Institutional Arrangements for Electricity Network Regulation Insights Into Decision-Making Processes in Germany, the UK and the USA Vincent Pál Dipl.-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

Outline 1.Setting the Problem 2.Extending the Framework 3.Case Studies 4.Analysis 5.Concluding Remarks 6th Annual CRNI Conference, 22 November 2013, Brussels2

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‘ 6th Annual CRNI Conference, 22 November 2013, Brussels3

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 6th Annual CRNI Conference, 22 November 2013, Brussels4

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 6th Annual CRNI Conference, 22 November 2013, Brussels5

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? 6th Annual CRNI Conference, 22 November 2013, Brussels6

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 6th Annual CRNI Conference, 22 November 2013, Brussels7

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 6th Annual CRNI Conference, 22 November 2013, Brussels8

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 6th Annual CRNI Conference, 22 November 2013, Brussels9

4. Analysis Operational 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 6th Annual CRNI Conference, 22 November 2013, Brussels10

4. Analysis Parties 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. 6th Annual CRNI Conference, 22 November 2013, Brussels11

4. Analysis Scope 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 6th Annual CRNI Conference, 22 November 2013, Brussels12

4. Analysis Main 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 6th Annual CRNI Conference, 22 November 2013, Brussels13

5. Concluding Remarks Work in progress Informal institutions? Regulatory innovation? A language for comparative analysis? Heuristics 6th Annual CRNI Conference, 22 November 2013, Brussels14

Thank you very much for your attention! 6th Annual CRNI Conference, 22 November 2013, Brussels15