Reviewing the Global Experience with Economic Regulation A Forward Looking Perspective New Delhi, April 18-20, 2011 Economic Regulation and Antitrust Intervention: Experiences in Gas, Electricity, and Railways in Italy Alberto Asquer Dipartimento di Ricerche Aziendali Faculty of Economics University of Cagliari, Italy

Economic regulation as functional equivalent to competition and as provisional substitute to competition ('holding the fort until competition arrives'). Many industries subjected to regulation do not necessarily evolve into competitive regimes: What is the role played by regulatory authorities in industries partially opened to competitive pressures while retaining monopolistic traits in some segments? What is the role played by antitrust authorities, and how do they complement with sectoral regulators in steering the behaviour of firms? Introduction

Economic regulation: various meanings (Jordana and Levi- Faur, 2004; Baldwin et al., 1998) Different models of infrastructure regulation (Gomez Ibanez, 2003) - Public ownership of infrastructure firms - Franchise allocation - Discretionary regulation - Private ownership of infrastructure in conjunction with liberalisation of access, prices, and quality Three cases of regulatory regimes: gas, electricity, and railways in Italy. Introduction

Nation-wide infrastructure, Internationally connected (Some) vertical segmentation Incumbents' dominant position Local governments' ownership National government ownership Franchise allocation Price cap Import quotas Local governments National government Energy & Gas Authority ENI group Local government-owned firms Business companies Prices relatively stable (increasing?) Investments less than expected Tender offer competition Long-term import contracts Infrastructure/service delivery system features Industry community features Regulatory system features Main actors Selected performance aspects Evaluation / Issues The gas sector Competition Authority Mandated ENI to do Investment plan

Nation-wide infrastructure, Internationally connected (Some) vertical segmentation Incumbents' dominant position Local governments' ownership National government ownership Franchise allocation Price cap Generation quotas Local governments National government Energy & Gas Authority ENEL group Local government-owned firms Business companies Prices relatively high Tender offer competition Long-term contracts Infrastructure/service delivery system features Industry community features Regulatory system features Main actors Selected performance aspects Evaluation / Issues The electricity sector Competition Authority Mandated ENEL to sell to qualified customers at regulated price

Nation-wide infrastructure, Internationally connected Incumbent dominant position National government ownership Licences Price cap (somehow) CIPE (inter-ministerial committee economic planning) Ministry of Treasury FS group Business companies Prices relatively low Investments less than expected Regulatory governance Tender offer competition Regulatory independence Infrastructure/service delivery system features Industry community features Regulatory system features Main actors Selected performance aspects Evaluation / Issues The railways sector Competition Authority Mandated FS to remove surcharge for ground-based SCS

Common traits: formerly state ownership of national monopolies, currently partial opening to competitive pressures with former monopolists retaining dominant or highly influential position. Differences: electricity unbundled and relatively more open to competitive pressures, while gas and railways vertically integrated and less open; sectoral regulator for electricity and gas, no proper regulator in railways Discussion ElectricityGas Railways Partial opening to competition Some competition, esp. downstream Modest levels of competition Sectoral regulator AEEG Fragmented regulation

Interventions of the competition authority influential in all three industries – on the way incumbent operators seemed to exploit their control of monopolistic segments of the infrastructure industries for hampering the development of competitors in the competitive segments. E.g., ENEL's potentially collusive behaviour and contractual practices; ENI's investments in the capacity of international gas pipelines Different attitudes of the competition authority and sectoral regulators, in part accounted for by differences in statutory roles and responsibilities. E.g., Stove agreement in gas. → Sectoral regulator more 'benevolent' if behaviour ensures continuity and reliability of service, at the expense of barriers to entry Discussion

Incumbents persist having a dominant role in the regulated industries, and the lack of a 'proper' sectoral regulator may hamper advance in the liberalisation process. Sectoral regulation, however, does not ensure that firms do not engage in anti-competitive practices. The joint action of the competition authority and sectoral regulation ensures: - competition is preserved where barriers to entry are lowered by sanctioning collusive practices, - firms in monopolistic segments do not abuse their dominant position for blocking competition in the more competitive ones. (Sectoral regulator provides ex ante direction, while competition authority focuses on ex post anti-competitive practices) Conclusions

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