9 April 2018, Paris, France
The Network of Economic Regulators gathered again over 100 senior officials from over 60 regulators in the communications, energy, environment, health, transport and water sectors across OECD members and partner countries. The meeting was an opportunity to take stock of the activities of the NER after 5 years of existence, look ahead and shape future activities, including on the impact of disruptive technologies and digital transformation on markets and sectors; the quality of infrastructure and approaches to incentivising efficient and effective infrastructure planning, maintenance and investment; and changes to organisational culture and behaviour and the use of behavioural insights to create a safety culture in the energy sector and avoid catastrophic accidents like Fukushima and the Deep Water Horizon.
Key highlights from the meeting included:
The future of regulation and the role of regulators in an age of rapidly changing markets and disruptive technologies
- The discussion addressed the challenges and impacts triggered by digital transformation and the growing wealth of data, the emergence of multi-sector operators and the blurring of boundaries across traditional sectors on 1) regulators’ statutory role and context; 2) disruptive technologies; 3) co-ordination and collaboration; 4) performance indicators; 5) data use and strategy.
- Discussions conducted in small break-out groups around these five areas highlighted common themes and potential areas where the NER could support regulators, including on collaboration and breaking down silos in overseeing and regulating increasingly interconnected markets and sectors; data and the need to gain a better understanding of data ownership, management and ethics; understanding new business models created by new technologies and their implications for regulators (to regulate or not? and if so, how?)
- Equally important is the evolution of the policy and political context where regulators operate (partly triggered by this transformation), often no less disrupted than the markets and sectors overseen by regulators. Issues for discussion (and to be considered) include the impact on the independence of regulators (also in an era of “disruptive” politics), capacity and capabilities needed to understand change and technological transformation, the target “audience” for economic regulators in this rapidly evolving landscape (consumers? investors? who else?), how to regulate (or not regulate) to guarantee access and innovation but keep the “bad guys” out and the type of co-ordination needed (e.g. prescriptive or flexible? At the level of regulators and/or operators?)
- Areas for potential NER work could include case studies, sharing of practices and approaches and guidance on the impact of digital transformation and possible solutions to some of these challenges.
Maintaining assets and investing in infrastructure in an age of fast changing technology
- The session contributed to the on-going work on identifying and comparing approaches to incentivising efficient capital maintenance carried out with the Water Industry Commission for Scotland (WICS), as part of the OECD Review of Scotland’s Strategic Review of Water Charges 2021-27.
- In Portugal, for instance, a well-defined set of performance indicators is used to assess the different services related to urban water and waste services on an annual basis. New indicators on asset conditions and remaining asset life serve as a determinant to gauge and evaluate future investment plans as well as guide the regulator in identifying operators that are eligible for support and funding.
- In Australia, there has been a stable, pro-investment, incentive-based regulatory regime following the energy market reforms undertaken in the past 15 years. However, with significant infrastructure investment, over-investment is one of the challenges faced in the country. The discussion highlighted the need for greater flexibility and seeking ways to strike a balance between meeting investment needs now and in the future, in addition to meeting growing consumer expectations.
- In Germany, the use of incentive regulation is ensuring efficient grid solutions. This includes the use of a revenue-cap-regulation, which has been in place since 2009, based on an efficiency benchmark. Studies on the use of this approach have shown that it has led to sustained investment and new technological solutions among electricity and gas providers, as well as improving the financial conditions for network extensions in the country in response to recent changes in energy policy.
Managing risk and fostering a safety culture: the experience of regulators
- The discussion contributed to the on-going work on applying behavioural insights to creating a safety culture and gathered experiences from regulators in Ireland, Mexico, Oman and the United Kingdom in developing strategies and approaches to address safety issues and identify behavioural barriers and solutions to foster a safety culture in the sectors regulators oversee.
- Overall critical factors that determine a safety culture include the importance of combining process-driven approaches with the promotion of the sense of responsibility at all levels within regulated entities and a culture of oversight in regulators. Equally important is a clear commitment and open communication from the leadership of the organisation. Safety culture can be undermined by failure to report on incidents, complacency at leadership level and cultural or linguistic barriers between different levels of staff in operators, including contractors and sub-contractors.
- Measuring safety culture is both challenging and resource-intensive. Data requests from industry and teams must be clearly considered to avoid reporting fatigue; similarly, the end-use of the requested data needs to be made clear to stakeholders through transparent reporting. Positive reporting, including indicators on near misses and potentially risky situations, can provide an incentive to stay alert, be aware of potential risks and contribute to a culture of early warning.
- Different levels of maturity and size of market also allow for different approaches to safety culture. These might include more advanced awareness of safety issues, greater understanding of the gains in promoting safety culture and more personalised and collaborative engagement between regulatory authority and industry leadership.
- Next steps will include designing and conducting experiments in different countries and context on some of these behavioural barriers and possible solutions, including awareness of safety practices; shared responsibility across regulators and regulated entities; complacency and attitudes towards risks.
For more information, please contact Lorenzo Casullo, Filippo Cavassini and Anna Pietikainen.
Read more about
» Regulatory policy and governance
» Network of Economic Regulators