Transcript
Introduction
Thank you for inviting me to be part of this conference. It is a real privilege to be asked to speak to such a respected body of regulatory colleagues.
Today I will provide you an insight into my understanding of what makes for a world class regulator based on my current roles as a Commissioner of the Australian Competition and Consumer Commission (ACCC) and the Australian Energy Regulator (AER) and the benefit of 30 years’ experience as a regulator across many industries.
After 30 years there is one thing I can be confident about - that is that the challenges facing regulators are not getting any less!
Some of you may be familiar with the work of Professor Malcolm Sparrow, an expert in regulatory policy. He neatly summed up the pressures we face when he wrote about the competing demands on regulators:
- be less intrusive but more effective
- be kinder but don’t let them get away with anything
- be quicker but more careful
- deal with important issues but stay within authority
- be responsive but don’t get captured.
Given these competing demands, it’s hardly a surprise that across the world and across all industries, regulators are often accused of being biased, out of touch with the real world, narrowly focussed on temporary solutions and not to be trusted to get it right.
Key elements of a robust governance framework
If this is the case, then a world class regulator should be characterised by a strong reputation for being trust worthy. This means:
- being independent
- having a proper and clear purpose
- acting within authority
- having relevant expertise
- effective consultation and communications, and
- above all being transparent and accountable.
It sounds easy but how do we achieve this?
As Socrates said:
“…the way to gain a good reputation is to endeavour to be what you desire to appear.”
In my experience, a reputation for trustworthiness is only achieved through a robust governance structure that encompasses culture, people and processes, and practices that embed the principles of good governance in everyday operations.
But that isn’t enough. As world class regulators, we have to be accountable for what we say and do. We must also review, measure and report on our performance in a clear and transparent way.
Independence and purpose
What are the key elements of a robust governance framework?
The first of these is independence.
The public needs to have confidence and trust in the independence of regulators and their decisions. So, it is fundamental that the regulator be free from interference, undue influence of government of the day or political parties, and also from the sector being regulated or other vested interests.
The second key element is a proper and clear purpose. This drives the values and culture of the organisation from the highest level through to all staff.
The purpose of the organisation should be clearly reflected in its governing rules and it should flow through to its strategic priorities and be embedded in its practices and procedures.
The ACCC is an independent statutory authority and the AER, which is part of the ACCC, has its own independent board.
Commissioner appointments are made by government for a fixed term and appointees can only be removed under exceptional circumstances. Our remuneration is independently set and publically disclosed.
Funding is provided through the Federal Government’s overall financial budget which is ratified by the Parliament.
All staff of the agencies, including Commissioners, must adhere to the Australian Public Service Code of Conduct, which covers values, employment principals, and ethics.
In terms of purpose, I think it is generally accepted that regulation should be for the benefit of the public and the benefits must be clear and must justify the costs.
The purpose of the ACCC and AER is clearly stated in our legislation (the Competition and Consumer Act 2010) and that is to enhance the welfare of consumers through the promotion of competition, fair trading and consumer protection.
We have translated this into our strategic plans with the following objectives:
- to maintain and promote competition and remedy market failure
- to protect the interests and safety of consumers so that they can be confident in their dealings with businesses, and
- to promote the efficient operation of, and investment in, infrastructure in the long term interests of users.
This is then developed into a set of strategic priorities and work programs for each division of the organisation. We track our progress on these and report on the outcome with a range of performance measures – but I’ll go back to that in a few minutes.
Authority
The third key element of the governance framework is authority. To be effective a regulator needs to be trusted to do the right thing.
It not only needs appropriate powers, it also needs to be able to demonstrate that it acts within authority and appropriately uses its powers properly.
Part of this is showing that any discretion we do exercise we do so wisely, therefore:
- the regulator’s powers must be clear and widely understood
- it must only do what is required for the task – that is, if there’s no need to regulate it shouldn’t
- its process should be consistent and predictable enough to give certainty but retain flexibility to address new or different circumstances
- its decisions should be evidence based and free of bias and judgement
- where there are compliance requirements, then these are clear, well communicated and understood by all ahead of the need for enforcement, and
- where there are enforcement options, these are clear and known ahead of taking any action, they’re well communicated and understood, and proportionate to the objective being sought.
On this last point the ACCC and AER annually publish their compliance and enforcement policies, which cover the goals of enforcement, why we take action, how we give priority to matters, how we exercise our discretion and what other options we might take.
In addition, both the ACCC and AER provide a range of guidance notes to industry and consumers on their obligations and rights.
The final element in the exercise of these powers is that regulatory decisions should be open to scrutiny.
Importantly, they should be open to external review by independent bodies. In the case of the ACCC and AER, there are numerous avenues for review. These include judicial review, which essentially focuses on our processes, and merits review, which looks at whether there is a substantive error in our decisions.
Expertise
It is of course one thing to have the powers to be effective but without adequate resources, the task becomes more difficult.
Every regulator will be familiar with the argument that if we are to function as world class regulators, then financial resources must be appropriate for the task.
But, we must also develop the appropriate expertise and capabilities to meet our objectives. We must develop and maintain a strategic capacity to make sure that what we do remains relevant, effective and responsive to emerging challenges and the needs of the public.
This means having appropriate skills, knowledge and experience. It is obvious that the decision makers and those advising them must have knowledge of their purpose and powers. But they must also understand the environment in which the regulated businesses operate and the factors shaping that environment.
Now, the source of the expertise may be internal or external. At the ACCC and AER we have a mix of both. We have a large staff of analysts and advisers across a range of economic, legal, financial, engineering, and communications disciplines.
We also have an expert group of staff that provide corporate services to support our operations.
In addition to the internal resources, we use external experts for specific advice, whether it is legal, economic, engineering or financial.
The other thing I would mention is that the Commissioners themselves have a wide range of qualifications, skills and experience. Some of us have a background in the private sector and academia as well as the public sector. We have been advisors to governments and Ministers, industry groups, small and large businesses and consumer bodies.
In this respect, my own experience as a Director of a number of regulated businesses has been invaluable. It has given me a deep understanding of the practical realities of running a business and dealing with the endless stream of demands and decisions from government.
I really do believe it helps to ground our decisions in a balanced way, which could give the regulated businesses some degree of assurance that we do have some experience and understanding of the real world environment.
For this reason, I also encourage our own staff to gain a broader base of experience including working for the sort of businesses we regulate.
Consultation and communication
Of course, if we are to understand the perspectives of those that our decisions affect most, then we need to engage with them in an effective manner.
The ACCC and the AER has a number of consultative forums covering specific industry sectors, professional associations, consumer groups, and large and small business.
These committees, which usually meet 2-4 times per year, aim to provide a forum, outside of the usual regulatory processes, where our Commissioners and senior staff can listen to the views of our main stakeholders about broader and/or emerging issues.
We also undertake extensive consultation throughout our regulatory processes. This includes general approaches such as holding public forums to discuss proposals, issuing discussion papers and draft decisions and requesting submissions on these.
We have more targeted meetings, information inquiries and discussions with key stakeholders. This is all done during the development of our interim decisions and prior to our making final decisions.
We have developed service charters and stakeholder engagement guidelines. These are published and help inform our stakeholders on what they should be able to expect from us.
We adhere to the principles of open government and publish our reports and decisions on a public website as well as public versions of regulatory proposals from businesses and stakeholder submissions on those proposals. We try and make our reports as user friendly as possible and that involves different layers and avenues of reporting of the decisions.
We have received very positive feedback on our efforts to improve the way in which we consult with stakeholders.
However, I would have to say that this remains one of the biggest challenges for regulators.
Getting effective participation in a process that is increasingly complex and time and resource intensive is difficult.
For example, during the recent round of regulatory decisions on eight energy businesses, the AER received over 100,000 pages of material from the businesses alone. This included dozens of expert reports, many of which were highly technical and well beyond the reach of consumers and the majority of consumer representative groups.
Given the amount of material submitted, and our obligation to respond to each proposal, our own draft decisions covering these eight businesses ran to approximately 7,000 pages.
To help consumers have more effective participation in this process, we recently established a Consumer Challenge Panel to help in our assessments of the regulatory proposals put forward by the energy businesses. The role of the Panel is to ‘challenge’ the AER in its decision making, by:
- advising us on whether a network business's proposal is justified in terms of the services to be delivered to customers, and
- advising us on the effectiveness of network businesses’ engagement with their customers and how this engagement has informed, and been reflected in, the development of their proposals.
The Panel’s members are drawn from a range of backgrounds including economic regulation, energy networks and consumer representation.
We are still in the process of making our final decisions for these eight businesses and the input of the Panel members has been of value. But it has also again demonstrated the difficulty of ensuring that there is effective engagement with consumers when there are resource, time and capacity constraints.
Finally, the governance structure I have described is clearly critical from an internal perspective. But, it is equally important from an external perspective.
The regulator’s task is to achieve objectives set by the legislature using powers and resources given to it by the legislature.
It follows from this that a regulator must be accountable for the way it operates and for the decisions it has made. It should report publically on its performance and how it has met its objectives.
It should be able to show that it has efficiently and effectively discharged its responsibilities with integrity and objectivity.
Australia’s regulator performance framework
The ACCC/AER have Statements of Expectations which outline the government’s expectations of their roles and responsibilities, their relationship with the government, issues of transparency & accountability, and operational matters.
The statements also set out deliverables and performance indicators to measure progress in meeting expectations.
The ACCC/AER produce statements of intent which show how we propose to respond to the government’s expectations.
We also produce an annual report, as well as budget portfolio statements, which sets out our stated outcomes, strategies to achieve those, specific deliverables and related performance indicators.
There is also the ACCC and AER corporate plan and priorities, which sets out our purpose, objectives and the key areas of focus each year.
In addition, the Chairmen of the organisations and senior staff regularly appear before Parliamentary Committees to answer questions and provide information to parliament.
Looking now at reporting on performance, the key question is what should be measured and how?
Our government recently introduced two new performance reporting frameworks.
The first strengthens existing arrangements about how all government departments and agencies have to show how they have used their funding to achieve their purposes.
This will require the ACCC (and AER) making much clearer links between our inputs ($s), outputs (regulatory decisions, investigations and enforcement actions etc.), and outcomes (competition maintained, ‘optimal’ investment in network assets, lower prices/better services in the long run).
The challenge we, and other Australian regulators face, is that it can be very difficult to measure the outcome/effectiveness of our work. This is because:
- some goals do not have a simple metric. For example, because competition is a process there is no scale/index and so it may lack meaning to try to report the percentage change in the level of competition
- the results of some of our actions or decisions may take many years to become apparent – the implementation of some of the decisions themselves span many years
- even where some quantifiable measure can be observed, there is usually a range of factors that have contributed to whether the measure and it’s often difficult to separate their impact.
This means that evaluation of outcomes needs to be more qualitative in nature, and will involve seeking the views of targeted external parties about our performance in relation to particular actions or decisions.
We are also required to report under a new regulators performance framework which looks at how we interact with the businesses we regulate.
We have to assess ourselves against six KPIs that go to how we interact with the businesses that we regulate. In short, we must show that we are minimising the regulatory burden on our regulated businesses whilst still achieving our core objectives.
We will be able to use a range of evidence, including detail of our processes as well as survey scores, to give ourselves a ‘traffic light’ score against each KPI. We must then have our annual self-assessment reviewed by a high level stakeholder group consisting mostly of representatives of the businesses that we regulate before our self-assessment report goes to the minister and is published.
This is all relatively new, and we are still developing the specific KPIs and measures and metrics that we will use to report under both frameworks. I am hopeful the next time I am invited to speak at a regulatory conference, I’ll be able to report significant progress in an independent, accountable and transparent way.