Use of outage cost for electricity pricing in Chile

Abstract The electricity tariff based on marginal cost established in Chile since 1980 takes into account the cost of long-run outages in calculating prices at the generation level. This is important in hydroelectric systems such as the Chilean, which have interannual regulation reservoirs and which are characterized by strong hydrological variability. This paper deals with the methodology used in considering the long-run outage cost and with the responsibility assumed by the generating companies when long-run outages do in fact occur. In particular, the legal treatment is described which forces the generating companies which exhibit a deficit to pay the customers an amount for the energy not supplied.