Transforming the Energy Sector: Towards New Governance Structures

Abstract

Governance issues related to the energy sector are complex and are assuming increasing importance with respect to sustainability of natural resources. This paper discusses the birth of the concept of independent regulation in the US, the two streams of regulation - rate of return regulation and price cap regulation - in the developed world, and the differences in their approach. It then covers independent regulation and governance of the energy sector in developing countries, focusing on India. Though the approach to independent regulation and changes in governance of the energy sector in the developing countries have drawn on the record and performance of entities in the developed world, the challenges faced are greater and more complex given the differences in class structure and social forces in the two societies. Heavy subsidies present one such complication. Independent regulation can, however, become an important factor in maximizing the welfare of the people and in simultaneously bringing about improvements in the efficiency of an energy enterprise. Tackling the problem of fuel poverty in the developing world would dictate a move towards local governance in energy decision-making. Attaining sustainable development is another important challenge. In this respect, the developing countries have to guard against rigid actions or narrowly prescribed regulations that create actions that could harm the public. Effective regulation requires rigorous analysis. Good governance of public goods and services should be such that it effectively uses market-based instruments and prescribes desirable outcomes rather than methods or actions. Given the differences in problems faced by, and the social milieu of, the developed and the developing countries, rigorous and capable intellectual efforts are required that could result in a new paradigm of regulation and the rise of governance structures that should be rooted in the philosophy and tenets of sustainable development, unique and different from those in the developed countries.