On March 30, 2022, the Energy Regulatory Commission (“CRE”) published in the Federal Register the Ruling No. A/006/2022 issuing the General administrative provisions that establish the terms for the submission of information related to the corporate purpose, legal, technical and financial capacity, as well as the description of the project, and the format of electricity generation permit applications (the “Ruling”).

In accordance with the General Law on Regulatory Improvement, the Ruling was available for 20 business days for comments from the general public and interested parties; such period ended on January 20, 2022. 

The Ruling is aimed at updating and replacing the General administrative provisions that establish the terms for the submission of information regarding the corporate purpose, legal and technical capacity, and the format of electricity generation permit applications, that were issued in 2015 pursuant to resolution number RES/182/2015, in terms of article 130 of the Electricity Industry Law ("LIE") and its regulations.

In that regard, the Ruling adds several new requirements that applicants shall comply with as part of the application process for a power generation permit.

In this context, the Ruling will considerably increase the regulatory burden associated with electric power generation permit applications and increases the CRE's discretion to deny power generation permits, based on the alleged protection of the reliability, security and continuity of the National Electric System ("SEN").

Below is a summary of the main changes introduced by the Ruling:

• Applicants shall submit together with the corresponding application, the names and tax identification number of the partners or shareholders and related persons who exercise control in the applicant company.
• They shall also provide the structure of the share capital of the applicant, including the name of direct or indirect each partner, party or shareholder, including, in all cases, their tax identification certificates, until reaching the level of natural persons.
• The description of the project shall be much more detailed, and applicants shall indicate whether the project is an isolated supply facility interconnected or not to the SEN, and in case of isolated supply projects, they shall describe the own needs to be satisfied.
• In the case of isolated supply, the application shall include the following: (i) what type of supplier will obtain the shortages required by the applicant in case of being interconnected in the SEN; (ii) information on the load charts and the load center, indicating among other things, the type of load and, where appropriate, the connection contract; and (iii) single-line diagram of the isolated supply project considering the power plant and the interconnection point.
• Applications shall also include information about (i) the installed capacity of the plant, indicating the alternating current and direct current, as well as the annual and gross energy production; (ii) the type of technology, and (iii) where appropriate, primary and secondary fuel, including the data of the fuel supplier, and the transporter or distributor, as applicable, the permits granted to them by the CRE, and the documents intended to evidence the potential commercial alliance between the applicant and those entities.
• Applications shall establish if it is a Mobile Power Plant, indicating the minimum and maximum capacity, the minimum dispatch limit and stoppage and start parameters.
• Applicants shall submit a digital original of the document issued by CENACE which establishes the result of the Impact Study or quick version impact study, as appropriate, related to the procedure for the Request for Interconnection of Power Plants or Connection of Load Centers. On this point, we note that, previously, the study used to be obtained in parallel with the permit application process or even once the corresponding permit had been obtained.
• Applications shall include a detailed works program containing at least the beginning and conclusion of each of the following stages: (i) preliminary activities; (ii) commencement of works; (iii) construction of the plant; (iv) performance tests of the plant; and (v) commencement of commercial operation.
• A business plan shall be submitted in case the power plant is not already installed, including costs, rate of return, cash flows, projected revenues and debt/equity ratios, among others.
• Applicants shall evidence financial capacity, through a financing program and financial statements audited by an accountant registered at the Registry of Public Accountants of the Tax Administration Service at least 2 (two) years before the date of the permit application, or documentation assuring the financing of the investment necessary for the development of the project.
• Applicants shall also evidence technical capacity. For that purpose, applicants shall file evidence confirming that they have experience in, and the necessary resources for, the design, construction and operation of similar projects (or letter of intent of proposed contractors).
• Applicants shall also submit commitment letters confirming, among other matters, that either the applicant or its shareholders (i) have been subject to administrative penalties by the Federal Comptroller, (ii) are barred from acting as suppliers for the federal government, (iii) have been repeatedly subject to penalties imposed by the CRE in matters related to the activities covered by the requested permit, (iv) are subject to any procedure by the Financial Intelligence Unit that limits or restricts their financial capacity, nor (v) are included in the list published by the Internal Revenue Service pursuant to article 69 B, fourth paragraph of the Federal Tax  Code.

The new requirements entail that the relevant projects shall be much more developed before a permit application is submitted. Thus, the Ruling will substantially alter the order of milestones involved in bringing new electricity generation projects to reality.

On the other hand, the Ruling adds requirements to obtain an electric power generation permit exceeding those established LIE and its regulations and contains a series of inconsistencies and lacks clarity regarding the possible effects of some of the proposed modifications. In our view, this opens the door to potential legal actions to challenge it. 

The Ruling became effective on March 31, 2022, and replaces the administrative provisions related to this matter that were published on April 8, 2015.

Applications for electricity generation permits that are in process before the date on which the Ruling became effective shall be resolved in accordance with the previous provisions.

Our firm will continue to analyze the effects and implications of the Ruling, and any applicable legal remedies.

This communication is for information purposes only and it does not constitute legal advice.