The Cost of Obedience: When Courts Order and Consumers Pay

By Dr. Márcio Alcântara, Brasília, October 11, 2024

The current crisis at Amazonas Energia (AmE) is emblematic of the challenge faced by electricity utilities operating in remote and socially vulnerable regions of Brazil. AmE, the distribution company serving the state of Amazonas, covers a vast and hard-to-reach area in the Amazon region and has historically dealt with problems that include high rates of non-payment, electricity theft and poor infrastructure. These challenges are not new to the power sector, but the solutions adopted so far have not provided the utility with financial stability or its consumers with reliable, high-quality service.

In September 2024, ANEEL, the Brazilian Electricity Regulatory Agency, found itself drawn into litigation over the transfer of control of AmE. A federal court ordered the regulator to approve, within 48 hours, the transfer of control of AmE to the J&F Group, one of Brazil’s largest business conglomerates, through Âmbar Energia, on the grounds that ANEEL had not complied with the provisions of Provisional Measure 1,232/24. [1] A provisional measure is an act issued by the President with the force of law, which lapses if Congress does not vote on it within a set period. The court order was presented as an attempt to address the utility’s financial problems, but it raises broader questions about the impact of litigation on the power sector and the consequences of requiring a regulator to act under an exceptionally tight judicial deadline.

Here, litigation imposed a degree of urgency on ANEEL that was difficult to reconcile with its regulatory function, requiring the agency to comply before it could fully assess the economic and social impacts of the decision. In chapter VII, “O Prejuízo dos Obedientes” (“The Cost of Obedience”), the book Manda quem pode, obedece quem tem prejuízo (“Those in Power Command; Those Who Bear the Losses Obey”) [2], by Luiz Gonzaga Belluzzo and Gabriel Galípolo, the latter recently confirmed as the next president of Brazil’s Central Bank [3], discusses the paradox of obedience: when orders from above are obeyed blindly, those who pay the price are often those least able to bear it. In the case of AmE, local consumers and, by extension, all electricity consumers in the country are the ones who will ultimately bear the consequences.

The federal court’s decision raises fundamental questions about the balance between the powers of the judiciary and those of regulatory agencies. In theory, ANEEL, as the regulator of the power sector, should have the autonomy to assess and approve changes in the corporate control of utilities based on technical, financial and operational criteria. However, that autonomy was challenged by the court decision, which gave the agency 48 hours to complete a process that would normally take months. Faced with the order, the agency’s board met and deadlocked 2-2. [5] On October 7, following a new court order, the director-general acting alone signed the order approving the transfer plan. [6]

This scenario reflects one of the central points raised by Edvaldo Santana, a former ANEEL director, in his article “Pane Elétrica 2” (“Power Failure 2”) [4], in which he discusses the effects of judicial and executive intervention in power-sector decisions. Judicial intervention may be necessary to correct legal or operational failures or protect consumers, but compressed deadlines can also limit the time available to assess long-term economic impacts. Santana also raises concerns about the implications of vertical integration between generation assets already controlled by the J&F Group and AmE’s distribution business.

Moreover, ANEEL’s compliance with the court order, without adequate time for an in-depth analysis of regulatory impacts, creates what might be called a situation of “boundless obedience,” one that can weaken the agency’s ability to balance the interests of companies, government, and consumers. The lesson drawn from Belluzzo and Galípolo’s book is that compliance without room for adequate assessment can generate inefficiencies, upward pressure on electricity rates, and broader social and economic costs.

One of the main concerns surrounding the court decision and the transfer of control of AmE is the potential for higher costs to be embedded in electricity rates nationwide. Financial difficulties at a distribution utility such as AmE can create spillover costs across the broader power system. When a utility cannot cover its operating costs and necessary investments, the bill ends up being passed on through sector charges. In AmE’s case, the relief measures approved are funded by the Fuel Consumption Account (CCC), which subsidizes power generation in isolated systems and is in turn funded by the Energy Development Account (CDE). [6]

The CDE is a sectoral fund used to cover various obligations in the power sector, including subsidies and universal-access programs. It is funded through charges included in electricity rates paid by consumers across Brazil. In recent years, however, the CDE has been increasingly burdened by rising costs from struggling distribution companies such as AmE. If the transfer of control does not produce a clear strategy to reduce technical and non-technical losses or improve revenue collection, there is a risk that some of these costs will continue to be absorbed through the CDE and shifted to consumers in other regions.

This situation recalls an earlier period in Brazil’s power sector, when inefficiencies at one company could be offset elsewhere in the system, creating a web of cross-subsidies. At that time, state-owned power companies, such as those in the Eletrobras group, were able to absorb the inefficiencies of smaller, less profitable utilities, spreading the costs among consumers across the country. Today, with growing reliance on the CDE to cover deficits, we are seeing a new version of this offsetting logic, but with a direct impact on electricity rates for all Brazilians.

Delays in ANEEL’s decision-making were often cited as one of the factors behind judicial intervention in the AmE case. The time taken to implement the provisions of Provisional Measure 1,232/24, which was designed to facilitate the financial recovery of struggling utilities, illustrates how regulatory delays can have significant economic consequences. ANEEL launched public consultations, but the regulatory review process took longer than expected, contributing to conditions in which the courts intervened.

This delay may also reflect structural constraints within ANEEL itself, including staff shortages and vacancies on the agency’s board. The agency, responsible for regulating one of the most critical sectors of Brazil’s infrastructure, faces a shortage of human and financial resources that undermines its ability to respond quickly to crises and implement regulatory changes. Without adequate staffing and resources, ANEEL may be unable to act as quickly as the sector demands, increasing the likelihood of intervention by the judiciary or the Executive Branch.

This point brings us back to Belluzzo and Galípolo’s discussion. The book’s central metaphor is that inaction or unquestioning compliance with higher authorities can impose losses on those at the end of the chain, in this case, electricity consumers. When regulatory decisions are delayed or made without adequate analysis, part of the resulting cost can ultimately reach consumers through higher electricity rates.

Besides the judiciary, the Executive Branch also has a major influence on the power sector. The issuance of Provisional Measure 1,232/24, which sought to relax certain rate and operational rules to facilitate the recovery of utilities such as AmE, is an example of the federal government acting to address a financial crisis. Such intervention, however, does not necessarily resolve the underlying structural problems.

Electricity theft, one of the biggest problems facing AmE, is an example of the limits of state action in the sector. In the areas served by AmE, electricity theft, including illegal connections known in Brazil as “gato,” and other non-technical losses are especially high. The widespread practice of stealing electricity places a financial burden on the utility, which can neither cover its operating costs nor generate the investment needed to maintain and improve the grid.

These non-technical losses are deeply rooted in socioeconomic issues and in a lack of adequate enforcement. With insufficient enforcement and monitoring capacity, AmE faces significant difficulty addressing this problem effectively, and the costs can ultimately be passed on to consumers. In addition, technical losses, linked to aging infrastructure, make the situation even worse, since the utility is forced to operate in adverse and hard-to-reach conditions.

When legal mandates and political pressure compress the time available for regulatory analysis, a cost-shifting trap can emerge. Instead of resolving AmE’s structural problems, including management weaknesses and the challenge of operating under difficult regional conditions, short-term measures may provide only temporary relief while redistributing costs to consumers elsewhere in the country.

There are also arguments in support of intervention by both the judiciary and the Executive Branch. Judicial intervention may be justified as a means of protecting rights, such as access to electricity, or remedying alleged agency inaction. The Executive Branch, for its part, may use provisional measures such as MP 1,232/24 to respond quickly to the risk of service disruption and preserve continuity of essential services. The challenge is to ensure that such interventions are transparent and proportionate and that, over the longer term, technical regulatory analysis remains central to protecting consumers and the sustainability of the system.

The court-ordered transfer process, conducted under a compressed timetable, highlighted the vulnerability of Brazil’s power sector when regulatory analysis is constrained by external deadlines. Insufficient time for robust analysis can increase costs for consumers and allow underlying inefficiencies to persist. A more durable solution depends on institutional coordination among the judiciary, the Executive Branch, and regulatory agencies, with a focus on efficiency and long-term consumer protection.

When decision-making is highly centralized and institutions have little room to assess orders independently, costs may fall on those at the end of the chain. In the power sector, that can mean electricity consumers. When a utility such as AmE faces financial difficulties and regulators lack sufficient time or resources for proper analysis, costs may be redistributed across regions, including to consumers with no direct connection to the Amazonas Energia crisis.

ANEEL, the judiciary, and the Executive Branch therefore need an institutional framework that can address the financial recovery of utilities while protecting consumers from excessive rate increases. Compliance with judicial or executive mandates should not eliminate the space required for sound technical assessment. The objective should be to allow financially distressed companies to recover while protecting consumers’ long-term interests and the sustainability of the system as a whole.

Update (September 2026): Provisional Measure 1,232/2024 lapsed in October 2024 without being voted on by Congress. The case continued in the courts, and in September 2025 ANEEL’s board approved an agreement under which Âmbar took control of Amazonas Energia. [7]

References

1. MIGALHAS. Aneel tem 48h para aprovar transferência da Amazonas Energia à J&F [ANEEL has 48 hours to approve transfer of Amazonas Energia to J&F]. Migalhas, Sept. 24, 2024. Available at: https://www.migalhas.com.br/quentes/415852/aneel-tem-48h-para-aprovar-transferencia-da-amazonas-energia-a-j-f. Accessed on: Oct. 9, 2024.
2. BELLUZZO, Luiz Gonzaga; GALÍPOLO, Gabriel. Manda quem pode, obedece quem tem prejuízo [Those in Power Command; Those Who Bear the Losses Obey]. 1st ed. São Paulo: Contracorrente, 2017.
3. G1. Gabriel Galípolo é o mais jovem a assumir o BC neste século; veja trajetória [Gabriel Galípolo is the youngest to head the Central Bank this century; see his career]. G1, Economia, Oct. 8, 2024. Available at: https://g1.globo.com/economia/noticia/2024/10/08/gabriel-galipolo-e-o-mais-jovem-a-assumir-o-bc-neste-seculo-veja-trajetoria.ghtml. Accessed on: Oct. 9, 2024.
4. SANTANA, Edvaldo. Pane elétrica 2 [Power Failure 2]. Valor Econômico. Available at: https://valor.globo.com/opiniao/coluna/pane-eletrica-2.ghtml. Accessed on: Oct. 9, 2024.
5. PODER360. Entenda como está o caso Amazonas Energia e leia os documentos [Where the Amazonas Energia case stands, with the documents]. Available at: https://www.poder360.com.br/poder-energia/entenda-como-esta-o-caso-da-amazonas-energia-e-leia-os-documentos/.
6. EIXOS. Aneel autoriza transferência da Amazonas Energia à Âmbar Energia [ANEEL authorizes transfer of Amazonas Energia to Âmbar Energia]. Oct. 7, 2024. Available at: https://eixos.com.br/energia-eletrica/aneel-autoriza-transferencia-da-amazonas-energia-a-ambar-energia/.
7. CENÁRIO ENERGIA. Âmbar assume controle da Amazonas Energia com aporte bilionário de R$ 9,85 bilhões [Âmbar takes control of Amazonas Energia with a R$ 9.85 billion capital injection]. Sept. 5, 2025. Available at: https://cenarioenergia.com.br/2025/09/05/ambar-assume-controle-da-amazonas-energia-com-aporte-bilionario-de-r-985-bilhoes/.

The opinions and analyses expressed in this article are personal and do not represent the positions, decisions or institutional views of the Brazilian Electricity Regulatory Agency (ANEEL).