Global News
- 22 March 2020
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Impacts of COVID19 on the Brazilian Power Sector
Impacts of COVID19 on the Brazilian Power Sector
The Power Sector in general is expected to be one of the least affected by the recent pandemic of COVID19, since, unlike sectors such as transport, services and commerce, it is almost entirely based on remote consumption and operation. In fact, the impact of recent events in the Power Sector will probably reflect the economic crisis and the consequent drop in power consumption by industry and commerce.
From a legal point of view, epidemics, especially those related to unknown pathogens such as COVID19, fulfill the legal requirements for characterization of force majeure and unforeseeable circumstances, namely the unpredictability and inevitability of the fact. As a consequence, the legal relations established between the agents of the Power Sector should have an even more relevant role in the near future.
We are likely to see, in the coming months, numerous examples of COVID19’s impacts on the Sector. With the drop in energy consumption, distribution companies may experience over-contracting in the Regulated Contracting Environment (ACR), and free and special consumers may be positively exposed in the Free Contracting Environment (ACL), being obligated to settle the surplus energy in the Short Term Market, at the Difference Settlement Price (“PLD”), suffering financial losses. Alternatively, the activation of force majeure clauses and unforeseeable circumstances in power purchase agreements should impact generators and transmission concessionaires, due to the drop in demand.
Moreover, we will probably see an avalanche of delays in the implementation of energy generation and transmission projects, as well as service failures due to lack of maintenance, as a result of the interruption in the provision of services by the respective contractors and subcontractors. In this sense, both Law No. 8,987 / 95 (Concession Law) and ANEEL’s regulation that rules the quality of energy services provide for events of force majeure and unforeseeable circumstances as liability exclusions.
However, in order to configure force majeure and unforeseeable circumstance, it is imperative that the agent is able to prove that the default is due, in its entirety, to the consequences of the pandemic, and that the affected party has made all possible efforts to reduce the impact on the legal relationship, mitigating losses for both parties and providing all information to the opposing party.
Essential Service
If, on the one hand, events of force majeure can justify the necessary default of obligations, on the other hand, non-compliance with obligations by public services concessionaires and authorized agents, in situations of emergency or public calamity, may give rise to the imposition of penalties by agencies and regulatory bodies.
In fact, the supply and distribution of power are considered essential services, under the terms of Decree No. 7,257, of August 4, 2010. Thus, we can expect that ANEEL will apply penalties to agents that fail to demonstrate that they have made all efforts within their reach to meet their regulatory obligations.
For more informations, contact:
Eduardo Soares
eduardo.soares@lefosse.com
Tel.: (+55) 11 3024 6388
Luisa Barreto
luisa.barreto@lefosse.com
Tel.: (+55) 11 3024 6364
