Legitimacy Constraints and Strategic Interdependence Between Political Authorities and Independent Authorities in the Electricity-Market Regulation

Saturday, June 25, 2016: 4:15 PM-5:45 PM
88 Dwinelle (Dwinelle Hall)
Thomas Reverdy, PACTE, Grenoble, France; Grenoble Institut of Technology, Grenoble, France
In liberalized sectors such as electricity and gas, public planning has been replaced by a regulated market. Numerous market failures have been documented by academic economists and have encouraged the regulation of markets by independent regulatory authorities (Coen, Thatcher, 2008, 2005). The electricity market is a good illustration of regulatory capitalism (Levi-Faur, 2005). Market design and price control involve economists’ expertise (Breslau 2013), as in telecom regulation (Mirowski, Nik-Khah, 2007) or competition regulation (Dumez, Jeunemaître 1998). However, the energy sector remains deeply concerned by political debates regarding consumer buying power, energy transition, risks, and environmental impacts. In Europe, elected political authorities do not intend to abandon the regulation of markets to independent authorities (Reverdy 2014). Thus, political interventions in the organization of the sector are numerous: support of electro-intensive industry, modernization of the network, risks of supply, financing renewable-energies development and the management of electricity demand.  Political authorities have accepted the competitive logic but intend to intervene whenever they detect that the market plays against their own objectives, a situation that we can qualify as “political market failures.”

However, in Europe, the elected political authorities are dependent on national independent regulatory authorities and on the European Commission, which are searching for economic integration and rule harmonization (Djelic, Kleiner, 2006, Martino, Gilardi. 2011, Coen, Thatcher, 2008). The attempts of the government and Parliament are always subject to the evaluation of their consistency with existing legal principles and also with the requirements of economic efficiency, generally assessed by the proximity of the market rules with the Walras market model (Reverdy, 2014). Thus, these independent authorities have a relatively restrictive vision of market failures, different from political interpretation.

This communication proposes to account for the relations of dependence among the market-regulation authorities in France: government, Parliament, independent regulatory authorities, Council of State, and the European Commission. Unlike the studies describing the organizational, legal, and financial autonomy of independent regulatory authorities (Gilardi, Maggetti, 2011), we have tried to understand the interdependencies in regulatory activities by following specific controversies regarding “market failures” of the French electricity market. These controversies implied several conflicting interventions of different actors in the regulation.

We have analyzed three controversies: the controversy associated with the price of electricity, which resulted in a return to the regulated tariff for industrial customers and the redesign of the French electricity market (2003–2010); the controversy about the integration of the demand response aggregators into the electricity market (2009–2015); and the controversy about capacity mechanisms (2010–2015). For example, regarding the issue of the integration of demand-response managers into the wholesale electricity market, there were two decisions from the Energy Regulation Commission (in 2009 and 2010), a decision from the Competition Authority, three laws (in 2004, 2013, and 2015), a decision from the Council of State (in 2011), and a decision from the Constitutional Council (in 2014). 

The main contribution of this research is to explain the articulations of this newly distributed regulatory activity. Because it is impossible to separate the “technical” from the “political” dimensions of markets, various authorities are closely interrelated in regulatory activity.