Page 8 - CE_Industral_Journal_2014

THE IMPORTANCE OF BEST PRACTICE REGULATION developments and the desired policy direction. There
TO FINANCIERS are new conditions in the energy and the electric utility
business resulting in tensions between what policymakers
want to do and where they want to see their countries go
Best practice regulation is important to financing. It is an and the existing laws and rules and regulations on the
important part of a financier’s risk assessment. Financiers energy policy side and how to move that agenda forward.
considered the regulatory regime and the political This is not unique to the energy industry. There is also
environment as intricately linked and that it is the most role confusion partly because of a lack of education and
important non-financial criterion when they were analyzing knowledge which sometimes leads to regulators wanting
risks in financing utilities and assessing a potential to set policy which is not their role and policymakers
opportunity. These two factors have a direct impact on a wanting to get involved in rate regulation although there is
utility’s earning power, cash flow liquidity, debt capacity, an independent regulator. This can lead to tension, non-
debt service ability and financial and operational stability. productivity and ambiguity and can be disruptive in the
The entire regulatory framework, have various interests long-run.
and different stakeholders, and each of which should be
considered in the regulatory processes.
Consultations between all stakeholders, the governments,
policymakers and the regulators are a critical part of the
Investors and lenders have similar interests. Investors regulatory process. The regulators must participate in
want to ensure that they receive a good return on their debates so that they can inform the policymakers and
investment and lenders want to know that the loans decision makers about the consequences of the various
principal can ultimately be repaid. Lenders also want to policy options being considered. Regulation creates a
be sure of predictable revenues; good debt servicing; cost conscious and performance culture since the utility
timely transparent governance with adequate disclosure; has to be accountable for service quality with the results
transparent tariff setting that was consistent with best of service standards being published under a regulatory
practice and rule of law and that the borrower’s assets environment. The regulator’s independence is critically
would not be compromised. The regulatory environment important to the integrity of the Regulation and also
should encourage investment thus leading to more good for the economy since a strong electricity operator
financing opportunities. Transparency is also important delivering a reliable supply was vital to a modern economy.
for commercial banks as well as multilaterals and export
credit agencies. The Caribbean Electric Utility Services Corporation

(CARILEC), the Regional Association of electric utilities
CONCLUSION has a significant catalytic role to play in the changes of the
Caribbean regulatory landscape, to include technology
The regulatory regime in the Caribbean varies and advancements, high RETs penetration and the dimensions
regulation is fairly new across the region. The introduction of the energy policy. There are many policies that can
for Renewable Energy Technologies should be promoted, benefit from oversight and guidance. The Association has
but will require Government support, such as land already been involved in policy development which is very
acquisitions and fiscal incentives. In addition, realistic useful in the overall process; however the Association is
targets should be set. There is scope for improvements serving a very wide constituency including small and large
and revisions in the regions regulatory regimes that will utilities; government owned and investor owned - which
need adequate research to inform public policy to be results in significant challenges, with limited financial and
proportionate and appropriate to the realities of the human resources. Nevertheless, the Association can offer
Caribbean region. There should be a regional approach consistency to the electricity industry, provide support to
to regulation as there is no critical mass in smaller energy policies effectiveness, provide good facilitation that
countries to enable regulatory agencies to perform their will encourage greater stakeholder involvement, and guide
roles effectively and efficiently; as such, ECERA is an ideal governments in developing and deploying a good energy
framework to leverage consolidation of resources. policy through stakeholder involvement. CARILEC in
collaboration with the key stakeholders can lobby to bring
Many laws and regulations are lagging behind the technical consistency across the region’s regulatory environment.

INDUSTRY JOURNAL 6