Neoliberal blackouts in Chile

Digital drawing by @PazConNadie for Ojalá.

Opinion • Claudia Hernández Aliaga • September 6, 2024 • Leer en castellano

This year it was especially difficult to “get through August,” as people in Chile often say. It was one of the coldest months in a particularly harsh winter and, early in the month, an unprecedented storm system battered the central and southern parts of the country with rain and wind.

The storm blew off roofs and toppled trees, streetlights and power lines. In metropolitan Santiago, it downed more than 2,000 trees, 800 street lights and 12 kilometers of medium voltage power lines belonging to ENEL Chile, the most important company in the country’s electricity sector.

According to the National Disaster Prevention and Response Service (Senapred), the storm killed four, displaced 2,500, damaged almost 5,000 homes and completely destroyed 78.

It also caused a serious breakdown in the power grid, which left three million people without electricity. Some had to wait up to seventeen days for service to be restored. “Power cuts of this magnitude have not been seen since the 2010 earthquake,” said Diego Pardow, Chile’s Minister of Energy.

People began to protest on the first day of the blackouts. They held marches and set up barricades and roadblocks in impacted cities and districts. They demanded the restoration of service and expressed outrage at electricity distribution companies’ refusal to accept service complaints. 

The collapse of electricity distribution companies' infrastructure, their refusal to provide relevant information to consumers and their lack of response underscore a massive lack of investment in infrastructure and planning for climate emergencies. It made clear that the Chilean government’s main commitment is to safeguard capital accumulation in the electricity sector.

Privatization and profit

Electricity is a basic need in daily life, but Chilean law does not guarantee the right to it. Rather, it guarantees and regulates private investment in the electricity market, ensuring that companies profit by delivering this necessary public service.

This has been the case since the civil-military dictatorship of Augusto Pinochet (1973–1989). In the 1980s, Pinochet privatized all of the electric companies that had been nationalized by the government of Salvador Allende (1970–1973). From then on, the generation, transmission and distribution of electric power has been in the hands of investors, mostly transnational capital, who compete in an open market for power generation and in regulated markets for the right to transmit and distribute electricity.

The transnational companies that are most important in these markets are ENEL Chile, owned by Italian investors and the Italian state, and CGE, whose capital is owned by the Chinese government. Both are holding companies that manage and control other companies, which are active, in this case, in electricity generation and distribution and other businesses related to the electricity market.

Hydroelectric and thermoelectric projects are the main sources of electricity in Chile. The companies that dominate this market are ENEL Chile and Colbún. In 2023, the former raked in more than $678 million in profit and the latter more than $400 million.

When it comes to transporting electricity from generating plants to distribution networks, the companies that stand out are CGE, another holding company, and Transelec. By the end of 2023, CGE had brought in more than $13 million in profit  and Transelec more than $197 million.

Finally, there is electricity distribution, which operates through monopolies in which the government grants only one company the right to operate in specific geographic areas. ENEL and CGE, through their distribution companies, supply more than 5.3 million users in central and southern Chile. Both companies have made millions of dollars of profit in the distribution business since 2018.

The Chilean government oversees regulatory compliance through the Superintendency of Electricity and Fuel. It also sets the range of rates that distribution companies can charge end users—households and small businesses—through the National Energy Commission. It bases its determinations on information provided by the companies. 

Nothing that isn’t explicitly regulated is binding on electricity companies. This came to the fore with the blackouts and the delay in restoring electricity to households. The legislation does not require companies to invest in the infrastructure needed to respond to climate emergencies or to preventive plans that the state itself can supervise.

Since 2010, the Chilean Ministry of the Environment has had a public policy agenda, including action plans and programs on climate change, geared toward adapting to and mitigating the changing climate conditions that we are facing. 

Despite this, there is no corresponding regulation in the electricity sector. Electricity companies are not obliged to invest in the infrastructure required to ensure more resilient networks, which could enable the prompt restoration of service in the event of power outages.

It cannot be justified that electric companies, mainly distributors, have not prepared for extreme weather or made the relevant investments, given their immense revenues. On August 9, when 50,000 households were still without electricity, the general manager of CGE stated that the company is aware that “the infrastructure in Chile is not up to what our customers and families expect.”

Rate hikes and social outrage

In June, the Minister of Energy announced that the cost of electricity would increase by 60 percent for Chilean households. The increase will be introduced gradually in electricity bills in August, October and January 2025. 

This is due to the implementation of a “tariff stabilization” law that unfreezes electricity prices, which had been fixed since the social uprising that began in October 2019. The new law points to an additional six billion dollars owed to the electric companies due to the freeze, which will be paid off by households through rate hikes. 

As a result, if an average Chilean household previously paid $50 per month for electricity, it will pay $85 for the same amount of electricity in January of next year.

Gabriel Boric's administration—like those that precede it—has continued to pad electricity companies’ profits instead of introducing stricter regulations, trying to nationalize the sector or otherwise restructuring the model inherited from Pinochet.

Faced with this cost-of-living hike, the poorest sectors in Chile’s Social Household Registry will be eligible for a monthly subsidy until 2026. The exact amount will depend on the size of the household and will require that electricity payments are up to date. 

The protests that surged during the power outages rejected the increase in the price of electricity. During the entire rate freeze period (2019–2024), almost all electricity distribution companies significantly increased their profits. For example, ENEL increased its real profits by 99 percent between 2019 and 2023.

In response to the protests, Boric's administration opted to pressure electricity companies with sanctions and fines and began canceling ENEL’s concession for electricity distribution. It also demanded that distribution companies take steps to compensate households affected by prolonged power cuts. 

The energy minister declared on August 22 that these payments will be “a cushioning mechanism” for the rate increase. It seems that Boric’s government is unwilling to alter the rules of the game, which were set up during the dictatorship. 

It is likely that the fines and compensation that distribution companies will have to pay will fall far short of their profits. That’s because Chile’s privatized electricity sector operates on the principle that it is households—never capital—that have to bear the cost of the crisis.