Energy regulation in Latin America


Ricardo José CarattiBy Ricardo José Caratti

Loss reduction and revenue collection enhancement are key preoccupations of utilities and they also must be taken into consideration by regulators. One may ask, why?

The answer is that while on the one hand the main objective of a regulator is to protect consumers’ rights, on the other the regulator also has other responsibilities such as promoting competition in the market, ensuring long term investment, regulating the level of service quality and guaranteeing fair tariffs.

As such regulatory authorities must supply norms to ensure transparency in the different sections of the industry and for the introduction and application of new technologies in the market.

Gas distribution companies must consider and take into account these priorities:

  • Cost savings through application of technological advances
  • Setting up standards in metering and billing systems
  • Intelligent utilisation of advances in technology for metering and billing, such as smart metering technology and new gas meter designs with lower manufacturing costs
  • Collaborative studies to overcome the difficulties of the massive implementation of electronic metering and remote reading of energy consumption systems
  • Importance of metering and billing in the development and improvement of the relationship between companies and their customers
  • Employment of adequate procedures and methods to detect and manage meter tampering and fraud
  • Appropriate management of and support for poor and vulnerable customers
  • Placing high importance on customer support
  • Developing strategies to incorporate new users into the gas networks
  • Exploration of niches in the nonregulated market, such as the construction of gas networks and the participation of funding sources and interested third parties.

For their part regulatory authorities have the responsibility to allow the implementation of new technological advances.

It is necessary also to analyse the legal rules and norms of the current regulations, retaining those that have encouraging compliance and rewriting those that have not, and establishing new rules that move distribution companies in the direction dictated by new technologies.

Although customer reactions to these new ideas are desirable, it is unlikely that there will be radical changes in their points of view. The reason for this is that in certain user categories, the real costs of the energy they consume is not known, there are no incentives for rational use of energy, and they are not suitably penalised for energy waste. In fact customers give little consideration to what they consume. They pay attention only to the bill they receive from the gas company.

These observations lead us to deduce that new advances won’t have much influence on customer behaviour with respect to energy consumption, except when they are associated with energy prices.

Thus new technology applications will influence customer attitudes, if in turn there is a reduction in energy prices. The use of this technology will give customers the chance to change their conducts and habits, if in turn it provides incentives and changes in the tariffs for energy consumption.

It is very important that gas distribution companies, customers, customer organisations and regulatory authorities work together to consider the advantages that the use of new technological advances can bring to energy consumption.

They should work together to redesign the present paradigms on policies of prices that allow tariffs with social inclusion, also considering:

  • Growth of the existing networks
  • Construction of new networks
  • Legal structures that facilitate the inclusion of new users
  • The future role of social tariffs and the consideration of legislation to require suppliers to have an adequate programme of support for their most vulnerable customers
  • Replacement of expensive LPG by cheaper resources like natural gas
  • Financing access to the distribution systems
  • Billing corresponding with the needs of the user, with a monthly term, level payments, prepaid consumption and relegating as a last resort the disconnection of the service.

Developments in Latin America indicate that the future is here and it is the responsibility of all of us to implement the latest technological advances.