Rain seen diluting Chile wholesale electric prices

SANTIAGO, July 17 (Reuters) - Chilean wholesale electricity prices will trend lower until at least early 2009 thanks to rains which have refilled hydroelectric reservoirs starved by a drought, a unit of Banco Santander forecast on Thursday.

Wholesale prices are those Chile's electricity generators charge the country's distributors. Typically, they represent nearly 60 percent of the total price paid by residential consumers.

"We expect a reduction of between 5 to 10 percent in wholesale prices in October and we will most likely see a fall in regulated prices into 2009," Diego Celedon, an analyst with Santander GBM, the bank's research unit, told reporters.

However, much will depend on how the volatile peso fares in coming months, as the government fixes its prices in dollars, he said.

In April the government decided it would cut wholesale electricity prices by 5.2 percent in the country's heavily populated south and center, citing a strong appreciation of the peso against the dollar.

Chile is in the midst of an energy squeeze, with Argentina restricting its exports of natural gas and costly oil derivative imports stoking domestic inflation.

Chile's main electricity generators are Endesa Chile END.SN, AES Gener CHG.SN and Colbun COL.SN. The big distributors include Chilectra CHE.SN and CGE CGE.SN. (Reporting by Monica Vargas; Writing by Simon Gardner, editing by Matthew Lewis)