[Response by Ashley Brown, Jon Stern and Bernard Tenenbaum, July 2009]
Mistakes (Sins) of regulatory commission
- Setting unrealistic benchmarks for efficiency or operational improvements;
- Unreasonably re-opening investment decisions or privatization agreements ex post (eg, following a change of government);
- Setting prices on the expectation that governments will deliver promised subsidies even when it is highly unlikely that governments can or will do so;
- Allowing growing divergence between prices and costs;
- Creating perverse incentives (eg, high returns for poor performers; socialising all efficiency gains);
- No differentiation between customer classes in terms of quality standards (e.g., rural and urban; grid and off-grid);
- Establishing low caps on power purchase prices that eliminate incentives to build new generation stations;
- Taking emergency decisions that are damaging to long-run market development (eg, on dispatch of hydro plants, or on limiting exports of electricity or fuel inputs);
- Asymmetry between price caps and price floors.
Handbook for Evaluating Infrastructure Regulatory Systems
Washington, DC: The World Bank Group, 2006.
Brown, Ashley C., Jon Stern, and Bernard Tenenbaum