OHROECD

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OHR/OECD

• Conference on Regulatory Governance and Network
  Industries.Holiday InnSarajevoApril 19 2002

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Competition and Regulation in Public Utility
Industries.

• Patrick Massey
• CompEcon Limited
• www.compecon.ie

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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)

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Regulatory Failure.

• Regulatory Capture
• Downtown Office Syndrome
• Information Asymmetry Problem
• Bureaucracy

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De-Regulation or Regulatory Reform

• Competition wherever possible -
• Regulation whenever necessary.

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Competitition Issues in Public Utilities.

• Potential for Abuse of Market Power Due To
• Natural Monopoly Features
• Former Monopoly Position of Incumbent
• Vertical Integration.

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Role of the Regulator.

• Aid New Entrants
• Protect Consumers
• Promote Competition

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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

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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.

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Protecting Consumers 1. - Regulation of Output
Prices.

• Rate of Return
• Price Capping CPI X
• Incentive Regulation

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Protecting Consumers 2.

• Horizontal Restructuring to Promote Competitive
  Market.
• Better to Restructure sooner rather than later.
• UK/NZ v. Austrlia

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Table 1 Distribution of Electricity Generation
England Wales
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Promoting Competition.

• Sometimes Explicit - Sometimes Not.
• Problem is that Regulators Regulate.
• Tend not to understand or trust markets.
• Find it difficult to let go.

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Regulation v. Competition

• ATT Case Competition Authority broke up
  monopoly
• Oftel v. MMC
• Irish Competition Authority v. CER
• FCC in US

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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.

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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.

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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

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• Thank You
• www.compecon.ie