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The traditional separation of regulatory powers

FSR Topic of the Month

Competing Architectures for Regulatory and Competition Law Governance

by Peter Alexiadis and Caio Mario da Silva Pereira Neto

In this Topic of the Month, we will turn to the notion of energy governance, both within and beyond the EU, and consider how regulation and competition law function as competing governing tools. The two authors for this month will be Peter Alexiadis, a partner at Gibson Dunn & Crutcher LLP and part-time professor at King’s College London, and Caio Mario da Silva Pereira Neto, a professor at FGV Law School São Paolo, Brazil and partner at Pereira Neto – Macedo. Each week, they will take a look at a different angle of this topic and weigh the effectiveness of these two governing methods.

The first post will focus on the division of regulatory powers, the second will turn to the future of regulation, the third will consider the notion of a ‘super-regulator’, and, finally, focus on the importance of the independence of regulators.

The traditional separation of regulatory powers

The overwhelming number of OECD countries (including those of the EU) have institutional architectures which establish: (1) more than one specialist ex-ante regulatory agency; and (2) an ex-post competition enforcement agency that is distinct from those regulatory agencies.

Among the specialist, sector-specific regulatory agencies, the institutional pattern that is most often relied upon is that of:

  1. a sectoral regulator or National Regulatory Authority (“NRA”) covering electronic communications (or telecommunications) matters, whose mandate often extends to postal services and, on occasion, to issues relating to broadcasting or “content” from various media sources more generally (although this latter type of authority is much more controversial, given the cultural dimension to any such form of regulatory intervention); and
  2. a sectoral regulator covering energy issues (electricity and gas) which, on occasion, includes jurisdiction over other basic commodities or classic ‘utilities’ such as water and sewage.

The principal rationale for drawing the distinction between these two main groups of sector-specific regulators is the fact that the telecommunications and postal sectors are characterised by the existence of a monopoly or bottleneck network element at the local customer service point (e.g., the so-called local loop), while there are real possibilities for competition at ‘core network’ level (especially in the case of telecommunications). By contrast, it is widely acknowledged that the electricity and gas (as well as water) sectors are all characterised by the existence of physically unavoidable central networks (often along with local distribution networks).

There are, of course, other sector-specific regulators which deal with industries as diverse as transportation (civil aviation, railways, ports and roads), banking, insurance, payment systems, etc., which have their own idiosyncratic characteristics, which are driven by many other public policy considerations. For example, the commercial impact of new technologies has led to policymakers being put under pressure to expand the scope of traditional telecommunications sector regulation into areas that are more associated with specific types of content.

In addition, there is a range of institutional options to achieve the formal allocation of powers between sector-specific regulators and competition authorities. A clear differentiating factor between sector-specific regulation and competition law – at least in theory – is the widespread belief that the former can pursue a range of public policy goals that are able to shape an industry, whereas competition rules are there to apply rational economic theory across all commercial sectors with a view to maximising consumer welfare. The debates within the competition law family turn largely on whether the optimization of consumer welfare is to be appraised in the short term or in the longer term, whether overwhelming emphasis is to be placed on price considerations, whether a broader total welfare evaluation is the preferred alternative standard to be applied, and whether the maintenance of competitive structures is more important than the protection of individual competitors.

 

Note:

For a more in-depth study on this topic, you can read Peter and Caio’s recent FSR Research Report on the issue, available here.