13 needed to have contracts signed with large customers, and this led to open competition for customers. The combined-cycle gas turbine electricity power plants that will be built close to demand centers, in conjunction with Colbun's decision to build a transmission line between its generating units and the main demand node, will diminish the impact of the transmission monopoly. Although a number of future power projects will involve combined-cycle gas turbines and more stringent environmental rules will have to be satisfied in the construction of dams, hydroelectricity is still the most attractive option.

There also are some problems in supplying unregulated customers located in the franchise areas of distribution firms, which in 1995 represented 23 percent of all sales to unregulated customers. Indeed, when a generator gains a free-price customer from a distribution firm, it has to negotiate with the latter a toll for using its electricity wires, in which the absence of agreement leads to arbitration. There is enough uncertainty in this procedure for some generating firms to desist in their attempt to supply such clients directly. It is difficult for a firm to participate in the process of bidding to supply potential customers unless it knows how much it will have to pay in transmission and distribution (use of wires) costs. In addition, the distributors are generating firms' main customers, so taking clients from them is bound to be costly. For instance, a claim by Colbun against Chilectra in September 1996 brought before the antitrust agencies focused on this aspect. The lack of competition in supplying unregulated customers is also relevant for regulated customers, as the regulated node price has to be adjusted within a 10 percent band centered on the average of unregulated prices.

Finally, there are also significant problems in establishing electricity distribution valueadded. The fact that the costs of the simulated efficient firm are calculated as a weighted average of studies carried out by the NEC and the firms themselves, gives rise to obvious incentives for each party to bias the estimates. In the 1992 price-setting process, discrepancies in estimating distribution costs and the replacement value of assets in some cases exceeded 50 percent. A better solution could be for an arbitrator to decide which study best reflects the costs of a model firm in his/her judgment The Resolutory Commission was asked by the National Economic Prosecutor to rule on the vertical disintegration of the group of firms controlled by Enersis. In a recent resolution (June 1997) the Commission ruled against compulsory disintegration, but nevertheless issued a series of instructions in recognition of market imperfections in the electricity sector. Firstly, it asked the government to introduce legal amendments to disambiguate the mechanisms for determining transmission and distribution charges. Secondly, it instructed distributors in future to put their energy requirements out to tender among all generating firms, so as to avoid suspicion of distribution companies favoring related generators and with the aim of reducing costs to final consumers. Finally, it resolved that, within a "prudent" time, the Endesa transmission subsidiary (TRANSELEC) should become a joint stock company operating exclusively in electricity transmission, thereby opening the company up for parties other than Enersis to participate in ownership.

firms specializing exclusively in this activity, with no links to final customers, mainly electricity companies; (ii) franchises should not be exclusive; and (iii) gas transport should be subject to an open access requirement, i.e. the services should be provided under non-discriminatory conditions and information on supply and conditions should be publicized.