Ilze Gotelli

Posted: 24 August 2005 5:44:18 pm

Welcome to the on-line discussion on Accountability and Infrastructure Regulation

Jing Hong

Posted: 5 September 2005 5:40:32 pm

Dear John Feil and Tony de Vera:
I 'd like to get your idea on question two. In china,regulators are just emmerging,most of them are goverment branch. Although some new agencies outside government, their function, financial source are not clearly defined,so it's difficult for them to independly perform their task.
So I wanna ask if other counties suffered from this process, and how they solve this problem finally? Thanks

John Feil

Posted: 5 September 2005 6:33:12 pm

An evolutionary approach independence of regulatory agencies is not uncommon. A number of regulatory agencies commenced as parts of government ministries or departments, some even were bundled in departments along with the commercial operations that were to be regulated. As government's sought to separate commercial activities from regulatory and policy issues, sometimes the regulatory activity remained within a department. However, this still leaves concerns regarding the transparency of regulation, and a regulator's credibility can be lessened if it is seen to be under direct government control. This issue perhaps becomes most important where a government commercial enterprise is privatised or competes with private sector businesses. Potential investors and private sector competitors are more likely to regard a regulator that is separate from a government agency as having greater independence to reach economically appropriate and competitively neutral decisions. I would be interested in other participants views on how important separation of policy and regulatory activities is where privatisation and private sector competition is not envisaged.

Tony de Vera

Posted: 6 September 2005 2:01:41 am

There is no escaping the fact that Regulatory Offices (ROs), due to operational funding requirements, start out as governmental bodies. Only government has the resource and the mandate to create ROs as a vehicle for implementing national policies or reforms, and which allows a group of professionals to handle tariff and service quality issues; the body politic does not have the competence nor the political will to objectively resolve these issues. To allow some form of independence to these ROs, many forms have been used, i.e., Government Corporation, Department, Commission, Authority or fixed tenure of office of the appointed regulators.

If the operating funds do not come from public sources, then it must come from private funds. The only willing private funders are the regulatees themselves (and you know why). But if these funds were to go directly to the ROs, there would be a difficulty differentiating the regulators from the regulated. Hence mechanisms are devised to channel private funds to government first before being passed on to ROs. The independence of ROs will to a large extent depend upon the provisions of the laws or statutes that created them. But being government, funded by government and appointed by government, the RO’s independence will always be compromised.

Sanford Berg

Posted: 6 September 2005 6:56:04 am

The creation of a (relatively) independent regulatory commission is one mechanism for insulating those implementing public policy from daily political pressures and so balance the interests of customers, investors, suppliers, and current political authorities. In the context of regulation, a formal hearing procedure provides an avenue for stakeholder participation. A judicial or adjudicatory role is certainly appropriate when the agency needs to determine compliance with specific rules and/or evaluate behavior. Enforcement proceedings and complaint cases are examples for which this process is appropriate. However, hearings are basically "trial type" adjudicatory processes with a major defect: they tend to emphasize process instead of substance. In such a fact-specific setting, the stability and certainty of the process can cause all parties to overlook the substance of the outcome.

Some jurisdictions have emphasized informal processes for resolving issues. For example, as the issues become more complex, alternative dispute resolution procedures can be effective in identifying win-win options. An "all-party settlement" process represents an alternative way to gain stakeholder buy-in. In this setting, a negotiated outcome reached with stakeholders is adopted if all parties support the outcome, the public interest is adequately represented, no part of the agreement abrogates any other rule or prior decision, and a factual record is developed to enable implementation

Reversals or inconsistency can undermine a regulator's credibility and hence effectiveness. Legislative policy intentions are usually general enough that regulators will need to balance competing goals and values in specific situations. As long as the public record provides clear evidence regarding the facts associated with the issues at hand, the judgment calls of regulators will at least be based on information that others can examine and verify. Without such openness in the process, stakeholders supporting alternative policies will have a case for questioning regulatory decisions. Effective agencies establish procedures that promote accountability, credibility, and legitimacy. Transparency is one mechanism for addressing all three of these aspects of the regulatory process.

John Feil

Posted: 6 September 2005 10:40:50 am

From my observation there are two basic possible sources of funding for regulatory agencies. One is the government; the other is the industry that is regulated. I favour direct government funding. Although this might reduce independence from government, that is better than establishing financial interdependence between the regulator and the parties it regulates. If a government takes the view that the industry should meet the costs of regulation, then a preferred approach is for the government to levy the industry and then fund the regulator. In this way the raising the levy and funding the regulator are somewhat separated. In any approach to funding transparency is a key issue. If the public is informed of what finding was sought by a regulator and what was provided and the reasons for any differences, the public and their various representatives will be able to judge whether adequate funding was provided and identify efforts to wield improper pressure on a regulator through control of its funding.

David Ehrhardt

Posted: 6 September 2005 10:48:36 am

Question for Tony and Sandy - isn't it the case that regulated firms can pay a levy directly to the regulator, and that if this is legally mandated and transparent then this contributes to the regulator's independence, compared to a situation in which the funding is provided by Government?

Question for Sandy - don't informal processes tend to reduce accountability? That is, might there not be a trade-off between an effective process (which may be informal and focused on substance) and an accountable process - which has to be rather formal and process-oriented?

Om Dutt Sharma

Posted: 6 September 2005 4:27:29 pm

I would like to comment on question 1. In Fiji there is an appropriate legal and institutional framework that substantially exists. Our legislation, particularly the Commerce Act and Public Enterprise Act gives the Government agencies broad regulatory mandates to scrutinise power expansion plans, operations and transactions of the Electricity Utility. However, these regulatory agencies lack the staff and resources to be able to fully discharge their regulatory duties. This situation may not be different from most other regions of the world. I would like to know from other participants view s on how to achieve a credible regulatory system both from a consumer and investor perspective.

Sanford Berg

Posted: 7 September 2005 2:11:54 am

FUNDING COMMISSIONS: In many regulatory jurisdictions, funds for operating the regulatory body come from a (very small) surcharge on customer bills. Also, the scheme might provide a small incentive for the regulator to promote system expansion and network access--increasing the agency's budget. The incentive to just allow price (and therefore revenue) increases is blunted by the political fall-out from such actions.

In the case of Florida, this money is then transfered (by utilities) to a state trust fund that the legislature uses for funding the commission. Budget oversight remains with the legislative branch. Such an arrangement provides accountability for the use of public funds but also introduces the potential for political interference (though lengthy budget hearings and threats of budget reductions). The term "independent" regulatory commission is meant to imply that the agency implementing the law differs from the government ministry charged with policy development. "Independence" (or autonomy) cannot imply being unaccountable to citizens via elected representatives. There is no perfect funding mechanism. One task of EAPIRF, SAFIR, AFUR, ERRA , NARUC and other regulatory networks is to collect and disseminate information on agency activities, including funding--facilitating benchmarking. Such data bases can help identify inadequate financial arrangements--providing evidence that an agency's claims are not unduly self-serving.

Tony de Vera

Posted: 7 September 2005 3:04:55 am

To David Ehrhardt:

Please refer too the response of my co-moderator John Feil posted on 6 Sept 2005 @ 10:40 AM. His response reflects exactly my views. Regulatory bodies should not be funded directly by those they regulate. No matter how transparent (legally mandated) the process is, the arrangement still leaves a bad taste in the mouth.

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You will notice that all the aforesaid characteristics are a function of trained staff and/or resources. My suggestion is to get a committed and capable leader or CEO of the regulatory body, and let him stay there for a couple of years. Hopefully, he will be able to train and motivate his staff, and to find means of getting more resources. This, ideally, will provide an increasing, cyclical effect in obtaining more capable staff and more resources for the office. (and praying will certainly help!)

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