Regulation changing to meet new needs and expectations

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(No Transcript)
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Regulation - changing to meet new needs and
expectations?

• Neil Feinson
• Energy Markets Unit
• BERR

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Introduction

• Regulation - the 1980s model
• Regulatory roll back
• Sustainable development - the big (not so) new
  challenge

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Going back to our roots

• The 1980s regulator
• was independent
• was specialist
• regulated (incumbents) asymmetrically
• drove out inefficiency through RPI-X
• would hold the fort until competition arrived

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The (informal) deal

• decisions faster than under normal competition
  law
• procedural safeguards would thus be fewer but
• this was transitional - regulators would
  eventually do themselves out of a job

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Sit rep today

• Regulatory withdrawal - or is regulation here to
  stay?
• Is RPI-X still appropriate?
• How should regulators address wider public
  interest goals?

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Regulatory rollback

• Significant success eg ending of price control in
  many areas
• but in parallel complex, lasting regulatory
  regimes also well established in other areas.
• Trend to increased procedural safeguards eg
  appeals to CC

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No easy answers

• Always will be natural monopolies requiring
  regulation
• Where regulation needs to be permanent it should
  cut no corners procedurally
• And yetwe are a long way from fulfilling our
  dreams of the 1980s
• Regulation proving to be self-perpetuating and
  Government doesnt always help!

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The basic choice
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Rules v principles

• Less intrusive and distortive - avoid creating of
  creatures of regulatory arbitrage
• Companies have to consider the effects of what
  they do - not just slavishly follow the rules
• Single set of rules
• Could reliance on competition law allow further
  simplification of licences?

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On the other hand?

• Price controls of natural monopolies will always
  need detailed rules
• What about non-competition remits eg security of
  supply, universal service etc?
• How reasonable to expect regulators to take the
  lead on this?

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Sit rep today

• Regulatory withdrawal - or is regulation here to
  stay?
• Is RPI-X still appropriate?
• How should regulators address wider public
  interest goals?

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Strategic planning and investment

• RPI-X designed to improve efficiency - and been
  very effective, particularly for Opex
• Massive investment required in sectors such as
  energy
• Regulators have had to work hard to create the
  correct incentives for such strategic shifts in
  investment

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Sit rep today

• Regulatory withdrawal - or is regulation here to
  stay?
• Is RPI-X still appropriate?
• How should regulators address wider public
  interest goals?

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From public interest to sustainable development

• regulators always had non-economic goals - mostly
  social and environmental
• persistent source of tension between
• HMG/regulators
• regulators/companies
• and now climate change orders of magnitude
  bigger as a challenge

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Subjective objectives?

• These issues can
• conflict with core consumer protection/promotion
  of competition goals
• be imprecise
• be hard to monetise and/or less amenable to
  economic analysis
• require value judgments in balancing them with
  other objectives

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House of Lords Select Committee

• We conclude that
• Independent regulators statutory remits should
  be comprised of limited, clearly set out duties
  and that the statutes should give a clear steer
  to the regulators on how those duties should be
  prioritised
• Government should be careful not to offload
  political policy issues onto unelected regulators

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The challenge

• Sustainable development requires
• joined up policy making across economic,
  environmental and social areas
• more effective joining up between regulators and
  Government policy-making machinery
• Markets need clarity as to how the remit will be
  carried out

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Energy example

• BERR and Ofgem moving in this direction
  particularly since Energy White Paper
• Transmission Access Review
• Distributed Energy Review
• Policy on smart meters
• BERR considering whether existing statutory
  guidance could be usefully updated

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Aim is to

• coordinate the respective roles of Government and
  Ofgem in pursuing sustainability
• Ofgem independent, albeit governed by a statutory
  remit covering sustainable development
• brings its expertise to the formation of policy,
  particularly to ensure ease of implementation
• collaborates with Government to extent compatible
  with its remit and
• aims to ensure that Government sustainability
  goals are achieved at least cost to consumers.

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Final thoughts

• 1980s regulatory model not broken
• Can accommodate demands of climate change
• RPI-X still relevant albeit in conjunction with
  measures to support investment for radical change
• Need for renewed impetus towards regulatory
  withdrawal?