Transener: The First Tariff Review (B)

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  • Product Description

    Abstract:
    This case provides background on the restructuring of the Argentine electric industry and the development of the wholesale power market through the prism of Transener, the private firm forged from a formerly public corporation in 1993 to operate the nation's national high-voltage transmission grid. As the case unfolds in 1998, Transener has been consistently profitable and has embarked on a major expansion program, first by winning the bidding to buy one of the regional electricity transmission companies and then by winning a contract to build and operate the fourth 500 kilovolt (kv) line connecting Comahue, a major electricity generating area near the Andes, with Buenos Aires, Argentina's principal population center. The investments had been being financed in part by debt issued on U.S. capital markets, a tribute to the fact that Transener was one of only 20 Argentine companies whose debt was rated by Standard and Poors as investment grade. But there are two clouds on Tansener's horizon. First, ENRE, Argentina's national electricity regulatory agency, was reviewing the tariffs that Transener could charge for transporting electricity. ENRE regulated the tariffs on the grounds that Transener's high voltage transmission system was a natural monopoly. Transener's initial tariffs had been set before the company's sale in 1993, and were to be reviewed every 5 years, starting in 1998. ENRE had begun Transener's first review by proposing a schedule of tariffs that would substantially reduce Transener's future revenues. Second, the Secretary of Energy was considering changing the procedures for approving and financing new high-voltage transmission lines. The experience with the fourth Comahue-Buenos Aires line had convinced many industry observers that the existing procedures did not provide adequate incentives to build needed transmission capacity. Changes in the rules governing new lines might restrict both Transener's possibilities for expansion and, ultimately, the revenues it could earn from existing lines.

    Learning Objective:
    The case is designed to highlight the economic issues, both practical and theoretical, which arise as nations regulate formerly public utilities. A companion (B) case describes Transener's first tariff review while the (C) case describes the controversy over a new transmission line.

  • Other Details

    Publication Date: October 01, 2001
    HKS Case Number: 1636.0
    Case Author: Jose Gomez-Ibanez
    Faculty Lead: Jose Gomez-Ibanez
    Pages (incl. exhibits): 23
    Setting: South America, Argentina
    Language: English
    _year: 2000-2009
    _pages: 16-25
    _geography: Latin America
  • Warranty Information

    /review/1636.0.EducatorCopy.pdf

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