Prof. Ranci, you were a lecturer at the International Summer School in Applied Environmental and Regulatory Economics, which took place in Turin, Italy, in the beginning of September. What is the role of economics education for increasing the capacity of energy regulators?
- Good regulation implies knowledge of economic choices. The public official cannot impose decisions or burdens onto companies in the name of the public interest without previous examination of the alternative ways to obtain what is in the public interest (in his view).
Of course this task becomes more complicated once the specific activity has been liberalised. Here a good acquaintance with the working of markets is required otherwise the regulator may produce more damage that benefit.

You are co-founder of the Council of European Energy Regulators (CEER) and you were its vice-president from 2000 to 2003. Why is cooperation between energy regulators in Europe important and what should be the main activities in this field?
- Energy markets are larger than nations: they are either regional or continental or global. Companies tend to reach a size consistent with the size of the markets in which they operate. Regulators should do the same but they are designed and created by the political institutions.
The political institutions of Europe are inadequate with respect to the global economy. The national level is still powerful and the Union level is developing very slowly. The European legislation has been able to impose a generalised institution of regulatory authorities at the level of member states, while European regulation is still weak.
Consequently coordination among member state regulators is necessary. This is why the CEER and then the ERGEG have been set up: coordination includes search for consistency among national rules, but also development of a common culture and approach to the issues and creation of national bureaucracies used and ready to communicate continuously and work together.

The European Commission has established a new entity – The Agency for the Cooperation of Energy Regulators (ACER). What are your expectations about its activities and what will be the role of national regulators in this new framework?
- The ACER is an important step towards the necessary structural solution which is a European regulator for energy (and the same applies to communications, transport, banking and finance).
I expect that ACER will soon adopt common codes for all European energy networks and develop common criteria (not necessarily common rules) for tariffs, investment, treatment of renewable energy sources, organisation of ETS and carbon markets.
National regulators should participate in this process, by advising ACER and by seconding their personnel for periods of time, which will benefit their own activity. Their goal is not to protect their individual competences but to promote sound regulation. It will be crucial that all national regulators feel that their own mission has been reinforced by ACER.

Energy regulation is still a new activity for some of the member states in the EU. What actions should be taken by governments and civic society in order to ensure a really independent regulatory authority for the energy sectors?
- Independence of regulators and of authorities in general (in various fields such as competition, safety, privacy, health, performance evaluation in public administrations) is essential to a democratic state. Energy regulators are one of the many institutions which should be accurately defined and protected from the interference of partial interests.
Beyond interest groups, the enemy of independent authorities is populism: the belief that all decisions should be taken by the rulers elected by the people. This is a real danger in today’s Europe. Even the long respected separation of powers, a pillar of modern governance, is often forgotten or ignorantly despised. Therefore, the independence of an energy regulator is a small but significant test of the quality of any democracy.
Practical guarantees are in the definition of powers (including collection of information, sanctioning), the mechanism of financing (better direct than via state budget), the procedure for appointment (should be non-partisan), the length of mandate (better if non renewable), the procedure of decision-making (mandatory public consultation of the parties and motivation of decisions).

During your presidency of the Italian energy regulator, smart metering initiatives started in Italy and currently the country has a nation-wide smart metering infrastructure. What should be the role of the regulator in promoting new and smarter technologies for the electricity sector?
- Enel had an interest in a massive renewal of meters to reduce thefts and losses, to defend income in presence of a tariff structure based on increasing blocks, to be first to jump into a developing business. Enel also wanted the innovation to be supported through the tariff system given its positive externalities. The regulator decided to encourage the adoption of new meters with a limited recognition of such investment costs in the tariff mechanism and required adoption of an open system to avoid precluding further innovation by competitors.
The regulator imposed a similar innovation to all other distribution companies and, later, an extension from electricity to gas.
Balance between public and private funding, generalisation of benefits and openness of technologies are the main criteria for a public regulator.

Liberalization on EU-wide level still has a long way to go. What do you expect from this process and what are the best practices that neighboring countries may use in order to encourage faster market-coupling?
- Development of organised, regulated markets (spot and medium-term) is a prerequisite for the necessary development of market coupling and enlargement of transparent markets.
Development of energy markets is useful if is it real, while the creation of large international markets for financial derivatives would be of little use per se, and possibly destabilising. To encourage real integration of markets, regulatory decisions, such as common codes for networks, will help. Also an active antitrust policy would be beneficial: the dividing line of competence should be moved away from national authorities in favour of European bodies (DG-COMP).

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Pippo Ranci is professor of Economic Policy at the Università Cattolica in Milan and former director of the Florence School of Regulation at the European University Institute in Florence. He has been president of the Italian regulatory authority for electricity and gas (1996-2003) and a co-founder and vice-president of the Council of European Energy Regulators (CEER) in 2000-2003.
He graduated at the Università Cattolica (Milan, 1961), followed advanced courses at Oxford (1964) and holds an MA from the University of Michigan (1965).