As part of its ongoing surveillance of Latin American utilities it rates, S&P Global Ratings monitors regulatory developments that could have rating implications. In the past few years--despite regulators' autonomous operations--we have observed an increased number of political interferences. These included the freeze of energy rates in Chile in response to the social unrest and high inflation, former President AMLO's several attempts to reverse the 2014 energy reform in Mexico, or President Petro's attempt to freeze energy rates in Colombia. The resulting increase in uncertainty over the regulated utilities' operations have prompted the downward revision of our assessment of Chile and Colombia's regulatory frameworks to credit supportive [adequate] from very credit supportive [strong/adequate] (see table 1). The assessments of both countries are now in line with those of Brazil and Mexico.

Our review does not necessarily mean that we view electricity utility regulations in Chile and Colombia as less effective, because contracts remain in force and there were financial or economic compensations for government interventions. Likewise, we didn't revise downward the assessment for Mexico, given the absence of actual changes in regulations or voided contracts so far.

Table 1

We incorporate the regulatory advantage into our analysis of a regulated utility's business risk profile, given the stability and predictability of operations and financial continuity. One significant aspect that influences the creditworthiness is the regulatory framework in jurisdictions where a utility operates. Therefore, we monitor several regulatory frameworks and incorporate any regulatory or legislative actions in terms of their effect on the utility's credit quality. Our analysis covers quantitative and qualitative factors, focusing on the regulatory stability, rate-setting procedures and design, financial stability, and regulatory independence and insulation (see "Sector-Specific Corporate Methodology", published April 4, 2024, for more details on each category).

Table 2

Assessing The Regulatory Jurisdictions In Latin America

Below, we summarize our views of electricity regulatory frameworks in Latin America's largest economies: Argentina, Brazil, Chile, Colombia, Mexico, and Peru. We assess them based on four indicators that help determine regulatory risk.

Jurisdiction Highlights

Argentina

Future developments and rate setting.   We view more positively Argentina's current rate-setting procedures, mainly due to the reestablishment of a temporary regime of adjustments that intends to compensate for cost increases for all regulated utilities operating in the country. The new administration granted in early 2024 a one-time adjustment of about 320% for energy distribution companies (discos) and 665% for gas suppliers to compensate for last year's high inflation. In addition, the government reinstated a mechanism for monthly rate updates for all energy segments, pursuing also an improvement over private investment levels going forward.

Still, the intention is to overhaul the framework to bring transparency to the key components of the rate-setting process and through the Integral Tariff Review (Revision Tarifaria Quinquenal) for transmission companies and discos, and regulatory resolutions specifically applicable for energy generation companies (gencos). These changes will set the adjustment mechanism for the next five years, aiming to provide more predictability and stability to the sector. The proposal to amend the framework was originally expected for late 2024, but it's delayed given the recent changes at the Secretariat of Energy. In the meantime, we believe that the lack of an adjustment mechanism is highly unlikely and a monthly inflation cost pass-through could be an option until the final proposal is unveiled.

Regulatory stability.  Argentina's electricity sector lacks transparency and predictability, as all measures are discretionary in nature because of frequent and unpredictable changes in the framework. We will continue monitoring any changes in the system, including a potential shift to a marginal-cost system. Overall and despite some measures that alleviate cost increases, we continue to assess Argentina's regulatory framework for electric utilities as less credit supportive than those of other countries in Latin America.

Regulatory independence.  We continue to view a higher level of political interference than in other Latin American jurisdictions. The ENRE (the national power regulator) is an autonomous entity within the Ministry of Energy and Mines responsible for:

• Enforcing the regulatory framework and oversee the provision of public services and the obligations in the concession contracts;
• Issuing the regulations for the Wholesale Electricity Market (WEM) members;
• Setting the rate calculations and approving their schedules for the transmission companies and discos with nationwide concessions;
• Authorizing electrical conduit easements; and
• Authorizing the construction of new facilities.

CAMMESA is the company in charge of dispatching electricity into the system, planning energy capacity needs and optimizing energy use, monitoring the operation of the market, billing and collecting payments for transactions among the WEM members, and purchasing and selling electricity from other countries. The government owns 20% of CAMMESA's capital stock. In addition, the four associations that represent the generation, transmission, and distribution companies, and large users each own 20% of CAMMESA. We believe CAMMESA's role could substantially change as part of the ongoing changes proposed by the current administration.

Brazil

Future developments.  We continue to forecast growth opportunities for the electricity sector in the medium to long term. The system remains exposed to hydrology conditions and the curtailment risks. This is because transmission capabilities are planned based on demand, rather on the generation capacity, and we have seen relatively slow demand growth in the last decade.

As Brazilian integrated utilities continue to invest in nonconventional renewables, we have seen intra-day spot price variations, particularly in the Northeast System, which has higher growth potential for the solar and wind plants. Energy Research Co. (known by its Portuguese acronym of EPE) forecasts the addition of 3 gigawatt (GW) – 4 GW to the transmission capacity will be necessary to connect the Northeastern and Southern Systems by 2032. This would allow the export of additional 10 GW, out of the expected 57 GW of wind and solar generation capacity. The transmission capacity auctions in 2024 and 2023 resulted in roughly R$59 billion in investments to build 17,900 kilometers (km) of transmission lines and substations, totaling 20,440 megavolt amperes of transformation capacity. We expect the next three auctions scheduled for 2025 and 2026 to continue to attract private investors to bid for additional 8,000 km with estimated capex of around R$20 billion, because they have visibility over the return of this type of asset akin to a fixed income driven by its availability remuneration framework. The EPE has also started to monitor the potential demand for data centers, given requests to connect potentially 2.5 GW to the grids in the states of Sao Paulo, Ceará, and Rio Grande do Sul between 2024 and 2037.

The electricity sector is waiting for the regulatory changes that have been under discussion since 2023, which would tackle emerging trends such as the capacity payments necessary to mitigate the higher intermittency deriving from solar and wind, including large-scale batteries, the approval of regulation for offshore wind, and the increased activity of solar distributed generation that added 8.6 GW in 2024, reaching 35.2 GW of installed capacity in the year, and will likely add 21 GW by 2029, according to the EPE.

In November 2024, a Congressman proposed a bill to make all regulatory agencies subject to oversight by the lower house as a response to the growing tensions between the government and the electricity regulator, the ANEEL. Even though the bill is in its early stages, we view it as a signal of increasing political willingness to interfere in the electricity market, which could ultimately compromise the framework's stability. We will follow this situation closely.

Rate setting and financial stability.  Regulation has been supportive, as seen in working capital facilities granted to electricity distributors during the extreme drought in 2021, during which power prices have spiked, and in the rate freezes during the pandemic because of lower demand and increasing delinquency. Such extraordinary loans were repaid through mechanisms that allowed rate increases over the medium term, as expected. In addition, the so-called rate flag mechanisms, in place since 2015, have been an effective instrument to make end-users aware of increased costs on a timely basis, while they partially pass through spikes in energy costs caused by higher thermal dispatch, mitigating discos' higher working capital needs.

The ANEEL is responsible for setting the rates for discos and transmission companies. The rates are set to compensate the investments made in each concession area. Rate setting for transmission companies is simpler than for discos, because they receive fixed revenues according to their availability to the system. The regulator amends the rates for discos every three to five years (depending on the concession contract) by revising the regulatory weighted average cost of capital, remunerating the companies' regulatory asset base, and incorporating efficiency factors. Discos pass through energy costs to end-users annually.

Power generators mitigate cash-flow volatility through long-term power sale contracts to discos and large free market consumers contracted under public auctions and bilateral agreements. Since January 2024, all medium- and high-voltage consumers can choose their energy provider, which led to a migration of roughly 13,000 consumers to the free market, which in total represented 42% of all energy demand in the country (up from 30% in 2019). We expect the migration to continue in the next few years, until this segment reaches 46% of total energy demand. That should boost the volumes traded under bilateral agreements and on the spot market in the next two to three years. These changes aim to increase competition in the generation sector, as clients can migrate from regulated contracts to the free market, but we don't expect a negative impact on the rated entities, as most are large integrated groups.

In turn, there is no timeframe yet for the full liberalization of Brazil's energy market, in which low-voltage consumers would also be able to choose their energy suppliers. This is because regulatory changes are needed, which must address the separation of the cost of transmission and distribution (the "wire cost") from the cost of energy in electricity bills, which is already the case in the free market.

Regulatory stability.  Despite our view of the regulatory framework in Brazil as credit supportive, with the track record of fully respected contracts, political disputes about the regulated energy rates often occur, especially in election years. Since 2023, discos have been waiting for the final terms for the renewal of concessions that are approaching their maturities. Still, the government has enacted the Decree 12,068 in June 2024, setting the renewals terms for 19 concessions that expire by 2031. The terms exclude the payments of renewal fees, freeing up discos' liquidity for investments in grid improvements and enhancement of service quality metrics (please see "Brazil Sheds Light On Electricity Distribution Concession Renewals", Feb. 15, 2024). The ANEEL has recently held a public hearing about the final terms of concession renewals to finalize the process by the first quarter of 2025. We view this process as favorable to discos that we rate, given that they will be able to extend their concessions without the renewal fee. In addition, given more clarity on the concession renewal, they are able to raise long-term financing to fund capex.

Regulatory independence.  We continue to consider the regulatory bodies in Brazil as independent from the government, and rates accurately reflect energy costs. Still, as government entities, they're subject to certain political influence, which could be in the form of appointments to the board and top posts. Overall, in our view, the Brazilian regulatory framework has a solid record of maintaining the electricity market's economic and financial sustainability. While the regulator has greater influence over regulated utilities, especially discos and transmission companies, its influence on gencos is lower because they can sell electricity in both the regulated and free markets. The Ministry of Mines and Energy is responsible for formulating and implementing power-related policies, granting energy concessions, and establishing main policies, guidelines, and regulations. The ANEEL is responsible for establishing sector-wide regulations, supervising and inspecting the concessionaire's service quality and defining criteria for calculation of distribution, transmission, and regulated generation rates.

Chile

Future developments.  We're monitoring closely the bill to change the power industry regulations, which was proposed to offset the sharp rise in Chile's electricity rates. The bill includes a temporary rate haircut for projects operating under the Small Distributed Generation Means framework. The bill also incorporates the fines related to quality of services on discos and additional carbon taxes. (Note that the ongoing discussion of the bill includes some changes to the one we outlined in "Credit FAQ: Why Proposed Regulatory Changes For Chile's Power Industry Could Hurt Creditworthiness Of Some Projects", Aug. 30, 2024).

Chile has a long track record of honoring business contractual agreements, underscoring the opinion among investors and sponsors that the country is one of the most attractive jurisdictions in Latin America to operate. This has been the case also among domestic and international infrastructure players, which sought stability and predictability in business conditions due to the long-term nature of investments in this industry. However, we have seen delays in rate-setting adjustments during the review cycle for the regulated utilities, such as transmission lines. In addition, since the social unrest in mid-2019, gencos had to absorb higher working capital requirements related to the rate freeze imposed by the government, while the financial support mechanism (Mecanismo de Protección al Cliente [MPC]) took a long time to implement. In our view, these factors, which we discuss in more detail below, have prompted our downward reassessment of Chile's regulatory framework to adequate from strong/adequate. This revision now aligns Chile's framework with that of Brazil, where the rate-review cycle for transmission lines is implemented without long delays. In addition, the funds during the pandemic and the 2021 drought in Brazil were disbursed quicker than those of the MPC in Chile.

Finally, Chile's ambitious decarbonization plan--aiming to retire all coal plants by 2025--has being impaired by the transmission curtailment, considering that it could jeopardize the grid's security. We have also seen delays in the granting of permits to build new transmission infrastructure. Curtailments caused significant fluctuations in spot prices, depending on the energy delivery point and withdrawn point (the 'decoupling effect') and in spot-price variations between day and night, considering the amount of new solar projects that were connected to the grid. We believe that curtailment will end once the construction of the large transmission line Kimal-Aguirre, connecting the Northern (where most of the new renewable capacity is located) and Central (responsible for most of energy consumption) regions is completed in 2030. In addition, an energy reform might be necessary to establish a new framework for dispatch order (considering higher generation from nonconventional renewables), and the inclusion of large-scale batteries. Still, given that Chile was the first country in the region to implement capacity payments for batteries, the country is leading the development of large-scale batteries in the region.

Rate setting and financial stability.  The government has frozen the electricity rates, initially as a response to the social unrest in 2019, then because of the pandemic-induced economic shock in 2020, and the spike in energy prices in 2022-2023 stemming from the severe drought, the gas-price volatility, and curtailment. The government lifted the freeze in July 2024 by raising the energy rates for final users by almost 60%, and an additional rise was expected by the end of the year. In order to compensate for the drop in gencos' cash flows, the government enacted the Mecanismo de Protección al Cliente Law, and with the support of Inter-American Investment Corp., created three securitization programs ($1.35 billion under the Law 21,185 [PEC 1], approximately $1.0 billion under the Law 21,472 [PEC 2], and $1.4 billion under the Law 21,667 [PEC 3]) to cover working capital needs. The latter rose due to the frozen rates, while the input costs like natural gas and coal exposed gencos to the commodity-price volatility. Even though we deem the financial compensation mechanism as credit supportive, the disbursal of the three programs hasn't been, as it took over one year for each to be structured, approved, and disbursed. These delays have caused smaller independent gencos to enter financial distress and prompted a few rating actions, including some defaults.

In addition, we have seen consistent delays in the rate-review cycles for transmission lines. For example, the 2024-2027 review cycle is expected to come into effect in the first half of 2025. Delays are caused by the lengthy administrative process, which includes the technical reviews, the public consultation, and the decree approved by the Ministry. Even though the process is transparent, such delays erode the predictability of the entities' cash flows.

Regulatory stability.  Nevertheless, in our view, the Chilean regulatory framework remains stable and transparent, with contracts duly respected, or any changes compensated either financially or economically so far. We will continue to monitor the regulatory changes proposed by Chile's government. Regardless of these proposals, we expect that any potential modifications would be accompanied by compensation and a transition period compatible with long-term investments and financings, so that potential changes don't hamper the projects' operations or those that are at advanced levels of construction. Moreover, the 2022 constitution reform was not approved, which in our view would have hampered the execution of the investments in response to the evolving trends (like curtailment, decoupling, climate change, among others) and Chile's energy transition goals.

Regulatory independence.  The CNE, the Chilean energy regulator, is seen as very independent by market participants. Its functions include:

• To analyze the structure and level of the prices and rates of energy goods and services.
• To fix the technical and quality norms necessary for energy installations to function and operate.
• To monitor the current and projected functioning of the energy sector and propose to the Ministry of Mining and Energy (MME) the legal and regulatory norms required.
• To advise the MME on all matters related to the energy sector to foster its development.

Colombia

Future developments.  So far, President Petro's attempts to implement changes to the electricity framework haven't been successful. However, the government has halted new hydroelectric projects and reduced investments in fossil-fuel baseload capacity, which may pose a risk to the reliability of the electrical system in the future. Furthermore, delays in granting licenses and a lack of legal and institutional certainty for unconventional projects, coupled with the need for transmission to integrate them into the National Interconnected System in recent years, are additional concerns. Many of the new solar developers, which won the October 2021 renewable auction, had to cancel their long-term energy supply contracts because the necessary transmission lines were not built.

A new utility bill is underway and could change the framework for both electricity and water utilities. This, coupled with the absence of the construction of new transmission lines, may pose curtail the construction of new projects.

Rate setting and financial stability.  We continue to believe that the regulator aims to assure that all players can cover their costs fully at margins that either compensate for the investments or the risks involved in the activity. Still, the Colombian electricity sector has undergone a series of changes to its remuneration scheme in the past two years, given affordability concerns stemming from the highly volatile spot market and El Nino that have pushed up energy costs. The current regulations cap the maximum increase in the generation component, which depend on each entity's characteristics (for example, it could reach 30%). Whereas this constraint may strain the disco's short-term liquidity, the associated costs are fully recoverable in the subsequent months. As energy prices soared due to the drought in 2023, the government extended two credit lines to support the players' liquidity. In addition, the CREG, which determines the rates for the electricity generation, transmission, distribution, and trading companies, established Resolution 101-028/2023 to address the issue of the accumulated balance, which:

• Establishes an alternative to the recovery of the gap between the applied and calculated unit costs;
• Provides the legal assurance for the recovery of balances, following the Council of State's ruling that supports the mandatory nature of the option and the balance in the trading market; and
• Facilitates the rate option balance financing through differential interest rates.

The impact of these measures has varied among companies, influencing their profitability and liquidity based on their exposure to the spot-market price fluctuations. Nevertheless, given their strong competitive position, leverage, and liquidity, there was no rating impact on the rated players.

Regulatory stability.  Colombia's electricity regulatory framework and agencies were established in 1994, modified by the Renewable Law (Law 1,715) in 2014 to promote the development of nonconventional renewable projects in the country. The main goal is to ensure the system's reliability and eliminate the risk of blackouts, and reduce the dependance on thermal generation. The current administration has proposed a bill to amend the 2014 energy law by expanding the public electricity service and reducing rates.

Regulatory independence.  In our opinion, the regulatory bodies' autonomy has weakened under the current government, given the operating and rate changes through a sequence of decrees by the Ministry of Mines and Energy (MME), the CREG, and the Communications Regulation Commission. The MME is responsible for defining and implementing the sector's policies. Expansion plans are delegated to the Mining and Energy Planning Unit, while the CREG carries out regulations and inspections. The National Dispatch Center controls the generation and transmission activities, for which XM S.A. E.S.P., a subsidiary of Interconexion Electrica S.A. E.S.P. (ISA), is responsible. The Commercial Exchange System carries out wholesale transactions and commercialization of electricity and the spot market transactions, and maintains the information for the Wholesale Electricity Market.

Mexico

Future developments.  We expect the electricity market conditions and opportunities to improve under President Claudia Sheinbaum, particularly regarding the private players' participation in the generation sector and energy transition goals. Still, we believe the new government will continue expanding the role of Comision Federal de Electricidad (CFE; (foreign currency: BBB/Stable/--; local currency: BBB+/Stable/--) and Petroleos Mexicanos (Pemex; foreign currency: BBB/Stable/--; local currency BBB+/Stable/--) in the energy sector, and prioritizing the activities of these public companies over those of private players. We expect a high level of continuity from the previous administration regarding the role and importance these state-owned companies have in the energy sector, and for both companies to continue receiving support from the government. However, CFE has limited financial room to bolster its generation capacity, while it needs to invest in strengthening the transmission network in the country.

Therefore, we are still cautious about the sector's future development. We will monitor how the government's proposed energy strategy evolves, like the recent tightening of relations between the regulator and the Ministry of Eenergy, because investor confidence in the Mexican regulatory framework has weakened in the past few years.

Ms. Sheinbaum was vocal during her campaign about prioritizing fossil fuels but also about giving more room for private investment in the energy sector, and to foster new unconventional renewable capacity, which added a modest level of 4.5 GW between 2021 and 2023. The development of large-scale new renewable projects will allow the country's industrial sector to expand and benefit from nearshoring opportunities, but CFE might be a roadblock, given its monopoly over the distribution network, including the transmission line grids. Similar to the other countries in the region, Mexico faces transmission curtailment, which results in price variations among the systems, and energy spills by gencos depending on their location.

Finally, concerns over the rule of law, after Congress approved changes in the judicial framework, puts pressure on infrastructure investors. We don't expect significant changes or impact in the short term, as it will take time to fully implement the approved amendments. Consequently, we do not expect any particular rating actions stemming from these changes in the short term.

Rate-setting and financial stability.  We continue to view a satisfactory execution of the rate setting, established by the CRE since 2017. The formula for doing so has two main components:

• A fixed element that incorporates every segment of the value chain in the electricity industry, such as distribution, maintenance, and operation costs. This component varies depending on the geographic area and consumption trends.
• A variable element, which depends on the cost of electricity generation, which strongly correlates with the cost of fuel used to generate electricity.

The CRE publishes these rates monthly.

In addition, most of independent gencos operate under bilateral contracts with large consumers, or under self-production agreements.

Regulatory stability.  We view as less negatively Mexico's regulatory framework than two years ago, as the previous administration failed to introduce significant (and potentially adverse) changes in the energy sector, while it maintained the track record of honoring contracts. There were no changes in CFE's role as the main developer of new gas-fired thermo plants, while the government's involvement has increased through other instruments, after it acquired thermal assets previously owned by Iberdrola. However, these factors didn't increase price volatility (which remained linked to the natural volatility of the commodity), and didn't disrupt the cost and investment recovery for market players. Mexico will need to increase its net renewable capacity by about 32% by 2030 to meet its own energy transition targets, and we expect private investors to deploy most this new capacity.

Regulatory independence.  In late December, the President signed a constitutional reform to tighten the relations between the regulator and the Ministry of Energy. Until now, Mexico's energy sector was regulated by the CRE and overseen by the Ministry of Energy. The CRE ensured that rates reflected energy costs and that the national electric system operates efficiently. The Ministry of Energy developed long-term plans for the system, while the CENACE managed its day-to-day operations. The 2014 Electric Industry Law established a wholesale market to promote competition and reduce costs for consumers. However, there is some uncertainty on how the regulator's day-to-day operations could change as the Ministry of Energy would fully take over the CRE's responsibilities. Mexico's Congress still needs make the appropriate legal adjustments in the regulatory framework, which is expected in the first quarter of 2025.

Peru

Future developments.  Peru has experienced political instability since 2018, given corruption investigations that resulted in a succession of six governments and a wide range of economic policies. Following the former President Castillo's impeachment in December 2022 after an attempted coup, the country experienced unrest for several months. President Dina Boluarte (Mr. Castillo's Vice President), who is expected to finish his term in 2026, has committed to economic and business stability favorable to private investors.

In our view, the driver of the Peruvian economy has been the mining industry, and we expect it to fuel electricity consumption growth. The port facilities' development also indicate that additional mining capacity is underway, which could be favorable for the utilities, both in terms of additional generation capacity and transmission. Until 2016, the Peruvian electricity market suffered a prolonged period of oversupply. While consumption per capita remains at less than half of that of Latin American peers, energy demand was driven by the mining sector's expansion, large infrastructure assets--such as Lima Metro Line and the Lima Airport's expansion--and the population's greater access to electricity, given geographic constraints in the country.

We estimate that 5.5 GW in capacity will be added in 2024-2028, mostly solar and wind, to the existing 14.3 GW installed capacity, which mainly consisted of thermal (53%) and hydro (37%) as of September 2024. For such a purpose, the government is proposing changes to the Law 28,832 to diversify the energy matrix and facilitate the development of nonconventional renewables. Changes include the set-up of time slots for the sale of energy through the day and the possibility (unlike the existing law) to split the offer between capacity and energy sold in auctions for the regulated segment. We believe this should foster the development of renewables, although the law's approval and implementation may take several quarters.

Rate setting and financial stability.  We view favorably the transparency and execution of contractual terms and regulated rates, which has contributed to the stability of the sector players' cash flows. Regulation of distribution rates is based on efficient investments and operating costs. The regulated distribution rates are annually set by the OSINERGMIN. Since 2021, the regulated rates incorporate the fixed portion of the utilities' cost structure along with energy supply (considering capacity payment and variable cost of natural gas) and demand rebalancing, allowing spot prices to rise above $20/MWh from less than $10/MWh, which was depressing the market's attractiveness. We expect spot prices to remain in the $30/MWh - $40/MWh range under normal hydrology conditions.

The granting of transmission concessions depends on public planning and private operation of the interconnected power networks. The transmission line rates and reviews are approved by the OSINERGMIN every four to 10 years, depending on the contractual basis (Guaranteed Transmission System and Complementary Transmission System, which are part of the country Transmission Plan (updated every two years). Both distribution and transmission concessionaires operate under open access to the grid up to its capacity and, in exchange, charge a transmission rate set by the supervisory authority or based on a competitive proceeding or regulated rate.

Regulatory stability.  In our view, Peru's regulatory framework has been stable and transparent across economic cycles, for example, during the pandemic and political instability since 2018. The framework was established in 1992, focusing to minimize electricity costs to end customers, while sustaining attractiveness and adequate return to private investors. The Peruvian electricity sector consists of one large system, the National Interconnection Electrical System that is regulated and revised by the Ministry of Energy and Mines (MINEM). The system does not permit vertical integration of generation, transmission, and distribution activities.

Regulatory independence.  In our view, the regulatory bodies have functioned independently from government intervention, unlike in Chile, for example. Despite the political and social turbulence in Peru, we have not seen government decisions affecting materially the functioning of the energy market. The Peruvian energy sector policies are defined by the MINEM, which oversees the development and regulation of the country's energy resources. As part of the MINEM, OSINERGMIN is responsible for set the transmission and distribution rates.

The COES (the market administrator) operates a merit order dispatch considering increasing variable costs to cover energy demand at the lowest possible cost (energy injected by generators is paid at marginal cost determined by the COES, which sets the spot market prices). Therefore, the renewable plants have dispatch priority, for the ones with zero variable generation cost. Autoridad Nacional del Agua has the right to divert the use of water when water levels are critically low.