Public Consultation No. 141/2022 on the regulation of the guidelines for holding the 1st Margin Auction

On November 03, 2022, the Ministry of Mines and Energy (“MME”) opened Public Consultation No. 141/2022 (“CP 141/2022”), to regulate the guidelines for the first Margin Competitive Procedure named “Margin Auction,” to be held in the first half of 2023.

The Margin Auction is a result of the changes introduced by Law No. 14,120/2021 in art. 26, paragraph 1-C, I and II of Law No. 9,427/1996, which established the maintenance of payment discounts for the Tariffs on the Usage of Distribution Systems (“TUSD”) or Tariffs on the Usage of Transmission Systems (“TUST”) for new generation plants that apply for the authorization grants at the National Electricity Regulatory Agency (“ANEEL”) until March 02, 2022, and initiate operations of all their generating units within 48 months, counted from the date of publication of their authorization grant.

The rush to maintain discounts on TUSD and TUST has led to numerous requests for authorization grants at ANEEL. The combined total capacity of these requests exceeds 200 GW, which is more than five times the need to increase the installed capacity provided for in the Ten-year Energy Expansion Plan 2031, published by the Energy Research Company (“EPE”).

Thus, due to the large number of access information requests to the Brazilian Electricity System Operator (“ONS”), Decree No. 10,893/2021 waived the need for submission of access information in order to request authorization grants for generation projects eligible for maintaining discounts on TUSD and TUST, which also authorized ANEEL to hold the Margin Auction, allowing competition for contracting of flow margin.

Considering that there is currently no capacity in the National Interconnected System (“SIN”) for connecting all projects that requested authorization grants to ANEEL, the Margin Auction comes as a solution, enabling bidders to compete for the SIN’s remaining capacity for the generation flow of these plants by the Basic Network (“RB”), Other Transmission Facilities (“DIT”) and Facilities of Exclusive Interest to Generation Plants for Shared Connection (“ICG”).

We highlight the following aspects of the ministry’s proposal, regarding the rules and guidelines for holding the Margin Auction:

• Among generation plants that can participate in the Auction are those that (i) do not have a Contract for the Usage of Distribution System (“CUSD”) or Contract for the Usage of Transmission System (“CUST”) currently in force and (ii) have requested an authorization grant to ANEEL by March 02, 2022.
• ANEEL will be in charge of defining financial guarantee contributions for participation in the Auction and for execution of the CUSD/CUST.
• The CUSD/CUST executed by the auction-winning plants cannot be brought forward, postponed or amended regarding the connection point, and must be terminated in the event that the plants fail to comply with the conditions established in the contracts.
• The procedure will be subject to the receipt of proposals for payment in cash from those interested in access to the SIN at the points of interest. The amounts paid by the auction winners will be allocated to the reduction of tariffs for public electricity transmission or distribution services, depending on the contract (CUSD/CUST).
• ANEEL will prioritize the assessment of authorization grant requests by the auction-winning plants, while the non-winning plants must submit a request stating their interest in the maintenance of the authorization grant process at ANEEL, within 30 working days, under penalty of having their processes dismissed.
• Plants that have Access Information published by the ONS before December 14, 2021 may participate, and remain entitled to request an Access Opinion to the ONS.

The MME will publish a new ordinance, following the conclusion of CP 141/2022, aiming to standardize the procedure. To this end, ANEEL must carry out, directly or indirectly, the entire schedule of activities for holding of the Auction within the first half of 2023.

The deadline for submissions to the Public Consultation expires on December 02, 2022. Contributions must be submitted through the “make your contribution ” tab, available at this MME link.

Demarest’s Energy and Natural Resources Team is available to provide any further clarifications on the matter.