Effective Regulation

Effective Regulation
Issues & Challenges for NERC
Sola Arifayan
Partner
Ikeyi & Arifayan
Outline
Context & The

Internal External
Operational Regulatory
factors factors
Principles Challenge
• The Context for • Governance and • Independence • The Key

Regulation operations • The regulatory Challenge
• Key Operational • Management & Staffing environment for • Meeting the
Principles electricity in Nigeria Challenges
∗ Structure
• Maintaining the • Accountability and • Closing
∗ Tenure Reporting
principles: remarks
“internal” and ∗ Skills Composition • Coordination of Sector
“external” factors ∗ Remuneration Policies
∗ Performance and
evaluation
• Transparency in
Decision-making
2
14-Feb-2007 www.ikeyiarifayan.com
Context & Operational Principles [1]
The context for regulation
The core regulatory function
Balancing consumer and country interests (adequate,

economic, safe and reliable supply) and investor
interests (recovery of costs and reasonable profits)
3
Context for regulation (contd)
To discharge this, and other regulatory functions effectively, NERC must :

∗ protect consumers from abuse by firms market participants
∗ support investment by protecting investors from arbitrary action by government
∗ promote economic efficiency, e.g., by allocating cost-reflective prices to market
activities
Significant challenges in achieving the above include:
∗ Social and political exigencies, which often require withholding of justifiable
price increases
∗ Investors’ awareness of political pressures and the vulnerability of their usually
large, long-term, and immobile investments
∗ Long-term nature of infrastructure investments makes creating credible
commitments difficult
Mitigation: defining and maintaining robust operational principles to
balance (and be seen to balance!) conflicting interests
4
Key Principles
Openness
Openness
Freedom
Freedom from
from of
of the
the
undue
undue political
political &
& process
process
market
market influence
influence
Independence Transparency
Using
Using appropriate
appropriate
Consistent
Consistent
instruments
instruments in
in
behaviour
behaviour across
across
response
response to
to Nigerian Electricity
market
market participants
participants
changing
changing situations
situations Regulatory
Flexibility &
& over
over time
time
Commission Consistency
(NERC)
Consultation
Communication
Information
Information to
to
stakeholders
stakeholders on
on aa Participation
Participation of
of
timely
timely &
& accessible
accessible stakeholders in
stakeholders in
basis
basis the
the regulatory
regulatory
process
process 5
Maintaining the Principles
The challenge for government, NERC and all stakeholders is to establish

processes, procedures and structures that conform to the basic operational
principles
The processes, procedures and structures are:
∗ “internal”, i.e. relating to the internal constitution and operations of NERC, and
∗ “external” i.e. relating to the Commission’s interactions with other stakeholders,
such as:
− Government
− Market participants
− Other regulators
− Consumers
6
Internal Factors [1]
Governance and operations
Broad representation in the Commission:
∗ Stakeholders (public, market participants, etc.)
∗ Different relevant professional skills and backgrounds
Appropriate balance between ‘internal’ and ‘external’ expertise
Well-defined and documented processes for decision making and
communication of decisions to stakeholders
Clear differentiation in the roles and responsibilities between
∗ Commissioners
∗ Management and staff
‘Freeing’ Commissioners from day-to-day operations and lower level
decision making
Clear need for skilled and experienced staff!

7
Management & Staffing
The electricity industry is highly complex and increasingly dynamic – NERC and
its staff must:
∗ understand the technical features of the industry
∗ draw on expertise in economics, finance and law
∗ understand the art as well as the science of regulatory decision-making
Key issues:
∗ size and skills-mix
− ratio of regulatory staff to number of service providers
− mix between administrative and professional staff
∗ NERC should be solely responsible for appointment and or dismissal of its staff: no
‘political’ appointments
∗ sector-specific experience of personnel
8
Management & Staffing (contd)
Key issues (contd):

∗ competitive salaries and conditions of employment to enable recruitment and
retention of the appropriate calibre of professionals – general civil service
conditions of employment should not apply (?)
∗ evaluation of, and accountability for performance
Transparent Decision Making
Transparency ensures legitimacy of regulatory decision-making, and counters

perceptions of arbitrary or politically motivated changes
This requires:
∗ pre-publication of internal processes for meetings and decision-making
∗ publication of decisions and the underlying analyses and rationale
∗ disclosure of interests
9
External Factors [1]
Independence
Rationale: the special challenges posed by electricity regulation, including the

critical role of regulatory discretion
Independence for utility regulators comprises:
∗ an arm’s-length relationship with regulated firms, consumers, and other private
interests
∗ an arm’s-length relationship with political authorities
∗ decision-making independence – where no entity other than a court or pre-
designated arbitrator can overrule the regulator’s decision
∗ the attributes of organizational autonomy e.g. earmarked funding and exemption
from restrictive civil service salary rules necessary to:
− underpin those arm’s-length relationships
− foster the requisite expertise, and
− counter perceptions of arbitrary or politically motivated changes 10
Independence (contd)
Key challenges:
∗ Is theoretical autonomy over-ridden in practice (e.g. through political
interference)?
∗ How much discretion should the Commission have?
∗ How should that discretion be managed to reduce the risk of misuse and thus the
cost of capital?
∗ How should independence be reconciled with accountability?
Regulatory environment
Key issues:
∗ Serious capacity and investment shortfalls across all relevant sectors
∗ Managing the interface between other (existing and potential) regulators and
agencies
∗ Making and or complying with multiyear promises: less productive decisions on
uses of resources result from uncertainties about future regulation
∗ Ongoing political commitment to the process 11
Regulatory environment (contd)
Key issues (contd):
∗ Chosen industry structure: can it sustain financially viable businesses:
- what is the level of certainty associated with revenue and costs?
- are the commercial arrangements necessary for financial viability sufficiently defined?
∗ General investment climate issues, e.g.:
- clearly defined and enforceable property rights
- the development of mature capital markets
- consistent and clear regulation of companies
- comprehensive competition policy and anti-trust measures
- independence and effectiveness of the judiciary;
- objective policy development and ongoing review
- facilitation of capital movements in and out of investments/countries;
- sound and well understood environmental policy
12
Accountability and Reporting
Accountability: the process by which performance of the regulator is

measured
Key measure: possibility of judicial review of regulatory decisions
Higher autonomy means higher accountability!
Reporting: Communicating regulatory activities and decisions to relevant
stakeholders
NERC’s independence gives it wide powers to determine scope and nature of
communications, but:
∗ until establishment of a competitive market, NERC must submit to the
Minister, yearly reports of its analysis and recommendations on the potential
for competition in the Nigerian electricity supply industry
∗ Sundry requirements for public hearings/consultations in the EPSR Act
Statutory provisions contain minimum standards: effective regulation
requires clear and consistent communication to stakeholders!
13
Coordination of Sector Policies
Shared responsibilities and overlapping of functions between NERC and other

agencies or institutions must be carefully managed
Possible overlaps:
∗ BPE – privatisation of NBUs
∗ (Proposed) Anti-Competition Commission
∗ (Proposed) Gas Regulatory Commission, etc.
Shared responsibility often leads to conflicts and co-ordination problems

Proliferation of regulatory agencies is often necessary, but costly to manage,
and may be impossible to resource from a limited local skills pool
As competition legislation becomes more common, there is an increasing need
to draw the line between sector regulation and competition regulation
14
The Regulatory Challenge [1]
The Key Challenge
“Ultimately the question is whether regulation

facilitates an appropriate balance between development
and investment outcomes: i.e. are consumer and
country benefits advanced while maintaining the
financial health of utilities and incentives for further
investment”
Anton Eberhard
University of Cape Town, South Africa
15
Meeting the Challenges
Challenge The Issue Action Steps

Paucity of Well-informed decisions Consultation and public
reliable require inputs from a broad hearings
information for and diffuse group of Twining with other
decision making stakeholders (regulated regulators
firms, consumers) who
individually have limited
incentives to provide full or
accurate information
Undue pressures Authorities often have an Securing independence of
or influences interest in promoting short- the regulator and the reform
from political term political interests, programme from diversions
authorities which may not coincide with from other government
long term interests of the policies
industry
16
Meeting the Challenges (contd)

Undue pressures or Regulated entities will seek Ensuring independence
influences from to “capture” the regulator, to through:
regulated firms ensure that the balance adequate remuneration
between consumer and detailed disclosure
producer interests is struck requirements
in their favour transparent rules and
procedures
Potential public NERC must discharge its Effective, timely and clear
disaffection with obligations in a way that communication of:
short term pains of builds public support for its regulatory decisions
the reform process role and decisions, and thus rationale for decisions
helps to sustain the reforms impact of decisions
17

Balancing price Economic tariffs must be set Determination of:
and universal and service provided at ∗ allowable costs for
service obligations efficient and sustainable recovery
levels. This may require ∗ ‘reasonable’ returns
price discrimination, but ∗ (cross) subsidies?
public expectation (and
Issuance of a multi-year

policy prescription?) is for
tariff order
uniform pricing.
Clear definition of
service expectations
Managing the . Need to: Standard contracts,
involvement and facilitate understanding and
legislation, codes,
expectations of the confidence in new trading licences and other
private sector arrangements instruments should be
address concerns relating to
developed with private
market and regulatory risks
sector involvement.
18

Transitional Issues Orderly and successful Stranded costs: Determine:
transition to a competitive ∗ quantum to be recovered
market requires from electricity
consideration of transition consumers through the
issues, e.g.: market
∗ range of mechanisms that
Stranded Costs
can be applied to recover
Timetable for introducing those costs
(retail) competition
Timetable: Need to:
∗ establish clear timelines
& milestones
∗ ensure integrity of
milestones and timelines
19
Key challenge [1]
Closing remarks
NERC must:
∗ ensure adequate consumer protection
∗ set tariffs independently of political manipulation
∗ make transparent, consistent, credible and competent decisions
∗ regularly publish its decisions to create a reliable body of precedents
∗ create incentives to improve technical and financial performance
∗ oversee new, private investment in the sector
∗ contribute to expanded access to affordable services
∗ make and comply with multiyear promises
20

Effective Regulation - Issues and Challenges For The Nigerian Electricity Regulatory Commission

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Issues & Challenges for NERC

Context & The

• The Context for • Governance and • Independence • The Key

The core regulatory function

Balancing consumer and country interests (adequate,

To discharge this, and other regulatory functions effectively, NERC must :

The challenge for government, NERC and all stakeholders is to establish

Clear need for skilled and experienced staff!

Key issues (contd):

Transparent Decision Making

Transparency ensures legitimacy of regulatory decision-making, and counters

Rationale: the special challenges posed by electricity regulation, including the

Accountability: the process by which performance of the regulator is

Shared responsibilities and overlapping of functions between NERC and other

Shared responsibility often leads to conflicts and co-ordination problems

“Ultimately the question is whether regulation

Challenge The Issue Action Steps

Challenge The Issue Action Steps

Challenge The Issue Action Steps

Challenge The Issue Action Steps

Das könnte Ihnen auch gefallen

Effective Regulation - Issues and Challenges For The Nigerian Electricity Regulatory Commission

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Originaltitel

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Effective Regulation - Issues and Challenges For The Nigerian Electricity Regulatory Commission

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Copyright:

Verfügbare Formate

Effective Regulation

Issues & Challenges for NERC

Context & The

• The Context for • Governance and • Independence • The Key

The core regulatory function

Balancing consumer and country interests (adequate,

 To discharge this, and other regulatory functions effectively, NERC must :

 The challenge for government, NERC and all stakeholders is to establish

Clear need for skilled and experienced staff!

 Key issues (contd):

Transparent Decision Making

 Transparency ensures legitimacy of regulatory decision-making, and counters

 Rationale: the special challenges posed by electricity regulation, including the

 Accountability: the process by which performance of the regulator is

 Shared responsibilities and overlapping of functions between NERC and other

 Shared responsibility often leads to conflicts and co-ordination problems

“Ultimately the question is whether regulation

Challenge The Issue Action Steps

Challenge The Issue Action Steps

Challenge The Issue Action Steps

Challenge The Issue Action Steps

Das könnte Ihnen auch gefallen

To discharge this, and other regulatory functions effectively, NERC must :

The challenge for government, NERC and all stakeholders is to establish

Key issues (contd):

Transparency ensures legitimacy of regulatory decision-making, and counters

Rationale: the special challenges posed by electricity regulation, including the

Accountability: the process by which performance of the regulator is

Shared responsibilities and overlapping of functions between NERC and other

Shared responsibility often leads to conflicts and co-ordination problems