Finally, on the distribution end of the process, distributors serving different regions of the country
are considered variants of natural monopolies - until technology improvements dictate otherwise
- and are allowed to price discriminate based on categories of consumers. Presently, six
consumer categories are recognized: the residential, or household, market; the general market,
comprising the commercial, services and government sectors; the industrial market, which
accounts for all enterprises in the industrial production business; the mining sector; street
lighting; and the “other“ market, which encompasses army barricades, trading areas, and other
consumers unaccounted elsewhere. Distribution prices were historically regulated on rate of
return principles, but after a transition period it was established that regulation would follow the
“base tariff“ scheme whereby prices would be set in accordance to average economic costs which
in turn consider the rate of return on the equity of the concession calculated on the basis of rates
of return of public companies listed in the New York Stock Exchange. This tariff scheme is
utilized today.10
An interesting and somewhat odd aspect of the SIRESE system is that it includes - Title V of
Law 1600 - antimonopoly provisions. It establishes that enterprises within the five areas under
its jurisdiction must carry on their activities ensuring free competition and avoiding any acts that
hinder, restrict or distort it. It prohibits anticompetitive agreements such are joint price fixing by
companies, and the establishment of limitations, division or control of production, markets and
supply sources or investments. Abusive practices whose purpose or effect is to damage
competitors, customers and/or users, are also outlawed. Such abusive practices may consist of the
direct or indirect imposition of purchase or sale prices on suppliers and customers; the limitation
of production, supplies sources, markets or technical development to the detriment of consumers;
the application of unequal conditions for equivalent operations; the subordination to the
subscription of agreements to the acceptance of additional obligations; and demanding that
whoever requests the provision of a service must assume the status of a partner or shareholder.
Mergers are prohibited also, when as a result of such merger a “sufficiently“ dominant position is
attained.
10 Base tariffs are calculated taking into consideration the following aspects: the cost of electricity purchases,
operation, maintenance and management expenses, interest, fees and taxes that by law burden the Concession, annual
rates of depreciation of tangible assets, amortization of intangible assets, and the profit resulting from the application
of the rate of return on the equity established by law; projected electricity sales to consumers; and the anticipated
revenues from the sale and transportation of electricity, use and maintenance of service elements and compensation
received by the company on any other means from the property subject to the Concession. The rate of return on
equity of the Concession used to determine the profit for the calculation of the base tariff shall be the arithmetic
mean of the annual rates of return on the equity of the group of companies listed in the New York Stock Exchange
and included in the Dow Jones index of public utilities companies in the last three years.