ANEEL started public hearings to discuss the Demand Response Pilot Project and the Regulatory Impact Analysis

On August 23, 2017, the Public Hearings Nos. 43 and 44/2017 were started by the National Electric Energy Agency (“ANEEL”), with the purpose of collecting contributions from society for the regulation of the Demand Response Pilot Project and for the updating of Organization Regulation No. 40/2013, which deals with the Regulatory Impact Analysis (“AIR”) of the normative acts issued by the Regulatory Agency.

Below are the main points for discussion at the Public Hearings:

Demand Response Pilot Project – Public Hearing No. 43/2017

The proposal to begin a public hearing to discuss the above subject emerged from the information provided by ABRACE concerning the interest of companies, especially its members, in participating in a Demand Response Program in Brazil.

According to the draft resolution available at the Public Hearing, the Demand Response is defined by the reduction of the consumption of previously qualified consumers, to replace the thermoelectric dispatch outside the order of merit, in order to obtain more advantageous results both for the reliability of the system and to promote reasonable tariffs to final consumers.

In this scenario, consumers will be able to reduce their amount of energy demand in order to avoid or reduce the discharge of thermoelectric plants, thereby lowering the cost of supplying the load for the entire market.

Among the purposes of the Demand Response, the following stand out:

– Reduction of total energy consumption;

– Reduction of the total required power generation, since the implementation of a Demand Response scheme eliminates the need to demand high cost power plants to generate energy to meet peak demands;

– Demand Response to accompany the available supply, especially in regions with high availability of renewable energy sources, whose generation of electricity, by its nature, is quite intermittent. Thus, with the demand following the supply of electric power, the overall reliability of the system is maximized; and

– Reduction or elimination of overloads in the distribution system, through the operation of a distribution management system that monitors the operation of the electrical system and makes decisions almost in real time.

Brazilian Association of Large Industrial Energy Consumers and Free Consumers
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[1] Brazilian Association of Large Industrial Energy Consumers and Free Consumers

The draft resolution also provides for, among other aspects:

(i) validity of the pilot project for 18 months;

(ii) free consumers participating in the Electric Energy Trading Chamber (“CCEE”), connected to the network supervised by the National Electric System Operator (“ONS”) and located in the North and Northeast subsystems;

(iii) the ONS shall publish, monthly, the hourly schedule for the load reduction, and the qualified customers shall, on a weekly basis (by 12 a.m. on Thursday), deliver to ONS their price and quantity offerings for the following operating week and, on a daily basis (until 12 a.m. on the day before the reduction order), confirm their availability to reduce demand by means of a new declaration;

(iv) the products may be offered in two auctions. The first one with notice on the day before the reduction of the load (until 6 p.m.) and the second with notice on the same day of the reduction of the load (until 9 a.m.), and the latter should only be used by the ONS when the forecasts of load and of wind generation on the day show significant deviations from the previous day’s forecasts;

(v) 5 (five) products with an average standard volume of 1 average MW, with at least 5 average MW, can be traded. The duration of the demand reduction will vary according to the product: 1 hour, 2 hours, 3 hours, 4 hours and 7 hours;

(vi) the ONS should prepare two daily schedules: one containing the order to power plants to produce energy, as it is today, and another containing the consumer reduction load offers. The ONS shall make orders to reduce the demand whenever the cost of this is less than 90% of the total cost for the discharge of thermoelectric power plants outside the order of merit;

(vii) the consumer who fails to comply with three (3) commands for the reduction of his load will be excluded from the pilot project;

(viii) participating consumers must enter into an ancillary service agreement with ONS; and

(ix) the reduction in demand will be valued by the difference between the price of the last winning bid and the Settlement Price of Differences (PLD). The accounting and settlement will be made by the CCEE through an Auxiliary Calculation Mechanism (MAC), and the service provided will be remunerated through the System Service Charge (ESS), to be borne by agents who would bear the costs of discharges outside the order of merit replaced by the Demand Response.

The contribution period runs until October 7, 2017.

Regulatory Impact Analysis – Public Hearing nº 44/2017

The Public Hearing No. 44/2017 aims to collect contributions from society for the improvement of Organization Rule No. 40/2013, which deals with the preparation of the Regulatory Impact Analysis prior to the issuance of normative acts by ANEEL.

According to ANEEL, the AIR is a “procedure whereby information is provided on the necessity and consequences of the regulation being proposed and whereby it is checked whether the potential benefits of the measure exceed estimated costs, and whether, among other alternatives evaluated to achieve the purpose of the proposed regulation, the proposed action is more beneficial to society (…)”.

It was concluded by the Regulatory Agency that from the beginning of the obligation to elaborate the AIR there was no change in the quality of the rules issued by ANEEL, as expected. In this way, the importance of improving the rule was emphasized in order to improve the regulatory quality of the Agency and to increase the effectiveness of the AIR.

Indeed, from what is perceived from most of the public hearings promoted by ANEEL, there is generally no adequate Regulatory Impact Analysis that meets the requirements of the regulations in force. Some agents in public hearings have even highlighted, in several opportunities, the deficiency of AIR.

In this context, according to ANEEL, the aim of improving the standard is to ensure:

(i) greater quality, transparency, stability and legal certainty to the acts issued by ANEEL;
(ii) the reduction of regulatory risks and costs;
(iii) participation and social control of the regulatory process; and
(iv) reducing the asymmetry of information on the effects of regulation.

Among the proposed amendments are:

(i) creation of criteria for exemption from the elaboration of AIR;
(ii) cases of exemption from AIR should be subject to a Regulatory Result Assessment (“RRA”);
(iii) the modification of the minimum requirements that should be included in the AIR; and
(iv) that AIR and all material used for its elaboration shall be made available at the open Public Hearing to discuss the normative act, and its report shall be submitted for deliberation by the ANEEL Executive Board.

Lastly, it is important to mention that Bill of Law No. 6,621/2016 , which is currently under analysis in the Congress, contains an article that provides that the creation or alteration of normative acts of interest to economic agents, consumers or users of services rendered, shall be preceded by an AIR.

The contribution period goes until October 6, 2017.

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[2] Regulates the management, organization, decision-making and social control of regulatory agencies.

For further clarification on the contents of this memorandum, contact:

Rosi Costa Barros
rosi.barros@nbfa.com.br
(11) 3007-8370

Willian de Figueiredo Lins Junior
willian.lins@nbfa.com.br
(11) 3007-8370

Luisa Tortolano Barreto
luisa.barreto@nbfa.com.br
(11) 3007-8370

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