Renewal of distribution concessions

Under the current administration of the Ministry of Mines and Energy (MME), stricter rules have been established for the renewal of concessions to electricity distribution companies, aimed at modernizing and ensuring better quality services for consumers.

Studies show that no less than 62% of this market is concentrated in 20 distributors with contracts expiring between 2025 and 2031, serving 55.6 million consumer units, including individuals and businesses.

Investments of R$ 120 billion by 2027 have already been announced by companies with contracts nearing expiration. The renewals are expected to bring greater user satisfaction and generate jobs and income.

The changes are set forth in Decree No. 12,068, dated 06/20/2024. In recent years, existing contracts have become increasingly detached from the real needs of the population.

This new legislation introduced contractual clauses emphasizing the obligation to continuously improve service quality and the requirement for ongoing assessment of the financial health of concessionaires.

One innovation concerns expiration, meaning the adoption of legal measures to terminate the government’s contract with a concessionaire in case of service failures. Previously, this path was difficult to follow. Now, expiration proceedings can be carried out more quickly to penalize companies that fail their customers.

Another innovation relates to the calculation of quality indicators, which now cover areas equivalent to neighborhoods—the service must meet the same standard regardless of residents’ income levels.

An emphasized aspect is digitization, which will allow for greater interaction and better knowledge of household consumption. In the future, consumers will even be able to choose their supplier.

The decree also addresses climate change, as extreme weather events have become more frequent. Utilities must present plans to increase the resilience of directly affected distribution networks.

WHAT THE DECREE ESTABLISHES

Decree No. 12,068/2024 regulates the bidding and renewal of electricity distribution concessions and establishes guidelines for modernizing public service concessions.

Concessions that have not yet been renewed may be extended or tendered for 30 years. To qualify, companies must immediately commit to meeting quality and efficiency targets for the benefit of electricity users.

The extension is conditional on demonstrating adequate service provision, based on criteria defined by the National Electric Energy Agency (Aneel) regarding efficiency in two areas and their respective measurement indicators:

• Continuity of supply: measured by indicators considering the frequency and average duration of interruptions in public electricity distribution service
• Economic and financial management: measured by an indicator assessing the concessionaire’s ability to meet its commitments

Indicators must be measured individually for each concessionaire and each calendar year.

Service is deemed inadequate if the continuity of supply criterion is not met for three consecutive years, or if the economic and financial management criterion is not met for two consecutive years.

As renewal deadlines approach, there is an opportunity to modernize and impose stricter conditions to improve service quality for the population. This approach increases legal certainty and attracts investment to the country.

In general terms, the decree established the following obligations for companies seeking renewal:

• Evaluation of service provision based on consumer satisfaction, through ongoing quality assessments

• Commitment to investment plans for service improvements

• Equal service quality across all neighborhoods in the service area

• Investments to reduce energy poverty

• Improved customer service through call centers

• Protection of consumer data, which cannot be shared with third parties without prior authorization

• Availability of all consumer-relevant information at any time

• Expansion of energy supply to rural areas, especially family farming

• Promotion of energy efficiency and affordable rates

• Annual verification of financial health to ensure continuity of service

• Restriction on dividend payments if financial and quality requirements are not met

• Possibility of concession termination if requirements are not fulfilled

• Incentives to improve service in areas with public safety concerns

• Increased network resilience against extreme weather events

• Restoration of power to existing standards even after extreme weather events

• Gradual digitization of networks, services, and metering instruments

• Modernization of technologies, equipment, and facilities

• Enhanced digitization to improve electricity consumption management by users

• Regularization of shared electrical and telecommunications wiring in urban areas

• Exclusive service channel for municipal and state authorities

• Professional training programs, including diversity and socioeconomic criteria

• Availability of technical information on company websites

NUMBERS

• 62% of the market concentrated in 20 distributors with contracts expiring between 2025 and 2031

• 55.6 million consumer units (households and businesses)

• R$ 120 billion in announced investments