The Provisional Presidential Decree No. 1,300/2025 represents a milestone in the regulatory restructuring of the Brazilian electricity sector, with direct effects on the activity of distributors.
The full opening of the electricity market, planned to occur gradually, starting in 2026 for industrial and commercial consumers, and from 2027 for residential consumers, breaks with the exclusivity regime previously granted to utilities in serving the captive market.
This liberalization increases competition but, on the other hand, undermines the predictability of contracted demand. The unpredictability of consumer departures and the resulting loss of scale may financially impair distributors operating in regions with low commercial attractiveness, placing pressure on the granting authority to reassess remuneration mechanisms and risk mitigation strategies.
Another relevant impact is the creation of the figure of the Supplier of Last Resort (SLR), whose role is to ensure continuity of supply to consumers without a contract in the free environment.
The Provisional Presidential Decree establishes that this function may be carried out by the distributors themselves, subject to authorization from the granting authority. However, the costs arising from this obligation must be borne exclusively by free market consumers, which raises questions about the fair allocation of charges in the sector, especially when these costs fall on concessionaires who are already facing a market downturn.
The requirement to separate distribution and regulated trading activities is another highlight. To be implemented by July 2026, this split will require significant corporate, operational and contractual restructuring on the part of the distributors. The lack of clear regulatory guidelines can aggravate legal uncertainty, especially with regard to the possible restoration of the economic and financial balance originally agreed in the concessions.
The mass migration of consumers to the free market also has important economic repercussions for distributors. Involuntary exposure, when the distributor is forced to contract energy in advance to meet a load that migrates later, and the consequent over-contracting imply losses which, according to the Provisional Presidential Decree, will be compensated through tariff charges passed on to all consumers.
This measure seeks to mitigate the so-called “death spiral effect”, in which the increase in charges for those who remain in the captive market encourages new migrations, deepening the imbalance. The risk, however, is the socialization of inefficiencies and higher tariffs for the remaining consumers, which reinforces the urgency of reviewing the instruments for allocating risks in the supply chain.
At the same time, the Provisional Presidential Decree repeals the TUSD/TUST discount for incentivized sources, which directly affects contracts signed by distributors with generators under regulatory incentive regimes. This is a change that unilaterally breaks previously agreed conditions and could lead to litigation over the protection of legitimate expectations and allegations of violation of acquired rights, with the potential for significant judicialization.
There is no doubt that Provisional Presidential Decree No. 1,300/2025 ushers in a phase of profound transformation for electricity distributors, who will have to adapt to a new scenario of open competition.
In a sector governed by contracts and long-term commitments, you have to remember: there is no such thing as a free lunch. Market liberalization brings promises of greater efficiency, but the costs inevitably fall on someone. And, at this moment, they fall on the distribution companies.
Autor: Walberto L. Oliveira Filho • email: walberto.filho@ernestoborges.com.br • Tel.: +55 67 3389 0123
