Regulatory Governance and Chile's 1998-99 Electricity Shortage
In the early 1980s Chile reformed its electricity sector, introducing a regulatory framework that became influential worldwide. But in 1998 and 1999 La Nina brought one of the worst droughts on record, causing a price system collapse, random power...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/11/1631783/regulatory-governance-chiles-1998-99-electricity-shortage http://hdl.handle.net/10986/19498 |
| Summary: | In the early 1980s Chile reformed its
electricity sector, introducing a regulatory framework that
became influential worldwide. But in 1998 and 1999 La Nina
brought one of the worst droughts on record, causing a price
system collapse, random power outages, and three-hour
rotating electricity cuts. The authors study the interaction
between regulatory incentives and governance during the
1998-99 electricity shortage, showing that the supply
restriction could have been managed without outages. The
shortage can be blamed on a rigid price system, which was
unable to respond to large supply shocks, and on deficient
regulatory governance, which led to a weak regulator unable
to make the system work. The authors also show that the
regulator's weakness stemmed not from lack of formal
powers but from vulnerability to lobbyists and a lack of
independence. Moreover, the regulator seems not to have
fully understood the incentives in the price system during
supply restrictions. The authors conclude that the Chilean
shortage shows the limitations of a rigid price system
requiring heavy regulatory intervention. This suggests that
countries whose governance structures are ill suited to
dealing with loopholes left by the law should rely as much
as possible on market rules that clearly allocate property
rights ex ante and leave the terms of contracts to be freely
negotiated by private parties. |
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