Assessment and recommendations

Since its creation in 1999, the Commission for Regulation of Utilities (CRU) has successfully developed and implemented major policy reforms for the benefit of Irish consumers and the country’s economy.1 As a result, for example, it currently oversees fully competitive electricity and gas markets in Ireland as well as an all-island single electricity market with the Utility Regulator in Northern Ireland. The regulator has helped achieve these policy goals while building cordial relationships and effective co-ordination and communication mechanisms with sector stakeholders. The CRU is acknowledged across government, parliament and industry as a technically capable and professional regulator, a reputation that it enjoys both at domestic and EU level. The regulator has also implemented actions to improve its internal management processes in line with best practice; some of these are on-going.

As the regulator continues to lead on the implementation of complex projects in a rapidly changing, uncertain and highly political context, its institutional and organisational capacity to operate effectively needs to be bolstered through an upgrade of some of its external and internal governance functions, including strategic planning and human resources management mechanisms. The delivery of complex policy objectives (water regulation, smart meters, and cross-border power markets) in rapidly transforming energy and water sectors calls for bolstered processes and legitimacy. This should start with the identification of priorities, their communication as well as the consolidation of the regulator’s de facto independence, that could be supported by a wider effort towards better understanding of de jure and de facto independence within the context of the Irish government. This stronger institutional identity could help the CRU fill a gap in its autonomy with regard to attracting and retaining human resources, which is likely to become a greater challenge as the economy recovers. It would also complement the financial autonomy the CRU already enjoys. In this context, the regulator can use its upcoming three-year Strategic Plan exercise as a guiding framework for setting its priorities and creating a stronger accountability and resources-to-results framework, which would include setting up a more structured and predictable relationship with Parliament. In addition, building on its reputation as economic and safety regulator, the CRU could use this opportunity to bolster its processes and practices to aim high with regard to the proportional and targeted use of good regulatory practices. This could provide the basis for contributing to the advancement of the Better Regulation agenda in Ireland, and build alliances with other economic regulators.

These changes and reforms are not “nice to have” improvements. Rather, they should be seen as a comprehensive and necessary reform package that will enable the regulator to enhance its performance, stand up to future scrutiny and ensure that the multiple challenges it faces are adequately addressed.

Role and objectives

The CRU is an independent multi-sector regulator with a range of economic, customer and safety functions and duties that have gradually increased over the years. Since the creation of the agency in 1999, its sectoral responsibilities have been gradually expanded from the electricity sector to encompass gas (2002), energy safety (2006) and economic regulation of water (2013). The decisions to broaden the CRU’s areas of responsibility have been motivated by a positive assessment of its regulatory performance and its capacity to absorb functions in new policy areas, as well as in response to energy regulatory obligations of European legislation. The CRU currently holds a variety of functions across sectors that are at different stages of development and maturity, several of which feature state-owned companies (Table 1).

Table 1. Overview of CRU functions and regulated sectors

Sector

CRU function

Market structure

Electricity (since 1999)

  • Grant licences for electricity generation and supply, transmission system operation, and transmission and distribution asset ownership licence

  • Authorise construction of generation stations

  • Provide access to electricity transmission and distribution systems

  • Monitor and regulate competitive wholesale and retail markets

  • Oversee rights and obligations of electricity undertakings in the all-island Single Electricity Market (SEM)

  • Regulate revenues that can be recovered by network companies

  • Calculate and certify annual Public Service Obligation (PSO) levy for generation from sustainable, renewable and indigenous sources

  • Inspect, review and collect information from regulated entities

  • Advise the Minister on electricity generation and on the exercise of ministerial functions under the relevant legislation

  • Full market opening (competition) in 2005

  • Single Electricity Market established in 2007

  • Prices in business market segments deregulated 2010

  • Prices in domestic market segment deregulated 2011

  • State-owned companies currently active: ESB (including subsidiary Electric Ireland), ESB Networks, EirGrid, Bord na Móna

Gas (since 2002)

  • Grant licences to ship and supply natural gas, and gas transmission and distribution asset ownership and operation

  • Provide access to gas transmission and distribution systems

  • Monitor and regulate competitive development of gas supply

  • Monitor and regulate competitive gas retail market

  • Set tariffs for gas transmission and distribution operated by Gas Networks Ireland

  • Regulate revenues that can be recovered by Gas Networks Ireland

  • Inspect, review and collect information from regulated entities

  • Full market opening (competition) in 2007

  • Prices in business market segments deregulated 2011

  • Domestic market (Bord Gáis Energy) prices deregulated 2014

  • State-owned companies currently active: Ervia/Gas Networks Ireland (GNI), ESB/Electric Ireland – gas retail supplier

Energy safety (since 2006)

  • Regulate gas network safety including transmission and distribution systems

  • Regulate petroleum (oil and gas) safety, including exploration, extraction and decommissioning (onshore and offshore) safety

  • Design and oversee safety supervisory schemes for electrical contractors and natural gas & LPG installers

  • Set programme of audit and inspection of regulated entities

  • Issue safety permits for petroleum activities and safety licences to LPG undertakings Promotion and public awareness of electrical and gas safety issues

  • Currently 2 sets of petroleum safety permit holders: the Kinsale Gas Fields (decommissioning in 3 years) and the Corrib Gas Field (incipient)

  • 23 natural gas and LPG undertakings have presented safety cases to the CRU as at March 2017

  • 2971 registered gas installers and 4213 registered electrical contractors in Dec 2016

Water (since 2013)

  • Regulate the economic provision of water services by Irish water

  • Advise the Minister on water policy and service developments

  • Specify minimum standards of service by Irish Water

  • Protect the interests of water consumers

  • Approve, reject or modify codes of practice on standards of performance by Irish Water

  • Direct Irish Water to comply with approved code of practice

  • Provide dispute resolution service to customers of Irish Water

  • Prior to 2013, 34 local water bodies in 26 counties

  • National water utility company Irish Water established 2013

  • Start of residential water metering program 2013

  • Residential water tariffs introduced 2015

  • Residential water tariffs and metering program suspended 2016

  • Expert Commission and Oireachtas review on water funding issues and metering, recommendations 2017

  • State-owned companies currently active: Irish Water

The CRU is governed by a series of sector-specific laws that have been amended over the years in response to sector evolutions and EU directives, resulting in a complex and at times fragmented legislative landscape. The CRU’s objectives and functions are defined in three legislative texts for the electricity sector, one for gas, four for energy safety and four for water.2 The existence of parallel legislative texts that have been modified repeatedly over the years (26 times in the case of the Electricity Regulation Act of 1999) are seen to stand in the way of a clear understanding of the CRU’s objectives and their order of priority. As of the end of 2017, the Department of Communications, Climate Action and Environment (DCCAE) has already committed to a review of the legal and institutional framework for the regulation of electricity and natural gas markets, including the CRU’s mandate and resourcing.

The gradual increase in the CRU’s sectors of responsibility and functions as well as the complex legal framework complicate or even obfuscate understanding of the CRU’s priorities by stakeholders and the regulator itself. The CRU’s areas of responsibility in the energy sector have increased over the years, creating potential confusion and conflict in certain areas over priorities. For instance, the CRU is responsible for promoting new businesses by issuing licences for gas and electricity undertakings, and at same time, regulating safety in the same sectors. Noting this potential conflict of interest, the ALARP (“as low as reasonably practicable”) Guidance Part of the Petroleum Safety Framework and the Gas Safety Regulatory Framework, requires the CER to undertake a detailed assessment demonstrating that safety risks are managed to an appropriate level (including the costs of implementing the necessary safety measures). In cases where the outcome of such an assessment is inconclusive, the ALARP guidance requires the application of a Precautionary Principle is applied to assessment decisions, whereby “safety is expected to take precedence over economic considerations” and that “in this decision context, the decision could have significant economic consequences to an organisation in conjunction with the safety implications” (ALARP 2016, 18). Additionally, since 2013, the regulator has been operating as a multi-sector economic and technical regulator. These changes in the regulator’s mandate are made more complex by the rapid transformation of the energy sector, large investments needs in a highly politicised water sector and uncertainties following Brexit. In addition to reviewing the legislative framework for electricity and gas regulation, there is need for more assertive setting and public communication of priorities, including any trade-offs, by the regulator.

The CRU is an independent regulator under the aegis of two Departments that are responsible for setting policy that guides the regulator’s activities. The CRU operates under the aegis of the DCCAE for its energy (including energy safety) functions and, since 2013, the Department of Housing, Planning and Local Government (DHPLG) for the economic regulation of water. The two Departments are responsible for setting sectoral policies that frame CRU operations. The CRU formally provides annual work plans to the two Ministers and annual reports to the Oireachtas, the Irish Parliament, via the DCCAE who lays it before the Oireachtas. This channel of communication reflects the requirements of the legislation for the communication of such documents to the Oireachtas rather than any formal approval or appraisal of the documents by the Departments. The existence of two parallel channels of communication (via two Departments) to other parts of the Irish public administration since 2013 occasionally results in duplicated work for the CRU, in particular with respect to resource management.

The CRU shares cross-jurisdictional responsibilities for regulating the all-island Single Electricity Market (SEM), covering Ireland and Northern Ireland, and is in progress to link up with EU countries in an Integrated Single Electricity Market (I-SEM), raising questions for the future of the market in the context of Brexit. The SEM/I-SEM is regulated by the SEM Committee (SEMC), which comprises representatives from the CRU and Utility Regulator (UR) of Northern Ireland, along with independent members. In response to recent European legislation to create a single wholesale electricity market across Europe, the SEMC is currently working to redesign the SEM to facilitate coupling with the electricity market in the rest of Europe. The future evolution of the regulatory governance of I-SEM and its alignment with the European market will need to take into account the impact of the United Kingdom leaving the EU.

As economic regulator the CRU has successfully delivered the deregulation of Ireland’s retail electricity and gas markets. Electricity and gas retail markets have been fully deregulated between 2005 and 2014 and the CRU no longer regulates prices in these sectors. Regarding electricity networks, the CRU regulates the level of revenue which the monopoly electricity Transmission System Operator (TSO) (EirGrid), the monopoly Transmission Asset Owner (TAO) (ESB Networks) in Ireland and the monopoly electricity Distribution System Operator (DSO) (ESB Networks) can recover. In gas the CRU regulates the level of revenue which Gas Networks Ireland (GNI), the gas Transmission System Operator (TSO) and gas Distribution System Operator (DSO) can recover. Electricity Transmission and Distribution revenues are set by the CRU and reviewed every five years. These revenues are collected by the TSO and DSO from charges to energy suppliers using the networks, who may in turn choose to pass on the costs to their customers. Gas Transmission and Distribution revenues are set in the same manner as electricity network revenues.

The reform of the provision of water services is an ongoing challenge for the government and a highly politicised issue in Ireland. Attempts to improve the efficiency of water service delivery by consolidating 34 local water service providers into a single water services authority, Irish Water, and introduce domestic water charges have been heavily scrutinised by the media and public. At present, the costs of providing domestic water services continue to be funded by the government and regulated by the CRU. Current legislation provides that the CRU has authority to review and approve or refuse to approve Irish Water’s “water charges plan” in light of its analysis of Irish Water’s investment plan and other costs.

The CRU carries out different types of inspections and has a range of safety enforcement powers. The CRU carries out annual Audits of licenced electricity and gas Suppliers to monitor compliance with the Supplier Handbook; the most recently published audit report was the 2016 CRU Audit of Compliance with the Code of Practice on Vulnerable Customers. The regulator has recently been granted sanctioning powers to fine regulated entities in case of non-compliance, but how these powers will be used is currently being defined. Up to now, the CRU can only address non-compliance through notices or, in the most extreme case, licence revocation. With regard to the CRU’s energy safety functions, the CRU defines an audit and inspection programme in its annual work programme, where topics to be reviewed are decided upon by taking into account previous audit and inspection findings, incident reports and safety case risk ratings. Where a regulated entity does not sufficiently address identified issues or non-compliance within set and agreed timelines, the CRU can take enforcement action; the regulator can also skip straight to enforcement where considered proportionate The CRU expects its inspection and compliance related activities to increase in the near future. Inspection reports and recommendations in energy safety are not made public.

The CRU enjoys a cordial and predictable (“no surprises”) working relationship with the executive and other government entities designed to contribute to more effective policymaking by the Irish public administration. The CRU is one of several economic regulators under the aegis of the DCCAE and the only economic regulator under the DHPLG. While the relationship with DHPLG is new and currently being defined in legislation and the relationship with DCCAE is of longer-standing, the CRU’s collaboration with both parent Departments is considered productive and cordial by all parties. The CRU provides both informal and formal inputs to the DCCAE and DHPLG on policy formulation and advises the Minister. CRU senior management meets with Ministers or senior management in the respective Departments on a regular basis to discuss activities and sector evolutions for the purposes of information sharing. In some instances, such as when providing feedback to EU legislation, DCCAE relies on CRU technical expertise. In the water sector, DHPLG has called on the CRU frequently to provide advice on matters pertaining to CRU duties. Given the size of the administration, personal connections between staff of CRU, DCCAE and DHPLG are prevalent and are seen to aid effective communications. Co-ordination with other government entities, such as the Environmental Protection Agency (EPA), generally appears fluid and constructive.

Government counterparts and regulated entities have a positive assessment of the CRU’s capacities and its technical work, but the regulator and its work seem to be less well known by the legislature and the general public. Stakeholders in government and regulated entities present an overall positive assessment of their relationship with the CRU as well as the work of the regulator. On the other hand, the highly technical nature of the regulator’s work and the absence of outreach in plain language to non-specialists to explain the CRU’s activities and decisions undermine general understanding of the CRU’s role, functions, the results of its work and its independence. More, better targeted and less technical outreach would bolster not only the CRU’s positioning with the general public but could also add value to its relations with the Oireachtas. More accessible information on the CRU’s role, independence and technical merit could be accompanied with carefully designed communication campaigns on topics such as the continued reform of water charges or the introduction of smart meters to contribute to smoother implementation. A major campaign to communicate its role and responsibilities to the public is planned when the name change of the regulator from the Commission for Energy Regulation (CER) to the Commission for the Regulation of Utilities (CRU) is made effective (October 2017); the recent appointment of a communications manager at the CRU also supports this goal.

CRU activities are guided by multi-year Strategic Plans that focus on policy outcomes, but it is not clear how these Plans are monitored or guide decision-making. The CRU’s current Strategic Plan refers to the 2014-18 period and proposes six Strategic goals for this period (Table 2 below). Five of the six goals focus appropriately on the policy outcomes of the CRU’s mandate, serving as a compass for the CRU’s activities during this period, with one out of six goals referring to management of resources and the quality of regulatory processes. The plan attaches measures of success and implementation strategies for each goal, as well as a provision for a regular revision of the goals in rapidly evolving sectoral contexts, but it is not clear how monitoring or reviews are carried out or how they may influence decision-making. The Strategic Plan will cover three years (2019-21) for the next planning period.

The regulator’s annual priorities are expressed in yearly work programmes, but linkages between the Strategic Plan and annual priorities could be further strengthened. The CRU has begun developing annual Integrated Business Plans (IBP) to provide clear linkages between strategy, risk, resources, work plans and reporting procedures to improve project management outcomes. The CRU is also in progress to create linkages between its medium-term strategy planning with annual and quarterly work planning and reporting. However, there are still important gaps to be bridged; for example, the objectives of the IBP do not currently follow the structure of the six strategic goals, and indicators do not link back to the measures of success defined in the Strategic Plan, making it difficult to align and track a consistent progress between the two plans. This may lead to duplication of effort and inefficient monitoring, evaluation and reporting of outcomes, and learnings.

Table 2. CRU Strategic Goals 2014-18

Goal 1

TO ENSURE THAT

“energy and gas are supplied safely”

A WORLD CLASS PUBLIC SAFETY RECORD

Goal 2

TO ENSURE THAT

“the lights stay on”

SECURE ELECTRICITY SUPPLIES FROM PRODUCTION TO CONSUMPTION

Goal 3

TO ENSURE THAT

“the gas continues to flow”

SECURE NATURAL GAS SUPPLIES WITH IMPROVED DIVERSITY OF SOURCES

Goal 4

TO ENSURE

“a reliable supply of clean water and efficient treatment of wastewater”

SECURE, ROBUST WATER SUPPLIES AND WASTE WATER DISPOSAL

Goal 5

TO ENSURE THAT

“the prices charged are fair and reasonable”

FULLY COMPETITIVE RETAIL MARKETS AND WELL-REGULATED NETWORKS,DELIVERING FAIR AND EFFICIENT PRICES TO CUSTOMERS

Goal 6

TO ENSURE

“regulation is best international practice”

LIVING UP TO OUR VALUES

Source: CER (2013); “Strategic Plan 2014-18: Regulating Water, Energy and Energy Safety in the Public Interest”, Commission for Energy Regulation, Dublin.

Recommendations

  • Assert the leadership of the CRU in setting its priorities as a multi-sector economic and safety regulator. Building this stronger institutional identity should start with the identification of priorities, their communication as well as the consolidation of the CRU’s de facto independence. This effort could also build on a greater and more widely shared understanding of the CRU’s de jure and de facto independence. The CRU can embrace the opportunity provided by the definition of its 2019-21 Strategic Plan to lead a consultative and open process to define and communicate its priorities, including any trade-offs, consolidating its de facto independence into its strategic planning exercise.

  • Set up the next Strategic Plan (2019-21) as the guiding framework for all of the regulator’s planning, resourcing, prioritisation, monitoring and reporting activities. To fulfil this role the Plan will need to include a clear baseline and monitoring and reporting arrangements of targets that can then be further broken down in annual work plans including data on estimated financial and human resources required for implementation. Aligning annual work plans and reporting and results (including performance indicators) to the widely consulted and agreed Strategic Plan would make planning, monitoring and reporting more efficient, would create a more coherent storyline for the CRU’s communications around its results and impact and finally, would contribute to a better understanding of the linkages between the CRU’s human resources and its ability to deliver results. The Plan should also be costed and operationalised by more detailed costed annual integrated business plans over time.

  • Strongly advocate for the rationalisation of the CRU’s legislative framework in the energy sector and contribute to any process initiated for that purpose. A careful review and reform of the legislative texts that govern CRU objectives and functions would support a stronger identity and clearer priorities for the regulator and stakeholders at large. This rationalisation of energy legislation is an important objective of the CRU.

Box 1. Corporate strategy and annual forward work programme of OFGEM in the United Kingdom

In light of its statutory duties, OFGEM has developed a corporate strategy that sets out, amongst other things, OFGEM’s mission, outcomes, regulatory approaches, priority activities (OFGEM, 2014). OFGEM has also separately published regulatory stances, which are principles which it had regard to in developing policy within the limits of its statutory duties (OFGEM, 2016a). These regulatory stances are:

  • Promoting effective competition to deliver for consumers

  • Driving value in monopoly activities through competition and incentive regulation

  • Supporting innovation in technologies, systems and business models

  • Managing risk for efficient and sustainable energy

  • Protecting the interests of consumers in vulnerable situations

In the context of its corporate strategy, OFGEM establishes an annual forward work programme. OFGEM initially publishes a draft forward work programme, and then seeks submissions on this work programme, which then considers finalising the forward work programme (for example, OFGEM’s draft Forward Work Program for 2017-18 was released for consultation on 19 December 2016, with submissions due on 15 February 2017, and the final work program due to be released in March 2017 (OFGEM, 2016b).

The draft forward work programme for 2017-18 sets out key initiatives, within which the draft forward work programme identifies specific pieces of work that OFGEM considers will deliver the greatest benefit to consumers given its resources. The initiatives in OFGEM’s draft forward work programme for 2017-18 are (OFGEM, 2016b):

  • Enabling a better functioning retail market

  • Facilitating the energy transition

  • Learning from the first RIIO framework and setting RIIO-2 up for success

  • Introducing competition in monopoly areas

  • Becoming an authoritative source of quality analysis

The forward work programme also sets out OFGEM’s budget for the period, and includes regulatory and e-serve performance indicators and deliverables for each of the pieces of work under the initiatives.

Source: OFGEM (2014), “Our Strategy”, https://www.ofgem.gov.uk/sites/default/files/docs/2014/12/corporate_strategy_0.pdf (accessed 4 April 2017), OFGEM (2016a), “OFGEM’s regulatory stances”, https://www.ofgem.gov.uk/publications-and-updates/ofgems-regulatory-stances (accessed 4 April 2017), OFGEM (2016b), “Forward Work Programme 2017-18”, https://www.ofgem.gov.uk/system/files/docs/2016/12/draft_forward_work_programme_2017-18.pdf (accessed 4 April 2017).

  • Build more transparency into some of the informal information-sharing and co-ordination channels with the executive and the legislature. It is positive that there is fluid communication between the CRU, Departments and the Oireachtas. However, whenever possible and appropriate, there would be merit in communicating more proactively on meetings with the Department or the Joint Oireachtas Committees, for example, on issues concerning long-term trends and challenges in the sectors overseen by the CRU. This could include communicating that a high-level meeting with the Department or the Joint Oireachtas Committee has occurred and topics that were discussed, via enhanced CRU communication channels and social media. This would contribute to inform stakeholders and enhance CRU overall accountability framework and identity as independent regulator.

  • Design, resource and implement a comprehensive communications strategy for the CRU. This communications and outreach strategy would seek to build in strategic communications into all of the regulator’s activities and would aim to increase understanding of the CRU’s role and functions, the results of its work as well as provide information on upcoming decisions and how they will impact consumers and markets. The communications strategy should (internally) define objectives, activities and means for different target audiences (general public, the Oireachtas, the media, other relevant stakeholders within and outside government), taking particularly into account outreach to consumers and non-specialists. It should also include potential impacts on the all island single electricity market in the context of the Brexit. The change of the name of the Commission from the Commission for Energy Regulation (CER) to the Commission for Regulation of Utilities (CRU) in October 2017 offers a good opportunity to re-position the CRU’s communications activities.

  • Assess if any mechanisms or duties of the CRU could be outsourced to third party providers, with the CRU maintaining responsibility for quality and oversight. For areas that could be outsourced, a register of pre-approved third parties could be set up to facilitate contracting. The exercise may also lead to the identification of duties or mechanisms that are obsolete or could be automated, and could further alleviate CRU workload.

  • Continue developing a risk-based approach to enforcement across all regulated sectors. The OECD Best Practice Principles for Regulatory Policy on Regulatory Enforcement and Inspections (2014) propose as their third principle risk-focus and proportionality, whereby the frequency of inspections and the resources employed should be proportional to the level of risk and enforcement actions should be aiming at reducing the actual risk posed by infractions. Although this is already the practice concerning safety case for offshore operations, it could be applied virtually to all inspection related activities.

  • Pilot joint safety risk assessments inspections with other regulators. This would alleviate the burden on the regulated sector and activate synergies with other regulators in the energy and water sectors (e.g. EPA).

Input

The CRU is independent in defining its budget and collecting its income. The CRU is entirely funded through levies and licence fees from regulated entities (although indirectly, levy income from Irish Water is provided for from government budget). Levies from market participants constitute the bulk of income and are defined annually on a cost-recovery basis in the 4th quarter of the year, on the basis of an estimate of CRU operating and capital budget required for the next year. The Commissioners review the proposals and formally approve the budget by 30 November of each year, and the CRU Finance team prepares and publishes all statutory instruments to enact levy orders in a timely fashion. In accordance with the regulator’s independence as provided in legislation, the CRU’s budget or levies are not reviewed or approved by the executive or legislative branches of government. The CRU collects the levies directly, which do not go through the government budget.

Sources of funding are linked directly to expenditures in the CRU budget by sector, and the multi-sector model of the regulator allows for sharing costs for certain central functions. Direct costs in the CRU budget are attributed to regulated sectors, as is staff time as per time allocated to delivery of core activities. Shared costs as well as staff time spent on horizontal or administrative functions (finance, HR, communications, etc.) are allocated transparently to each sector as per the projected headcount engaged in the relevant sectors. In 2017, expenditure per sector as percentage of overall expenditure was as follows: electricity 57%, gas 20%, energy safety 8% and water 15%.

Generally the regulator feels it is adequately resourced financially to fulfil its mandate and carry out its activities, and is able to manage financial resources autonomously. Operating on a cost-recovery basis, the CRU is able to raise sufficient funds for its activities. Over the years, increase in responsibilities has been accompanied by a proportional increase in financial resources. Moreover, based on a risk assessment, a contingency fund is defined on a yearly basis to provide flexibility to deal with potential legal challenges or costs linked to safety cases or events. Any excess of revenue in the financial year is taken into account in determining the levy for the subsequent year per sector. The CRU can carry unspent funds over to the following year’s budget without review or approval from external government entities. This gives the CRU a strong basis to act independently.

In contrast to its autonomous funding and financial management model, the CRU is constrained in the management of human resources by central government frameworks, leading to difficulties in attracting and retaining staff. The CRU is subject to caps on its headcount from the Department of Expenditure and Public Reform (DPER), as per the government Employee Control Framework (ECF), introduced as part of the public sector reforms following the financial crisis and in keeping with the central government requirement to monitor and control public sector staffing, payments and liabilities. An ECF letter is used by the parent Department(s) at the beginning of each year to confirm headcount for the coming year. Typically, the CRU would advocate for additional headcount with its parent Departments and by extension DPER when it takes on a new function, and generally has not sought to increase headcount outside of these occasions. Since 2016, the headcount has been set at 105. This is generally felt to correspond to the workload of the regulator. A greater challenge is created by the application of government salary scales and inflexible terms and conditions of hire, particularly the requirement to appoint new staff at the lowest point of each pay grade, and that are generally not competitive with the private sector. The CRU is able to assign positions flexibly within the agreed salary scales for each grade, but recruitment for the highest grades requires the presentation of a business case by the parent Department(s) to DPER, as part of the overall envelope under the jurisdiction of the parent Department (i.e. the parent Department may be obliged to make trade-offs between different entities that it oversees). This poses challenges to staff recruitment and retention, and may hinder the delivery of CRU outputs. This issue is more pronounced at the analyst level than at the senior levels, as CRU staff who have accumulated two or three years of regulatory experience become highly valuable to industry that are in a position to offer more competitive salaries. Moreover, lack of flexibility to hire temporary staff to work on emerging issues or during peaks is flagged as an issue.

In response to these challenges, the CRU has introduced ways to attract and retain staff, but reports that this is not sufficient. Recently, since mid-2016 and following a negotiation with DPER, the CRU has introduced two separate salary levels for analyst positions which allow it to recruit more senior analysts directly (previously all analysts had to start at the lowest level unless otherwise agreed with DPER through the parent Department). Moreover, the CRU offers a number of training and development opportunities for its staff, including running a graduate programme and funding educational assistance programmes to provide non-financial incentives to retain key members of staff. However, it is still reported that once more junior staff have built up their competences, they are likely to migrate to the private sector and that the CRU is unable to attract staff over from regulated entities or other organisations at appropriate levels of experience, which seems to be one the greatest challenge faced by the CRU. There is a risk that the CRU might face even greater challenges in attracting and retaining staff as Ireland’s economy and labour market continues to improve.

In addition, the CRU has implemented strategies to deal with lack of headcount or specialists by resorting to consultancy contracts to support its work at times of higher workload. The CRU is not subject to constraints with regard to external consultancies and it has been able to rely on external support for highly technical work or in case of temporary heightened work load. While the use of consultants may be preferable in the aforementioned cases, in other cases the reliance on support from temporary staff may pose problems with regard to institutional memory as well as the reputation of the regulator and the opportunity to receive unbiased and objective advice, for example, when external consultants have been leading work engaging with regulated entities.

The CRU has developed solid IT systems for external and internal data collection functions that make for effective data management practices. Externally, stakeholders when required submit data to the regulator via online platforms and reports are generated automatically for the regulator. Internally, the Integrated Business Plan is reported on a quarterly basis via an IT platform by Divisions, and monitoring reports are automatically compiled for review by the Commissioners.

Recommendations

  • Use the Strategic Plan of the CRU as the guiding framework for all of the regulator’s planning and monitoring activities, including the production a multi-year human and financial resource framework. Costing the three-year Strategic Plan will provide longer-term visibility to the CRU regarding its financial needs and the levy structure of the sectors it regulates. The first year of the three-year Plan would be translated into a more detailed budget attached to the Annual Integrated Business Plan.

  • Take full advantage of the opportunity to present a business case for the review of overall CRU headcount with parent Departments, as appropriate, following regular work force planning exercises. On foot of the three-year Strategic Plan, the CRU should approach is two parent Departments as part of one process with regard to workforce plans and staffing needs, and request that they also present their CRU case to DPER as one package, reflecting the complexity of the regulator’s multi-sector responsibilities to DPER.

  • Ally with other Irish economic regulators to advocate and make the case for the “special needs” of economic regulators in the landscape of the Irish public administration and its practices. Addressing the common challenges faced by economic regulators jointly – rather than in competition – will give more strength and credibility to messages and requests. This would include:

    • advocating for greater flexibility on salary and employment grades and the use of temporary staff;

    • exploring the introduction / maintenance of allowances or performance related pay;

    • setting up a joint graduate scheme (that could operate outside of the headcount sanction provided by DPER) and staff exchange programmes, contributing to creating a profession and culture of staff at economic regulators across the country.

  • Continue to explore and propose solutions making the CRU a more attractive employer, from flexibility within the government salary scale to non-financial rewards and career development opportunities. The CRU could monitor salary and other benefit gaps with the regulated sector for comparable positions and seek to adapt its salary and benefit scale to minimise any gaps. This would help ensure the CRU has the right quality, skills and experience to challenge the industries it regulates and deliver benefits for consumers. It could also help target training and development opportunities for different positions. The CRU should continue to advocate for greater flexibility in setting salary scales within the regulator to be able to compete with the regulated sector in attracting and retaining staff, and further develop the offer of training and development opportunities for staff. This should be based on a “total rewards” approach, which takes into consideration not only financial incentives but also non-financial incentives to attract and retain staff, including considering the satisfaction of participating in a highly valued work culture and career development opportunities within the economic regulation area.

Box 2. The establishment of an integrated system of energy regulators in Mexico

The recent energy reform that opened the oil and gas sector to private investment in Mexico in 2013 enhanced the institutional set-up of the existing economic regulators: the upstream regulator, the National Commission for Hydrocarbons (Comisión Nacional de Hidrocarburos, CNH) and the downstream regulator, the Commission for Energy Regulation (Comisión Reguladora de Energía, CRE). The reform also created a new cross-cutting technical regulator to oversee safety and environmental protection throughout the whole hydrocarbon value chain: the Agency for Safety, Energy and Environment (Agencia de Seguridad, Energía y Ambiente, ASEA).

Recently the three regulators have come together and formalised a Cooperation Agreement and a joint working group (GRUVI) around four main objectives:

  1. Planning: to share a common vision of the future and plan accordingly

  2. Operational co-ordination: to address operating priorities in a timely manner

  3. Resources: to address common necessities concerning talent attraction and retention and financial autonomy

  4. Conflict resolution: to address and resolve conflicts between regulators

Although quite recent, the GRUVI will begin yielding results shortly: the three planning divisions are sharing their independent planning exercises and are preparing to hold a joint planning session for the 2018-22 business plans ; on an operational level ASEA has been responding to both CNH and CRE operational demands as they emerge as a result of new operators entering the downstream market and the management of the newly signed contracts between new upstream operators and the State; a first round of temporary inter regulators technical staff exchange (internship programme) will commence by the Q4 of 2017.

Also the GRUVI has proven to be a good mechanism for putting together a package of statutory and legal proposals that aim at bolstering the integrated system of regulators institutional set-up and independence. These proposals are being jointly discussed with relevant government stakeholders.

Source: Information provided by ASEA, 2017.

Process

Decision-making and governing body

The CRU is headed by a Commission that acts as an executive Board, participating in regulatory as well as managerial decision-making. The three-person Commission is responsible for setting the strategic direction for the CRU, monitoring its performance, and ensuring CRU’s compliance with the law as well as the organisation’s constitution and policies. Commissioners are appointed by the Minister, usually but not always following a competitive procedure with transparent job descriptions including specific selection criteria published. Neither the process nor profile requirements are made explicit in law. Commissioners’ terms are prescribed in legislation (Electricity Regulation Act, 1999) as being no less than five and not more than seven years. Their mandates can be renewed once, for a total maximum number of years of ten. Commissioners’ terms are staggered so that no more than one vacancy should arise in any one twelve month period. The Chair of the Commission is selected by the Minister from the serving Commissioners on a rotating basis for a period of typically two to three years, but this is not prescribed. According to the Electricity Regulation Act (1999, Section 8.5), a member of the Commission may be removed by the Minister if deemed incapable through ill-health of effectively performing his or her duties or for stated misbehaviour.

Decision-making and information-sharing between the Commission and CRU senior management appear fluid and effective. The functioning of the Commission is clearly set out in its Rules and Procedures, and the Commissioners come together once a week in meetings that also include the CRU’s four directors and, where necessary, managers or other relevant staff. In the current composition of the Commission, decisions are made on a consensual basis and have not been put to a vote. Each Commissioner has lead responsibility for specific technical and managerial areas; these areas of responsibility rotate between the Commissioners ensuring a high level of engagement in the quality of decisions. Commissioners delegate authority to Directors as appropriate for technical decision-making. Higher level policy decisions and priority setting should remain the remit of the Commissioners.

Transparency and accountability

While formally the Commission is accountable to parliament, structured reporting mechanisms are weak. The Commissioners are accountable to the Oireachtas and annual reports are sent to the DCCAE, for onward submission to the Oireachtas, but there is no systematic forum for their presentation or discussion. The CRU can be called to appear to answer specific questions on an ad hoc basis by the two standing committees that it reports to – the Committee on Communications, Climate Change and Natural Resources, and the Committee on Housing, Planning, and Local Government. The Committees feel they lack in-depth technical understanding of the work of the CRU and, in addition to more structured dialogue, would welcome more opportunities to become more familiar with the CRU as the regulator has already been doing via proactive meetings with members of parliament.

The cross-jurisdictional nature of the all-island Single Electricity Market (SEM) means that there are multiple accountability mechanisms for the SEM Committee (SEMC). In light of the on-going Brexit process, it will be particularly important to regularly inform the respective jurisdictions on impacts and proposed changes to the all island single electricity market. The SEMC regulates the single electricity market and is composed of the three CRU Commissioners, three UR representatives as well as an independent member and a deputy independent member. Regulators may individually or jointly appear before relevant bodies responsible for oversight in either jurisdiction (Northern Ireland or Ireland) to address all-island matters. While there is no singular cross-jurisdictional accountability mechanism for the SEM, an All-Island Joint Steering Group provides an oversight function for the SEMC as well as helps facilitate policy consistency and implementation of SEMC decisions. The SEMC has undertaken RIA for major policy changes but a more systematic and targeted use of RIA for high-impact decisions would enhance the effectiveness of regulatory decisions and highlight potential impacts on the all island single market. This will become increasingly important as the SEM integrates into the broader European electricity market.

The CRU’s accountability framework is governed by government wide legislation and audit procedures. The CRU is governed by the Code of Practice for the Governance of State Bodies, most recently updated in 2016. The Code covers areas such as the Roles, Effectiveness and Codes of Conduct for the Board, Chairperson and Board Members; Business and financial reporting requirements; Guidance for Audit and Risk Committees; Relations with the Oireachtas, Minister and parent Departments; Remuneration, Superannuation, and Official Entitlements; and Customer Service Quality. How the updated Code would be applied to independent regulators such as the CRU is currently being defined by parent departments and being progressed by the CRU for compliance by the end of its financial year (31 December 2017). Moreover, CRU senior management and staff are held to account by other existing government-wide legislation such as the Ethics in Public Office Acts of 1995 and 2001, The CRU also has its own additional Code of conduct that sets out the values and standards that should guide behaviour, although there is no specific mechanism to monitor the implementation of the Code of Conduct. These texts, along with a requirement in primary legislation (ERA 99, schedule 1, point 8) and the Commissioner contracts of employment, foresee that Commissioners are subject to a one year cooling-off period. Similar rules do not exist for staff at the Director level or below, whose contracts are approved by DPER. CRU accounts are audited yearly by the Office of the Comptroller and Auditor General, which reports to the Committee of Public Accounts in the Oireachtas. CRU also presents its accounts to the Oireachtas via the Minister as part of their annual reporting process.

Stakeholder engagement, regulatory quality tools, and appeals

Stakeholder consultation is at the heart of the CRU’s decision-making process; it would benefit from a more strategic approach. The CRU implements a consistent, transparent and predictable consultation strategy, and provides feedback to all respondents explaining whether comments have been taken on board. In general, consultation processes are welcomed and positively assessed by the private sector. However, at times the consultation and re-consultation on decisions is felt to be excessive and could be counter-balanced by other good regulatory practices, such as engaging in the early phases of identifying the issue at stake and the various regulatory and non-regulatory options for Regulatory Impact Assessments (RIA). The CRU could also further explore more targeted and innovative approaches to eliciting the views of consumers (and not only the private sector). These approaches could include the use of behaviourally-informed experiments to identify problems faced by consumers and test possible solutions. They could include the use of social media to surveys consumers on a particular issue, as well as the use of consumer fora as sounding boards to elicit the views of consumers (and not necessarily representing them).

The uptake of good regulatory practices by the CRU can support independent decision-making and accountability. The CRU is not legally required to conduct ex ante or ex post assessments of its regulatory decisions. It has, on a pilot basis, carried out RIA in the case of major policy decisions. Carrying out such assessments and communicating on them transparently would strengthen the CRU’s legitimacy and performance management systems, and would ultimately increase trust in the regulator’s decisions and knowledge of its activities. Similarly the regulator could undertake ex post assessments of its regulatory activities, perhaps on a pilot basis, and communicate on and learn from findings for future work. The appointment of a good regulatory practices Manager to carry forward this agenda within the regulatory agency would be helpful and could help bolster the learning function internally. There may also be value in having a “devil’s advocate” approach where Commissioners are faced with difficult or more controversial decisions.

For the majority of CRU decisions, the only appeal mechanism available is through Judicial Review in the Courts. An alternative appeal mechanism for appeals relating to licensing decisions has been available for some time, although the first appeal has only recently been triggered. CRU decisions can generally be appealed by regulated entities only in the Irish Courts and typically in the commercial section of the high court, with a focus on the decision-making process rather than the technical merit of the decision itself. Industry may shy away from using this “last resort” confrontational mechanism that may, in any case, only be accessible to the bigger players as per the cost of the procedure. An alternative mechanism has been available for some time but the first appeal has only recently been lodged. This mechanism allows licensees to appeal modifications to licences, or refusal to award a licence, via an independent appeals panel established specifically for this purpose.

Internal organisation management

The CRU is structured into the Commission (formed by the three Commissioners) and four Divisions that combine technical and cross-cutting operational functions. The CRU Senior Management Team (SMT) is composed of the three Commissioners and four directors of Divisions. The allocation of responsibilities to each division is the results of both organic developments over time and the CRU’s intention to maximize efficiency and collaboration across intersection work areas. The Divisions are: Energy Markets, Energy Networks, Energy Safety and Water, with horizontal functions absorbed across Divisions, with Customer Affairs, Communications and Operations functions resting with the Water Division, and Legal resting with Energy Networks, each with a dedicated manager leading the area of work. This structure is not viewed as hindering operations under the current management, as staff appear to communicate fluidly and efficiently across Divisions. Going forward, given the evolution of workloads, eventual changes in management of the CRU and the need for specialised professional leadership for all areas of technical and corporate functions, this structure may need to be revised.

The CRU has recently introduced internal planning and management tools to improve project management outcomes, that could be better linked to strategic planning. In response to a lack of timely implementation of certain projects, the CRU has recently adapted a process for planning and monitoring the implementation of the work programme (Integrated Business Plan, IBP) that allows for automatic generation of update reports for review by the Commissioners as Divisions input the status of their projects into a central IT portal. The Plan is reviewed on a quarterly basis and links the CRU budget and resources to the monitoring exercise.

Recommendations

  • Advocate for more transparent criteria and selection process for CRU Commissioners to be published. This could include advertising positions and select nominees through an independent search committee submitting proposals to Ministries, possibly with the involvement of the Oireachtas at some stage in the process. This would contribute to a clearer independence framework for the regulator if done systematically.

  • Instate structured mechanisms for the presentation of CRU annual reports to Oireachtas standing committees. Structured and regular engagement with the Oireachtas could be structured around key milestones occurring over the lifecycle of the regulator´s planning and reporting activities. These meetings would also provide an opportunity to discuss trends and long-term challenges for the sectors overseen by the CRU in a manner that would be mutually beneficial for the CRU and the Oireachtas. These meetings would not replace topic-specific briefings, ad hoc discussions or other communications to the Oireachtas, but would strengthen the accountability mechanism and the relationship with Oireachtas and provide Members of Parliament with information and insights on issues of particular relevance for Ireland, benefitting the legislative process. As per a more targeted communications strategy, information would be presented to the Oireachtas committees in readable and accessible format. Reports and any supporting information should be shared with the Committees in advance of the hearings to allow for sufficient time to analyse information and prepare eventual questions. The regulator should aim to create a similar “no surprises” relationship that it enjoys with the Department with the legislature.

  • Strengthen reporting of the SEMC on its activities and outputs in regulating the all island single electricity market. Given the uncertain context of Brexit, regular reporting to the respective accountability authorities (for example, the JOC in Ireland) on the decisions of the SEMC and the operation of the all-island market could be beneficial to continued shared governance of the market to demonstrate the benefits of the SEM to the all-island consumer.

Box 3. The role of the parliament in the nomination and/or appointment of Commissioners in France, Italy and Mexico

France’s Commission for Energy Regulation (CRE)

The French energy code provides that Board of Commissioners of the Commission for Energy Regulation (Commission pour la regulation de l’énergie, CRE) comprises six members, while respecting parity between men and women. The President of the Board is appointed by a decree of the President of the Republic upon proposal of the Prime Minister, following public hearings and a formal opinion on the nominee expressed by the relevant parliamentary committees. Three members of the Board are also appointed by a decree of the President of the Republic, one of them upon proposal of the Minister in charge of the French Overseas Territories based on the person's knowledge and experience of non-interconnected areas. The Presidents of the National Assembly and the Senate appoints two additional members of the Board each (one based on the person's knowledge and qualifications in the field of data protection and the other in the field of local energy services).

Italy’s Regulatory Authority for Electricity, Gas and Water (AEEGSI)

The Italian Regulatory Authority for Electricity Gas and Water was established by Law No. 481 of 14th November 1995, which defines the Authority’s governance system, including Board structure, appointment mechanism, and members’ requisites. Following Law 239/2004, the Authority's Board is composed of five commissioners: the President and four members.

All commissioners are appointed by decree of the President of the Republic following nomination by the Council of Ministers on the basis of a proposal by the Minister of Economic Development. Nominations are submitted to the relevant parliamentary committees for scrutiny, and the appointment is based on a two-thirds majority vote. In 2011, following a spending review which involved all public sector, the number of Board members was reduced from five to three.

The Prime Minister nominates a Chairman, in agreement with the Minister for Communications. The nominee is subject to the binding opinion of the relevant parliamentary committees of the Senate and the Chamber of Deputies, which can hold hearings of the nominee. Following a favourable opinion by two-thirds of the members of each relevant parliamentary committee, the Chairman is appointed by a decree of the President of the Italian Republic. In 2011, following a spending review, the number of Board members was reduced from 9 to 5.

Mexico’s Commission for Energy Regulation (CRE) and National Hydrocarbons Commission (CNH)

The CRE and CNH governing councils are appointed by the Senate upon proposals made by the Executive. The hiring process for CRE and CNH President Commissioner and Commissioners is conducted through a short-list of three candidates proposed by the President of the Republic to the Senate, which chooses one of them following hearings and a vote. The shortlist is based in requirements stipulated in the Law of the Co-ordinated Energy Regulators (2014) and it is established by the Executive through informal internal consultations.

Sources: OECD (2016), Being an Independent Regulator; OECD (2017a), Driving Performance of Mexico’s Energy Regulators; information provided by Italy’s Regulatory Authority for Electricity, Gas and Water (AEEGSI) (December 2017).

  • Lead on the uptake of good regulatory practices (impact assessment, ex post evaluation, stakeholder engagement) in a proportional and targeted manner, and use these practices to foment internal learning as well as the advancement of the better regulation agenda within the Irish government. Filters and quality control checks, for example on the quality of impact assessments conducted for proposed regulatory decisions and or processes for engaging with stakeholder, could ensure that good regulatory practices are integrated into the work of the CRU. The appointment of a good regulatory practices Manager, responsible for quality control and learning and/or a clear responsibility for quality control within one of the existing units/directorates could strengthen the CRU’s practices in this area.

  • Continue to actively engage with consumers through dedicated forums, in addition to available channels for online stakeholder consultation. This active dialogue will be key in areas such as the continued implementation of the water reform, as well as the roll-out of other key programmes in other sectors.

  • Give careful consideration to the possibility of developing an administrative review process of decision-making by the regulator. The system for the review of the legality and procedural fairness of regulations, and of decisions made by bodies empowered to issue regulatory sanctions, needs to ensure that citizens and businesses have access to reviews at reasonable cost and receive decisions in a timely manner. The experience of the recently triggered appeals panel for licensing modifications and the 2013 Forfas review may provide valuable insight into how alternative appeal mechanisms could function, as well as learnings from the prior communications appeal panels.

  • Map current and future corporate functions and needs (linked to legal, human resource, finance, communication) and identify best organisational structure and resources to support them, in line with work force planning exercises. The current internal organisation model of the CRU operates well, but this may change according to evolutions in workload, leadership and personnel. The internal organisation model should take into account the need for dedicated specialised leadership in all technical and corporate areas of work of the regulator. Any identified gaps should be addressed to DPER via the parent Departments, built on a Business Case for the regulator’s impact and results.

Output and outcome

A large amount of data is requested and collected by the CRU, which is used to inform the work of the regulator but not always to share information about sector performance in a transparent and public manner. The CRU holds the power to request and collect a large amount of information from regulated entities. In the energy sector, entities that account for over 5% of the retail market report a full set of data, those with 1-5% market share report a limited data set, and those under 1% are not required to submit any data. Industry submits data to the CRU through an online system and generally does not feel that requirements are burdensome. A broad range of data is also requested from the electricity and gas network companies in the context of price controls. In the water sector, since 2016 a Framework of reporting performance Metrics has been defined for Irish Water. Irish Water will begin submitting information which will be reviewed and published by the CRU for the first time in 2017, allowing for the creation of a sound baseline for performance in due course. It will be essential for the CRU to have similar data collection rights in the different sectors under its responsibility for it to effectively carry out its mandate.

CRU activities are guided by multiyear year Strategic Plans that focus on policy outcomes, but it is not clear how these Plans are monitored or guide decision-making. The CRU’s current Strategic Plan refers to the 2014-18 period and proposes six Strategic goals for this period. Five of the six goals focus appropriately on the policy outcomes of the CRU’s mandate, serving as a compass for the CRU’s activities during this period, with one out of six goals referring to management of resources and the quality of regulatory processes. The plan attaches measures of success and implementation strategies for each goal, as well as a provision for a regular revision of the goals in rapidly evolving sectoral contexts, but it is not clear how monitoring or reviews are carried out or how they may influence decision-making. The Strategic Plan will cover three years (2019-21) for the next planning period.

The Strategic Plan is operationalised through annual work programmes with comprehensive indicators, but the strategic and operational plans are not fully aligned and the focus of the indicators could be improved. The annual IBP are elaborated internally, based on a mixture of top-down and bottom-up approach. These yearly plans follow a different structure from the Strategic Plan, with five areas that correspond to CRU internal structure rather than the six goals of the Strategic Plan. They include 34 key performance indicators (KPIs) to monitor implementation that were developed in part to respond to a requirement in the 2013 Government policy statement on economic regulation. The KPIs are quite comprehensive as they address performance of the sectors regulated by the CRU and the operations of the CRU, including indicators for mostly outputs and processes. However, the focus of some of the indicators could be improved as they sometimes mix several outputs or outcomes to measure rather than concentrating on one. Moreover, there is some misalignment of the five overall areas of the IBP from the six strategic goals of the Strategic Plan, and of the KPIs of the integrated business plan from the measures of success of the strategic plan. This may result in a duplication of efforts in monitoring or unclear reporting.

Recommendations

  • Ensure the collection of appropriate data from regulated entities to inform CRU reporting and analytical activities. The CRU holds the power to collect a large amount of data and information from regulated entities in the sectors that it oversees. The CRU should seek to enhance compliance with data submission obligations while ensuring that requests on the regulated entities and processes for submission are as streamlined as possible.

  • Use the Strategic Plan as a tool for reporting on CRU performance and results, and seize the opportunity to use the 2019-21 Strategic Plan to develop such a comprehensive and streamlined performance assessment and reporting framework. This would involve developing a baseline and reviewing the current set of indicators to link them more explicitly and directly to the high-level measures of success included in the Plan It would allow for all reporting to follow the framework set by the Strategic Plan and would strengthen the narrative and coherence of the CRU’s reporting on results, also avoiding duplication of planning and monitoring efforts. The CRU could undertake this exercise in 2018 for the elaboration of its next Strategic Plan that will cover the 2019-21 period.

  • To have a more effective performance matrix for management and steering, align the annual operational plan and its performance indicators to the goals and indicators of the Strategic Plan and ensure that performance indicators collect and provide information that can be used by management to track progress and identify issues for attention for management. This would enable streamlined strategic planning at all levels of the regulatory agency and avoid duplication of monitoring efforts. It is recommended that the CRU moves away from using KPIs which may be too granular or number-focused, and develop an appropriate set of performance indicators that more effectively measure the effectiveness and impact of the CRU’s work, both internally and for presentation to the Oireachtas and also fulfil the requirements of the 2013 Government policy statement on economic regulation.

Box 4. AEEGSI’s Performance Indicators & Assessment Framework

The Italian Regulatory Authority for Electricity, Gas and Water (AEEGSI) tracks both service quality (outcomes) and the efficiency and effectiveness of the regulatory process (inputs and outputs). The aim is to improve the regulator’s performance and the quality of the services provided to consumers.

Outcomes

The AEEGSI defines outcome indicators to design incentive based regulation and monitor the evolution of the regulated sectors. For instance, AEEGSI has been able to progressively increase the quality of supply through incentives and penalties paid to and by distributors by measuring the average duration of interruptions of electricity supply (yearly minutes of lost supply per consumer).

The AEEGSI conducts an annual review to monitor the evolution of the energy retail markets and eventually adjust regulatory provisions to foster competition and enhance consumer protection. The annual review uses, for instance, the HHI index (Herfindahl-Hirschman Index) to measure competition; the ratio between complaints and served customers to capture the quality of the interaction with energy suppliers; the share of consumers changing their supplier (i.e. switching rate) to track the sector’s maturity (consumers’ awareness and trust, suppliers’ proactivity and the regulatory environment). By assigning a standard cost for unit of energy not supplied, it is also possible to evaluate the direct impact on the final users through a cost-benefit analysis on the consumer side, considering incentives paid to distributors and avoided interruptions.

Inputs and outputs

The AEEGSI links the Strategic and Operational planning process to its objectives, which are assessed in terms of inputs and outputs.

For each objective, inputs are mainly determined by the costs of the employed workforce. On an annual basis, each Department defines the working hours and the relative annual costs an objective has required to be met.

During the regulatory process each deliverable may be considered an output to be associated to an objective. In order to distinguish contributions from different units, production processes have been broken down and intermediate outputs are also considered, as long as they could be identified as final products of specific phases of a process or sub-processes.

Considering the peculiarity of the regulation and the rapidly evolving regulated sectors, a quantitative estimation of output has been centred on the complexity inherent to their realisation. This feature is analysed summing indicators to be assigned in a dedicated IT information system, related to four parameters:

  • Problem solving: it is measured with reference to the necessary professional skills, the discretion applied to solving the case, as well as the ordinary or innovative feature of the case in question.

  • Effort: the intensity of the commitment sustained to bring the output to fruition, such as the quantitative dimension of the activities to be carried out, the severity of the approached internal procedure, and the intensity of the interactions with other stakeholders.

  • Co-ordination among units: the need to make use of contribution of other organisational units and from which it is possible to infer a customer-supplier relationship.

  • Time compression: the need to achieve output in a shorter time due to exogenous and unforeseen or foreseeable causes, such as the need to modify the current planning of activities.

Performance assessment is carried out analysing, for each objective, the evolution of input and output indicators through the regulatory period considered in the Strategic and Operational Plans and their correlations to evaluate the overall efficiency and identify potential improvements.

Source: Information provided by Italy’s Regulatory Authority for Electricity, Gas and Water (AEEGSI), December 2017.

  • Simplify and review performance indicators used to monitor performance and delivery of work programmes to focus on measurable deliverables on the basis of a more balanced set of IPOO indicators (input, process, output and outcome) (Figure 1). Currently, the CRU has KPIs that are multi-layered/focused, making it difficult to monitor their achievement. IPOO indicators would also need to include indicators that measure the quality of the processes currently used by the CRU and, for example, refocus some of the process indicators that are currently used towards tracking for instance measurement of accuracy, timeliness, accessibility, engagement with stakeholders, risk analysis, use of evidence.

  • Use data submitted by the industry and generated by the CRU to regularly communicate on sector performance. The preparation and communication of regular sector performance reports can be used as an opportunity to engage with industry. Such reports would strengthen the transparency of CRU activities and results and the regulator’s results framework.

  • Develop a simple dashboard of high-level performance indicators that can be used to regularly update the Oireachtas Committees on regulator and sector performance. This dashboard can use the one that is being developed for the Integrated Business Plan and be adapted to the information that Members of Parliament would be more interested in, including on key sector trends and results for consumers. Such a tool can strengthen the “no surprises” relationship with the legislature that the CRU will aim to develop and can simplify the Committees’ work in reviewing CRU performance.

  • Pursue the idea of an Output Monitoring group for the water sector which was initiated with other sector regulators but not carried out. This would help continue to build synergies between the different regulators of the sector and bring clarity to what is being delivered by Irish Water and when in terms of outputs and outcomes for customers.

Figure 1. Input-process output-outcome framework for performance indicators
picture

Note: This framework was proposed in the initial methodology for the performance assessment framework for economic regulators (PAFER) discussed with the OECD Network of Economic Regulators (NER). It has been refined to reflect feedback from NER members and the experience of other regulators in assessing their own performance.

Source: OECD (2015), Driving Performance at Colombia’s Communications Regulator, Figure 3.3 (updated in 2017), OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264232945-en.

Notes

Notes

← 1. Previously known as the Commission for Energy Regulation (CER).

← 2. Electricity sector: Electricity Regulation Act, 1999, and later the Energy (Miscellaneous Provisions) Act 2006 and Electricity Regulation (Amendment) (Single Electricity market) Act 2007; Gas sector: Gas Interim Regulation Act, 2002; Energy safety: (Gas (Interim) (Regulation) Act, 2002; Electricity Regulation Act, 1999 (as amended); Petroleum (Exploration and Extraction) Safety Act 2010 and Petroleum (Exploration and Extraction) Safety Act 2015; Water: Water Services Act 2013, Water Services (No. 2) Act 2013, the Water Services Act 2014 and the Water Services Act 2017.