IEEE Power & Energy Magazine - May/June 2020 - 43

✔✔ A major issue is the absence of stakeholder engage-

ment, where parties contribute feedback and proposals
through an advanced planning and remuneration process. In the current framework, it is unclear how decisions between companies and stakeholders to improve
the distribution service (for example, installing new assets agreed among stakeholders to increase the supply
quality) could be adequately remunerated.
The Path Forward

regulatory capture that could occur, since network companies have more technical expertise about network operation
and planning.
Addressing the problem of information asymmetries
is key, potentially requiring a different approach than the
model-firm paradigm, where companies' real costs are practically ignored. There has been important progress to incentivize the quality of the information that companies provide
to regulators, achieved by offering a menu of contracts (see
the "For Further Reading" section), and this may inform the
future debate in Chile.

Distribution Charge (US$/kW/Month)

Since the price-control regime in Chile has remained almost
untouched for nearly four decades, there is a consensus that
some of its features have to be updated. Despite this agree- Brazil
ment, there are heated debates about the level of change
that is necessary. Although the current approach is being The Regulatory Framework
questioned in light of the new paradigm, there is a group Brazil's installed generation capacity is roughly 167 GW (as
of experts that defends it, supporting its arguments mostly of 2019), with a yearly energy consumption of 472 TWh (as
on the system's simplicity and low-cost implementation. of 2018), serving 84.6 million users (as of 2019). Consumers
The group envisions a set of smaller changes in network in Brazil fall into two broad groups: 1) free consumers, who
remuneration. An opposite position supports a more radi- bilaterally negotiate for energy and pay regulated charges (or
cal change toward incentive-based remuneration methods, network tariffs) for access to distribution and transmission
such as Revenue = Incentives + Innovation + Outputs in networks, and 2) regulated consumers, who purchase energy
the United Kingdom, which recognizes and addresses the at a controlled price derived from supply-contract auctions
challenges associated with the
new paradigm. Such approaches,
however, would impose more
45
Company
Regulator
complexity and require a greater
40
effort by regulators to understand
35
the costs and decisions of real
30
firms. Chile's answer probably lies
25
between the two extremes. The
20
debate involves questions such as
15
the following: Up to which point
10
do real costs have to be recognized
in the remuneration process? What
5
would the new role, set of tasks,
0
1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6
and burden be for regulators?
Some principles underlying
2004
2008
2012
2016
Chile's remuneration method may
Representative Company and Year
need to be maintained to smooth
any transition. Part of companies' figure 6. The distribution charge per representative firm under the past four tariff
real costs may need to be rec- controls, according to company and regulator studies, before the weighting process.
ognized (for example, by using Representative firms are sorted by connection density (number 1 presents the highest
a "brownfield" model firm) to and corresponds to Santiago, Chile).
encourage investments in quality
and reliability and other desirtable 4. Tariff modalities in Brazil.
able distribution-service outputs
Time-Dependent
Network
as well as to compensate investors
Tariff
User
Structure
Pricing
Remuneration
for part of the risk they face. RecConventional
Low voltage
kWh only
No
Volumetric
ognizing companies' real needs
and costs would increase regulaBlue
High voltage
kWh and kW
Peak/off peak
Peak demand
tors' burden of scrutiny and perGreen
High voltage
kWh and kW
Peak/off peak
Peak demand
haps their responsibility in future
White
Optional for
kWh only
Peak/intermediate/ Volumetric
investment decisions. A major
low voltage
off peak
concern involves the extent of the
may/june 2020

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IEEE Power & Energy Magazine - May/June 2020

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