A severe drought, which the government described as the worst in decades, had forced power providers to rely on expensive-to-run diesel generators. Compounding the problem, neighboring Argentina restricted natural gas exports to Chile.

"The probability of rationing has fallen considerably," Tokman told reporters in the Chilean capital, Santiago.

"We can't completely rule out (an energy) deficit. We must be prudent," he added.

But Tokman warned that despite the rains, average reservoir levels remained below normal.

Snow accumulation also was below normal for the time of year, prompting fears of lower meltwater volumes, he added. Also, it remained unclear if generator Colbun's Nehuenco power plant would resume operations in September after being closed after a fire late last year.

Government-instituted energy-saving measures such as lower volatages will remain in place until Aug. 31. The government also has reduced electricity consumption in public buildings, relaxed rules on water usage for generators and campaigned for energy conservation by the public -- measures which have been extended until Oct. 31.

Tokman said electricity consumption over the past four months had fallen 4.2 percent compared to the same period a year ago.

He said it was the first time in 26 years that electricity demand had fallen for four consecutive months compared to a year earlier. (Editing by David Gregorio)