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Regulation

The electric market is divided in three distinct activities: generation, transmission and distribution. They are all conducted by private companies. The authority has a regulatory and supervisory role, pursuing to establish criteria that favor economic and efficient expansion of the electric systems. The Chilean electric sector is regulated by the general electric service law.

The public agency responsible for the sector is the Energy Ministry. It is responsible for plans, policies and standards regarding the development of the energy sector. In addition, it grants concessions for hydroelectric power plants, transmission lines, substations and power distribution areas. The National Energy Commission (CNE), organizationally dependent on the Energy Ministry, is a technical agency responsible for studying prices, tariffs, technical standards, fixes tariffs according to applicable regulation trough the technical node pricing reports and generates the electrical infrastructure works plan, a ten year indicative guide for the system expansion, annexed to the node pricing reports. The Electricity and Fuels Superintendence (SEC) sets technical standards and oversees its compliance.

There are two major interconnected systems in Chile, the Central Interconnected System (SIC) and the Norte Grande Interconnected System (SING), in addition of two minor electrical systems, Aysén and Magallanes. Generation companies must submit the operation of their power plants to the respective Economic Load Dispatch Center (CDEC-SIC and CDEC-SING). The primary role of the CDEC is to ensure system security and programming the dispatch of generating units in order to satisfy the demand at minimum cost, subject to security restrictions.

Generating companies are remunerated for energy and capacity services. Energy refers to effective consumption and is paid either at marginal cost at the relevant node or according to the agreed Power Purchase Agreements (PPA). Capacity payments reward the generation company for making capacity available to the system. Firm capacity is determined for each power plant and is paid at marginal system capacity expansion cost, calculated by the CNE.

Energy sale takes the form of financial contracts. PPA’s are signed with distribution companies and unregulated clients, and positions are adjusted in the spot market at the marginal cost determined hourly by the CNE for each node. This means that companies producing less than their obligations, balance their positions at the spot market, buying from companies that produce in excess. In this regard, the amendments to the DFL-4 introduced by the Short Law II establish that distribution companies must back the projected demand of their regulated clients with long term PPA’s. This law also establishes incentives for renewable energy.

Transmission facilities are remunerated through transmission tolls, paid 80% by generators in proportion to their use of the facilities and 20% by unregulated clients. Rates are designed for a 10% real annual return of the transmission assets’ value. Operation, maintenance and administration costs (COMA) are charged in addition. Transmission assets are open access. Distribution companies are obliged to pass through the energy purchase price to their regulated clients, adding the Distribution Aggregated Value (VAD).

Environmental regulation

The general environmental law establishes that investment projects must be submitted to the SEIA, mechanism by which the environmental authority (Ministry of Environment) trough the Environmental Assessment Service (SEA) evaluates the impact on the environment generated by projects.

Water rights

The Water Code allows the existence of a water exploitation rights market. Public property rights are auctioned by the Water Authority (DGA) and private water rights can be traded. In order to avoid speculation, fees apply for holding unutilized non-consumptive water rights.