# **1. INTRODUCTION:**

According to an increasing body of empirical evidence, institutions matter for growth and development (Aron, 2000; Rodrik, 2004). The infrastructure sector generally, and the electricity sector in particular, are not an exception to this finding. Several research projects on the subject have associated better sector performance, represented by higher levels of electricity generation per capita, to the governance of institutions responsible for the conduct of regulatory decisions (Cubin and Stern, 2005).<sup>1</sup> Although there have been different institutional arrangements established to implement regulatory policies, a separate agency from the government with reasonable levels of autonomy and technical expertise has emerged as the paradigm of a regulatory institution. In fact, this has been the case in the Latin American and the Caribbean (LAC) region. Beginning with Chile’s National Energy Commission in 1978 and ending in 2001 with Barbados’ Fair Trading Commission, today 70 percent of countries in the region have a separate entity—with varying degrees of independence—to regulate electricity markets (LAC Electricity Regulatory Governance Database, The World Bank, 2007)

**<mark>Figure 1: Diffusion of LAC electricity independent agencies</mark>**

<!-- Start of picture text --> Diffusion of LAC electricity independent agencies<br>20<br>18<br>16<br>14<br>12<br>10<br>8<br>6<br>4<br>2<br>0<br>1978 1993 1994 1995 1996 1997 1998 1999 2000 2001<br>Year of agency's creation<br>N u m b er of ag en cies<br><!-- End of picture text --> <!-- Start of picture text --> Source: LAC Electricity Regulatory Governance Database, 2007. The World Bank. 2007<br><!-- End of picture text --> Even though it has been more than 10 years since the majority of LAC countries established independent agencies, the study of their governance has been limited and poorly focused. With some exceptions (Correa et al, 2006; Brown et al, 2007; Guasch and Spiller, 1999), the research on the subject has limited the assessment of regulatory agencies to a few governance indicators, specifically focusing on their independence from political authorities. This is particularly the case of the electricity sector of the LAC region where, beyond specific agency-based studies, regional analyses that assess institutional design and governance behavior do not exist.

In this paper we attempt to fill that gap by focusing on the regulatory governance of independent agencies in the electricity sector of LAC. We define regulatory governance as the agency’s

> 1 There is no one single factor that is unidirectional in its link to the performance of the electricity sector. Service quality, the final goal of electric infrastructure, is the result of the interaction of several factors such as the management of utilities (both private and public), the quality of regulation, the formulation of the energy policies by the government, the country’s institutional endowments, and macroeconomic determinants. In this context, we are currently in the process of assessing the weight and influence of these factors in the quality of electricity services. This paper will be the basis for assessing the role of regulatory governance on sector performance (through the combination of our database with info collected at the company level).

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