On December 2023, the Ministry of Energy, pursuant to Article 147 of the General Electricity Services Law, requested the Tribunal de Defensa de la Libre Competencia (TDLC) to issue a report on the possibility of reducing the connected power limit from 500 to 300 kilowatts to qualify for the free energy price regime.
After nearly a year of review, on November 27, 2024, the TDLC issued Report No. 33/2024 as part of non-contentious procedure Case NC No. 525-23.
- Regulatory Context
Under Article 147 of the General Electricity Services Law (LGSE), there are two main categories of energy end-users: • Regulated customers: With connected power equal to or below 5,000 kW, their legal and commercial relationship with distributors is governed by sectoral regulations. • Free customers: With installed power above 5,000 kW, they are not subject to price regulation and must negotiate directly with generators.
The law also establishes a third category: eligible customers, whose connected power ranges between 500 and 5,000 kW, allowing them to choose between regulated and free tariff regimes. Article 147(d) of the LGSE states that "The Ministry of Energy may lower the 500-kilowatt threshold indicated in this subsection, subject to a report from the TDLC."
To lower the threshold to 300 kW and extend this option to additional consumers (mainly SMEs), the Ministry of Energy requested the TDLC to assess the feasibility of lowering the connected power limit for the free price regime under Article 147(d).
- TDLC's Analysis of Risks
The TDLC identified and evaluated potential risks to competition in the generation, transmission, and distribution markets, categorizing them as follows:
- Risks to Energy Supply for Free Customers
- Risks from Increased Market Power in Generation
Identified Risk: Lowering the threshold could concentrate supply among a few generators, reducing options for free customers.
TDLC Conclusion: No evidence suggests any generator holds a dominant position. Free customers have various supply options, and market concentration would not significantly increase even if all new free customers selected the largest supplier.
- Risks from Information Asymmetry for New Free Customers
Identified Risk: New free customers may face difficulty evaluating supply options due to lack of information and could incur higher costs if transmission lines are reclassified.
TDLC Conclusion: This risk is minimal and theoretical. The likelihood of transmission line reclassification in urban areas is low, and eligible customers can remain in the regulated regime. Informational risks can be mitigated by energy marketers and demand aggregators.
- Risks to Energy Supply for Regulated Customers
- Impact on Existing Supply Contracts
Identified Risk: Lowering the threshold might disrupt awarded supply contracts, leading to economic imbalances.
TDLC Conclusion: Price revisions would be exceptional and unlikely. Any demand impact would be minor and manageable in future tenders.
- Impact on Future Tenders
Identified Risk: The measure could reduce the attractiveness of future tenders for regulated customer supply, potentially raising prices.
TDLC Conclusion: A reduced energy quantity in tenders does not necessarily reduce competition or increase prices. The impact on tender processes would be small and temporary.
- Other Identified Risks
The TDLC reviewed concerns about foreign investment, future project financing, distributed generation (net billing), and decarbonization policies but dismissed them as theoretical and lacking substantial evidence.
- Potential Benefits
The TDLC highlighted the following advantages: • More customers could adopt energy strategies tailored to their needs, access better rates, and secure improved contract terms. • The measure may foster sustainability through clean energy use and generate positive externalities, such as reduced tariffs in other sectors and promotion of electromobility.
- Tribunal's Conclusion
The TDLC concluded that the Ministry of Energy’s proposal does not pose significant risks to competition in electricity supply. Therefore, the TDLC issued a favorable report, stating that the measure would not harm market competition or efficiency.
Following the TDLC’s opinion, the Ministry of Energy must decide on implementing the power limit reduction and its modalities. It will be crucial to monitor the impact on existing supply contracts and align the measure with the potential introduction of energy marketers as part of the proposed distribution reform.
For further information, please contact Francisco López Díaz (flopez@jdf.cl) or Fernando Valenzuela (fvalenzuela@jdf.cl).
