Regulatory Governance and Chile's 1998-1999 Electricity Shortage
In the early eighties Chile completely reformed its electricity sector, introducing a regulatory framework that became extremely influential in the rest of the world. In 1998 and 1999, however, when the La Niña phenomenon brought one of the worst droughts on record, the price system collapsed. Random outages and three-hour long rotatingelectricity cuts occurred. This paper studies the interaction between regulatory incentives and governance during the 1998-1999 electricity shortage. We present evidence showing that it was feasible to manage the supply restriction with no outages. The shortage can be blamed on the rigidity of the price system, which was unable to respond to large supply shocks, and on deficiencies in regulatory governance, which led to a weak regulator that proved unable to make the system work. We show that the weakness of the regulator did not stem from lack of formal powers. The problems originate in the vulnerability to lobbies and lack of independence. Moreover, the regulator seems not to have fully understood the nature of the incentives in the price system during supply restrictions. We conclude that the Chilean shortage shows the limitations during crisis of a rigid price system requiring heavy regulatory intervention. This suggests that countries where governance structures are ill suited to fill in loopholes left by the law should rely as much as possible on market rules that clearly allocate property rights ex ante and leave the terms of contracts to be freely negotiated by private parties.
References listed on IDEAS
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.:
- Federico Basañes & Eduardo Saavedra & Raimundo Soto, "undated". "Post-Privatization Renegotiations and Disputes in Chile," ILADES-Georgetown University Working Papers inv117, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
- Nesbakken, Runa, 1999. "Price sensitivity of residential energy consumption in Norway," Energy Economics, Elsevier, vol. 21(6), pages 493-515, December.
- Serra, Pablo J., 1997. "Energy pricing under uncertain supply," Energy Economics, Elsevier, vol. 19(2), pages 209-223, May.
- Pablo Serra & Gabriel Fierro, 1996.
"Outage Cost in Chilean Industry,"
Documentos de Trabajo
10, Centro de Economía Aplicada, Universidad de Chile.
- Bernstein, Sebastian & Agurto, Renato, 1992. "Use of outage cost for electricity pricing in Chile," Utilities Policy, Elsevier, vol. 2(4), pages 299-302, October.
- Sanghvi, Arun P., 1983. "Optimal electricity supply reliability using customer shortage costs," Energy Economics, Elsevier, vol. 5(2), pages 129-136, April.
When requesting a correction, please mention this item's handle: RePEc:edj:ceauch:84. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.