The Economics of Best Practice Regulation

Transcription

1 The Economics of Best Practice Regulation Dr. Mark Jamison Director Public Utility Research Center 1

2 The Regulatory Practice Engineering Economics Finance Law What is possible? How can we do it? Counsel Management Relationships What is important? Politics Negotiation Dialogue The work of leadership is helping stakeholders, policymakers, and ourselves find the place where reality, our values, and our abilities join together. 2

3 Critical Areas for Success Aspirations Challenges Successful development Role Purposes Political interference Solve complex problems Be leaders Mission Too many demands Technical complexity Excellence Service

4 Overview Essential foundations Economics and pressures Leadership challenges 4

5 Why regulate? Public interest Monopoly for necessity Limit exploitation Others Political credit card Benefit the powerful 5

6 Why a regulatory agency? Expertise Most complex work of government Independence Constrain politically powerful Constrain politics 6

7 Ultimate goal Ensure provision of necessary service in way that allows economy and society to flourish Commercial viability Availability Reliability Affordability 7

8 Compensatory price levels Necessary for investment and reliability Features Grounded in reality historical bases Represents today current demands Reflects efficiency investigations, benchmarks, incentives 8

9 Efficiency incentives Benchmarking Public comparison incentive Performance target information Commercial profits Regulatory lag; price/revenue caps Sharing mechanisms Regulatory review 9

10 Price incentives Price signals to customers Price signals to suppliers Feed-in tariffs Price signals to operators Do more/less of 10

11 Price in the public arena Just price I shouldn t have to pay more for the same thing I shouldn t have to pay more than others Others should not get a better deal than me I should get the best deal The operator should be a good citizen The operator should not make more money than the rest of us 11

12 Regulation is endogenous Goals Methods Boundaries Stability Determined within political, economic, industry context 12

13 Critical for success Role Purposes Mission Excellence Service 13

14 Clarifying Roles Owners/Citizens Communication Authority Accountability Policy Board CEO and Execs Regulatory Agency Business Board CEO and Execs Operator Operators Customers For For Price Setting Financial Quality performance Market Conduct

15 Policy Board Authority Reflect on outcomes Consider why Decide what system supposed to produce Define and refine the vision Balance the long run and short run Adapt policies to evolving circumstances while recognizing needs for long-lived investments Respect citizen expectations Select agency head(s) 15

16 Regulator Authority Establish prices, service standards, incentives and market rules Enforce decisions Reflect on utility outcomes Adjust rules, procedures, and decisions as needed 16

17 Process Forms of transparency Trade-offs Establishing legitimacy and credibility Forms of due process 17

18 Operator Authority Determine means To meet financial goals Subject to regulatory decisions 18

19 Aligning purposes Ongoing or regular dialogue of operators, key politicians, thought leaders Where are we? What do we aspire to for our country? What are the difficult tradeoffs between good things? 19

20 The Regulatory Practice Engineering Economics Finance Law What is possible? How can we do it? Counsel Management Relationships What is important? Politics Negotiation Dialogue The work of leadership is helping stakeholders, policymakers, and ourselves find the place where reality, our values, and our abilities join together. 20

21 Regulation is dangerous work Every change involves someone losing something that is important to him/her Disappointing people at a rate at which they can endure 21