Institutional Arrangements for Electricity Network Regulation

1. 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

2. Outline • Setting the Problem • Extending the Framework • Case Studies • Analysis • Concluding Remarks 6th Annual CRNI Conference, 22 November 2013, Brussels

3. 1. Setting theProblem (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, Brussels

4. 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, Brussels

5. 2. Extendingthe 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, Brussels

6. 2. Extendingthe 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, Brussels

7. 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, Brussels

8. 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, Brussels

9. 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, Brussels

10. 4. Analysis Operational Rules andReactions • 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, Brussels

11. 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, Brussels

12. 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, Brussels

13. 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, Brussels

14. 5. ConcludingRemarks • Work in progress • Informal institutions? • Regulatory innovation? • A language for comparative analysis? • Heuristics 6th Annual CRNI Conference, 22 November 2013, Brussels

15. Thank you very much for your attention! v.pal@lse.ac.uk 6th Annual CRNI Conference, 22 November 2013, Brussels