Assessing the Brazilian Electric Sector’s Financial Monitoring Milestone

Abstract

The Brazilian energy sector adopted a new regulation system in 2015 due to a system collapse threat. The system was changed to contractually incorporate firms’ economic-financial monitoring. This paper aims to assess the progress of this monitoring model toward achieving its goals. Thus, we proceed with a triangulation with three analyses. First, we analyse the literature to indicate if the economic-financial monitoring shows a hybrid form of adoption as suggested by the literature as the most suitable towards achieving regulatory goals. Second, we verify the perception of the economic-financial monitoring efficiency by the regulatory agency. Third, we evaluate the behaviour of some financial indicators before and after the new regulation. Our results show that, first, the economic-financial monitoring adopts a hybrid form which may drives better monitoring. Second, the perception of the regulator regarding efficiency of the financial monitoring model is favourable. Third, our results show that the sector leverage and profitability variances were significantly reduced after the implementation of financial monitoring which indicates less Asymmetric Information and consequently, better monitoring. In general, our results indicate some uncertainty reduction and more uniform behaviour of the entire sector after adopting an economic-financial monitoring system.