Transmission pricing in privately-owned electricity grids: An illustration from the Argentine electricity pool

The Argentine electricity reform of 1992 offers an interesting example of decentralized transmission pricing arrangements within a competitive system. This paper is a shortened version of an original analysis made in 1994 of the regulation of the Argentine transmission system, with emphasis on investment cost allocation rules. To make up for the limitation of short-run marginal cost (SRMC) pricing, incentives on service quality were put in place, including penalties for lack of line availability. The mechanism for capacity expansion, based on ad-hoc rules for allocations of investment costs, had the potential to produce non-optimal investment outcomes, as such rules ignored beneficiaries on the demand side. For fine tuning of this system, I proposed an alternative rule based on traditional welfare analysis that broadens the universe of identified beneficiaries, and thus can be expected to produce a fairer outcome on investment cost allocation, reducing the potential risks of non-optimal investment. A brief postscript comments on the paper from the perspective of 2007.