by Joaquim Augusto Melo de Queiroz and Diogo Albaneze

The use of arbitration as an appropriate means of dispute resolution has been growing stronger and expanding in Brazil, especially in matters involving the government and regulated sectors.

The electricity sector, most likely due to its complexity, was one of the pioneers in expressly providing for the use of arbitration. With the entry into force of Law 10,848/2004, which governs the trading of electricity, arbitration was incorporated into the sector, and is even mandatory in certain disputes between members of the Electric Energy Trading Chamber (CCEE).

It makes sense for arbitration to be an option on the menu of dispute resolution mechanisms available to market participants

Following this path and recognizing the virtues of arbitration, the energy sector is once again seeking to strengthen the institution and expand its use, this time in transmission system use agreements (CUST).

In short, transmission system use agreements set out the terms and conditions governing the use of the grid (basic network) by transmission system users, especially generators, distributors and certain consumer units. These contractual instruments are eminently technical in nature, governing the provision of transmission services by concessionaires to users under the coordination, control and supervision of the National Electric System Operator (ONS).

In addition, under transmission system use agreements, the ONS is responsible for administering, billing and settling transmission use charges, as well as operating the guarantee system, acting on behalf of the transmission concessionaires.

These agreements have gained particular prominence in the current scenario of proliferating new power generation projects aimed at the free contracting market, given the importance of connecting these projects to the transmission grid. This is because transmission charges represent a significant share of the Opex (operational expenditure) of these new plants — and recent decisions by Aneel have triggered a new wave of litigation involving transmission system use agreements.

In this context, on February 8, the contribution period for the 1st Stage of Aneel’s Request for Input No. 24/2022 ended. This is an initial phase of studies and exploration by the technical departments to compile data and information on topics of interest to the agency.

In Request for Input No. 24/2022, Aneel put up for discussion precisely whether it is appropriate to include an arbitration clause in transmission system use agreements. This is a relevant discussion with the potential for major impact on disputes arising from these agreements.

Considering the technical and complex structure of transmission system use agreements, it makes sense for arbitration to be an option on the menu of dispute resolution mechanisms available to market participants. This is not about undermining the Judiciary, but about recognizing that arbitration — whether because of the flexibility it provides in choosing professionals truly specialized in disputes of this nature, or because of other virtues of the institution, such as the speed of the proceedings — may in fact be the most appropriate means of resolving disputes arising from these agreements.

The adoption of an arbitration clause in transmission system use agreements was not, however, unanimously supported by the participants who submitted contributions in the request for input. Among the criticisms raised were: (i) the costs incurred during arbitration compared to those of a lawsuit; (ii) the fact that arbitration would not offer the best cost/benefit ratio for less significant disputes; and (iii) doubts regarding the objective arbitrability of certain disputes involving these agreements.

Some participants also argued that arbitration should be merely optional (depending on the amount in dispute or even because of its supposed subsidiary nature in relation to the forum selection clause). Many of these criticisms, however, lack technical knowledge of arbitration’s actual features. In any event, since these are contributions submitted in a request for input, a still preliminary stage in the discussions on regulating the subject, the debate is expected to become more sophisticated in a possible public consultation.

Finally, one of the points raised deserves reflection. In transmission system use agreements, the ONS acts as the representative of the transmission companies, as well as a contracting party in its own right. In a dispute, there may occasionally be a slight divergence between the interests of the ONS and those of the transmission companies, raising doubts as to which party actually has standing in the arbitration. This may be one of the issues to be discussed further in a future public consultation. As can be seen, this is a relevant discussion, and the sector must await the direction to be taken by Aneel.

Article originally published in the Valor Econômico newspaper (in Portuguese), on 04.14.2023.