From day 1, this snake oil salesman has NOT BEEN IN COMPLIANCE. Shame on ASEP and internal checks and balances for allowing this strong armed “take it or leave it” rackateering to exist for 20 years within the legal boundaries of the Republic.
An unqualified, unregsitered, unrecognized, non-concession compliant, running a remote “Lord of the Flies” operation, and using the tactic of turning on/off electricity access as a means to break people and make them comply is un-fucking- real. You got your own little “Jonestown” there dont you Joe.
READ BELOW HOW BAD YOUR SCREWED!!!! Hurry up and raise money to backdate and notarize a concession from some slimy judge. You know the playbook. Or maybe you ran out of Kool-Aid.
Policy and law
What is the government policy and legislative framework for the electricity sector?
Panama restructured its electricity sector in 1998. A year later, the state-owned electricity entity (IRHE), which controlled the generation, transmission and distribution of electricity in Panama, was privatised. As part of the restructuring process, the state invited private investment participation in the areas of generation and distribution, but retained full control of the transmission infrastructure and services. The state also created a regulatory entity to supervise the operation of the sector. Policymaking authorities for the electricity sector were assigned to the National Secretariat of Energy, a quasi-executive cabinet office created in 2006.
The legal framework of the electricity sector comprises:
- Law No. 26 of 29 January 1996, as amended, that created the regulatory entity, the National Authority of Public Services (ASEP);
- Law No. 6 of 3 February 1997, as amended, that created the regulatory and institutional framework for the electricity market and the rules for generating, transmitting and distributing electricity (Law No. 6); and
- Executive-Decree No. 279 of 14 November 2006, and Law No. 43 of 25 April 2011 as amended, that created and reorganised the National Secretariat of Energy, an office under the executive branch responsible for designing and implementing the government’s policies and strategies for the electricity and oil and gas sectors.
ASEP supervises the electricity market and primarily:
- issues concessions, licences and other authorisations to generation companies (generators) and distribution companies;
- registers self-generators and co-generators;
- develops rules and principles for generating, transmitting, distributing and selling electricity; and
- ensures sector compliance.
The energy generation market is divided in terms of installed capacity as follows: 56 per cent corresponding to hydro generation plants, 33 per cent corresponding to thermal generation plants, 8 per cent corresponding to wind generation plants and 3 per cent corresponding to solar generation plants.
The existing regulatory framework, in particular the Commercial Rules that regulate the wholesale market and the Purchasing Rules, regulate competitive auctions to purchase capacity and energy from generators (auctions) and allow special auctions:
- based on the type of technology of the generator;
- for new projects only; or
- based on other special characteristics.
2Organisation of the market
What is the organisational structure for the generation, transmission, distribution and sale of power?
Panama has organised its electricity sector into three main areas: generation, distribution and transmission.
Generators must enter the market through a concession, a licence or by registering with ASEP.
Hydro and geothermal generators must obtain a concession. Thermal, wind and solar generators must obtain a licence. And self-generators and co-generators must complete a registration process before ASEP. Generators that enter the market through a concession or licence can sell their power through:
- power purchase agreements (PPAs) that are subscribed with distribution companies after being awarded through auctions;
- PPAs freely negotiated with other generators or large unregulated consumers (large unregulated consumers). A large unregulated consumer is a consumer that exceeds 100kW per month and can purchase its power directly from generators, distribution companies or the large consumer basket;
- the large consumer basket, a collection of all electricity requirements from large unregulated consumers managed by the state-owned transmission company (ETESA); or
- the spot market.
The state retains a non-controlling participation in two hydro generators and three thermal generators, and full control of one hydro, one thermal and one solar generator.
Self-generators and co-generators that enter the market through a registration process before ASEP, produce energy for their own consumption, and sell their surplus in the electricity market. Moreover, self-generators can also enter PPAs and participate in auctions.
Distribution companies must operate under a concession granted by ASEP. Distribution companies operate by selling power to regulated consumers and large unregulated consumers. In Panama, there are three distribution companies that must keep open access to their grids for all generators and large unregulated consumers, subject only to payment of tolls and connection charges. Distribution companies participate in the National Interconnected System (NIS). The NIS requires distribution companies to enter into PPAs to supply 100 per cent of their estimated maximum regulated demand. After the privatisation process of 1998, the state has retained a non-controlling participation in the three distribution companies operating in Panama.
ETESA owns all transmission assets as well as the concession for transmission of electricity throughout Panama. ETESA is also responsible for the NIS. In 2005, ASEP granted another transmission concession to Empresa Propietaria de la Red (EPR). EPR is a company incorporated under the laws of Panama to interconnect the Central American electricity market pursuant to the tenets of the Central American Electrical Interconnection System (SIEPAC) treaty. Interconexión Eléctrica Colombia-Panama (ICP), a company incorporated under the laws of Panama to interconnect the Panamanian and Colombian electricity markets, has also requested a transmission concession to ASEP, which is pending approval of ASEP since 2017. ETESA has 12.5 per cent ownership in EPR and 50 per cent ownership in ICP.
Only distribution companies licensed by ASEP may advertise the provision of electricity to consumers. Any other intermediary is forbidden from buying and reselling electricity to consumers. The exceptions are generators that market and sell electricity to large unregulated consumers.
Regulation of electricity utilities – power generation
Authorisation to construct and operate generation facilities
What authorisations are required to construct and operate generation facilities?
According to Law No. 6, generation facilities may operate under a concession, licence or registering with ASEP.
ASEP awards concessions after completing an auction process. When ASEP identifies a possible hydro or geothermal project or a third-party requests a concession, ASEP must start an auction process to allow all interested parties to participate. After completing the auction process, ASEP awards the concession to the candidate with the highest bid and for a period that may not exceed 50 years. After expiry, the concession may be renewed once for another 50-year term.
A generator requires a licence to construct and exploit any generation plant other than those subject to a concession regime. Applicants must file a licence application with ASEP. If the licence application is approved, ASEP will issue the licence for a maximum term of 40 years. After expiry, the licence may be renewed for another 40-year term.
Registry of self-generators and co-generators
Entities that, as part of their industrial or commercial operations, own generation plants that generate electricity for their own consumption, may register such generation capacity before ASEP. Once ASEP approves the registration of these companies, these companies may sell their surplus energy into the electricity market. Self-generators may also enter into PPAs and participate in auctions. These registers are usually granted for five-year renewable terms.
Companies competing for a concession or applying for a licence or registry must also have an environmental impact study of the project duly approved by the Ministry of Environment (MoE), a water concession issued by the Ministry of Environment, for hydro projects, an interconnection approval from ETESA and must also have successfully completed a test run of the plant directed by the National Dispatch Centre (CND). The National Dispatch Centre is a division within ETESA that plans, supervises and controls the integrated operation of the NIS and ensures the NIS’s safe, integrated and reliable operation.
Grid connection policies
What are the policies with respect to connection of generation to the transmission grid?
Law No. 6 promotes a policy of free access to the NIS. Access to the NIS requires each generator to subscribe to a transmission contract with ETESA. The transmission contract will govern the relationship between the generator and ETESA and affords the generator the right to connect to the transmission grid and facilities owned and operated by ETESA for a fee.
Connection to the NIS requires the generator to accept and comply with NIS Operating Rules and the Technical Service Quality Rules, including all system fees charged by ETESA, which are set and vary according to the area.
Alternative energy sources
Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?
Approximately 70.2 per cent of the electricity consumed in Panama is generated by hydroelectric plants. Some of these plants were built before 1997, when the electricity sector was still owned and operated exclusively by the government, and in the absence of any special incentives. Rather, their construction was predicated on a government policy directed at using water resources that are abundant almost year round and that are not subject to cost surges or variations.
After 1998, when the government designed and implemented a privatisation programme for the electricity sector, private capital played a leading role in the development and construction of new thermoelectric plants. Though the electricity sector underwent significant legislative changes in 1997 and 1998, very few provisions dealt with or encouraged the development and use of renewable generation sources. Among those few was a provision of Law No. 6 that concedes a 5 per cent price differential over the price offered in auctions by generators that use a renewable and alternative energy source.
The first integrated and notable effort to promote generation of clean and renewable energy came to life with the adoption of Law No. 45 of 2004 (Law No. 45). Law No. 45 and its regulations target hydro, wind, biofuel and solar energy development. Law No. 45 is primarily a tax-laden body of benefits that exempts generators from:
- import tax, custom duties, fees, contributions, encumbrances, VAT on the importation of equipment, machinery, materials, spare parts, as well as on the tools and equipment to construct, operate and maintain a generation plant; and
- up to 25 per cent of income tax for new project developments or for increasing the generation capacity of an extant plant. The amount of income tax that may be credited will be measured by the amount of carbon dioxide emissions that are reduced annually. The income tax benefit is effective for the first 10 years, counted from the time the project commences commercial operations.
After Law No. 45, the government has enacted the following regulations regarding renewable energies:
Law No. 44 of 5 April 2011 (Law No. 44), as regulated, which creates special auctions for wind generators only, as well as tax exemptions for all wind generation companies, as follows:
- import tax, custom duties, fees, contributions, encumbrances, VAT on the importation of equipment, machinery, materials, spare parts, as well as on the tools and equipment to construct, operate and maintain a wind generation plant. This exemption also applies when importing wind generation equipment to be sold in Panama; and
- 15 years of exemption from all national taxes to companies manufacturing equipment in Panama for wind generation plants.
Owing to these incentives and government policies allowing for specific auctions for wind power PPAs, wind projects now account for 5.3 per cent of energy generation.
Law No. 42 of 20 April 2011 (Law No. 42) that establishes the national biofuels policy, regulates the biomass-based energy generation, and grants fiscal credits to companies that purchase bio-ethanol and biodiesel made with local products.
Law No. 43 of 9 August 2012 that amends Law No. 6 and creates special auctions:
- based on the type of technology;
- for future projects only; or
- based on special characteristics that respond to the government’s energy policy.
Law No. 41 of 2 August 2012 (Law No. 41):
- promotes the development of generation projects using natural gas; and
- creates the following tax exemptions for projects using natural gas:
- exemption of import tax regarding equipment and spare parts to construct, operate and maintain a power plant using natural gas; and
- application of the accelerated depreciation method to the equipment of power plants using natural gas.
Law No. 37 of 10 June 2013 (Law No. 37) establishes incentives for the construction, operation and maintenance of solar power generation plants. Law No. 37 creates the following tax exemptions for companies involved in the construction, operation or maintenance of solar power generation plants:
- import tax, custom duties, VAT on the importation of equipment, machinery, materials, spare parts, tools and equipment to construct, operate and maintain a solar power generation plant;
- tax credit up to 5 per cent applicable to income tax in connection with the total direct investment on solar power generation plants already built or under construction; and
- application of an accelerated depreciation method to the equipment of power plants using solar energy.
Finally, through Resolution AN-10206 of 2016, ASEP issued rules allowing distributed generation for clients to set up self-generation facilities for their own consumption, which can be connected to the distribution grid, following simple procedures, and an agreement with the distribution company. These regulations facilitate the establishment, among others, of substantial solar capacity to allow clients to significantly reduce the amount of power required from the grid.
What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?
In 2016, the Republic of Panama signed the Paris Agreement regarding climate change and set broad emissions reductions objectives for the country. In addition to the Paris Agreement, the government enacted Law No. 69 of 12 October of 2012 (Law No. 69), which provides measures for rational and efficient use of energy, and prepared and issued the National Energy Plan covering until 2050.
Law No. 69 requires that:
- all equipment manufactured or imported to the country to comply with energy efficiency indicators approved by the Ministry of Commerce and Industries;
- the industrial, commercial, and government infrastructures to comply with energy efficiency policies;
- public entities to review their energy consumption, and to take measures to reduce energy consumption;
- the National Secretariat of Energy to create incentives for the acquisition of energy efficient equipment; and
- the creation of education projects regarding energy efficiency.
However, the government has not issued energy mandatory efficiency requirements or terms to implement these requirements. Despite these initiatives electricity sources have remained almost the same for the past five years, while electricity tariffs and consumption levels have increased.
The National Energy Plan indicates that Panama will continue generating energy with non-renewable sources until it makes a change regarding the energy matrix and consumption energy policies. As indicated in question 1, more than 30 per cent of the installed capacity is represented by thermal generation plants. The fuel used by thermal generation plants to generate electricity increases the cost of the electricity tariffs. However, thermal generation plants cannot be replaced without having renewable projects able to provide firm capacity and generate the electricity that is currently generated by the thermal generation plants. One of the alternatives to comply with climate change prevention initiatives is to promote the installation of new alternative renewable energy projects (eg, wind and solar). Even though the Energy Plan does not include specific actions to increase power generation through renewable energy projects, the new administration inaugurated on 1 July 2019 has made this a priority, and is committed to issue a document specifying such actions and short- and mid-term goals for renewable energy generation.
Does the regulatory framework support electricity storage including research and development of storage solutions?
The Panamanian government has not issued specific rules supporting electricity storage, or research and development of storage solutions. Currently, electricity storage is considered as part of the activities that a generator may perform under its concessions or licences (where applicable). From a consumer standpoint, electricity storage is allowed, provided it does not cause alterations in the grid.
Does government policy encourage or discourage development of new nuclear power plants? How?
No. Panama has not implemented provisions or measures to encourage or discourage development of nuclear power plants. There are no nuclear power plants in operation in Panama at present.
Regulation of electricity utilities – transmission
Authorisations to construct and operate transmission networks
What authorisations are required to construct and operate transmission networks?
In Panama, ETESA, a government-owned and run entity, has full ownership and management of the NIS. Only ETESA can operate the national transmission network.
As mentioned in question 2, and as part of SIEPAC, ASEP granted a transmission concession to EPR to develop, operate and maintain a transmission line that will interconnect Central America. ETESA owns 12.5 per cent of the shares in EPR.
Similarly, on 1 August 2008, the Panamanian government signed a memorandum of understanding with Colombia to develop the technical and regulatory framework that will govern electrical interconnection between both countries. ETESA and the transmission company of Colombia, Interconexión Electrica SA (ISA), formed ICP to develop the Panama-Colombia interconnection project. In 2012, Panama and Colombia agreed on, and approved, the operation rules and dispatch rules that will regulate the exchanges of energy between both countries. Panama and Colombia scheduled the auction to assign the economic rights of the transmission line for June 2012; however, the said auction was cancelled, and a new date has not been set yet. In July 2014, the government announced that Panama was going to continue with the interconnection project with Colombia; and that the interconnection project will transport up to 400MW, reducing the capacity of the line from 600MW as originally envisaged. In September 2015, Panama and Colombia commenced environmental consultations and reviews in connection with the interconnection project and set June 2016 as the deadline to decide on the options and effects of the interconnection from an environmental perspective.
Since ICP did not complete the environmental analysis before the original deadline, and since further studies are required, ICP requested on two separate occasions for ASEP to extend the time allowed to analyse the environmental options and effects. ASEP authorised both extension requests. The requests were granted, the first extending the deadline until September 2018, and the second until September 2020.
Eligibility to obtain transmission services
Who is eligible to obtain transmission services and what requirements must be met to obtain access?
Law No. 6 provides for open access to the transmission grid subject only to the payment of a connection fee and a use fee to ETESA. To connect to the transmission grid, the applicant must file a request with ETESA.
The request must include:
- a technical description of the interconnection structure;
- the estimated startup date;
- how much energy the applicant expects to use or generate for the four-year period following interconnection;
- a technical report on the effect of the new interconnection over the transmission grid; and
- the applicable environmental study.
Generators and distribution companies must comply with transmission regulations and pay a tariff that covers interconnection and transmission charges. ASEP formulates the criteria to set and adjust the transmission tariffs.
Government transmission policy
Are there any government measures to encourage or otherwise require the expansion of the transmission grid?
As mentioned in question 9, the transmission grid is currently controlled by ETESA, a company wholly owned by the government; hence, the expansion of the transmission grid rests primarily on government development plans and sponsorship.
The Transmission Regulations adopted by ASEP in 2009 as amended, requires ETESA to elaborate a plan for the expansion of the NIS. The expansion plan needs the approval of the National Secretariat of Energy. ASEP approved the last expansion plan in February 2019.
As part of the expansion plan that ASEP approved in 2019, ETESA organised two auctions to expand the transmission grid. The first one has the purpose of constructing a transmission line with a capacity of 500kV that will transport energy from Chiriquí Grande (northwest part of Panama) to the new Panama III substation in the Panama City area. And the second one, has the purpose of constructing the new Panama III substation, and a transmission line of 230kV that will transport energy from Sabanitas (Colón) to the new Panama III substation.
Rates and terms for transmission services
Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?
ASEP is the authority that fixes the terms and rates for the provision of transmission services. Resolution No. JD-5216 of 14 April 2005 as amended, adopted the extant transmission regulations.
Transmission regulations that, among other principles, set the current transmission rates will remain in force until 2021. Rates associated with the access and use of transmission lines must cover the investment, operation and maintenance costs of the NIS and allow for reasonable profit. ASEP has defined as reasonable profit a profit that does not differ by more than two points from the annual interest rate of a US Treasury 30-year bond, plus a seven-point business-risk premium. Rates must also attend the foreseeable growth in transmission traffic, and ensure the reliable, continuous and outstanding development of the NIS. The government has rejected a proposal to change the concept of reasonable profit and reduce it to a profit that does not differ by more than two points from the annual interest rate of a US Treasury 30-year bond, plus a five-point business-risk premium.
Entities responsible for grid reliability
Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?
ETESA is the entity that controls the transmission grid. The National Dispatch Centre, as explained in question 3, is a unit of ETESA, responsible for planning, supervising and managing the NIS and for ensuring its safe, integrated and reliable operation. Generators must comply with the transmission schedules set by the National Dispatch Centre. Generators may deviate from transmission schedules only in cases of unforeseeable maintenance or repair work to transmission lines or interconnection units or when there is an event of clear and conclusive force majeure. The National Dispatch Centre may request authorisation to ASEP for the compulsory disconnection of any generator or distribution company that does not comply with National Dispatch Centre guidelines.
The Planning Unit, an administrative department within ETESA, is responsible for researching, studying and forecasting the power requirements of the entire country. The Planning Unit is also responsible for recommending options and alternatives to satisfy such power requirements, including the development of alternative sources of energy and for designing and implementing programmes to conserve and optimise the use of energy.
Regulation of electricity utilities – distribution
Authorisation to construct and operate distribution networks
What authorisations are required to construct and operate distribution networks?
To construct and operate a distribution network, a company must apply for a distribution concession. ASEP grants concessions to distribute electricity and the Comptroller General must approve said concessions. ASEP can grant distribution concessions for a maximum of 15 years.
Further, as outlined in question 3, companies applying for any concession, including a distribution concession, must have an environmental impact study duly approved by the Ministry of Environment.
According to Resolution AN No. 6457-Elec the current distribution concessions will expire in October 2028.
Access to the distribution grid
Who is eligible to obtain access to the distribution network and what requirements must be met to obtain access?
Law No. 6 requires distribution companies to provide open access to the distribution grid. Access to the grid is governed by the applicable laws, regulations and resolutions of ASEP and by an agreement subscribed to by the distribution companies.
Government distribution network policy
Are there any governmental measures to encourage or otherwise require the expansion of the distribution network?
Yes. Every four years, ASEP approves a tariff regime prepared by distribution companies that includes, the investment that distribution companies estimate will make to maintain and expand the distribution grid, provide public lighting services, and meet energy supply needs that clients may have, including rural electrification in certain areas of the country. This provides, with efficient costs, the basis to determine the tariffs that distribution companies charge to regulated customers.
ASEP also includes in the tariff regime certain expansion projects that must be executed by distribution companies and included as part of its tariffs. If distribution companies do not execute said projects, ASEP may fine them, and reduce the distribution tariffs that distribution companies charge to their clients in the following tariff period.
And finally, Law No. 6 and concession contracts require distribution companies to provide service and extend the grid to serve clients that are within 100 meters of existing distribution infrastructure.
Rates and terms for distribution services
Who determines the rates or terms for the provision of distribution services and what legal standard does that entity apply?
Resolution No. JD-5863 of 2006, as amended, sets the terms for the distribution and sale of electricity. Said resolution also provides the formula used to determine distribution rates. The government issued new procedures to determine rates applicable for the distribution and commercialisation of electricity for the period 2018-2022.
Distribution companies must submit to ASEP a list of rates that are applicable to regulated consumers and the rates charged for the use of distribution networks. ASEP must approve those rates. When approving the proposed rates, ASEP considers the real costs of the service and the area of distribution.
Distribution companies must obtain long-term contracts to cover 100 per cent of the capacity and power requirements of their regulated consumer base.
Regulation of electricity utilities – sales of power
Approval to sell power
What authorisations are required for the sale of power to customers and which authorities grant such approvals?
As outlined in question 3, generators require either a concession, a licence or a registration before or issued by ASEP, to build and operate a generation facility.
Generators with a concession or licence, can participate in the wholesale market in Panama by selling their output through:
- PPAs awarded through auctions initiated and presided over by ETESA. ETESA establishes reference prices for each auction and generators compete for the long-term or short-term contract on the basis of capacity and prices. ETESA awards the PPA to the bidders offering the lowest monomic price. ‘Monomic price’ is defined as the combination of the prices for energy and capacity, expressed in terms of dollars per megawatt. Once ETESA selects the winning bid, ASEP must approve the selection. The auction process is completed with the subscription of a PPA between the distribution company and the generator that submits the lowest conforming bid. As indicated in question 5, ETESA can organise special auctions based on the type of technology.
- PPAs freely negotiated with other generators.
- PPAS freely negotiated with large unregulated consumers. According to rules issued in 2012, generators may also sell capacity and energy to large unregulated consumers using the large consumer basket – an auction system that promotes a basket of energy from generators to large unregulated consumers managed by ETESA.
- The spot market, on an hourly basis. The spot market allows generators to sell to distribution companies, large unregulated consumers, other generators and foreign markets. Rules issued in 2012 allow generators to sell into the spot market only if the generators have complied with their obligations to participate in all auctions called by ASEP to purchase and sell power or energy, with their available capacity. The price of energy in the spot market will be calculated based on the last generator called to dispatch energy, without considering the fuel source or any security restrictions.
Self-generators and co-generators can participate in the wholesale market in Panama by selling the energy that they do not consume in the spot market. Moreover, self-generators can also negotiate PPAs with other generators and large unregulated consumers.
As discussed in question 2, distribution companies require a concession issued by ASEP to operate and to sell power to consumers. Additionally, distribution companies must subscribe long-term PPAs to cover 100 per cent of the capacity and energy requirements of regulated consumers.
Power sales tariffs
Is there any tariff or other regulation regarding power sales?
In Panama, ASEP has the authority to enact and amend the rules that govern power sales from generators to the wholesale market. The National Dispatch Centre is responsible for implementing these rules. Said rules set the market criteria for the exchange and sale of power, including the criteria for setting tariffs. These rules and tariff criteria are reviewed every four years.
Tariffs charged by distribution companies to final consumers are classified according to consumption and voltage. Distribution companies must set tariffs based on a formula fixed by ASEP that allows for a reasonable return on investment after distribution costs are covered. Accepted distribution costs are management, operation and maintenance expenses, as well as standard losses and the depreciation that an efficient distribution company would incur within the respective concession area.
Tariffs to final consumers at present include a fuel differential subsidy that is paid by the government to distribution companies to compensate for higher fuel prices.
Other requirements regarding power sales are outlined in question 16.
Rates for wholesale of power
Who determines the rates for sales of wholesale power and what standard does that entity apply?
Question 18 outlines the options that generators have to sell power. The applicable rates will be contingent on the particular option, as follows:
- Competitive PPAs – the rates in PPAs are the result of the auction. ETESA formulates reference prices for each auction and generators compete for the long-term or short-term PPAs on the basis of capacity and prices.
- PPAs with other generators or large unregulated consumers – rates in these PPAs are freely negotiated between the parties.
- The spot market – the National Dispatch Centre calculates the price with the marginal cost of short-term generation.
- The large consumer basket – ETESA calculates power rates in the large consumer basket from the average of all the power offered by generators and each generator’s price. The total average will be the power rate in the large consumer basket. After ETESA calculates the price for the large consumer basket, the large unregulated consumer can decide if they will purchase electricity from the large consumer basket or if they prefer to purchase directly from distribution companies or generators.
Public service obligations
To what extent are electricity utilities that sell power subject to public service obligations?
Electricity is considered a public service obligation in Panama. Extant legislation provides that power generation, transmission, distribution and commercialisation of electricity must satisfy basic collective needs on a permanent basis. However, Panama’s electricity regulatory system also considers financial viability and free competition as basic elements of the electricity market.
Which authorities determine regulatory policy with respect to the electricity sector?
The National Secretariat of Energy is the authority that sets and oversees policy within the electricity sector. Similarly, ASEP develops rules and principles applicable to the electricity sector.
Scope of authority
What is the scope of each regulator’s authority?
The following entities have authority over the Panamanian electricity market:
- The National Secretariat of Energy – the secretariat is primarily responsible for setting policy and developing electricity sector strategy and planning, supervising and ensuring policy compliance, and recommending sector legislation to the legislative branch and to ASEP.
- ASEP – this market regulator and enforcement agent is primarily entrusted with:
- issuing concessions, licences and other authorisations to generators and distribution companies;
- developing rules and principles for the generation, transmission, distribution and sale of electricity; and
- ensuring sector compliance.
- The National Dispatch Centre – a department of the state-owned transmission company ETESA, which is responsible for planning, supervising and controlling the integrated operation of the NIS and managing the wholesale electricity market.
- ETESA – a government-owned entity that operates the main transmission network; and publishes, prepares and oversees auctions and evaluates and adjudicates PPAs following ASEP regulations.
- The ETESA Planning Unit – an administrative unit of ETESA, which prepares the national electricity plan and the national reference expansion plan.
- The Ministry of Environment – the environmental authority that approves environmental impact studies for generators and distribution companies, grants water concessions for certain electricity projects, and ensures compliance with environmental rules in the electricity market.
Establishment of regulators
How is each regulator established and to what extent is it considered to be independent of the regulated business and of governmental officials?
The National Secretariat of Energy
Law No. 43 of 5 April 2011, reorganised the National Secretariat of Energy. It is a quasi-cabinet office connected and answerable to the executive branch. It has indirect connection to the regulated business, since the National Secretariat of Energy has power to advise and suggest changes and regulations to ASEP and to the National Assembly. The president appoints the secretary who presides over the National Secretariat of Energy.
Law No. 26 of 29 January 1996, as amended, created ASEP as an independent entity, to regulate and oversee the electricity market, the telecommunications market and the water sector. Though the executive branch appoints the regulator, its appointment requires the approval of the legislative branch. However, from 1997, when ASEP was created, each government elected to serve a five-year term on the executive branch has enjoyed concurrent majority and control of the legislative branch, limiting the amount of independence that ASEP was intended to have from the executive branch.
National Dispatch Centre and ETESA
The National Dispatch Centre is a unit of ETESA, which is the state-owned transmission company (see question 3). As a state-owned entity, the National Dispatch Centre and ETESA answer to the executive branch and the National Secretariat of Energy.
The Ministry of Environment
Law No. 41 of 1998 created the National Environmental Authority (ANAM) as an independent government entity. It was amended by Law No. 8 of 2015, which reorganised ANAM into the Ministry of Environment. The Ministry of Environment is not under the supervision of ASEP or the Secretary of Energy. It is a ministry that is part of the executive branch, with its minister being appointed by the president.
Challenge and appeal of decisions
To what extent can decisions of the regulator be challenged or appealed, and to whom? What are the grounds and procedures for appeal?
ASEP is presided over by its administrator. ASEP also has three directors – one for the electricity and water sector, another for the telecoms, radio and television sectors, and one for customer service – who oversee their respective areas and are answerable to the administrator. Any decision issued by an ASEP officer may be challenged through two administrative actions: reconsideration and appeal. Both proceedings must be filed and resolved within ASEP as follows:
- resolutions of any of ASEP’s directors may be challenged by filing a reconsideration request with the specific director or an appeal with the administrator, or both; and
- resolutions issued by the administrator of ASEP may be challenged by filing a reconsideration request with the administrator.
All the foregoing reconsiderations or appeals may be challenged further by filing an extraordinary action with the Third Chamber of the Supreme Court.
Acquisition and merger control – competition
Which bodies have the authority to approve or block mergers or other changes in control over businesses in the sector or acquisition of utility assets?
The Antitrust and Consumer Protection Authority (ACODECO) has the authority to approve or block mergers, changes in control, or acquisition of assets involving the electricity sector. It may also block a merger while in progress or after it has been completed if considered against Law No. 45 of 31 October 2007 governing antitrust and consumer protection (Law No. 45).
Review of transfers of control
What criteria and procedures apply with respect to the review of mergers, acquisitions and other transfers of control? How long does it typically take to obtain a decision approving or blocking the transaction?
In Panama, parties intending to engage in a merger or acquisition are not required to obtain an authorisation from ACODECO prior to or after said acquisition. However, the parties may voluntarily submit the terms of the merger or acquisition to ACODECO for prior verification, so that ACODECO can confirm if the transaction would cause a negative effect in the corresponding market and therefore result in a prohibited economic concentration, and recommend adjustments to the transaction to avoid becoming a prohibited economic concentration.
ACODECO has 60 working days to issue its opinion. If this period ends without ACODECO’s decision, the proposed merger or acquisition may be completed. If ACODECO decides that the acquisition is not a prohibited economic concentration, the acquisition cannot be challenged or objected to after the closing, unless the opinion of ACODECO its issued based on false information filed by the parties to the transaction.
Similarly, if the parties to the transaction decide not to complete a prior verification with ACODECO, ACODECO has the authority to initiate an investigation regarding the legality of the transaction within three years after the closing of the transaction. Third parties may also request ACODECO to review a transaction within said three-year period.
Prevention and prosecution of anti-competitive practices
Which authorities have the power to prevent or prosecute anticompetitive or manipulative practices in the electricity sector?
ACODECO is the institution with authority to prevent and prosecute anticompetitive practices. Antitrust cases are tried before commercial courts.
However, Law No. 6 entitles ASEP to prevent potential anticompetitive practices within the electricity sector. Accordingly, ASEP has discretion to issue directives and regulations to maintain fair competition within the electricity sector. Nonetheless, ASEP must seek the opinion of ACODECO before adopting or issuing any antitrust or discriminatory directives or regulations. ASEP may also commence antitrust investigations by notifying ACODECO of any violations, and may assist ACODECO when investigating and verifying anticompetitive practices within the electricity sector.
Determination of anti-competitive conduct
What substantive standards are applied to determine whether conduct is anticompetitive or manipulative?
Law No. 45 forbids any act, contract or practice that may limit, diminish, damage, obstruct or harm competition and the free market in the production, processing, distribution, supply and commercialisation of goods and services.
Similarly, Law No. 6 empowers ASEP to intervene whenever it finds an abusive dominant position in the market that causes harm to regulated consumers or to any agents within the electricity market.
Law No. 6 also expressly outlines four types of antitrust behaviour:
- vertical or horizontal concentrations carried out in generation or distribution activities, causing the reduction or obstruction of competition and free concurrency of electricity market agents;
- any event or transaction that diminishes, affects or obstructs competition and the free market, such as company mergers, direct or indirect acquisition of control in another company or companies, acquisition of assets from any company carrying out activities in the electricity sector, or any other legal mechanism used to concentrate corporations, associations, shares or assets in general, between competitors, suppliers, clients, shareholders or any other economic agent;
- any event that hampers a large unregulated consumer from negotiating a PPA; and
- any attempt at price fixing between generators and distribution companies or among them.
Preclusion and remedy of anti-competitive practices
What authority does the regulator (or regulators) have to preclude or remedy anticompetitive or manipulative practices?
As outlined in question 28, ACODECO has the authority to prevent, prosecute and penalise anticompetitive practices. ACODECO may commence independent administrative proceedings or initiate an administrative review following a third-party request. Accordingly, ACODECO has the authority to impose administrative fines of up to US$1 million if ACODECO finds that consumer rights or antitrust laws have been breached.
ACODECO may also file claims in the courts of commerce to prevent or remedy economic concentrations, antitrust practices and violations of individual or collective consumer rights.
Consumers may also access commercial courts to seek redress for antitrust transgressions or to suspend antitrust practices. Commercial courts may in turn suspend any transaction or practice that may violate the rights of consumers and antitrust laws, impose precautionary measures, or award financial compensation and remedies to affected consumers.
Consumers may also seek retribution in criminal court, by filing a criminal complaint. The Attorney General’s Office can also independently start criminal inquiries. Successful criminal actions for anticompetitive and manipulative practices may result in imprisonment of one to six years in the case of antitrust violations; and imprisonment of up to 18 months for unfair violations of competition laws.
Acquisitions by foreign companies
Are there any special requirements or limitations on acquisitions of interests in the electricity sector by foreign companies?
There is no special requirement or limitation in the electricity sector for foreign companies in Panama. Law No. 6 establishes that local or foreign private companies, or companies of combined public and private capital, may participate in the electricity sector.
Authorisation to construct and operate interconnectors
What authorisations are required to construct and operate interconnectors?
As mentioned in question 9, the transmission grid is currently controlled by ETESA, and its obligations include the construction and operation of interconnectors. However, market participants, such as generators and distribution companies can construct and operate interconnection assets to the national grid. According to Resolution 1244 of 10 February 1999 (Resolution 1244), market participants interested in constructing and operating local interconnectors require a transmission concession issued by ASEP. ASEP requires the following to issue a transmission concession:
- a request document with a map showing the location and technical characteristics of the project;
- an NIS diagram;
- a list of generators in the market with their main characteristics;
- a copy of PPAs subscribed by the electricity market participants; and
- a description of constituted and required easements for the project and the certification issued by Ministry of Environment approving the project.
Once ASEP receives the transmission concession request, ASEP will prepare an auction and publish the terms of reference of the auction in two national newspapers for 30 calendar days. Interested bidders are able to file their proposals only during the publication period. If ASEP does not receive an offer from another bidder, ASEP will grant the transmission concession to the company that initially filed the transmission concession request. However, if ASEP receives an offer from one or more bidders, ASEP will grant the transmission concession to the bidder that filed the best offer.
The auction process does not only apply to transmission companies operating before the issuance of the Resolution 1244, or construction companies that are in charge of constructing the transmission line or substations on behalf of ETESA.
Interconnector access and cross-border electricity supply
What rules apply to access to interconnectors and to cross-border electricity supply, especially interconnection issues?
Cross-border electricity can be supplied via the NIS or any cross-border transmission networks through PPAs with foreign generators or distribution companies, subject to ASEP’s rules and regulations, or through short-term transfers undertaken by ETESA.
Any generator may export capacity, energy or both if it has available capacity or energy that has not been committed to other agents and if the National Dispatch Centre does not require its capacity, energy or both for the local market.
International electricity transfers are exempted from all import and export taxes or fees.
The electricity system in Panama is interconnected with Central America, through SIEPAC. SIEPAC became fully operative in September 2015. As mentioned in question 9, Panama and Colombia are planning and developing an interconnection line between both countries.
Transactions between affiliates
What restrictions exist on transactions between electricity utilities and their affiliates?
Law No. 6 imposes certain limits on vertical and horizontal ownership within the electricity sector.
Generators and their shareholders cannot participate, directly or indirectly, in the control of distribution companies and cannot request new concessions if, by obtaining such concessions, they would account, directly or indirectly, for more than 25 per cent of the electric power consumption in the national market. The executive branch, with the prior favourable opinion of ASEP, may increase said percentage when it considers that such an increase is necessary based on market conditions.
Distribution companies and their shareholders cannot directly or indirectly control generators when the aggregate generation capacity of the respective distribution company exceeds 15 per cent of total demand within its respective concession area and cannot request new concessions if, on doing so, they would serve, directly or indirectly, more than 50 per cent of the total number of customers in the national market. The executive branch, with the prior favourable opinion of ASEP, may increase said percentage if it considers it necessary to allow the expansion of the zone of influence or the expansion of the electricity system as a whole.
However, the following exceptions apply:
- if the same company can generate, transmit and distribute and if the company operates within an independent system (Law No. 6 defines ‘independent systems’ as those that have a demand that does not exceed 50MW and, in the case of distribution companies, a generation capacity that does not exceed 15 per cent of total generation within the distribution concession area);
- for co-generators and auto-generators that sell within the NIS; and
- for generators that sell their power directly to any large unregulated consumers.
Enforcement and sanctions
Who enforces the restrictions on utilities dealing with affiliates and what are the sanctions for non-compliance?
ASEP has oversight and ACODECO has enforcement authority over generators or distribution companies that fail to comply with the vertical and horizontal ownership restrictions listed in question 34.
Whenever a transaction or a company oversteps antitrust or consumer protection laws, ACODECO has sole enforcement authority either through administrative court proceedings or commercial and criminal court proceedings, as outlined in question 30.
Update and trends
Key developments of the past year
Are there any emerging trends or hot topics in electricity regulation in your jurisdiction?
Key developments of the past year36 Are there any emerging trends or hot topics in electricity regulation in your jurisdiction?
In 2018, the executive branch proposed a bill to amend Law 6, but it was not considered by the National Assembly. This bill is currently under review by the newly appointed Secretary of Energy so that the new administration, inaugurated on 1 July 2019, can resubmit it before the National Assembly. The bill that was originally filed before the National Assembly:
- Allows the commercialisation of energy by:
- market agents that are not distribution companies;
- distribution companies that sell energy to their large customers and regulated clients; and
- generators that sell energy to large consumers that do not purchase energy based on tariffs.
- Limits to 30 per cent the generation capacity that a generator can directly or indirectly have in the market and to 40 per cent the energy/capacity that a generator may have of the total PPA market.
- Eliminates auctions designed for specific technologies.
- Establishes rules benefitting renewable projects such as:
- allowing renewable projects with a maximum capacity of 10MW to sign PPAs directly with distribution companies, as long as such direct PPAs do not exceed 15 per cent of the maximum demand of the distribution company in its concession area, without affecting the distribution company’s self-generation capacity; and
- penalising fossil fuels generators, for bid evaluation purposes, depending on the carbon dioxide emissions of the offeror’s fossil fuels generator.
- Changes the administrative and public contracting principles of Empresa de Transmisión Eléctrica, SA (ETESA), and other state-controlled electricity companies.
The National Assembly must approve a bill in three different debates for the bill to become a Law.
The Panamanian government is promoting electrical vehicles. On 13 August 2019, the public transportation company of the city of Panama began testing its first electric public bus. Also, new laws and regulations are under study to promote electrical vehicles, including:
- incentives and tax exemptions for the purchase of electric or hybrid vehicles;
- the construction of power charging stations; and
- investment in public transportation using electricity.
With these initiatives, the Panamanian government expects that by 2030, 25-50 per cent of public-service vehicles, and 10-20 per cent of private vehicles, will be electric vehicles.
The newly inaugurated administration filed a draft public-private partnerships (PPP) bill before the National Assembly, which approved the bill by Law 93 of 19 September 2019 (Law 93). Law 93 will specifically regulate several types of PPPs, including those created for electricity generation purposes.
As of now, Law 6 of 1997 regulates PPPs related to electricity. However, said PPPs are the ones resulting from the 1998 privatisation effort. New PPPs will be governed by Law 93.
Regarding electricity, Law 93 will allow entities such as ASEP and companies in which the Panamanian government is the owner of at least 51 per cent of its capital, to prepare proposals regarding the projects to create, develop, maintain, and operate infrastructures in the electricity market, using private capital investment. The proposals must include the financial benefits that the public entities will have if the projects are developed by a private party and must be filed before the PPP’s governing entity for its review and approval. If the proposal is approved, the public entity that received the proposal must prepare and organise the terms of reference to choose the company that will develop the PPP project, following the provisions included in the bill, and Law No. 22 of 2006 that includes public contracting rules.
Once the company is chosen, the company must:
- sign an agreement valid for a term of 30 years, that may be renewed for a term that cannot exceed 10 more years;
- complete the project under the terms included in the agreement; and
- the public entity must oversee the compliance of the PPP project.