Latin America-Price Cap Regulation: Stimulating Efficiency in Electricity Distribution in Latin America

Abstract

In order to regulate the electrical power distribution stage, most of these countries have adopted price cap regulations, using concepts such as the "model/standard utility" or benchmarking schemes (i.e. efficiency frontiers). The "standard utility model" corresponds to a company whose investments are economically adapted to demand and operates under an optimal plan. In setting distribution tariffs, because of the very monopolistic nature of the activity, both models (standard utility and benchmarking techniques) intend to introduce a virtual competition, trying to make companies more efficient, thus minimizing the present value of all their costs.