On March 30, 2022, the Energy Regulatory Commission (“CRE”) published in the Federal Register Order No. A/006/2022 on General administrative provisions setting the terms for communicating information relating to the corporate purpose , , the technical and financial capacity, as well as the description of the project and the format of the requests for authorization to generate electricity (the “Ruling”).
In accordance with the General Better Regulation Act, the decision was available for 20 working days for comments from the general public and interested parties; this period ended on January 20, 2022.
The Ordinance aims to update and replace the General Administrative Provisions which establish the conditions for the communication of information relating to the corporate purpose, the legal and technical capacity and the format of requests for authorization to produce electricity, which were issued in 2015 pursuant to resolution number RES/182/2015, pursuant to Article 130 of the Electricity Industry Law (“LIE”) and its regulations.
In this regard, the Ruling adds several new requirements that applicants must meet as part of the power generation license application process.
In this context, the Ruling will significantly increase the regulatory burden associated with power generation license applications and increases CRE’s discretion to deny power generation licenses, based on the alleged reliability protection. , security and continuity of the national electricity system (“SEN”).
Below is a summary of the main changes introduced by the decision:
- Candidates must provide, with the corresponding application, the names and tax identification number of the partners or shareholders and related persons who exercise control of the candidate company.
- They must also provide the structure of the applicant’s share capital, including the direct or indirect name of each partner, party or shareholder, including, in any case, their tax identification certificates, up to the level of persons physical.
- The description of the project must be much more detailed and applicants must indicate whether or not it is an isolated supply installation interconnected with the UNE, and in the case of isolated supply projects, they must describe their own needs to be met.
- In the case of an isolated supply, the request must include the following elements: (i) what type of supplier will obtain the shortages required by the requestor in the event of interconnection in the SEN; (ii) information on the load charts and the load center indicating, among other things, the type of load and, where applicable, the connection contract; and (iii) single-line diagram of the isolated power supply project considering the power station and the interconnection point.
- Applications must also include information on (i) the installed capacity of the plant, indicating AC and DC, as well as annual and gross energy production; (ii) the type of technology, and (iii) where applicable, the primary and secondary fuel, including details of the fuel supplier, transporter or distributor, as the case may be, the authorizations granted to them by the CRE, and the documents intended to prove the potential commercial alliance between the applicant and these entities.
- Applications must establish whether it is a mobile power plant, indicating minimum and maximum capacity, minimum shipping limit, and shutdown and start-up parameters.
- Candidates must submit a digital original of the document issued by CENACE which establishes the result of the impact study or the rapid version impact study, as the case may be, relating to the procedure for requesting the interconnection of power stations or connection of load centers. On this point, note that previously, the study was obtained in parallel with the permit application process or even once the corresponding permit had been obtained.
- Applications will include a detailed work program containing at least the beginning and end of each of the following stages: (i) preliminary activities; (ii) start of works; (iii) construction of the plant; (iv) plant performance testing; and (v) start of commercial operation.
- A business plan should be submitted in case the power plant is not already installed, including costs, rate of return, cash flow, projected revenue, and debt to equity ratios, among others.
- Candidates must prove their financial capacity, through a financing program and financial statements audited by an accountant registered in the Register of Public Accountants of the Tax Administration Service at least 2 (two) years before the date of the application for permit, or documentation ensuring the financing of the investment necessary for the development of the project.
- Candidates must also prove their technical ability. To this end, applicants must submit evidence confirming that they have the experience and resources necessary for the design, construction and operation of similar projects (or a letter of intent from the proposed contractors).
- Applicants must also submit letters of undertaking confirming, among other things, that the applicant or its shareholders (i) have been subject to administrative sanctions by the federal comptroller, (ii) are not authorized to act as suppliers of the federal government, (iii) have not been the subject on several occasions of sanctions pronounced by the CRE in terms of the activities covered by the authorization requested, (iv) are not the subject of any procedure of the information limiting or restricting their financial capacity, nor (v) are the subject of a list published by the Internal Revenue Service pursuant to section 69 B, fourth paragraph of the Federal Tax Code.
The new requirements mean that affected projects need to be much more developed before a permit application is submitted. Thus, the decision will considerably modify the order of the stages necessary for the concretization of new projects of electricity production.
On the other hand, the decision adds requirements for obtaining an electricity production permit exceeding those established by LIE and its regulations and contains a series of inconsistencies and lack of clarity regarding the possible effects of some of the proposed amendments. In our opinion, this opens the door to possible legal action to challenge it.
The decision came into effect on March 31, 2022 and supersedes the administrative provisions relating to this matter which were published on April 8, 2015.
Electricity production authorization applications in progress before the date of entry into force of the Ruling will be resolved in accordance with the preceding provisions.
Our firm will continue to analyze the effects and implications of the decision, as well as any applicable legal remedies.
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