Latin America - Price Cap Regulation: Stimulating Efficiency in Electricity Distribution in Latin America

摘要

Electrical distribution companies, being network industries, transport and distribute electric power from connection points of the transmission system to end consumers for industrial and residential usage at appropriate voltage levels. This activity is organized in public service utilities (Discos) that buy power supply from generators in both the long term and sport markets. For more than two decades, most of the Latin American countries have made drastic transformations to their electrical power sectors in both the unbundling and privatization processes of the state monopolies. As a consequence of the deregulation process, an important change has occurred in the role of the State. From the owner and operator of electric vertically integrated companies, the State has evolved to become the regulator of activities that are natural monopolies, such as electrical power distribution, owned and or operated by private or public market players. Within this framework, the challenge has been to stimulate an efficient service in distribution, similar to that that would be achieved in a competitive environment. In order to regulate the electrical power distribution stage, most of these countries have adopted Price Cap regulations, using concepts such as the "model/standard utility" or benchmarking schemes (i.e. efficiency frontiers). The "standard utility model" corresponds to a company whose investments are economically adapted to demand and operates under an optimal plan. In setting distribution tariffs, because of the very monopolistic nature of the activity, both models (standard utility and benchmarking techniques) intend to introduce a virtual competition, trying to make companies more efficient, thus minimizing the present value of all their costs (capex, opex, loses and non supply energy). In general, this has meant important distribution tariff reductions, obtained through a regulated periodic process, the so called Tariff Revue. The panel will evaluate the results of Price Cap regulation in Latin America power distribution and assess what can be learned from that experience and the challenges that may arise in the future.