Revocation of Enel SP’s contract is the last of the possibilities for proceedings opened against the company; understand | Economy

The Ministry of Mines and Energy requested the opening of proceedings against Enel

The cancellation of Enel’s contract in São Paulo is the last of the possibilities foreseen in a process – which could be lengthy – determined by the federal government, say experts consulted by g1.

Areas covered by Enel in São Paulo suffered blackouts and power outages at the end of 2023 and also last month.

In the letter sent to Aneel, Silveira mentions the possibility of the process resulting in the “expiry” of the concession. This means that Enel’s contract can be revoked and the area in which the distributor operates can be transferred the other company.

The expiry of a concession is recommended by Aneel, when the agency finds that the company has been failing to comply with contractual obligations and is unable to maintain the provision of services to the population.

See this report for answers to the following questions:

The process goes through the following steps:

• preliminary analysis by Aneel;
• If the agency finds transgressions, the company will have a period of time to regularize its situation;
• if Aneel verifies that there has been no regularization, it can open revocation proceedings, with the right to defense by the company;
• decision by the Aneel board to recommend cancellation of the contract;
• decision by the Ministry of Mines and Energy to revoke the contract.

The decree that regulates the creation of Aneel, dated 1997, grants the agency the role of conducting the revocation process.

“The expiry decision must first go through Aneel, Aneel will recommend, as is in the legislation, and forward this to the Granting Authority [governo federal]. So, the ministry cannot run over, unless this decree is revoked”, explains lawyer André Edelstein.

A revocation of the contract is not the only possible consequence of the process opened by Aneel.

The process may result in other penalties, less serious than termination of the contract, such as:

• warning
• traffic ticket
• obligation to take some specific measure
• intervention in the company

Cancellation of the contract requires the proof that the distributor failed to comply with rules or does not have the technical, operational or financial conditions to maintain the provision of services.

“The termination or forfeiture of a distributor’s concession only occurs in extreme cases, where the concessionaire defaults on its contractual obligations and cannot fulfill the services for which it was contracted”, explained lawyer Guilherme Schmidt.

The concessions law establishes the following reasons for the federal government to declare contracts terminated:

• inefficiency or inadequacy in the provision of services to the population, “based on the standards, criteria, indicators and parameters that define the quality of the service”;
• non-compliance with contractual, legal or regulatory clauses;
• interruption of service, except in “fortuitous circumstances or force majeure”;
• loss of economic, technical or operational conditions to maintain the provision of services;
• non-compliance with penalties;
• failure to comply with a government subpoena to regularize the provision of services;
• failure to respond to a government subpoena within 180 days.

“In the case of Enel, its quality and performance indexes have been good over the years, despite the bad perception due to some recent events. A termination process, at the moment, does not seem to be justifiable”, assesses Schmidt.

Currently, the Ministry of Mines and Energy has a revocation process underway: that of Amazonas Energia.

The termination of the contract was recommended by Aneel in November 2023, after verifying that the company does not have the financial conditions to maintain the concession. Amazonas Energia was notified by the agency in September 2022, starting the expiry process.

In an interview with journalists on Monday (1st), Silveira said that Enel São Paulo’s disciplinary process could affect the renewal of Enel Rio de Janeiro’s contract.

“Of course, if the possibility is determined that Enel is not complying with minimum quality levels, its renewal could be compromised, especially its renewal in the state of Rio de Janeiro, which is the contract that expires during our management “, he declared at the time.

Although they belong to the same economic group, the distributors are different companies and operate in different concession areas. Enel SP’s contract expires in June 2028 and Enel Rio’s in December 2026.

According to lawyer André Edelstein, infractions by a company in an economic group do not usually affect another company in the same group with a distribution concession. However, this could change if the government establishes this restriction in the ongoing renewal process..

“In principle, one concession does not contaminate the other. But if the rule of the game is ‘look, I don’t want the economic group that has had a default to have a renewal’, it could happen,” he said.

Aneel’s general director, Sandoval Feitosa, stated that “from the agency’s procedural point of view”, problems in one concession do not affect another contract, even if they are from the same economic group.

However, he reinforced that “the decision to maintain a concessionaire providing a granted service is a competence and a prerogative of the granting authority [o governo federal]. Aneel assists the granting authority, carries out inspections, monitors the contract, but the decision ultimately belongs to the granting authority”, he declared.

In a note released this Monday, Enel said that complies with “all its contractual and regulatory obligations” and is implementing an investment and modernization plan for serviceswhich includes an increase in the number of employees.

According to the distributor, by the end of 2026, R$18 billion will be invested in Brazil – of which “around 80%[oftheamountwillbeinvestedinenergydistribution”[dovalorserãoinvestidosemdistribuiçãodeenergia”

Read the full statement released by Enel:

Enel reiterates its commitment to the population in all areas in which it operates and will continue investing to deliver quality energy to everyone. In relation to the São Paulo concession, the distributor clarifies that it fully complies with all contractual and regulatory obligations and is implementing a structured plan that includes investments in strengthening and modernizing the network structure, digitalizing the system and expanding distribution channels. communication with customers, in addition to the early mobilization of teams in the field in case of contingencies. The plan also includes a significant increase in its own staff.

The company also informs that it has already paid part of the fines imposed by the National Electric Energy Agency (Aneel) and others are in the appeal phase, following normal procedures in the sector. He reiterates that, in recent years, he has made major investments to increase the quality of service and face the challenges facing the electricity sector, with the effects of climate change. In São Paulo, since 2018, when it took over the concession, Enel has already invested R$8.36 billion, with an average of around R$1.4 billion per year, almost double the annual average of R$800 million made by previous controller. As a result, the operational indicators DEC (which measures the average time during which each consumer unit is without electricity) and FEC (which counts the number of interruptions that occur) registered an improvement of almost 50% since 2017, and are better than the targets established by Aneel. In addition to information on the indicators monitored by the regulatory agency, the company continues to provide all clarifications to the authorities.

For the period 2024-2026, Enel will invest US$3.647 billion (R$18 billion) in Brazil, which demonstrates the group’s commitment to Brazil. Of this total, around 80% will be invested in energy distribution. With the new management’s strategic plan, which foresees substantial investments, the company decided to further reinforce its commitment to the country, in order to improve the resilience of the electrical system. To carry out this ambitious project, Enel will certainly find the full cooperation and support of all institutions in the country.