1. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 1 Efficacy of Energy Regulators

2. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 2 Almost everybody has one Since the early 1990s, ~130 countries have established an ~200 regulatory bodies, including –independent agencies, –government departments, and –contract supervision units www.globalregulatorynetwork.org

3. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 3 Responsibilities Development and implementation of rules and regulations for establishing and sustaining a fair investment environment (based on the restructuring legislation) Promotion of competition and least-cost investments Protection of consumers against abuses by market players Education of consumers about competition

4. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 4 Source: Johannsen, Katja Sander, Lene Holm Pedersen, and Eva Moll Sørensen (2004). Independent Regulatory Authorities – a Comparative Study of European Energy Regulators, Institute of Local Government Studies, Denmark.

5. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 5 Functions Issuing licenses related to regulatory functions, Setting performance standards, Monitoring the performance of regulated firms, Establishing the level and structure of tariffs, Establishing a Uniform Accounting System, Arbitrating disputes among stakeholders, Performing (usually via independent consultancy) management audits on regulated firms, Developing human resources, Reporting sector and regulator activities to the appropriate government authority. Source: Designing an Independent Regulatory Commission by Sanford Berg, Ali Nawaz Memon and Rama Skelton, Public Utility Research Center, University of Florida.

6. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 6 Issues facing restructuring regulator Is the generation market potentially competitive? Current levels of market concentration Design of the transmission segment Rate base regulation or performance-based (incentive) regulation in the distribution market? Price discrimination Treatment of stranded costs (degree of recovery, calculation, and recovery mechanism), Demand-side management and Integrated resource planning Ratepayer assistance programs that target subsidies for the poor. Source: Navarro, Peter (1996). “Ten Key Questions for the Restructuring Regulator,” The Electricity Journal, August/September, pp. 65-70.

7. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 7 Desired characteristics Independence Enforcement powers Transparency and accountability Competency

8. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 8 World Bank USAID Nexus study CEER Bob Archer (USAID) PURCAustraliansStern (NERA) Independence Autonomy Legal Mandate, Values Independence Informal Independence Legal mandate & financial resources Enforcement Powers AuthorityLegal Mandate Legitimate / Accountability Transparency Transparency & Accountability AccountabilityValues Accountability & Transparency Competency / Expertise ExpertiseCompetencyResources Effectiveness & Efficiency Expertise Public involvement International activities Communication Consultation Consistency Predictability Flexibility

9. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 9 Benchmarking CriterionPreference MandateEnabling law Governing bodySector specific, independent, competent AppealCourts Enforcement powersPower to gather info, to institute safeguards against market abuse, to implement rules for ADR, and to award, enforce & revoke licenses. Job securityFixed-term appointment by head of state, removable only based on clear rules, own compensation rules Financial autonomySelf-financing via fees TransparencyCirculating draft decisions for comment, publishing decisions and justifications, and holding public consultations and hearings Source: Mustafa, Mohammad A. (2002). Benchmarking Regulators – Making Telecom Regulators More Effective in the Middle East, Public Policy for the Private Sector Note No. 247, The World Bank Group.

10. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 10 Benchmarking CriterionPractice ScopeUsually electricity & gas; some also oil, few only electricity Members1-9; average 4-5 Appointment5-7 yrs, mostly renewable FinancingState budget: 3 Fees & charges: 6 Surcharges on services: 5 Main functions (including ministerial agencies) Network regulation (11) End user tariffs (5) Entry-exit (9) Process and appeals (for independent regulatory agencies only) Hearings, decisions made public, appeal to courts, reporting, audits Source: Ocana, Carlos (2001). “Trends in the Management of Regulation: A Comparison of Energy Regulators in Member Countries of the Organziation for Economic Development and Co-operation,” International Journal of Regulation and Governance, Vol. 3(1), pp. 13-32.

11. © 2005 by Center for Energy Economics, Bureau of Economic Geology, The University of Texas at Austin. All rights reserved. 11 Source: Johannsen, Katja Sander, Lene Holm Pedersen, and Eva Moll Sørensen (2004). Independent Regulatory Authorities – a Comparative Study of European Energy Regulators, Institute of Local Government Studies, Denmark.