Driving Performance at Brazil’s Electricity Regulatory Agency

Executive summary

The National Electric Energy Agency (Agência Nacional de Energia Elétrica – ANEEL) is Brazil’s longest‑standing independent regulator. It regulates the generation, transmission, distribution and commercialisation of electricity.

Created in 1996, ANEEL has been instrumental in the development and liberalisation of the Brazilian electricity sector and has built a reputation as a competent economic regulator with an ambition to lead and excel. Stakeholders recognise ANEEL as a technically capable regulator with a highly qualified staff which ensures a sound evidence base for decision making. In a context of nation-wide anti-corruption efforts, ANEEL has implemented a broad array of transparency measures and strong institutional arrangements to support the integrity of decision-making.

Building on the solid results of this work and its reputation, ANEEL can make a further push to generate a culture of independence in its relations with stakeholders and to go the last mile to assert itself as a world-class regulator. This will require transparent dialogue with sector stakeholders regarding roles and responsibilities in designing and implementing the “sector modernisation”.

Going forward, ANEEL will also need to define an overarching strategic agenda beyond technical decision-making and use its discretion within legal and technical requirements, to ensure that regulatory actions benefit long-term policy objectives for the electricity sector. In doing so, ANEEL can advocate for changes that safeguard its autonomy with regard to its resourcing. Finally, in designing and implementing processes, the regulator will need to focus on their quality and outcomes, to ensure streamlined methods of working and avoid bureaucratisation.

Role and objectives

ANEEL has been successful in guiding the expansion of Brazil’s electricity sector and built a reputation for technical competence and transparency. However, the sector is currently undergoing many transitions, such as a move towards renewables and distributed generation and a further liberalisation of the supply market. This may pose a risk for role clarity going forward, especially in emerging regulatory areas.

ANEEL currently uses a strategic framework that includes 16 strategic objectives, which are mostly inward looking and of which only 2 centre on outcomes. This framework may lead to a lack of focus, and make it more difficult to prioritise the most effective actions.

Key recommendations

• Launch an effort to define a comprehensive regulatory approach for ANEEL that positions the regulator as a key driver of sector modernisation, by defining an overarching and forward-looking strategic agenda with a limited number of main objectives.

• Facilitate innovation and improve the efficiency and effectiveness of ANEEL’s actions through agile regulatory frameworks, a reduction of “red tape” and a focus on outcomes.

• Leverage existing platforms and advocate for additional co-ordination to clarify roles and responsibilities in light of a rapidly changing sector.

• Engage with governmental and non-governmental stakeholders to demonstrate the importance of ANEEL’s independence as a sector regulator, as a means to improve the investment climate and outcomes in the sector.

Input

While ANEEL’s funding comes from fees paid by market actors, the predictability and independence of its funding can be undermined throughout the budget cycle with cuts implemented by the government and legislature, diverting fee revenues to the general government budget. While ANEEL creates contingency plans in anticipation of potential reductions in its budget, past cuts have been severe enough to make the agency suspend certain services.

ANEEL’s technical staff are highly respected, but its ability to recruit certain categories of staff lags behind numbers allowed by law due to government restrictions that prevent it from hiring as many permanent civil servants as it requires. This forces the agency to “do more with less” and rely more on outsourced professionals. ANEEL has a highly qualified workforce, and expanding training for certain specialised analytical skills will help ensure that its workforce expertise keeps pace with sector changes.

Key recommendations

• Advocate for the retention of fee revenues necessary to perform functions and cost-reflective fees, to safeguard an appropriate and predictable level of funding and ensure industry actors are paying the “right” fee.

• Assess and communicate staffing and competency shortfalls to build a case for the hiring of new civil servants by the agency.

Process

ANEEL is a large agency with 23 departments. While many activities involve multiple teams, the structure and size of the agency could lead to the development of silos. The board operates in close proximity to its technical departments.

ANEEL was a frontrunner in Brazil in systematically applying regulatory impact assessment (RIA) to help ensure that regulatory decision-making is good quality. ANEEL must conduct RIA before it adopts or modifies norms, with certain allowed exemptions. It has implemented a number of good practices in its RIA, including a technical commission that builds in-house capacity. While ANEEL’s RIA norm also requires plans to prepare ex post analysis, the agency is currently developing an ex post evaluation programme to review how its regulations are delivering on objectives.

ANEEL has procedures in place to consult with stakeholders, and mechanisms to improve the quality of its engagement. Its processes have not attracted broad public participation systematically, and the agency has a strategic objective to increase representation in decision-making.

Key recommendations

• Consider an increased use of cross-cutting teams across the organisation to avoid organisational siloes and improve horizontal alignment.

• Increase the board’s focus on the agency’s strategic agenda and its regulatory discretion, by exploring more delegation of technical decision-making.

• Continue to work towards the integration of ex post evaluation as an integral part of the regulatory cycle and a consistent application across the organisation.

• Ensure a level playing field in the engagement of stakeholders in the regulatory process, including by strengthening the use of consultative councils.

Output and outcome

ANEEL publishes data on the organisation and the sector on its website, which can be used to track its performance. Still, there are some issues with data quality, and not all information is available online. The regulator is seeking to improve the quality and dissemination of its data, for example through its open data plan.

ANEEL monitors its own performance through a set of 61 performance indicators linked to its strategic objectives, which it reports on in its annual report. The large number of indicators may make it more difficult for stakeholders to assess and evaluate the performance of the regulator and sector.

Key recommendations

• Enhance the focus of performance indicators to enable easier tracking of the performance of the agency.

• Increase the availability of public data on the regulator and the sector and consult data needs with stakeholders, in order to ensure accountable and transparent regulatory processes.