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Assessing Regulatory Delivery during the Energy Transition

FSR Topic of the Month

by Jorge Vasconcelos

Regulatory Delivery: Better governance for the Global Energy Transition

Regulation, despite being a technical activity, is not at all socially neutral. Its scope and its purpose clearly depend on the political and institutional framework under which regulators operate, in other words, the politics of regulation.

Energy regulation is more than a succession of technical decisions. To be predictable and successful, sector-specific regulation needs a coherent strategy, i.e., it has to pursue a clear regulatory policy. Any regulatory policy reflects the way regulators apply their knowledge and expertise, taking into account not only the general “politics of regulation” but also all relevant sector-specific public policies. Therefore, the performance of sector-specific regulators depends not only on the quality of their specialised knowledge but also on their ability to interpret public policy in an appropriate and timely manner, translating them into a fitting, transparent and comprehensive regulatory policy.

Not all individuals and organisations possess the same depth of theoretical knowledge or the same skills in using the appropriate tools. Two regulatory agencies with exactly the same mandate and resources will deliver different results according to the technical and management quality of the respective teams. In this context, regulatory delivery is a very useful management tool in particular in times of energy transition.

“The performance of sector specific regulators depends not only on the quality of their specialised knowledge, but also on their ability to interpret public policy in a appropriate and timely manner, translating them into an applicable, transparent and comprehensive regulatory policy.”

Old and new regulatory & governance challenges

In the past, when energy-related infrastructures (electricity, gas, mobility, waste-to-energy, district heating and cooling, etc.) were organised as economic monopolies and political silos, regulation of any given infrastructure was a relatively simple exercise. The liberalisation of network industries introduced increased complexity in regulation and many examples of both well-succeeded regulatory adaptation and regulatory failure are available. In some areas (e.g. in Europe), liberalisation has been accompanied or followed by the creation of supra-State regional markets, adding another layer of complexity to both governance and regulation.

Nowadays, digitalisation and decarbonisation are reshaping economies and societies around the world. The combination of these two drivers leads to deep structural changes in infrastructures. For example, the so-called energy transition implies new ways of using existing infrastructures: reverse electricity flows in distribution lines caused by massive household photovoltaic generation; distribution electricity networks now charging electric vehicles, often doubling the served peak capacity etc.. Anticipating the needs and the impacts of such deep structural changes and embedding them in a comprehensive regulatory policy is quite challenging. Regulation must change because the underlying regulated infrastructures and the related markets are changing and will change even faster and deeper in the future.

“Full assessment of regulatory delivery implies not only analysing the consequences of regulatory action, but also of regulatory inaction”

In particular, with regards to energy regulation, it is quite obvious that the ongoing energy transition needs extensive rewiring of the old “consumers and competition” regulatory model; how this old model will be transformed into a new transitional regulatory model is less trivial. However, the real conceptual and practical difficulties should not be an excuse to delay the definition and implementation of transitional regulation. As the quote attributed to Molière goes: “It is not only for what we do that we are held responsible, but also for what we do not do.”  Therefore, a full assessment of regulatory delivery implies analysing not only the consequences of regulatory action but also of regulatory inaction.

Assessing regulatory delivery: the what, how, and why

When discussing Regulatory Delivery, the first question is “what are we assessing?”. In other words, which regulatory granularity are we considering. It could be an isolated regulatory action, a set of related regulatory actions, a regulatory style/approach (e.g. soft or non-binding regulation), the overall performance of the regulatory agency over a certain period, among other subjects. 

The second question is “how to assess Regulatory Delivery?”, from which perspective does one decide whether and how well regulation is delivering. It could be from the perspective of the use of available resources, compliance with statutes, the fulfilment of a given regulatory policy, adherence to relevant public policies, correspondence to stakeholders’ expectations, and etc. The purpose of Regulatory Delivery assessment is to understand how regulation worked in the past – or, prospectively how it could work in the future to improve regulation.

Finally, it is important to keep in mind the distinction between “output” and “outcome”. Output is “something produced” or “the act, process, or an instance of producing”, while outcome is “something that follows as a result or consequence”. In other words: an «output» is the product at the end of a process. An «outcome» is the achievement reached after that process. When assessing Regulatory Delivery both outputs and outcomes must be taken into account.

Step by step: A way forward

Regulatory Delivery assessment can be backwards-looking, i.e., based on historical data, or forward-looking, i.e., trying to anticipate the future effects of any given regulatory constellation.

Traditionally, Regulatory Delivery assessment was mainly focused on economic and legal outputs and their micro- and macroeconomic impacts. The most common forms of traditional assessment are, respectively, (i) Regulatory Impact Assessment (RIA), (ii) Cost-benefit analysis, (iii) Judicial review of agency act, and (iv) Competition law vs. sector-specific regulation.

More recently, there is a trend towards assessing other types of impacts, namely social, environmental, technological and behavioral. Moreover, there is growing interest in outcomes, as opposed to the more traditional output-oriented approach. In particular, there is increasing concern about two major topics: the empowerment of consumers and citizens through increased and enhanced forms of participation; the achievement of some sector-specific or overarching public policies (e.g. climate change).

The main goal of the online course on Regulatory Delivery is to assist those who “do” regulation to “re-think” it under the above described assumptions and boundary conditions, thus improving regulatory delivery through a culture of innovation and accountability.