Presentation on theme: "OHR/OECD Conference on Regulatory Governance and Network Industries. Holiday Inn Sarajevo April 19 2002."— Presentation transcript:
OHR/OECD Conference on Regulatory Governance and Network Industries. Holiday Inn Sarajevo April 19 2002
Competition and Regulation in Public Utility Industries. Patrick Massey CompEcon Limited www.compecon.ie
The Problem Regulation and competition are rhetorical friends and deadly enemies: over the doorway of every regulatory agency.....should be carved: Competition Not Admitted. (G.J. Stigler, "First Lecture", in M.F. Cohen and G.J. Stigler, (1971), Can Regulatory Agencies Protect Consumers?, Washington DC, American Enterprise Institute)
Regulatory Failure. Regulatory Capture Downtown Office Syndrome Information Asymmetry Problem Bureaucracy
De-Regulation or Regulatory Reform Competition wherever possible - Regulation whenever necessary.
Competitition Issues in Public Utilities. Potential for Abuse of Market Power Due To: Natural Monopoly Features Former Monopoly Position of Incumbent Vertical Integration.
Role of the Regulator. Aid New Entrants Protect Consumers Promote Competition
Aiding New Entrants - Access to Networks 1. Vertically integrated incumbent has an incentive to discriminate against new entrants through: Outright Refusal Excessive Pricing Quality of Access
Aiding New Entrants - Access to Networks 2. Alternative is to have vertical restructuring. Independent TSO will still have market power but has no incentive to discriminate against new entrants. Promotes competition and simplifies regulation.
Protecting Consumers 1. - Regulation of Output Prices. Rate of Return Price Capping: CPI – X Incentive Regulation
Protecting Consumers 2. Horizontal Restructuring to Promote Competitive Market. Better to Restructure sooner rather than later. UK/NZ v. Austrlia
Table 1: Distribution of Electricity Generation – England & Wales Generator1989/901990/911997/98Apr-Sep 2000 National Power48.045.521.011.1 PowerGen30.028.419.614.7 Nuclear Electric16.017.417.319.6 French Inter18.104.22.168.6 Scottish Inter22.214.171.124.4 Edison ME0.50.61.45.5 New Entrant IPPs--10.313.6 Eastern/TXU--9.76.3 Magnox Electric--7.54.5 AES--0.58.1 Others0.51.0 0.7
Promoting Competition. Sometimes Explicit - Sometimes Not. Problem is that Regulators Regulate. Tend not to understand or trust markets. Find it difficult to let go.
Regulation v. Competition AT&T Case – Competition Authority broke up monopoly Oftel v. MMC Irish Competition Authority v. CER FCC in US
FCC Example And staying on the path toward competition, without quite getting there, the FCC did not need to accept any diminution of its powers that might have come with deregulation. P.W.MacAvoy (1996), The Failure of Antitrust and Regulation to Establish Competition in Long-Distance Telephone Services.
Why Restructuring is Important To confer a monopoly upon a producer is to give them the power of levying any amount of taxation on the public for their individual benefit, which will not make the public forego the use of the commodity. John Stuart Mill, (1848), Principles of Political Economy.
Role of Competition Authority Advocate Need for Competitive Restructuring – Likely to be Opposed by Incumbent and other Govt Ministries. Less prone to regulatory capture. More comfortable with market solutions than regulators Apply consistent solutions across sectors Less intrusive