As private capital is increasingly invested in utilities across the globe, the issue of regulation and its inferace with different types of government, culture and society has become every more complex. This article focuses on the design of regulatory systems outside the US and the UK. With references to current practice in many countries, the author argues that formal regulatory independence and accountability is not always a necessary condition for effective regulation (though where feasible and effective it carries potential economic benefits). On the other hand, he also argues that an informal or advisory regulatory system may work better in some situations. In all circumstances, informal accountability and a clear understanding of the “rules of the game” are crucial for effective regulation.
The paper reviews a number of studies of the effectiveness of utility regulatory agency and governance arrangements for the electricity industry, particularly for developing countries. It discusses governance criteria and their measurement, both legal frameworks and surveys of regulatory practice. It also discusses the results from econometric studies of effectiveness for regulatory agencies in the electricity and telecommunications industries and compares these with the results from econometric studies of independent central banks and their governance. The paper concludes with a discussion of policy implications and also of priorities for information collection to improve understanding of these issues.
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