Capacity constraints, pricing and investment decisions in regulated firms with a special emphasis on the Argentine electricity transmission system

Restructuring the electricity sector has fostered competition in generation and distribution but has reinforced the need for better regulation to ensure efficiency of transmission networks. This dissertation assesses the impact of the Argentinean reforms in electricity on transmission efficiency. It then goes beyond the Argentinean case and analyzes some regulatory issues affecting transmission.; Chapter 2 shows that the Argentinean reforms increased reliability and brought prices closer to costs. However, regulatory fine-tuning is required to ensure sustainability. Chapter 3 examines the impact of unbundling on the construction of the transmission link to the Yacyreta generation complex. A long-term commercial contract in an unbundled industry allowed competition to reduce investment cost and facilitated better monitoring by outsiders. Chapter 4 analyzes investment procedures in the context of the proposal to build a fourth line in the Comahue corridor. While procedures are mostly coherent, some rules appear to distort incentives to expand. The narrow definition of beneficiaries limits the number of participants in the decision-making. Grid users' limited accountability reduces incentives to pay for expansion. Long term contracts could increase the cost of the constraints for the party with the obligation to deliver.; Chapter 5 analyzes incentives to promote grid expansion under uncertain demand using a single period-single generator model. The monopolist underinvests in comparison to an unconstrained system to reduce the likelihood of having to pay for unutilized capacity, under lower than expected demand. Optimal transmission capacity is monotonically decreasing in the cost of capital, and weakly increasing in the probability of experiencing high demand. Two possible equilibrium values for grid capacity are identified, associated with the rationing prices for either low or high demand.; Chapter 6 analyzes the Laffont/Tirole model of monopoly regulation under constrained capacity and asymmetric cost information. It studies short-term implications of insufficient capacity on the efficiency of regulatory incentives to promote cost efficient behavior. Under complete information cost reduction efforts remain constant when the monopolist produces at capacity. With information asymmetries effort is strictly monotonic with respect to the firm's efficiency parameter, even at full capacity. Second best efforts are uniformly less than first best.