Regulation of transmission expansion in Argentina Part I: State ownership, reform and the Fourth Line

From 1992 to 2002, major expansions of the Argentine electricity transmission sector depended on users proposing, voting and paying for such expansions, which were then put out to competitive tender. Commentators hold this novel policy to have been unsuccessful, mainly on the ground that it substantially delayed investment in a much needed “Fourth Line” to Buenos Aire. This paper challenges this interpretation. The policy was chosen because the conventional regulatory framework could not be trusted to deliver more efficient transmission investment decisions. The delay to the Fourth Line was short. Most importantly, the Fourth Line was not economic. Hence the delay was beneficial both in deferring and in reducing costs. It indicated a need to reappraise transmission investment policy because the availability of gas had made it more economic to generate electricity near Buenos Aires than to transmit it a long distance.Argentina, electricity, transmission, regulation

Regulation of transmission expansion in Argentina Part II: Developments since the Fourth Line

Argentina’s 1992 transmission expansion policy was subsequently modified by, for example, including provision for transmission companies and proposing quality and substation expansions. There have been several such expansions, and no lack of investment in quality and reliability of supply. In 1999, reflecting a decision to give greater weight to political considerations, a Federal Transmission Plan was introduced to build lines designated by the federal and provincial governments. The original reform led to less investment in major transmission lines but more intensive use of existing lines. Competition to construct expansions developed, leading to lower construction costs. Thus the Argentine transmission expansion mechanism was a considerable success in terms of meeting the requirements of users efficiently. This experience suggests that involving users in the regulation of monopoly networks is feasible, and the scope for it may be greater than generally appreciated. However, the reconciliation of economic and political considerations needs further consideration.Argentina, electricity, transmission, regulation

Methodological issues in testing the marginal productivity theory

Previous tests of the marginal productivity theory have been criticized on several grounds reviewed by the authors. One important deficiency has been the small number of factor inputs entered in the production functions. In 1978 Gottschalk suggested a method to estimate production functions with many inputs by assuming that the production process can be split into subprocesses. This reduces the probability of multicollinearity. The authors show that the method depends on an additional assumption. Tinbergen has developed a method for avoiding this assumption. Its application to American cross-section (state) data did not alter the estimated coefficients greatly

‘Mobile Termination Charges: Calling Party Pays versus Receiving Party Pays’(original and revised versions)

Concern over mobile termination charges under Calling Party Pays (CPP) has led to severe price controls on termination charges. These are of limited effectiveness in aligning termination charges with costs, net welfare gains from controls are small and costs of setting controls are high. Receiving Party Pays (RPP) avoids these problems. Average revenue (price) per call is significantly lower, average minutes of usage per subscriber are significantly higher, and mobile penetration rate is not significantly different. Handset subsidies seem to be lower in the US (with RPP) than in the UK (with CPP). Regulatory objections to RPP are not justified. However, there is concern about paying to receive calls. A ‘bill and keep’ regime offers the benefits of RPP without this disadvantage. Some mobile operators in RPP countries now offer free incoming calls. Bill and keep enables operators and customers themselves to choose between CPP and RPP.mobile termination charges, calling party pays, receiving party pays

Competitive Bidding for a Long-term Electricity Distribution Contract

Demsetz (1968) advocated competitive bidding as a replacement for natural monopoly regulation. Williamson (1976) and Goldberg (1976) argued that these problems of natural monopoly regulation are inherent in long-term investment under uncertainty, and that both long- and short-term franchising contracts may be more problematic than regulation. Williams illustrated this argument with the problems experienced in bidding to provide cable TV in Oakland. London Underground recently put out top tender to provide cable (thirty-year) contract for operation, maintenance, repair and renewal of its electricity distribution network. The evidence of this contract suggests that competitive bidding to provide a natural monopoly service is feasible and advantageous. The problems in Oakland CATV case were not encountered. However, the contract involves considerable resources to formulate and monitor, and envisages repeated modification and additional works. The possibility of competitive contracting to replace or supplement utility network regulation deserves further consideration.franchise bidding, contracting out, natural monopoly, electricity, regulation, Public Fianance Initiative

Why We Need Electricity Retailers: A Reply to Joskow on Wholesale Spot Price pass-through

Joskow, P. and others propose that, with the opening of retail electricity markets, distribution utilities should be required to enable residential customers to buy at (averaged) wholesale spot market prices. They argue that retail electricity competitors should concentrate on value-added services rather than price competition. However, they have not acknowledged the importance of retail price competition, neglected the role of contract markets, and underestimated the costs and disadvantages of this proposed obligation. Recent experience in San Diego illustrates some of the problems. An alternative policy of maximum caps has been adopted in the UK that is facilitating a transition to a competitive regulated residential retail market.Electricity supply; Utility regulation; Retail competition; Wholesale pass-through

Aircraft Landing Fees: A Game Theory Approach

Discussion of airport pricing policy has largely centered on the problem of congestion, but at most airports congestion is negligible. In the present paper we explore the implications of an alternative pricing philosophy where the common costs of runway construction are shared among the different aircraft types according to a club principle. Linear programming and game theory techniques are used to clarify the notions of optimal runway size and fair and efficient landing fees, and to suggest new rules of thumb for allocating common costs based on the Shapley value and the nucleolus. The model is applied to Birmingham Airport to assess investment and pricing policy in 1968-1969. To the authors' knowledge this paper is the first explicit application of the "club principle" and the largest numerical application of game theory to date.

Privatisation, competition and regulation

SIGLEAvailable from British Library Document Supply Centre-DSC:6217.450(110) / BLDSC - British Library Document Supply CentreGBUnited Kingdo

A review of UK electricity regulation 1999-2000

SIGLEAvailable from British Library Document Supply Centre-DSC:3509.880(no 0026) / BLDSC - British Library Document Supply CentreGBUnited Kingdo