Institutional Arrangements for Electricity Network Regulation

Institutional Arrangements for Electricity Network Regulation

Insights Into Decision-Making Processes in Germany, the UK and the USA

Vincent PálDipl.-Jur. (Univ.)

Humboldt University Berlin – Faculty of Law

London School of Economics and Political Science - Department of Law

6th Annual CRNI Conference, 22 November 2013, Brussels

6th Annual CRNI Conference, 22 November 2013, Brussels 2

Outline

1. Setting the Problem

2. Extending the Framework

3. Case Studies

4. Analysis

5. Concluding Remarks


1. Setting the Problem (1)

• Traditional Analysis of Network Industries based on– Positive and Normative Theory

• Important Results– Rent-seeking and capture– Allocation and Inefficiency

• Policy Recommendations– Unbundling/Industry restructuring– ‚Incentive Regulation‘


1. Setting the Problem (2)

• Regulatory decision-making: black box

• Regulatory governance and respective costs?

• Regulatory process and the connected rules as well as the instituional environment

• Similar problem: governance structures in regulated firms


2. Extending the Framework (1)

Why decision-making processes?

• Implementation of economic models determine effectiveness: legal rules as a condition for success or failure

Methodology:

• Comparative Law: functional analysis

• Institutional Economics


2. Extending the Framework (2)

Relevant questions to ask:

• What is the operational framework of the players?

• Who are the players involved?

• What are the players‘ reactions to the framework?

• What is the scope for players to shape regulatory goals with respect to investments?


3. Case Studies Germany

• General statutory provisions (EnWG) and detailed regulations in ordinances

• Parties: FNA, network companies, consumer groups, industry groups?

• Administrative Procedure (APA, adversarial)

• Ordinances: list of admissible investments, deviation difficult


3. Case Studies UK

• General statutory framework (Acts) and detailed provisions in licences

• Stakeholders (wide notion): network companies, consumers, users of network services, environmental groups, Ofgem, government

• RIIO: Outputs-led framework

• Common understanding of what to deliver should be reached through consultations


3. Case Studies USA

• General statutory provisions (NGA, FPA)

• Parties (wide notion): utilities, customers, interstate (FERC) and state regulators

• Administrative Procedure (APA): filed-tariff-doctrine; adversarial/notice-and-comment or negotiated settlements (but still threat of litigation)

• Parties actively engage in assessing investment and projects


4. AnalysisOperational Rules and Reactions

• Ordinances:– Low search costs for admissible investments– Stable investment framework– Regulatory commitment still questionable– Weak incentives to reveal information

• Licences/Settlements:– Higher search and negotiation costs– Consultations incentivise to reveal information

in order to avoid further scrutiny– Innovative solutions possible

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4. AnalysisParties

• General assumption: the fewer the parties involved, the lower the transaction costs– In GER: Only 2 or 3 parties, litigation as a rule– In UK and USA: High number of participating

stakeholders, litigation is the exception

• Regulatory authorities: different degrees of discretion and independence– FNA: discretion restricted by statute, political

influence– Ofgem: body sui generis detached from gov.


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4. AnalysisScope for shaping regulatory goals

• Germany: narrow scope– Project assessment according to pre-set listing

• UK/RIIO: potential wide scope– Business plans and stakeholder engagement– RPI-X highly complex; Number of Publications

during RIIO-T1 indicate the same for RIIO

• USA/settlements: potential wide scope– Qualitative different outcome than litigation

possible (‘rate moratorium’)– Non-transparent cost structures problematic


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4. AnalysisMain Findings

We can assume that

• Players use regulatory leeway creatively

• Ex-post opportunism can be mitigated through non-litigation solutions

• Multitude of players do not necessarily hinder joint solutions; PA-Problems are still present

• Self-regulatory characteristics pose the problem of capture; complete absence of litigation seems problematic



5. Concluding Remarks

• Work in progress

• Informal institutions?

• Regulatory innovation?

• A language for comparative analysis?

• Heuristics


Thank you very much

for your attention!

[email protected]

Institutional Arrangements for Electricity Network Regulation

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