PRICE AND ACCESS CHARGE DISCRIMINATION IN ELECTRIC DISTRIBUTION: AN APPLICATION TO THE CHILEAN CASE†

Abstract: Under the assumption that the firm has better information than the regulator we analyze a model for electricity distribution pricing where distribution basic cost are independently calculated, but the monopolist is allowed to set discriminatory prices in terms of consumers demand functions being subject to some constraints to induce the convergence of the firm solution to the social optimum. Two classes of constraints are analyzed, a price cap as proposed by Laffont and Tirole (1996), and a physical cap with prices restricted to be between the marginal cost and the stand-alone cost. The physical cap is a specific application for electricity distribution, using biases of the power coincidence factors used as a criteria for cost assignation, restricting the firm to balance the power distributed and the peak power sold. The model is calibrated with Chilean data, being demonstrated that through the proposed model an increment in the benefit of the firm, the consumers, and consequently, in social welfare, can be achieved. Among other factors, the magnitude of the achieved benefit depends on the price elasticity of the involved demands.