Annex 1.1 Laws
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.
Table 1: Laws that have modified DFL N°4 (LGSE)
|Law 19.940 of 2004||Short Law I: modifies the payment system of the transmission, modifies the band of node prices making it more stable, widens the unregulated market, introduces ancillary services and creates the Panel of Experts.|
|Law 20.018 of 2005||Short Law II: arises due to uncertainty regarding the availability of Argentine natural gas, which would make it difficult to estimate future price levels and income levels for energy sales. Creates bidding systems for regulated energy contracts.|
|Law 20.220 of 2007||Provisional Administration Law: modifies the LGSE regarding the safeguard of the security of supply to regulated customers and the adequacy of the electric systems.|
|Law 20.257 of 2008||NCRE Law I: Establishes the obligation of annual quotas of NCRE generation with progressive increases up to 10% by the year 2025.|
|Law 20.402 of 2009||Creates the Ministry of Energy.|
|Law 20.571 of 2012/ Law 21.118 of 2018||Netbilling Law: enables distributed generation (residential, commercial premises, small industries, agricultural, etc.) of up to 300 kW, as it allows these generators in addition to self-supply to inject their surplus to the network and receive compensation. This law was recently changed in 2018.|
|Law 20.701 of 2013||Streamlines the granting of Electric Concessions: reduces the processing times of electricity concessions by establishing a new easement granting procedure, simplifying requirements, reducing claims and opposition times.|
|Law 20.698 of 2013||NCRE Law II: establishes new obligations of annual quotas of NCRE generation with progressive increases to reach 20% by the year 2025.|
|Law 20.720 of 2013||Law of bankruptcy: modifies in relation to the bankruptcy procedure of liquidation of a generatiion, transmission or distribution company.|
|Law 20.726 of 2014||Law of interconnection of electric systems: it empowers the National Energy Commission so that it can incorporate in the plan of expansion of the network the interconnection of interconnected systems as a new work of transmission.|
|Law 20.805 of 2015||It perfects the system of regulated tenders: it establishes a series of modifications and improvements to the system of regulated tenders to make them more competitive (extending deadlines, allows differentiated maximum prices, etc.)|
|Law 20.897 of 2016||Franchise solar thermal tax and suspension of works: allows NCRE projects to raise the precautionary measure of suspension of works that could only be done by electricity concessionaires.|
|Law 20.928 of 2016||Rate Equity Law: Equalizes residential rates between distribution companies, preventing differences for a typical consumption of more than 10%.|
|Law 20.936 of 2016||Law of Transmission and Independent Coordinator of the National Electric System : significant reform to the electricity market in Chile. This Law introduces very profound changes to the remuneration and planning of the transmission network and also creates a new Coordinator replacing the old Economic Load Dispatch Centers (CDECs).|
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 2025.
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 are in the process of definition.