The legal structure that regulates the activity of the electricity sector is DFL N°4, enacted in May 12, 2006, by the Ministry of Economy, Development and Reconstruction that establishes the consolidated, coordinated and systematized text of DFL N° 1, dated 1982, General Law of Electrical Services (LGSE), on electricity matters. DFL N°1 was modified in 2004 and subsequently in 2005 through the enactment of laws 19.940 and 20.028 called Short Law I and Short Law II, respectively. Then, there have been many changes to the Law being the most relevant in 2016 with the Law 20.936. Table 1 lists and describes in general each of the modifications. Then, in the next section, each of them is described in more detail.

DFL N° 4 regulates the production, transportation, distribution, concessions and rates of electricity. This legal body includes the regime of concessions, easements, prices, conditions of quality and safety of facilities, machinery and instruments and the relations of companies with the State and individuals.

The General Law of Electrical Services and its complementary regulations, determine the technical and safety standards by which any electrical installation in the country should be governed.

The Short Law I was promulgated by the Ministry of Economy, Development and Reconstruction and was published in the Official Gazette of March 13, 2004. The central objectives of the initiative were aimed at providing consumers with higher levels of security and quality of supply at reasonable prices and provide the electricity sector with a modern and efficient regulatory framework that gives the necessary certainty and stability in the rules of the game to a strategic sector for the country’s development. The following are central aspects of Law 19940:

• Reforms are introduced regarding the regulation of the operation and development of the transmission systems, improving the criteria used to allocate resources based on the use of the system by different agents. The procedure to establish transmission charges is specified. This should enable the development and remuneration of 100% of the transmission system to the extent that it is efficient.
• Determination of nodal prices (PN) tends to stabilize values by diminishing the variation of the PN in relation to what is observed in the contract market with non-regulated customers. Previously, the PN was allowed to fluctuate within a band of 10% around the non-regulated price, but the band was modified by the new Law to around 5%.
• Expansion of the non-regulated market, lowering the threshold for non-regulated customers from 2000 kW to 500 kW.
• Specification of charge regulations, allowing suppliers, other than distribution companys, to supply non-regulated customers located in concession zones of distribution companies.
• Introduction of the ancillary services market, allowing the trade and valuation of technical resources that improve service quality and security.
• Reform of the tariff calculation mechanism in medium-sized systems (between 1500 kW and 200 MW of installed capacity). This is especially applicable to the systems in southern Chile, Aysén and Magallanes.
• Considerable improvement of conditions for the development of small non-conventional power plant projects, primarily renewable energy, by opening the electricity markets to this type of power plants, the establishment of the right to transfer their electricity through distribution systems and the possible exemption of charges for the use of the main transmission system.
• Creation of a conflict resolution mechanism in the electricity sector, both between companies and the authority, and between companies, through the creation of the Panel of Experts.
• Through the price and transaction system, it is possible to identify sub-systems within an electric system and independently identify new generation capacity requirements.

Enacted in May 19, 2005 by the Ministry of Economy, Development and Reconstruction, it came about as a result of the uncertainty over the availability of Argentinean natural gas that hindered the estimation of future prices and revenue levels from electricity sales. Key aspects of Law 20.018 are the following:

• Allows the tendering of long-term contracts by distribution companies at prices above the nodal price, and not subject to its variation.
• Expansion of the adjustment band for regulated prices with respect to non-regulated prices.
• Creation of a market that allows generators to provide incentives to customers that consume less than 2 MW to regulate their consumption.
• The lack of supply of Argentine gas does not constitute force majeure.

Enacted in September 14, 2007, it modifies the LGSE with respect to safeguarding the security of supply to regulated customers and the adequacy of electric systems. Considers court action for termination of contracts and bankruptcy of companies. In this way, it protects regulated consumers against the lack of economic viability of electricity companies, ordering the transition stage of a bankruptcy company, through the temporary administration of assets that must be kept available to limit the effects of insolvency of the company on the population.

Law 20.257, enacted in April 1, 2008, modifies the LGSE regarding the generation of electricity using NCRE sources. It establishes annual quotas of NCRE generation with progressive increases until arriving at 10% by the year 2024.

Law 20.402, which was enacted on November 25, 2009, creates the main political entity that represents the State of Chile in the energy sector. In this way, all competencies in matters of policy formulation, legal and regulatory rules, plans and programs are entrusted to the Ministry that is responsible for the rectory of the energy sector in the country. The functions related to technical and economic regulation of the sector remain within the competence of the National Energy Commission.

Law 20.571 enacted on February 20, 2012, but effective in September 2014 and that was recently modified in 2018 with Law 21.118, allowed very small-scale generators (less than 300 kW) to inject energy into the distribution network, valuing said injections regulating the financial compensation for these and facilitating their connection. With this, residential generation is enabled, in commercial premises and in small industries, as it allows these generators as well as self-supply to sell their surplus to the grid.

Enacted on September 10, 2013, Law 20.701 reduced the processing times of electricity concessions by establishing a new easement granting procedure, simplifying requirements, reducing the time of claim and opposition, and improving the notification process. It also introduces the possibility of dividing the concession, modifies the appraisal procedure of the real estate and establishes an arbitration procedure to resolve conflicts. Likewise, this law allowed the lifting of the precautionary measure of suspension of works before complaints about new works of electricity concessionaires.

Law 20.698 was enacted on October 14, 2013, and modified the LGSE regarding the generation of electricity with NCRE sources. It establishes new annual quotas of NCRE generation with progressive increases until arriving at 20% by the year 2025.

Law 20.720, enacted on December 30, 2013, is a General Law on insolvency and reinsurance that establishes time limits for procedures, promotes specialized courts, creates effective reorganization procedures, and improves transparency, among others. As regards Electric Law, it amends it in relation to the insolvency proceedings for the liquidation of a generating, transmitting or distributing company.

Law 20.726, promulgated on January 30, 2014, authorized the National Energy Commission to incorporate interconnection into the network expansion plan as a national work. In this way, the State was able to boost the interconnection of the SIC and SING systems that materialized on November 2017.

Law 20.805 was promulgated on January 22, 2015 and established a series of modifications to the system of regulated tenders to make them more competitive. Among the changes are the following: it incorporates longer term tenders according to the required times of new bidders, increasing the maximum term of contracts to 20 years (before they were 15 years), allow short-term tenders to satisfy immediate needs that had not been foreseen in the demand projections, establish maximum prices differentiated by periods. With this Law, the regulatory authority (in this case, the CNE) has a more important role in the process and thus facilitates the coordination of processes and standardization of contracts. In addition, the projection of demand happens to be made by the same authority, instead of the distribution companies, eliminating some potential estimation biases.

Law promulgated on February 1, 2016 whose main purpose is to provide a tax benefit to construction companies which consists in the fact that they can deduct the VAT payment of the amount spent on the panels, also amended the Electrical Law, allowing NCRE projects to boost the precautionary measure of suspension of works that originally could only be done by electricity concessionaires. This way, we avoid the obstruction of the works, mainly by mining concessionaires.

Law enacted in June 2016 that seeks to eliminate the large differences in energy distribution prices throughout Chile. One of the amendments incorporated in this Act is that it equalizes residential rates between distribution companies, preventing differences for a typical consumption of more than 10%. The absorption of the differences is financed by residential users with average consumption of more than 200 kWh / month. In addition, other amendments incorporated by this new Law are a discount on the price of electricity that the distribution companies transfer to their customers in the communes that are intensive in generation. The discount applied will be determined according to an intensity factor according to the generation kW by each regulated customer.

Likewise, in those communes in which power plants are generated whose electrical energy generated, as a whole, is greater than 5% of the electrical energy generated by all the interconnected power stations, an additional discount is applied.

This Law, promulgated on July 11, 2016, is a significant reform of the electricity market in Chile. This Law introduces very profound changes to the payment and planning of the transmission network and also creates a new Independent Coordinator of the National Electric System replacing the old Economic Load Dispatch Centers (CDECs). As for the payment of the transmission, it passes from a complex system of allocations of costs between generators and consumers to a system of “stamp” where the final customers pay the transmission system completely through a predetermined fixed charge for which a transition period is established until 2034. The principle is to make the remuneration of transmission for all actors simpler and more transparent.

Regarding network planning, this Law creates a new long-term planning process, under the responsibility of the Ministry of Energy with a 30-year horizon that must be realized every 5 years. In addition, the commission is in charge of the annual planning that will look at a horizon of 20 years and that will end with the fixing of new works to be tendered by the Coordinator. The Law changes the transmission segments to a more functional definition of transmission. The trunk transmission goes to national transmission, sub transmission to zonal transmission, additional transmission to dedicated transmission and new transmission segments are created oriented towards generation development poles and export/import of electricity with neighboring countries. The Law entails the development of multiple regulations that were published in 2020 and 2021.

Law promulgated in October 2019, created a temporary mechanism for stabilizing electricity prices for regulated customers, setting a Stabilized Regulated Customer Price (PEC) until December 2027, considering as a basis the prices set by Decree 20T/2019. In this way, during the validity of the mechanism, the discounts will not be recalculated by the local generation recognition mechanism of the Tariff Equity Law.

Law enacted in October 2019 lowers the profitability of distribution companies and improves the electricity distribution rate process. The Law establishes a new update rate, representative of the current risks faced by the companies that provide the electricity distribution service, in order to adequately determine the efficient costs of providing the distribution service, avoiding information asymmetries and allowing the participation of stakeholders in a transparent and contestable way, based on technical, legal and economic arguments.

The main change in the regulations consists of moving from the current 10% before taxes of profitability, to a market rate calculated by the authority with a floor of 6% and a ceiling of 8% after taxes. It requires publicizing part of the procedure that the law currently had, and makes substantial modifications to the procedures currently carried out by the CNE.