Combining Developed and Developing Worlds’ Policy Concerns: The Challenges of Distribution Network Ratemaking in Latin America

Bernardo Bezerra (PSR), Martha Carvalho (PSR)

Following the trend observed in developed economies, various Latin American governments are committed to reducing greenhouse gas emissions, particularly in the power sector. In countries such as Chile, Peru, Colombia, Brazil, and Mexico, various regulatory policies have been issued to meet renewable-generation integration targets and satisfy the increasing demand from consumers for supply quality. Meanwhile, the integration of distributed generation (DG) in rural and urban areas as well as the increasing need to integrate electric vehicles (EVs) in urban areas are driving important reforms in the distribution sector. Distribution networks are expected to increase reliability and integrate various distributed energy resources (DERs) by using an array of newly available technologies (including smart meters, online monitoring and control, and other smart grid and IT advances), enabling utilities to implement an active (rather than the historical passive or “fit-and-forget”) approach to network operation, advanced operational measures, and nonwire solutions that will effectively displace costly investments. Regulators in countries including Colombia, Peru, Chile, Brazil, and Argentina have implemented or are under- taking regulatory reforms in the distribution sector. Thus, regulators consider various policy concerns and objectives when deciding on network regulations, which are (i) Quality and Reliability (ii) decarbonization (iii) Economic Efficiency and Revenue Adequacy (iv) Equity and Fairness. In this article, we focus on distribution network price controls, especially remuneration and tariffs. We summarize rate making in Latin America countries and discuss the Chilean and Brazilian experiences.

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