Pricing Electricity Transmission: Why Auctions Are (Much) Better than Regulation
Keywords:
electricity transmission, transmission tolls, auctions, regulation, ArgentinaAbstract
There are at least two ways of fixing high voltage transmission tolls.One is to regulate them in standard fashion; another is to allocate new
transmission lines in competitive auctions to the bidder offering the lowest
toll. In this paper we show that expected tolls are considerably lower if
lines are auctioned.
Auctions dominate regulation for three reasons. First, bidder competition
ensures lower expected tolls. Second, they increase the regulator’s bargaining
power. Third, if, as in Argentina, project users are allowed to
bid and build the line, they can induce even more intense competition.
We use our theoretical model to analyze the auction for the fourth
Comahue line in Argentina. We show that, had the toll been regulated,
it would have been at least 61% higher.
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Copyright (c) 2004 Alexander Galetovic, Juan Ricardo Inostroza
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
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