1. Background
The 2nd and 3rd 2026 Capacity Reserve Auctions in the Form of Power (“LRCAP 2026”),, held on 18 and 20 March 2026, contracted approximately 19,479 MW of power, with estimated obligations of R$ 517 billion in fixed revenue over contracts of up to 15 years. The auction, conducted by National Electric Energy Agencu (“ANEEL”), structured on the basis of guidelines issued by the Ministry of Mines and Energy (“MME”) and operationalised by the Energy Trading Chamber (“CCEE”), resulted in a concentration of contracting in thermoelectric projects, particularly gas-fired power plants.
Following the close of the auction rounds, however, the LRCAP 2026 became subject to simultaneous scrutiny from different institutional bodies, including the Federal Accounts Court (“TCU”), ANEEL itself, the Judiciary, the National Congress and, more recently, the Brazilian Antitrust Authority (“CADE”). These fronts did not prevent ANEEL from deliberating on the products whose administrative proceedings had been concluded.
The main challenges centre on three key points: (i) the revision of the price caps, carried out within a period of less than 72 hours, with increases of up to 100.89% for existing thermoelectric plants and 81.25% for new thermoelectric plants; (ii) the level of competitiveness observed in the thermoelectric products of ANEEL Auction No. 2/2026, which recorded an average discount of approximately 5.5%, in contrast to the discount in excess of 50% observed in the March 20 processing round; and (iii) the potential long-term tariff impacts associated with the contracting, estimated at between R$ 190 billion and R$ 510 billion over the duration of the contracts.
2. Brazilian Federal Accounts Court: Evolution of Oversight and Injunctive Risk
The TCU’s oversight of the LRCAP 2026 predates the holding of the auction, as its Audit Unit (“AudElétrica”) had already been monitoring capacity reserve auctions since 2025. In this context, following the first round, the Office of the Prosecutor with the TCU (“MP-TCU”) filed a precautionary request on March 19, based on the results recorded at that time. On that occasion, the the measure was dismissed, finding that the risks associated with a suspension outweighed the grounds presented.
Subsequently, on April 1st 2026, the MP-TCU submitted a new complaint incorporating new facts: the submission raised questions regarding the participation of certain winning bidders under different corporate names, without declaration of corporate links between companies, as well as prior defaults in previous contracts. As a result, the discussions before the TCU expanded to cover not only the formation of the price caps and the auction design, but also the financial and economic capacity and corporate structure of certain winning bidders.
With these new elements incorporated into the proceedings, on April 15 2026, the TCU’s issued a decision, by which it recognized the MP-TCU’s complaint, found it partially well-founded on the merits and authorised its Audit Unit to carry out an inspection of the entities involved, including the MME, ANEEL, the Energy Research Company (“EPE”) and the National Grid Operator (“ONS”). The Court also dismissed the precautionary measure due to the absence of “periculum in mora”, since the award was only scheduled for May 2026, which would allow for a more thorough review of the proceedings before the final acts were concluded.
In the same session, Minister Bruno Dantas issued a concurring statement in which he expressed concern regarding the financial, economic and operational capacity of certain winning bidders, referring in his statement to so-called “paper generators”. The statement also indicated the need to deepen the analysis of corporate links, prior conduct and the effective capacity to execute the projects.
Following that decision, the TCU’s oversight expanded beyond a preliminary examination of the indications raised in the complaints and came to cover the economic and operational viability of the contracted parties. In this context, on May 15 2026, the Audit Unit presented a technical report with a formal proposal for a precautionary measure to suspend the ratification and award of the 2026, 2027, 2028, 2029 and 2031 thermoelectric products of ANEEL Auction No. 2/2026.
On the merits, the technical report focused on three main points:
- as regards the auction design, the technical unit highlighted the revision of the price caps carried out between February 10 and 13 2026, with adjustments of 100.89% for existing thermoelectric plants and 81.25% for new thermoelectric plants, whilst the hydroelectric products remained unchanged. On this basis, the Audit Unit examined whether the amendment of the economic parameters was accompanied by sufficient justification and whether the new values adequately reflected the costs effectively associated with the participating projects, including in light of the discrepancy identified between the investments declared by the winning bidders and the values used as the basis for calculating the revised price caps.
- from a competition standpoint, the technical report noted that the prices applied in the gas-fired and coal-fired thermoelectric products diverged from the values observed in other products within the same auction, whilst the reduced or zero discounts were treated as indicative of a limited competitive environment.
- with regard to security of supply, TCU considered ONS data from May 11, 2026 and noted that reservoir storage levels, combined with the existence of conjunctural supply solutions, would allow for the inference that the 2026 power demand could be met without contracting the challenged thermoelectric products, provided that mitigating measures were adopted.
Following the completion of the technical report, on May 19, 2026, the Reporting Minister issued an order expressing substantial agreement with the technical department´s analysis and noting the existence of points of concern in the conduct and design of the auction. Nevertheless, the proposed precautionary measure was not granted at that time, as ANEEL had not included the ratification on the agenda of the ordinary meeting of May 19, and the Reporting Minister found that the periculum in mora was addressed in a precarious and temporary manner. Furthermore, the Reporting Minister noted that ANEEL must notify the TCU in advance of any resumption of the auction, with sufficient notice to allow for the adoption of appropriate measures.
Accordingly, although the TCU has not yet formally suspended the LRCAP 2026, the proceedings remain under close scrutiny, particularly in relation to the ratification and award acts. To date, the Court’s actions have resulted in the initiation of a more thorough technical review, a partial precautionary measure proposal by TCU´s audit deparment and the issuance of a summons to ANEEL by the Reporting Minister, without any suspension order or impediment to the continuation of the auction having been issued.
3. ANEEL: Administrative Acts and Ratification/Award of the 2026 Product
In parallel with the progress of the TCU proceedings, ANEEL maintained the course of the LRCAP 2026’s internal administrative acts, in accordance with the guidelines established by the MME, in particular MME Ordinance No. 118/2025. In this context, ANEEL approved the tender notices, conducted the auctions, reviewed the administrative appeals submitted and concluded the qualification of the winning bidders for the 2026 Thermoelectric Power Product.
In the context of these acts, on April 28 2026, ANEEL’s Board of Directors dismissed the administrative appeals filed by J&F S.A. and UEG Araucária S.A. challenging certain aspects of the LRCAP 2026 results. In its decision, ANEEL reaffirmed that the bids submitted in the auction constitute irrevocable and irreversible obligations, constituting a vested legal act that cannot be modified unilaterally after the close of the competitive phase. Subsequently, the Permanent Auction Committee (“CPL”) concluded the qualification of the winning bidders for the 2026 Thermoelectric Power Product, following verification of the legal, tax, labour, financial, economic and technical requirements set out in the tender notice.
Furthermore, in reviewing the administrative appeal filed by INEL against the rejection of a challenge to the tender notice, ANEEL noted that a significant portion of the objections was directed at the ministerial guidelines and the design established by the MME, rather than at intrinsic defects in the acts carried out by the Agency itself. On this basis, ANEEL held that, in exercising its role as auction promoter, it must observe the guidelines of the Granting Authority, without replacing the MME in the formulation of sectoral public policy. This reading was also taken up in the votes submitted to the Board on May 21, which emphasised that it is ANEEL’s responsibility to conduct the administrative and executive stages of the auction, whilst the definition of the capacity reserve volume and the sectoral guidelines falls within the remit of the MME, based on studies conducted by the EPE and the ONS.
Notwithstanding the progress of the internal administrative acts, the ratification and award of the 2026 Thermoelectric Power Product were not initially included on the agenda of the Ordinary Public Meeting of May 19, 2026. In accordance with an internal memorandum dated May 13, ANEEL opted to await a further court ruling before submitting the matter to the Board of Directors, without ruling out the possibility of a subsequent extraordinary deliberation.
However, in light of the supervening court decisions that did not impose any obstacle to the continuation of the procedure, the absence of any blocking precautionary measure from the TCU and the need to comply with the auction timeline, ANEEL resolved, on May 21, 2026, to ratify the result and award the 2026 Thermoelectric Power Product. In the case of Auction No. 2/2026, the Reporting Director’s vote noted that the CPL’s qualification process had been concluded and that there was no specific qualification defect or individual irregularity on the part of the winning bidders that would prevent the completion of the final acts. In the case of Auction No. 3/2026, relating to oil- and biodiesel-fired thermoelectric plants, the vote also concluded in favor of ratification and award, highlighting the discounts in excess of 50% relative to the price cap and the absence of specific challenges before the TCU capable of imposing the suspension or postponement of the final acts.
As regards the remaining products of the LRCAP 2026, the CPL also advanced, on 21 May 2026, in the qualification assessment of the winning bidders, with the publication of orders relating to new thermoelectric, existing thermoelectric and hydroelectric projects. This stage, however, is distinct from the ratification and award by the Board of Directors, which, in accordance with the auction timeline, remains scheduled for June 11, 2026 in relation to the remaining products. Furthermore, part of the qualifications remains pending analysis by the CPL, due to documentary enquiries that have not yet been concluded.
4. Judiciary and Federal Prosecution Service: Class Action Lawsuits, Emergency Injunctions and Recommendation to ANEEL
In parallel with the administrative and oversight fronts, the LRCAP 2026 became the subject of judicial proceedings through class action lawsuits filed by representative bodies of energy-consuming industries. In common, these actions seek to prevent the contractual consolidation of the auction before the challenges raised in relation to the design, price caps, competitiveness and potential tariff impacts are assessed.
In the Class Action Lawsuit filed by ABRAENERGIAS before the Federal Court in Brasília, the emergency injunction requesting the suspension of the ratification, award and signing of the Power Capacity Reserve Contracts (“CRCAPs”) was initially dismissed on May 11, 2026, on the grounds that, at the preliminary stage, there was insufficient evidence to rebut the presumption of legality of the impugned regulatory acts. The Federal Prosecution Service (“MPF”) then issued an opinion in favor of partial acceptance of the injunction, specifically to suspend the acts of ratification, award and signing of the CRCAPs pending the full completion of the proceedings.
Similarly, a class action lawsuit filed by FIESP on May 15, 2026 was also identified, albeit with a more limited scope restricted to the thermoelectric products. In summary, the action challenges the formation of the price caps, the possibility of double recovery of fixed costs and a comparison between the cost of maintaining certain plants under the merchant model and the cost under the LRCAP model.
On May 20, 2026, however, a new ruling was issued by the 6th Federal Civil Court of the Federal District Judicial Section, upholding the dismissal of the emergency relief request. On the same date, the First Region Federal Court of Appeals (“TRF-1”) dismissed the request for anticipatory appellate interim relief due to insufficient demonstration of the probability of the right, without prejudice to a reassessment of the matter at the time of the collegial ruling.
The most recent court decisions reaffirmed, at the preliminary stage, the presumption of legality of the administrative and regulatory acts, the technical and economic complexity of the dispute and the need for caution in judicial intervention in sectoral regulatory choices. Furthermore, ANEEL noted that the Federal Court of São Paulo recognised a connection with the class action lawsuit pending before the Federal District Court and declined jurisdiction in favor of that court, whilst the Federal Court of Ceará dismissed an emergency relief request in a similar action.
Finally, in the extrajudicial sphere, the MPF issued a recommendation to ANEEL requesting that it refrain from taking any further acts implementing or executing the auction results until the completion of the TCU’s technical and procedural review or the correction of the methodological distortions identified, and also recommending the submission of a supplementary Regulatory Impact Assessment (“RIA”). However, as a prosecutorial recommendation, this measure does not, in itself, constitute a binding order preventing the Board of Directors from deliberating.
5. National Congress and CADE: Measures Directed at the MME
In the National Congress, the initiatives identified focus on attempting to override or clarify the acts that structured the LRCAP 2026. Draft Legislative Decree No. 264/2026 seeks to override MME Ordinances No. 118/2025 and No. 125/2026, the normative bases of the auction, with an urgency request having been filed for its consideration. In the Senate, Request No. 40/2026-CI requested the summoning of the Minister of Mines and Energy to provide clarifications on the contract acceleration measure signalled by the MME to ANEEL.
In the competition sphere, a report produced in the context of the public hearings of the Chamber of Deputies’ Committee on Mines and Energy was referred to CADE, resulting in the initiation of an Administrative Inquiry aimed at investigating possible anticompetitive conduct. This is, however, an investigative and sanctioning front, with no direct effect on the ratification or award of the auction.
6. Consolidated Overview as of May 2026
Taking into account the fronts described above, the LRCAP 2/026 is not formally suspended. On the contrary, following the initial postponement of the matter from the agenda of the Ordinary Public Meeting of May 19, ANEEL resolved, on May 21, 2026, to ratify and award the 2026 Thermoelectric Power Product. In relation to the remaining products, the CPL advanced in the qualification stage of the winning bidders, without this yet constituting ratification and award by the Board of Directors, a stage scheduled in the auction timeline for June 11, 2026.
Within the TCU, although the technical review of certain aspects of the LRCAP 2026 remains ongoing, there is no precautionary measure preventing ANEEL from ratifying and awarding the products whose proceedings have been concluded. Accordingly, the Court’s oversight remains relevant to monitoring the auction’s design and effects, but has not, as of the reference date of this update, produced any order preventing the continuation of the administrative acts.
In the Judiciary, the identified suspension requests have also not prevented the continuation of the administrative procedure. On May 20, 2026, the 6th Federal Civil Court of the Federal District upheld the dismissal of the emergency relief in the ABRAENERGIAS class action lawsuit, whilst the TRF-1 dismissed the appellate interim relief requested in the interlocutory appeal. In turn, the recommendation issued by the MPF, whilst institutionally significant, is not binding and does not constitute an order preventing ANEEL from deliberating.
Accordingly, the key focus now shifts to the legal and regulatory effects arising from the ratification and award, particularly the signing of the CRCAPs and the monitoring of the ongoing oversight, judicial and competition proceedings.
In this context, measures for the development and financing of winning projects in the LRCAP 2026 remain appropriate to enable them to meet their deadline commitments, and it is advisable to include contractual safeguards providing for the suspension or termination of contractual effects in the event of changes to the regulatory framework.