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Regulatory Models For CuraçAo
1. Regulatory models for Curaçao:
Costs and benefits of regulation
Rudi Hakvoort
Associate professor @ Delft University of Technology
Partner @ D-Cision B.V.
2. Overview
1. Energy & water regulation on small islands
the ‘where’ of regulation
–
2. The substance of regulation
the ‘what’ of regulation
–
3. Regulatory governance
the ‘how’ of regulation
–
4. Regulatory models for Curaçao
the ‘why’ of regulation
–
3. 1. Energy & water regulation on small islands
the ‘where’ of regulation
4. Electricity and water supply in small (island)
systems
• Relatively small size
• Not connected to other
systems
• Self supplying
• In general, relatively
high system costs
Regulatory models from
other countries cannot
be easily copied for
implementation on
Curaçao.
5. Applicable models
DEZ-model GOVERNMENT UTILITY
REGULATOR
DEZ+ -model GOVERNMENT UTILITY
REGULATOR
Advisory model GOVERNMENT UTILITY
REGULATOR
Independent model UTILITY
GOVERNMENT REGULATOR
7. A new task: regulation...
‘Wat?’, riep heer Bommel uit.
‘Mijn vermogen controleren? Dat
doe ik zelf wel! Daar heeft
niemand iets mee te maken!’
‘Dat vreesde ik al!’, hernam de
heer Dorknoper verdrietig. ‘De
tijden dat iemand zo kon
spreken zijn voorbij. Uw bezit
gaat de gemeenschap aan, en
die wordt door ons
vertegenwoordigd.’
Maarten Toonder, De wens-werkster
8. The four common regulatory objectives
Interests
Consumer Investor
protection protection
Efficiency
Competition Economic
advocacy efficiency
System users Utilities
9. The challenge to balance
Political interests:
· Good balance between
price and quality
· Continuity and viability
of the industry
Consumer interests:
Utility interests:
· High quality for an
· Continuity of the utility
acceptable price
· Acceptable rate of
· Transparent rate
return
system
11. Regulatory functions
Consumers Regulated monopolies
tariff setting licensing
quality standards setting incentives to approve
efficiency
incentives for energy conservations
investment approval
complaint handling
grid code
Competitive markets Other policy areas
promoting energy conservation
promoting renewable energy
management of environmental impact
implementation of subsidies
12. Regulatory instruments
Legal instruments Financial instruments
Issuing licenses Establishing the structure of tariffs
Monitoring compliance Establishing the level of tariffs
Enforcement by imposing penalties Establishing financial performance
and administrative sanctions standards (incentives)
Arbitrating disputes among Establishing a uniform (regulatory)
stakeholders and the regulated firms accounting system
Technical instruments Monitoring & reporting
Setting technical performance Monitoring customer satisfaction
standards (‘quality of supply’) Monitoring the performance of
Setting commercial performance regulated firms,
standards (‘quality of service’) ‘naming and shaming’
Approving the grid code Reporting to the appropriate
Approving investments government authority
14. Regulatory governance
Regulatory governance refers to the
institutional and legal design of the
regulatory system. It therefore represents the
framework within which decisions are made.
– Independence and accountability of the regulator.
– The division of responsibilities among the regulator,
policy maker and ministries.
– The organizational autonomy of the regulator.
– Processes for regulatory decision-making.
– Transparency of decision making.
– Predictability and speed of regulatory decision
making.
– Accessibility of regulatory decision making for
stakeholders
– Organizational structure and resources available to
the regulator.
– Judicial and nonjudicial mechanisms for appealing
regulatory decisions.
15. Regulatory governance
The system of regulatory
governance defines to a
large extent the
effectiveness and success
of regulation.
Therefore, careful
attention must be paid to
the governance aspects of
regulation.
16. Independence of the regulator
Political independence
•
– reduces the influence of short-term political pressures on regulation
– may reinforce the independence of the regulator from special interest
groups
– avoids conflicts of interest between the state as owner and as
regulator
Independence from stakeholders
•
– safeguards that the regulation is fair and does not favour one group of
stakeholders over the others
Organizational independence
•
– earmarked funding
18. Regulatory versus corporate governance
Regulatory governance Corporate governance
Tariffs Investments
Share
Stake
Utility
Regulator
holders
holders
Services Value
A balance must be found between the public interests of high-quality services at
an acceptable cost to the stakeholders and the private interests of the
shareholders, i.e. the utility providing sufficient value.
The two governance dimensions need to be mutually in balance, in order to
safeguard the viability and continuity of the company and therefore the quality
and affordability of the services provided on the long term.
19. Regulator governance criteria
Clarity of roles Transparency
• •
– There is a clear statement of the – Regulators should maintain an
regulator's functions and his open operation.
objectives in carrying out those
functions. Accountability
•
– Regulators’ decisions, which are
Autonomy
• thought to be unreasonable, can
– The regulator should stand aside be challenged in an effective
from both political and way.
commercial intervention.
Predictability
•
Participation
• – Companies need to be confident
– All relevant parties must that the ‘rules of the game’ will
contribute effectively to the not suddenly change.
regulatory process.
23. Applicable models
DEZ-model GOVERNMENT UTILITY
REGULATOR
DEZ+ -model GOVERNMENT UTILITY
REGULATOR
Advisory model GOVERNMENT UTILITY
REGULATOR
Independent model UTILITY
GOVERNMENT REGULATOR
24. DEZ model DEZ+ -model Advisory model Independent model
GOVERNMENT UTILITY
REGULATOR
GOVERNMENT UTILITY
GOVERNMENT UTILITY UTILITY
GOVERNMENT
REGULATOR REGULATOR
REGULATOR
Description Current situation Legal mandate to Proposal for the Setting of tariffs fully
DEZ to approve the tariffs prepared by independent from
tariffs itself independent office. government.
Role of the island Sets the tariffs. In the end, still Sets the tariffs. No formal role in the
government responsible. tariff setting.
Main issue Political capture of Island government How will the island Clear legal mandate
tariff setting. needs to be government both on regulatory
restrictive in evaluate the functions and
overruling decisions proposal of the processes is
of DEZ. independent office? required.
Risk of political
high medium high low
capture
Risk of regulatory
high medium high low/medium
hold-up
Amount of none internal organisation formation of a significant changes
institutional only separate entity, but
changes required
with limited powers
Cost of regulatory low low medium high
board
25. A word of warning
Although the independent
regulator model clearly has
major benefits,
implementation in a system
with institutional fragility
and weak regulatory
governance involves
significant risks.
These are related to:
1.the required time to adapt to
institutional change
2.the required transfer (and
growth) of legitimacy
3.the possible lack of stability of
the regulatory approaches
27. Starting with a regulatory contract
In principle, a system of GOVERNMENT UTILITY
REGULATOR
regulatory contracts can be
quickly implemented on
Curaçao.
This should contain the basic
regulatory requirements for the
utility with respect to quality of
service and costs.
Once such a regulatory
contract is agreed on, it may
be executed by a government GOVERNMENT UTILITY
REGULATOR
agency or some regulatory
agency UTILITY
GOVERNMENT REGULATOR
provided that the contract itself
is strictly adhered to.
28. And now...?
‘Doe iets, Ollie jongen, zei mijn
goede vader altijd. Anders laat
je niets na dan een paar vuile
sokken
Dat zei hij en daar houd ik mij
aan.’
Heer Olivier B. Bommel
29. Thank you very much for your attention!
Rudi Hakvoort
D-Cision B.V.
+31 88 18 000 81
r.a.hakvoort@d-cision.com
www.d-cision.com
