Regulation: lessons learnt (1840-2040)
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The document discusses the evolution and future of public regulation, emphasizing the transition from traditional infrastructure monopolies to more modular, market-oriented approaches. It highlights the significance of unbundling regulation and infrastructure while incorporating incentive mechanisms, alongside the impact of digitalization and decentralization on market design. The text concludes by considering the emergence of new governance structures and competitive arenas, such as innovation sandboxes and community-based platforms.
![1- Old roots & hard bones …
From infrastructures to Public Service “GrandPa”
2- But real flesh is “Universal mass market”, framed by “Political economy”
~Investments: Where to put bridges? > Everywhere > Universal Service
~Price discrimination: How to discriminate?> Why to? > Postal Stamp
~Quality of service: How to discriminate?> Why to? > Quality Standard
~>~Technology choice & innovation: Within Universal Service & Postal Stamp?
~>~Postal stamp is average pricing> Affordability > Add Social tariffs
3- Regimes for Universal Mass Markets
Either (LOW equilibrium) Universal Public Service + private sector [Typical for
Health & Education]
Or (Differentiated Three tier Service & Tariff) [Typical old TV chains or radios]
= Basic (or) Advanced (or) Premium8](https://image.slidesharecdn.com/turinschoolglachantjmregulationlessonslearnt1840to20405sept2019-190905133931/85/Regulation-lessons-learnt-1840-2040-8-320.jpg)
Regulation: lessons learnt (1840-2040)
- 1. Regulation: lessons learnt (1840-2040) Turin School of Regulation 5 September 2019 Jean-Michel Glachant Loyola de Palacio Chair Prof. & Director Florence School of Regulation European University Institute (Florence, Italy)
- 2. 2 Good old days and… Public Regulation’s roots I’m 4 Ys old
- 3. Regulation … What’s new… & Beyond? ?? 3 Xxx years later: I’m even older
- 5. Regulation: a Lego to play… • 1- Old roots & bones: From infrastructures to Public Service “GrandPa” 1- Old roots & bones are “EU 1840 infrastructure monopoly” (or “US 1877 essential facility”) 2- > But real flesh is “Universal mass market services” framed by “Political economy” • 2- New wine in old bottle: Double unbundling + incentive regulation 1- Unbundling “Infrastructure facility” from “final services” 2- Unbundling “Regulation” from “Political economy” 3- > Then you can go to “Incentive Regulation”, face its “seams” 5
- 6. Regulation: a Lego to play… • 3- New bottle for new wine: Coordinating the unbundled + Designing the market 1- Rules for Infrastructures interact with “final services market” via “system operation” 2- “System operation neutrality” is “market design” sensitive 3- > Revenge of Ronald Coase: markets need market infrastructures; transaction <calls for> coordination • 4- Schumpeterian wave Decentraliz.+ Digitaliz.?: New needs of coordination + New tools of coordination > “innovation + new Governance” to lead? (Regulators + Indus.Modularity + PioneerEntrepreneurs + UsersComm) > spread into 5 worlds? 1-Forums ~2-Innovation Zoos (Sandboxes) ~3-Communities ~4-Platforms ~5- Outlaw Territories6
- 7. 1- Old roots & hard bones … From infrastructures to Public Service “GrandPa” 1- Old roots & hard bones are “infrastructure monopolies” (“essential facilities”) # Monopoly of essential facility: a bridge on a river (1840) # Utility for society is usage, then pricing. Monopoly price is not good for society. # Society will price monopoly: fair price for owner & fair price for users. Average Price? Marginal Price? Fixed costs? 7
- 8. 1- Old roots & hard bones … From infrastructures to Public Service “GrandPa” 2- But real flesh is “Universal mass market”, framed by “Political economy” ~Investments: Where to put bridges? > Everywhere > Universal Service ~Price discrimination: How to discriminate?> Why to? > Postal Stamp ~Quality of service: How to discriminate?> Why to? > Quality Standard ~>~Technology choice & innovation: Within Universal Service & Postal Stamp? ~>~Postal stamp is average pricing> Affordability > Add Social tariffs 3- Regimes for Universal Mass Markets Either (LOW equilibrium) Universal Public Service + private sector [Typical for Health & Education] Or (Differentiated Three tier Service & Tariff) [Typical old TV chains or radios] = Basic (or) Advanced (or) Premium8
- 9. 2- New wine in old bottle… (Double unbundling + incentive regulation) substitute to Public Service Grandpa 1- Unbundling of “Infrastructure facility”, from “final services” Infrastructures to be regulated > Final services to go to markets (B2B) or (B2C = Retail) 2- Unbundling of “Regulation”, from “Political economy” To regulate “industry unbundling” you need a (Regulator) unbundled from (Grandpa Political economy) >> Independence of regulator Like a judge, the indep. regulator tells the “Society Common Good” directly from her civil servant chair
- 10. 2- New wine in old bottle… Double unbundling + incentive regulation > substitute to Public service Grandpa 3- Then you can go to “incentive regulation” It offers 5 tools: ROR - Price Cap - Perf. Based Reg - Menu of contracts - Yardstick Competition >> Incentive regulation is “Modular Regulation”; which the best? 4- And face the “seams”: Incentive regulation has seams - think EU, US “Internal” market, in multi-level institutional frame # Regulators seams: statute rights (“able” to; “willing” to) + resources (skills & experience) # TSOs seams: TSOs have 9 tasks to perform & are influenced by 7 differentiation factors
- 11. 11 Alignment of the regulatory tools with the regulator’s abilities. Source: Glachant et al. (2013), p. 275.
- 12. 12 Decision tree to align tasks, regulatory tools and regulator’s capabilities. Based on: Glachant et al. (2013), p. 283.
- 13. TSO’s many tasks • Hardware: Transm.Own - Connection of users - Maintenance of assets - Investment: Assets&Tgy • Software: Syst.Op - Balancing (Freq/Power) - Congestion Manag. - InfoSyst: Data &Analysis - Coordin. with TSOs - Coordin. with DSOs - Coordin. with Mark.Ops 13
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- 16. 16 The EU legal framework - electricity
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- 18. 3- New bottle for new wine… Coordinating the unbundled industry … Then… Designing the market 1- Rules for Infrastructures interact <> with “final services market” >> via “system operation” 18
- 19. 19 What’s “Essential facility / Final service” coordination issue? My hotel room in Australia: Access is not only pricing >Transaction Costs Lovely Aussie plugs… seen by a continental EU visitor
- 20. 3- New bottle for new wine… Coordinating the unbundled industry… Then… Designing the market 1- Rules for Infrastructures interact with “final services market” via “system operation” It’s a sequence: Given the Infrastructures assets & used technology The chosen System Operation rules Interact with Final Services (production or delivery) This questions the Market rules: that we call therefore Market Design In fact > Infrastructure operation is “bundled” with Market operation O. Williamson: Integration via Contracts substitutes to Vertical integration; think LT contracts Gas Upstream / Downstream 20
- 21. 3- New bottle for new wine… Coordinating the unbundled industry… Then… Designing the market 2- “System operation neutrality” is “market design” sensitive 3- Revenge of Ronald Coase: markets need their market infrastructures These market infrastructures interact with infrastructure operation via system operation Electricity trade transaction <> Electricity system coordination Hard fact; any Comprehensive “Electricity Transaction” is made of: 1- Trading Energy “day-Ahead” in wholesale market 2- Looking if grid can deliver Energy Equilibrium > Network Capacity, congestion 3- Keeping Energy balanced “Real Time”> balancing with Power Reserve “Real” electricity transaction is made of 3 goods: Energy, Power, Network. “Energy only” is only an “incomplete market”, not self-sufficient 21
- 22. 4- Schumpeterian wave Digitiz.Decentriz.? Innovation wave: Digitiz (new info & control tools) + Decentraliz (new decision process for invest & operation) > Market Design & Coordination move again 1/ (Digitalization as Massive & Individual data processing) + (Decentralization of invest & operation – think “Sharing Economy”) brings “Internet & Smart Tools” inside Electricity world as 4th Industrial revolution > “Transactive Energy” You don’t believe it? El. Vehicles; self-driven cars 2/ More Decentralization creates more Industry Unbundling And a more “modular” elec. Industry Which immediately spreads into more “modular” Market Design(s) >> Electricity industry already has local “trade platforms” (Uber or Lyft ) for particular local products (see Piclo company in UK) 22
- 23. 4- Schumpeterian wave Digitiz.Decentriz.? Innovation wave: Digitiz (new info & control tools) + Decentraliz (new decision process for invest & operation) > Market Design & Coordination move again 3/ The 4th Indus Revolution “Digitiz + Decentraliz” accelerates need to change: # More micro modularity of industry Say > “Renewable Energy”, and “Prosumers” # More modularity of “Market Designs” Say > New Intermediaries as Aggregators; alternative intermediation as Platforms; or even “automated direct trade” as Blockchains; etc. # It opens new “Users Modularity”, another new world for Governance Say > “Peer-to-Peer” (individuals TO individuals; calling for new coordination) vs “Community” (fully self-organized grouping of voluntary individuals) 23
- 24. 4- Schumpeter wave Digitiz.Decentriz.? Governance “innovation / regulation” to lead? 4/ New worlds for Industry, Markets, Coordination, Regulation, Governance Already 5 competing areas: ~1- Forums Open general debate for new system-wide coordination rules ~2- Innovation Zoos “Sandboxes” for particularly advanced innovators, being put outside common regulation ~3- Communities “Users Clubs” : self-regulated territories behind closed doors ~4- Platforms “Plug&Play” new trade infrastructures designed for new products ~5- OutLaws “Behind-The-Meter”= Outside energy sector regulation. As “Device Fleet management” applied to smart: cars, appliances, buildings (California ZNC). Will end up into another enormous new world: “Internet of Things” ~6- Big e-Sisters “At the Gate” = Google, Apple, Amazon, etc. creating “Re- Integrated” alternative resorts. Irony is they can offer sort of: universal access; “postal stamp” or “Social tariff” as basic services for free 24
- 25. How to conclude such amount of novelties? #Is GrandPa so dead? # To see-smell corpses in 2024? 25
- 26. www.florence-school.eu 26 Thank you for your attention Email contact: jean-michel.glachant@eui.eu Follow me on Twitter: @JMGlachant near to 55,000 tweets My web site: http://www.florence-school.eu