Reviewing the Global Experience with Economic RegulationA Forward Looking Perspective

New Delhi, April 18-20, 2011

Economic Regulation and Antitrust Intervention: Experiences in Gas, Electricity,

and Railways in Italy

Alberto Asquer

Dipartimento di Ricerche AziendaliFaculty of Economics

University of Cagliari, Italy

Economic regulation as functional equivalent to competition and as provisional substitute to competition ('holding the fort until competition arrives').

Many industries subjected to regulation do not necessarily evolve into competitive regimes:

What is the role played by regulatory authorities in industries partially opened to competitive pressures while retaining monopolistic traits in some segments?

What is the role played by antitrust authorities, and how do they complement with sectoral regulators in steering the behaviour of firms?

Introduction

Economic regulation: various meanings (Jordana and Levi-Faur, 2004; Baldwin et al., 1998)

Different models of infrastructure regulation (Gomez Ibanez, 2003)

- Public ownership of infrastructure firms- Franchise allocation- Discretionary regulation- Private ownership of infrastructure in conjunction with liberalisation of access, prices, and quality

Three cases of regulatory regimes: gas, electricity, and railways in Italy.

Introduction

Nation-wide infrastructure,Internationally connected(Some) vertical segmentation

Incumbents' dominant positionLocal governments' ownershipNational government ownership

Franchise allocationPrice capImport quotas

Local governmentsNational governmentEnergy & Gas AuthorityENI groupLocal government-owned firmsBusiness companies

Prices relatively stable(increasing?)Investments less than expected

Tender offer competitionLong-term import contracts

Infrastructure/service delivery system features

Industry community features

Regulatory system features

Main actors

Selected performance aspects

Evaluation / Issues

The gas sector CompetitionAuthority

MandatedENI to doInvestmentplan

Nation-wide infrastructure,Internationally connected(Some) vertical segmentation

Incumbents' dominant positionLocal governments' ownershipNational government ownership

Franchise allocationPrice capGeneration quotas

Local governmentsNational governmentEnergy & Gas AuthorityENEL groupLocal government-owned firmsBusiness companies

Prices relatively high

Tender offer competitionLong-term contracts

Infrastructure/service delivery system features

Industry community features

Regulatory system features

Main actors

Selected performance aspects

Evaluation / Issues

The electricity sector CompetitionAuthority

MandatedENEL to sellto qualified customers at regulated price

Nation-wide infrastructure,Internationally connected

Incumbent dominant positionNational government ownership

LicencesPrice cap (somehow)

CIPE (inter-ministerial committee economic planning)Ministry of TreasuryFS groupBusiness companies

Prices relatively lowInvestments less than expected

Regulatory governanceTender offer competitionRegulatory independence

Infrastructure/service delivery system features

Industry community features

Regulatory system features

Main actors

Selected performance aspects

Evaluation / Issues

The railways sector CompetitionAuthority

MandatedFS to remove surcharge for ground-based SCS

Common traits: formerly state ownership of national monopolies, currently partial opening to competitive pressures with former monopolists retaining dominant or highly influential position.

Differences: electricity unbundled and relatively more open to competitive pressures, while gas and railways vertically integrated and less open; sectoral regulator for electricity and gas, no proper regulator in railways

Discussion

Electricity Gas Railways

Partial opening to competition

Some competition,esp. downstream

Modest levelsof competition

Sectoral regulator AEEG Fragmentedregulation

Interventions of the competition authority influential in all three industries – on the way incumbent operators seemed to exploit their control of monopolistic segments of the infrastructure industries for hampering the development of competitors in the competitive segments.– E.g., ENEL's potentially collusive behaviour and

contractual practices; ENI's investments in the capacity of international gas pipelines

Different attitudes of the competition authority and sectoral regulators, in part accounted for by differences in statutory roles and responsibilities.– E.g., Stove agreement in gas. → Sectoral regulator

more 'benevolent' if behaviour ensures continuity and reliability of service, at the expense of barriers to entry

Discussion

Incumbents persist having a dominant role in the regulated industries, and the lack of a 'proper' sectoral regulator may hamper advance in the liberalisation process.

Sectoral regulation, however, does not ensure that firms do not engage in anti-competitive practices. The joint action of the competition authority and sectoral regulation ensures:- competition is preserved where barriers to entry are lowered by sanctioning collusive practices,- firms in monopolistic segments do not abuse their dominant position for blocking competition in the more competitive ones.

(Sectoral regulator provides ex ante direction, while competition authority focuses on ex post anti-competitive practices)

Conclusions

Thank you for your attention