BASED ON YARDSTICK COMPETITION

The aim of the recent restructuring process of the electrical sector in many countries is the introduction of competition in a vital economic activity for the modern society. The segment of electricity generation and trading are driving to the market forces whereas the transmission and distribution are keeping the economic regulation due to monopoly characteristics. One ofthe challenges in this new environment is the creation of some regulation that tries to incorporate competition between transmission and distribution companies. This pseudo competition could induce the monopolistic companies to optimize costs keeping the supply qualitative in satisfactory levels. The incentive regulation is a general trend in the attempting to reach such goal. This paper presents a methodology based on yardstick regulation to establish quality targets measure by continuity indices. The distribution companies are induced to compete each other because these targets are set based on comparison among the utilities. Given that the improvement of quality indices usually implies in new investments, a transition process is suggested to follow the needs of company economic equilibrium.