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Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
1
Hugh RudnickIEEE PES Distinguished Lecturer
DPRT 2000, City University, London, April 5, 2000
FUTURE CHALLENGESIN THE DEREGULATION PROCESS:LESSONS FROM LATIN AMERICA
Pontificia Universidad Católica de ChileSchool of Engineering
The American Electricity Market
CANADA & UNITED STATES
• Market of 765000 MW• 1-2% annual growth = 7650 - 15300 MW a year
LATINAMERICA
• Market of 190000 MW• 5% annual growth = 9500 MW a year
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
2
GDP versus electricity demandGDP versus electricity demand
United States
FranceGermany
JapanAustralia
Singapore
ItalyUnited KingdomHong Kong
SpainTaiwan
GreecePortugal
S. Korea
Venezuela
PeruMexico
BrazilArgentina
Chile0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
0 5.000 10.000 15.000 20.000 25.000
GDP per capita (US$)
KWh per capita
Source: CNE Chile 1997
COLOMBIA1994
PERU1993
BOLIVIA
1994
CHILE1982
ARGENTINA
1992
BRAZIL
1998
Pioneering regulatory changes in the electrical sector
MEXICO
1999
CENTRAL AMERICA & PANAMA1997-9
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
3
Objetives of the reforms in the energy sector
Segmentation of industry and regulation
Was it worth it?
Oportunities and risks in future competitive markets
Alternatives - structure and conduct
Regulatory coherency - interfaces between segments
Regulatory practices
Challenges for the future
Objectives of the reforms in the energy sector
• Achieve maximum social benefits
• Conditions of economic efficiency in the sector– development of lowest cost energy supply– economic level of reliability and quality– efficient use of energy, loss reduction– efficient management of companies, benefiting
consumers
• Stimulate private investment– expansion, electrification
• State evolves from entrepreneur to regulator andindicator
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
4
Objetives of the reforms in the energy sector
Segmentation of industry and regulation
Was it worth it?
Oportunities and risks in future competitive markets
Alternatives - structure and conduct
Regulatory coherency - interfaces between segments
Regulatory practices
Challenges for the future
Fuelco Gasco
Genco Genco
Sellco Sellco
Gridco
Waterco Fuelco
Genco Genco
Sellco Sellco
Gridco
Brokeco Brokeco
Buyco Buyco
Lineco Lineco
Brokeco Brokeco
Buyco Buyco
Lineco Lineco
Disco Disco
Cons Cons Cons Cons Cons Cons
Disco Disco
SEGMENTATION OF THE INDUSTRYcompetitive and regulated (William Hogan, Harvard)
DIS
TR
IBU
TIO
N
Poolco/Marketco
GE
NE
RA
TIO
NT
RA
NS
MIS
SIO
N
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
5
• FUELCO/GASCO/WATERCOpurchases fuels for electricity generating plants
• GENCO/PLANTCOoperates and maintains existing generating plants.
• SELLCOmarkets long-term supply compensation contracts to provide pricehedges for customers and generators.
• POOLCO/MARKETCOdispatches generating plants and operates/manages short-term market.
• GRIDCOconstructs and maintains the network of transmission wires.
• SELLCOmatches buyers and sellers as brokers of long-term power supplyand transmission compensation contracts.
• BUYCOpurchases long-term power supply and transmission compensationcontracts for final customers.
• LINECOconstructs and maintains distribution wires connecting transmissiongrid to final customers
• DISCO/SUPPLYCO/RETAILCOprovides services to final customers including connection andbilling.
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
6
ELECTRICITY MARKET REFORMS
Competitive segments
*wholesale market deregulation (unregulated prices for large consumers)
*competition at generation level with centralized generation dispatch
*short term marginal cost based schemes
ELECTRICITY MARKET REFORMS
Monopolistic segments
*regulation in transmission and distribution
*transmission open access regulation, base for competition, global allocation of network costs
*incentive based regulation in distribution(yard stick competition, price cap)
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
7
Objetives of the reforms in the energy sector
Segmentation of industry and regulation
Was it worth it?
Oportunities and risks in future competitive markets
Alternatives - structure and conduct
Regulatory coherency - interfaces between segments
Regulatory practices
Challenges for the future
Was it worth it?
“impresive efficiency gains”“performance has improved greatly with deregulation and
privatization”“labour productivity has doubled”
“coverage rates have grown”“energy losses are about a third”
“sharp reduction of prices”“consumers benefit from the introduction of competition”
Estache, A. & Rodríguez-Pardina, M., “Light and lightning at the end of thepublic tunnel: reform of the electricity sector in the southern cone”, EDI, WorldBank, 1998
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
8
PERU- ELECTRICITY COVERAGE
Ene-
94
Jun-
94
Ene-
95
Jun-
95
Dic-9
5
Jun-
96
Dic-9
6
Dic-9
7
83% 83% 86% 87% 90% 90%
91%100%
0%
20%
40%
60%
80%
100%
39% 42% 46% 50% 54%
0%
20%
40%
60%19
87
1992
1993
1994
1995
National Edelnor- Lima
WHOLESALE ARGENTINE MARKETAVERAGE MONTHLY PRICE
0
10
20
30
40
50
60
70
80
jan-
92
apr-
92
Jul-9
2
Oct
-92
jan-
93
apr-
93
Jul-9
3
Oct
-93
jan-
94
apr-
94
Jul-9
4
Oct
-94
jan-
95
apr-
95
Jul-9
5
Oct
-95
jan-
96
$/M
Wh
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
9
Energy losses in distribution systems in Perú(1990-1999)
11.8%12.4%
14.6%17.1%
19.7%20.6%21.8%
13.9% 15.4%18.2%
0%
5%
10%
15%
20%
25%
90 91 92 93 94 95 96 97 98 99
E. Zolezzi, CTE, Oct. 99
Non served energy January 88 - Dec 95 (GWh) - Argentina
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
10
Investment in the Chilean Central System
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
1.997 1.998 1.999 2.000 2.001 2.002 2.003 2.004 2.005 2.006
YEAR
DE
MA
ND
(M
W)
DEMAND SUPPLY
PANGUE
LOMA ALTASES
PETROPOWERNEHUENCO
PEUCHENMAMPIL
SAN ISIDRORUCUE
CORTADERAL
RALCOTHERM. 332,4
THERM. 332,42 X THERM.
332,4
Source: CNE Chile
Objetives of the reforms in the energy sector
Segmentation of industry and regulation
Was it worth it?
Oportunities and risks in future competitive markets
Alternatives - structure and conduct
Regulatory coherency - interfaces between segments
Regulatory practices
Challenges for the future
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
11
REGIONAL ENERGY MARKET DEVELOPMEN T
Commercial/market agreements
Gas interconnections
Electricity interconnections
Geographic distribution of consumer loads and energy resources
Important load
Natural gas resources
Hydroelectric resources
BRASIL
URUGUAY
PARAGUAY
BOLIVIAPERU
Asunción•
Lima
Santa Cruz
Sao PauloRio de Janeiro
•
••
•
Concepción
Buenos Aires
•
•
Santiago
Mejillones •
•
NOA
ARGENTINA
ExcedentesHidráulicos
Neuquén
CHILE
Figura 2
Endesa 1999
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
12
BRASIL
URUGUAY
PARAGUAY
BOLIVIAPERU
Asunción•
Lima
Santa Cruz
Sao PauloRio de Janeiro
•
••
•
Concepción
Buenos Aires
•
•
Santiago
Mejillones •
NOA
Excedentes
Hidráulicos
Neuquén
Asunción
•
Asunción
• Interconexión
Argentina Brasil
Electroducto
Argentina Chile
Gasoducto
Atacama
Interconexión
SING-SIC
Generación Hidro
Sur Austral
Gasoducto del Pacífico
Electroductos
Tucumán - Carrera Pinto
Mendoza - San Isidro
Asunción
•
Electroducto
Alicurá - Osorno
Gasoducto
Gasandes
Carrera Pinto
San Isidro
•
Interconnections and market integration
Endesa 1999
M. Pereira, 1999
Growingelectricinterconections
Colombia
Ecuador
Perú-SICN
Perú-SISUR
Bolivia
Chile-SING
Chile-SIC
ArgentinaMercado
ArgentinaComahue
Paraguay
Uruguay
Brasil-N
Brasil-NE
Brasil-SE
Brasil-Sur
Venezuela
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
13
Growinggasinterconections
CIER, 1996
Integration among markets
-price equilibrium among markets
-natural gas grows in importance - large gas companiesjoin the electricity market
-decisions of gas and electricity expansion projects arelinked
-regional expansion of transmission
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
14
Integration among markets
-minimum size of companies changes - expansion toother markets and new economies of scale
-arrival to Latin America of main world energy players(gas and electricity) looking for regional portfolios
-increase of competition along with increase of verticaland horizontal integration
Will it be it worth it?
Possible future:
-regional gas and electricity integrated markets
-few operators at the regional level (Endesa, EdF, Enron,?). Five or six large regional electricity holdings?
-mergers - growing vertical and horizontal integration
How do we face that possible future? How do we adapt toit? How do we rethink the sector?
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
15
Objetives of the reforms in the energy sector
Segmentation of industry and regulation
Was it worth it?
Oportunities and risks in future competitive markets
Alternatives - structure and conduct
Regulatory coherency - interfaces between segments
Regulatory practices
Challenges for the future
How do we face that future?
Alternatives
-regulate industrial structures (60’s and 70’s)-market quotas, desintegration, prohibitions-higher costs and less flexibility
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
16
How do we face that future?
Alternatives
-regulate industrial structures (60’s and 70’s)-market quotas, divesting, desintegration, prohibitions-higher costs and less flexibility
-regulate conducts (90’s)-supervise conducts, supervise monopolistic activities-costs and information assymetries
How do we face that future?
Alternatives
-regulate industrial structures (60’s and 70’s)-market quotas, divesting, desintegration, prohibitions-higher costs and less flexibility
-regulate conducts (90’s)-supervise conducts, supervise monopolistic activities-costs and information assymetries
Challenges are to create consistant regulations andeconomic incentives to stimulate adequate intrasegmentand intersegment conducts.Challenges in relation to future consumers.
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
17
Objetives of the reforms in the energy sector
Segmentation of industry and regulation
Was it worth it?
Oportunities and risks in future competitive markets
Alternatives - structure and conduct
Regulatory coherency - interfaces between segments
Regulatory practices
Challenges for the future
Consistant regulations that stimulate adequate intrasegmentand intersegment conducts
Intrasegment conduct-stimulate competitive conducts in competitive segments,even with horizontal integration-stimulate competitive conducts in “seudo” competitivesegments (yard stick competition), even with horizontalintegration
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
18
Consistant regulations that stimulate adequate intrasegmentand intersegment conducts
Intersegment conduct-avoid extension of market power from monopolisticsegments to competitive segments, even with verticalintegration (avoid subsidies, avoid discrimination to nonintegrated competitors)
Regulatory coherency between segments
Need that interfaces between segments restrict anticompetitiveconducts
-economic signals - intersegment price schemes
-competitive pools-forcing “perfect” competition-costs versus bids (space for market power)-retail competition
-open access (gaspipes, transmission and distribution wires)-transparent tariffs-economic signals for expansion-independent transmission operators
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
19
Regulatory coherency between segments
Need that interfaces between segments restrict anticompetitiveconducts
-transparent public tenders, particularly in distribution andsupply
-development of the supply segment
-quality and reliability requirements
-separate accounting / separate shareholder societies
-strengthening regulation and control
Regulatory coherency within segments
Need that interfaces within segments restrict anticompetitiveconducts
-economic signals - intrasegment price schemes (generatingmarkets)
-pools / system operator / market operator-governance-independence-forcing “perfect” competition-costs versus bids (space for market power)
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
20
Regulatory coherency within segments
Need that interfaces within segments restrict anticompetitiveconducts
-tariffs for regulated activities capturing economies of scale -stand alone company versus integrated company
-identifying efficiencies and transfering them to the consumer
-expansion mechanisms
-quality and reliability requirements
-strengthening regulation and control
Objetives of the reforms in the energy sector
Segmentation of industry and regulation
Was it worth it?
Oportunities and risks in future competitive markets
Alternatives - structure and conduct
Regulatory coherency - interfaces between segments
Regulatory practices and challenges for the future
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
21
How do we face a future with few players and increasingintegration?
Partial regulation of structures• Admit vertical integration between generation and distribution• Admit horizontal integration• Separate transmission activities (independent operator)
Coherent regulation and supervision of conducts• Tariff schemes, regulation and control
– open access / price cap– energy pools
• Supervision of anticompetitive conducts– antimonopolies commissions / cartel control
How do we face a future with few players and increasingintegration?
Develop coherent regional regulatory arrangements
Hugh Rudnick, DPRT 2000, City University, London, April 5, 2000
22
Hugh RudnickProfessor
Department of Electrical EngineeringPontificia Universidad Católica de Chile
Santiago, Chile
Email [email protected]://www.ing.puc.cl/power/