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Transmission expansion in Argentina 2: The Fourth Line revisited

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  • Littlechild, Stephen C.
  • Skerk, Carlos J.

Abstract

In 1992, Argentina introduced the Public Contest method, which required transmission users to propose, vote and pay for major expansions of the electricity transmission system. Economists, consultants, the regulator and others held the application of this method to be unsuccessful, mainly on the ground that "for many years" it delayed investment in a "much needed" Fourth Line to Buenos Aires. The commentators blamed externalities, free-rider problems, the Area of Influence method used to define voting rights, and transactions costs. This paper re-examines the history and economics of the Fourth Line. The delay to the Fourth Line was short (a year and a half rather than many years) and enabled a significant reduction in construction costs. Externalities, free-riding, the Area of Influence method and transactions costs were not problematic. The Fourth Line was initially rejected because it was unprofitable to key beneficiaries. Far from being much needed, the Fourth Line was not economic because the congestion it avoided was worth less than the cost of building it. It had become more economic to transport gas to generate electricity near Buenos Aires than to transmit electricity over long distances. The location of subsequent power stations reflected this. Even though the presence of a subsidy meant that the Public Contest method did not prevent the building of the Fourth Line, it nonetheless forced a much-needed reappraisal of traditional transmission investment policy.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 4 (July)
Pages: 1385-1419

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Handle: RePEc:eee:eneeco:v:30:y:2008:i:4:p:1385-1419

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Web page: http://www.elsevier.com/locate/eneco

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Chisari, Omar O. & Dal-Bo, Pedro & Romero, Carlos A., 2001. "High-tension electricity network expansions in Argentina: decision mechanisms and willingness-to-pay revelation," Energy Economics, Elsevier, vol. 23(6), pages 697-715, November.
  2. Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, vol. 20(2), pages 141-65, September.
  3. Ronald Coase, 2006. "The Conduct of Economics: The Example of Fisher Body and General Motors," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 255-278, 06.
  4. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
  5. Bushnell, James B & Stoft, Steven E, 1996. "Electric Grid Investment under a Contract Network Regime," Journal of Regulatory Economics, Springer, vol. 10(1), pages 61-79, July.
  6. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 1: The origins of policy," Energy Economics, Elsevier, vol. 30(4), pages 1367-1384, July.
  7. Paul L. Joskow, 2013. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344 National Bureau of Economic Research, Inc.
  8. Abdala, Manuel A., 2008. "Governance of competitive transmission investment in weak institutional systems," Energy Economics, Elsevier, vol. 30(4), pages 1306-1320, July.
  9. Pollitt, M.G., 2004. "‘Electricity Reform in Argentina: Lessons for Developing Countries’," Cambridge Working Papers in Economics 0449, Faculty of Economics, University of Cambridge.
  10. Bushnell, James & Stoft, Steven, 1997. "Improving Private Incentives for Electric Grid Investment," Staff General Research Papers 31549, Iowa State University, Department of Economics.
  11. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 6: Distribution companies, regulation and the Public Contest method," Energy Economics, Elsevier, vol. 30(4), pages 1527-1535, July.
  12. Abdala, Manuel A., 2008. "Transmission pricing in privately-owned electricity grids: An illustration from the Argentine electricity pool," Energy Economics, Elsevier, vol. 30(4), pages 1284-1305, July.
  13. Littlechild, Stephen C. & Ponzano, Eduardo A., 2008. "Transmission expansion in Argentina 5: The regional electricity forum of Buenos Aires province," Energy Economics, Elsevier, vol. 30(4), pages 1491-1526, July.
  14. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 4: A review of performance," Energy Economics, Elsevier, vol. 30(4), pages 1462-1490, July.
  15. Rotger, José A. & Felder, Frank A., 2001. "Reconciling Market-Based Transmission and Transmission Planning, , , , , ," The Electricity Journal, Elsevier, vol. 14(9), pages 31-43, November.
  16. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 3: The evolution of policy," Energy Economics, Elsevier, vol. 30(4), pages 1420-1461, July.
  17. Littlechild, S., 2004. "Regulated and merchant interconnectors in Australia: SNI and Murraylink revisited," Cambridge Working Papers in Economics 0410, Faculty of Economics, University of Cambridge.
  18. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
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Citations

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Cited by:
  1. Erdogdu, Erkan, 2013. "Essays on Electricity Market Reforms: A Cross-Country Applied Approach," MPRA Paper 47139, University Library of Munich, Germany.
  2. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 3: The evolution of policy," Energy Economics, Elsevier, vol. 30(4), pages 1420-1461, July.
  3. Stephen Littlechild, 2012. "Merchant and regulated transmission: theory, evidence and policy," Journal of Regulatory Economics, Springer, vol. 42(3), pages 308-335, December.
  4. Littlechild, S.C. & Ponzano, E.A., 2007. "Transmission expansion in Argentina 5: the Regional Electricity Forum of Buenos Aires Province," Cambridge Working Papers in Economics 0762, Faculty of Economics, University of Cambridge.
  5. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 1: The origins of policy," Energy Economics, Elsevier, vol. 30(4), pages 1367-1384, July.
  6. Pollitt, Michael, 2008. "Electricity reform in Argentina: Lessons for developing countries," Energy Economics, Elsevier, vol. 30(4), pages 1536-1567, July.
  7. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 4: A review of performance," Energy Economics, Elsevier, vol. 30(4), pages 1462-1490, July.
  8. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 6: Distribution companies, regulation and the Public Contest method," Energy Economics, Elsevier, vol. 30(4), pages 1527-1535, July.

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