The growing need for investments to expand infrastructure in the electric power sector throughout the world has prompted a theoretical debate on the various regulatory models applied to this sector, and particularly on models that aim to make the services more efficient and the prices lower in natural monopoly sectors such as electricity transmission.
To encourage the necessary investments in order to guarantee the expansion of the electricity supply sufficient to keep pace with the projected economic growth, since 1995, the Brazilian government has been implementing institutional changes in the regulatory framework of the power sector. The current model for expansion of the transmission system, based on competitive auctions for concessions to build and operate lines, was implemented starting in 1999. The investor that submits the lowest bid (i.e. accepts to receive the lowest RAP[1] to build, own, operates and maintains the transmission facility) wins the auction[2].
The objective of this paper is to analyze the impact of a change in the rules for transmission concession auctions, on the bids offered by prospective investors in these auctions. The lower the bid, the smaller will be the revenue received by the concessionaire and, consequently, the lower the transmission tariff charged to users of the system, and hence to energy consumers.
Except for the introduction of the periodic tariff review clause in 2006, the concession contracts awarded in the auctions have not been changed in any other way. This situation lends itself to an empirical test to measure the impacts of this change on the bids presented by investors in the auctions, using, among others, the information contained in the 346 sealed bids submitted, in auctions held between 2003 and 2008, covering 66 transmission facilities.
As a discontinuity took place in time dimension (2006) it is going to be used a “before-after (BA)”design to measure the impacts of the change in regulation on the bids. The BA design is effective because every investor got the treatment from 2006 on and the treatment is clearly defined. Additionally, the period just before the treatment is comparable to the period just after the treatment because it is a short period of time (5 years) when no other significant changes had occurred.
In order to confirm that groups before and after treatment are not significantly different in observed variables, it is also going to be used propensity score matching technique.
After application of the methods described, it will be possible to determine if the average level of bids increased or decreased after the change in the concession contracts. If the level of bids decreased, the regulatory change can be considered as an efficient public policy that leads to the reduction of the final price of energy. If there is no change or an increase on the level of bids the change in regulation was, respectively, ineffective or prejudicial, to energy consumers.