use of Electricity Transmission and Distribution, knowing that the Transmission Tariff is calculated in order to cover the cost of transmission systems
- Negotiating with the National Petroleum Agency concerning the criteria for pricing on transportation of fuels and natural gas, whenever they are destined for thermoelectric facilities
- Monitoring the changes of shareholding control in concessionaires and licensees, in order to provide effective competition among agents and prevent economic concentration in electricity services
- Punishing concessionaires and licensees of electricity services, and establishing administrative fines
- Establishing tariffs for the supply of electricity to concessionaires and licensees responsible for electricity distribution
- Promoting auctions for electricity to meet the market needs
- Approving contracts resulting from electricity auctions and approving the tariffs to be paid by concessionaires or licensees of electricity distribution
- Establishing mechanisms for regulation and supervision to ensure provision of quality service to the market covered by each distribution agent
- Intervention in the provision of electricity service in specific cases and conditions provided by law
- Provision of licenses for the installation of electricity production facilities
Cost of electricity
Until 1993, there was a single tariff for electricity in Brazil. This tariff was calculated to guarantee the remuneration of concessionaires, regardless of their efficiency, and the companies that did not manage to be profitable were subsidized by the ones that were and by the Government.
The tariff was calculated from the “cost of service”, which guaranteed a minimum remuneration for the concessionaires and licensees. This tariff was not an incentive for companies to be more efficient, because all the cost of production was paid by the consumer.
Starting in 1994, the tariff for use of electricity became accordingly fixed to each concessionaire or licensee. In 1995, a law that ensured the economic and financial balance of concessions was approved. Since then, a tariff for each area of concession was established. If the area coincides with the area of a State, then the tariff is the same for the whole State. Otherwise, the same State can present different tariffs.
Thus, energy prices reflect peculiarities of each region, such as the number of consumers, miles of electric network, the size of the market served by a single facility, the cost of purchased energy, and other state taxes.
It is the obligation of the concessionaires of distribution to bring electricity to their consumers. To fulfill this commitment, the company has costs that must be covered by the predefined tariffs. Overall, the electricity tariff includes the compensation of three different costs:
- Electric Power Generation
- Transport of energy
- Other charges and taxes
Starting in 2004, the value of the generation of electricity purchased by distributors for resale to its customers began to be determined by public biddings. The goal is to ensure, besides from transparency in the cost of electricity purchase, competition and a market based price setting for the sector. Before this law, the distributors could freely trade energy, but the price limit was set by ANEEL.
The transport of energy from the point of generation to the consumer's is a natural monopoly because the competition in this segment does not bring economic benefits. For this reason, ANEEL acts in order to keep the fact that the tariff is made only for covering costs that effectively relate to the services provided, making them more fair.