Incentive Model to Reduce Electric Power Losses in Colombia

Abstract

Electric power losses in the Colombian distribution system have historically represented a high cost for its consumers, as well as for the companies that provide this service. For this reason, the Ministerio de Minas y Energía (MME) in Decree 387 of 2007, the branch of government that regulates the power system in Colombia, listed new criteria to assign costs that result from energy power losses, forcing both distributors and commercial agents to submit a to reduction plan for power losses that must be approved by the Comisión de Regulación de Energía y Gas (CREG), which costs will be transferred and assumed by consumers. The purpose of this study is to propose an incentive model based on contract theory which will allow
regulators to design efficient contracts which will motivate agents to disclose the real situations and facts of their system and formulate plans to achieve efficient loss levels to maximize social benefit. To this end, by using a panel data regression, the cost function of the effort to reduce loss is determined based on historical information provided by the largest companies of energy distribution in the country, offering a recovery mechanism for energy power losses that can be applied to the particular situation of each agent.