Until this moment the topic of “energy regulatory agencies independence” has not been researched with Bulgarian perspective. The existing research on this topic from other countries could not be mechanically implemented for improving the independence of the Bulgarian energy regulatory agency – State Energy and Water Regulatory Commission (DKEVR).

1. Independence of the Energy
Regulatory Agencies
Atanas Georgiev
Assistant Professor & PhD Candidate
Faculty of Economics and Business Administration
Sofia University “St. Kliment Ohridski”

2. Contents
1. Research methodology
2. Topic Selection & Reasoning
3. Monopolies & Regulation
4. Independence of Energy Regulatory Agencies
5. Conclusions

3. Research Methodology
Document analysis
The current paper performs a research on the academic
works developed until this moment, that focus on the topic
of “Independence of energy regulatory agencies”.
The overview of existing documents is a prerequisite for
defining the existing methods for measuring regulatory
agencies’ independence and presenting them in a doctoral
thesis paper.
These methods then would be applied to the data available
for the Bulgarian energy regulator in order to define its
independence and possible measures for improving it.

4. Topic Selection & Reasoning
• The reasons for conducting this research are based on
the following factors:
– Until this moment the topic of “energy regulatory agencies
independence” has not been researched with Bulgarian
perspective;
– The existing research on this topic from other countries could not
be mechanically implemented for improving the independence
of the Bulgarian energy regulatory agency – State Energy
and Water Regulatory Commission (DKEVR);
– The goal of the current report, part of a future larger study, is to
create and implement a system of measures for benchmarking
and improving the formal and informal independence of the
Bulgarian energy regulatory agency.

5. Monopolies and Regulation
• When a single company can provide goods/services with
lower total costs than a large number of companies, a
natural monopoly exists. The existence of a natural
monopoly could be justified only in the sectors where the
costs of regulation would be less than the saved costs,
caused by the existence of a single supplier (Gilbert, R.;
Kahn, E. 1996);
• Sector regulatory agencies are a relatively new type of
public institutions - the first regulatory commission of this
type was founded in the USA in 1887 - the Interstate
Commerce Commission.
• The real rise of regulation in energy and public services
began in the 80s of the 20th century with the rise of
liberal ideas in USA and Great Britain

6. The Role of the Regulatory Body
• Regulation includes a broad set of mechanisms for:
– social control;
– interference from the state in the economy;
– and for the creation and implementation of rules with specific
goals
(Baldwin, R.; Scott, C.; Hood, C. 1998).
• Sector independent regulatory agencies (IRAs) are
usually part of the state administration
• According to some researchers (Pierce, R.; Shapiro, S.;
Verkuil, P. 2009), IRAs may be distinguished from the
executive power and the other executive agencies
according to their structural and functional
characteristics

7. Regulatory State & Regulatory Capitalism
• Some researchers as Majone point out back in 1994 that
we are witnessing a rise of the “regulatory state”.
• Regulation is one of the main forms of government, and
its spread over different sectors and states leads to the
conclusion that we are witnessing a new type of political
economy - “regulatory capitalism” (Gilardi, F.;
Maggetti, M. 2010).

8. Regulatory Diffusion
• Independent regulatory agencies currently serve a large
number of sectors in the economy. They are
balancing interests in telecommunications, energy,
financial markets, food and medication safety, nuclear
energy, they also solve antitrust issues.
• Gilardi proves the hypothesis that the founding of more
independent regulatory agencies is a diffusion process,
under which each country decides independently the
foundation of these institutions, but its decision is
however influenced by the decisions of other countries to
create sector regulatory commissions.

9. Energy Regulation in the EU
• The EU defines the role of the energy sector regulator
for the first time in 1996 (for the electricity sector) in
Directive 96/92/EC, which requires the formation of an
independent regulatory agency, separated from the
executive power and isolated from its influence.
• The role of energy regulators in the EU member-states
develops with new electricity and natural gas
legislation, incl. with the opening of an “Agency for
Cooperation of Energy Regulators” (ACER);
• Currently the electricity and natural gas regulatory body
for Bulgaria is the State Energy and Water Regulatory
Commission (SEWRC/DKEVR) – an institution,
founded in 1999 following EU and Anglo-Saxon
regulatory models.

10. Why Independence Matters
• The independence of regulatory commissions is a
source of institutional power, because it isolates their
members from partisan and political pressure and allows
them to take bolder actions.
• Its large number of members on the other hand
guarantees that decisions will be taken through a
discussion process, which will not allow hasty or
opinionated actions, but reasonable and prudent
policies
(Elman, P. 1970)

11. Defining Regulatory Independence
• Previous research on independence of regulatory
agencies (Hanretty, C.; Koop, C. 2010) points out, that
in the specialized literature two main types of
independence may be distinguished:
– de jure (formal) independence;
– and de facto (informal) independence.
• The first type depends on the mechanisms in the
legislation while the second type reflects the real
activities of the regulator
• Through their empirical studies in the last several years
Hanretty & Koop proved that formal independence is
an independent variable and neither is defined nor
defines the real independence of regulatory institutions.

12. Aspects of Independence
• There are also three main aspects of independence:
– independence from elected officials
(The influence from political power may be exercised during the
formal appointment of members of the regulatory body, as well
as during the process of budget formation for the institution);
– relations with regulated companies
(The regulated companies’ influence is the most difficult to
identify and prevent);
– the structure of the decision process
(It could be more transparent only when a large number of
stakeholders is included and when all decisions are announced
and defended publicly).
(Thatcher, M. 2002)

13. The Pressure over Regulators
• Consumers of the regulated service try to influence
decisions in order to have maximum quality at lowest
prices;
• Regulated companies target for maximizing profits and
providing the optimal according to them quantity and
quality of goods/services [P>(MR=MC) in stead of P=MC];
• Political parties in power push forward their agenda and
short-term goals achievement – they want from regulators
to keep low the prices of regulated services in order to win
more voters.

14. Conclusions
• Bulgaria’s membership in the EU poses new and very
essential challenges for the sectors of Electricity and
Natural Gas;
• A significant role in their restructuring is held by the
national sector regulatory agencies, which are a
relatively new type of administrative institutions;
• The quality of service, provided by regulatory
institutions, on its turn, depends on their level of
independence;
• Empirical research in this field could check the level of
independence of the Bulgarian energy regulatory
agency, as well as to define the needed legislative and
institutional reforms.

15. Thank you for your kind attention!
Atanas Georgiev
Assistant Professor at the Faculty of Economics
and Business Administration, Sofia University
email: ageorgiev@feb.un-sofia.bg
mobile: +359 888 466 450