Use the Lexology Getting the Deal Through tool to compare the answers in this article with those from other jurisdictions.
Identify the principal agencies that regulate the energy sector and briefly describe their general jurisdiction.
There are four institutions responsible for governing the energy sector in Chile.
National Energy Commission
In 1978, the National Energy Commission was established to perform four main functions:
- to carry out technical analyses of prices and tariffs on energy-related goods and services, according to formulas mandated by law;
- to set technical standards for the operation of electrical facilities and the power grid;
- to monitor and prepare forecasts regarding the current and future functioning of the energy sector, making policy recommendations based on those analyses; and
- to be in charge of advising the government on all matters relating to the energy sector.
Economic Dispatch Load Centres
The Economic Dispatch Load Centres (CDEC) are entities responsible for coordinating and operating the electric systems with more than 200MW of installed capacity. Chile’s power grid is divided into four main electric systems with a CDEC for the first two. The CDEC’s main role is to bring together power generation to consumers, determining which power plants must start operating at a particular moment based on their marginal costs, thus instantaneously matching generation with demand.
Electricity and Fuels Superintendence
The Electricity and Fuels Superintendence (known as the SEC) is the main entity responsible for ensuring companies’ compliance with electricity law and technical regulations regarding the generation, production, storage and distribution of all fuels and electricity. Law 19,613 strengthened the SEC’s supervisory authority by allowing it to impose companies with fines and penalties for non-compliance with legal and technical obligations. It can also suspend licences temporarily or permanently.
Ministry of Energy
Finally, the Ministry of Energy is the primary public institution in the energy sector, working directly with the President of the Republic. Its main objective is to draft and implement plans, policies and regulations for the functioning and development of the energy sector, coordinating its actions with all other energy institutions, ensuring the observance of these policies and advising the government on all issues relating to the energy sector.
Access to infrastructure
Do new entrants to the market have rights to access infrastructure? If so, may the regulator intervene to facilitate access?
Chile has two LNG terminals, LNG Quinteros and LNG Mejillones, which import natural gas from international markets in order to supply mining operations in northern Chile and residential and industrial costumers throughout the country. Natural gas infrastructure is governed by an open-access regime, which means that gas transport companies must provide access to third parties to pipelines based on equal financial and technical terms.
In the power sector, transmission infrastructure is also subject to an open-access regime based on non-discriminatory technical and financial terms upon payment of transmission fees.
What is the mechanism for judicial review of decisions relating to the sector taken by administrative agencies and other public bodies? Are non-judicial procedures to challenge the decisions of the energy regulator available?
Decisions taken by administrative agencies are subject to two types of review.
When an administrative agency issues an order, the affected party can challenge such decision before the same agency through an administrative appeal.
If the administrative challenge is dismissed, the affected party can request judicial review before the Court of Appeals in order to overturn the order issued by the administrative agency.
What is the legal and regulatory position on hydraulic fracturing in your jurisdiction?
As explained in question 1, the development of Chile’s oil and gas industry is very limited, therefore the country does not have any regulatory instrument regarding hydraulic fracturing.
Other regulatory issues
Describe any statutory or regulatory protection for indigenous groups.
International Labour Organization Convention No. 169 (ILO 169) has been in effect in Chile since 15 September 2009, and grants the right to free, prior and informed consent regarding actions taken by the Chilean government that affect rights.
In 2013 the government decided to address the indigenous consultation during the drafting of the new regulation of the environmental impact assessment system. The idea behind the approach taken by the government was to cover the indigenous consultation within the process of citizen participation of the environmental impact assessment system to assure effective participation from indigenous groups. In this way, the new regulation was enacted on 12 August 2013, requiring the Environmental Assessment Agency to adopt specific measures to consult the indigenous communities affected by the execution of a project subject to environmental approval. However, the regulation stated that if no agreement is reached between the holder of the project and the indigenous communities, or no consent is obtained from them, the consultation process would not be voided.
In 2014, Decree No. 66 established a second regulation in order to address the indigenous consultation process in the implementation of administrative or legislative measures by the Chilean government that undermine indigenous rights. In this case, the regulation established that the indigenous consultation process was a means to guarantee the right to free, prior and informed consent regarding actions taken by the Chilean government, to enable public participation from indigenous groups. Nonetheless, Decree No. 66 also declared that the opinions expressed by indigenous communities through the consultation process were not legally binding for governmental agencies.
Describe any legal or regulatory barriers to entry for foreign companies looking to participate in energy development in your jurisdiction.
There are no legal barriers for foreign companies in order to enter the Chilean energy market. The only restrictions are those related to the specific nature of the regulatory regime of the generation, transmission and distribution segments of the energy industry. In this regard, the generation sector is a competitive market with no legal barriers to the entry of new actors. The transmission sector is regulated as a ‘natural monopoly’ and the construction and development of new infrastructure is based on public auctions where there is no restriction on foreign companies participating. Finally, the distribution segment is also recognised by the legislation as a ‘natural monopoly’, where distribution companies must obtain an electric concession from the Ministry of Energy to supply electricity in an exclusive geographic area.
What criminal, health and safety, and environmental liability do companies in the energy sector most commonly face, and what are the associated penalties?
There are no specific criminal offences set for the energy industry in Chilean legislation. Moreover, environmental crimes are not specifically regulated, which is a deficiency of our environmental regulation according to an OECD report issued in 2016.
Regarding health and safety liabilities, companies under the control of SEC may face different penalties depending on the severity of the violation of the law and on the severity of the damages caused. The determination of the penalties ranges from written reprehensions to the termination of the concession or closure of the plant. For reparation purposes, there are no specific provisions for damage caused to third parties during operations.
Moreover, there are no specific environmental liabilities set for energy companies. Therefore, energy companies may face the generally applicable sanctions for environmental damages. The system is similar to the previously described for the SEC, where the Environmental Superintendency may apply a sanction based on the severity of the violation of the environmental regulation. Sanctions go from fines to the revocation of environmental permits. Also, public action is granted for the recovery of the environment that suffered the damages and individuals may sue for the compensation of any damages directly suffered.