Regulatory policy

Fifth meeting of the Network of Economic Regulators

 

5 November 2015, Paris, France

 

The meeting focused on independence and undue influence, the role of regulators in addressing key challenges of infrastructure investment and management, and behavioural insights.

 

Key meeting highlights included:

 

What it means to be independentand why undue influence threatens market and social welfare outcomes, including:

  • The importance of having both robust formal/de jure and practical/de facto arrangements:  formal independence can support the emergence of a culture of independence within the regulator. At the same time, these formal arrangements can be effectively implemented if they inform the daily work and practice of the regulators’ leadership and professional staff.
  • Transparency and openness as a way of enhancing independence: being open and transparent on the regulator’s role and objectives as well as on the processes used to make regulatory decisions can support a culture of independence within the regulator and help manage conflicts created by the inevitable overlaps between governments and regulators. Yet, regulators are also conscious of the risks that openness can create, for example, by providing opportunities for capture of consultation processes by influential stakeholders.
  • Autonomy in managing resources is of critical importance for acting independently:  regulators need some leeway and flexibility in competing with the private sector for talent and expertise, within accountable and responsible management practices that safeguard the public service values underpinning regulatory agencies.
  • The international context matters: in the European Union (EU), for example, EU legislation provides a safeguard protecting the independence of network regulators. Outside the EU, transnational networks, including the NER, could facilitate exchanges of good practices and guiding lessons and help protect from undue influence.


Key challenges related to infrastructure investment and how regulators have been addressing them, including:

  • Investor and consumer interests: infrastructure regulation has progressively shifted from facilitating and attracting investment, to a focus on consumer welfare – including to safeguard against cases of poorly targeted or over-investment. Accordingly, the aim of regulation is increasingly to align investor and consumer interests; and narrowing the gap in expectations between investors and consumers.
  • Vertical and horizontal co-ordination challenges: overlap between sub-national and national (e.g. federal and provincial) regulators, which may be accountable to different legislative bodies, can be an issue. In addition to this vertical coordination challenge, the need for greater horizontal alignment across different regulated sectors is also important: even at national/ federal level, regulatory regimes are not always mutually reinforcing, and in fact are sometimes contradictory.
  • Long-term affordability and maintenance: there is a key difference between infrastructure financing (upfront investment, where there is considerable private sector appetite) and funding (ability to recover the costs of investment in the long-run, where affordability and maintenance concerns are much higher especially in a context of stretched balance sheets). There might be room for creating possibilities for creating space between rate-of-return regulation (which encourages spending and investment) and incentive-based regulation (which keeps bills down but may be less supportive of investment) – including through intermediate approaches such as benefit sharing.
  • Dealing with technological change: the move from monopoly to contestable market structures is a central challenge for regulators, raising complex issues ranging from asset rights, to accelerated depreciation and managing demand risk – all of which are rapidly becoming more complex because of the pace of technological change. It is becoming increasingly difficult to regulate ‘soft’ infrastructure in this evolving context (retrofitting utilities, for instance) as well as addressing ‘destructive technology’ and the burden of obsolete infrastructure (notably in the telecommunications sector).
  • Judicial review: disputes can impose significant delays on projects, which in turn calls for considering some simplification of appeal procedures pertaining to infrastructure investment and regulation decisions.

 

Applying behavioural insights in developing a new consumer protection framework for Columbia’s communications sector:

  • Colombia’s Communications Regulatory Commission (CRC) is building on behavioural insights to develop a new consumer protection regime that effectively empowers consumers to make choices that best meet their needs. The approach of CRC started from the realisation that despite strict obligations on information disclosure on operators, the existing regulation had not been effective in providing consumers with the information they needed and could process at the best point in time.
  • The OECD has supported CRC effort through a multidisciplinary approach bringing together expertise on regulatory policy, behavioural economics, digital government and
  • Data analytics. Four areas have been addressed: i) information principle, including how to avoid information overload and “nudge” on key decision nodes where customers might otherwise make suboptimal choices; ii) customer service mechanisms, including how create a market incentive to improve customer services; iii) consumer consumption control mechanisms through better feedback to consumers on their consumption patterns with defaults for non-responsive consumers; and iv) bundling of services with salient information on comparing different services. The report discussed at the NER meeting is available here.

 

For more information, please contact Faisal Naru

 

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