# **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. Research on the subject has 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 (Cubbin and Stern, 2006).

Despite the different approaches in the design of regulatory institutions, a separate agency from the government with reasonable levels of autonomy and technical expertise has emerged as the model and paradigm of a regulatory institution. The Latin America and the Caribbean (LAC) region has adopted that regulatory model. Beginning with Chile’s National Energy Commission in 1978 and ending in 2001 with Barbados’ Fair Trading Commission, the region presents a diverse spectrum of regulatory authorities and practices, 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).

Even though more than 10 years have passed since the majority of LAC countries established independent agencies, the study of their governance and of its impact on sector performance 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, and many of them have been case studies. This is particularly the case of the electricity sector of the LAC region where, beyond specific agency-based case studies, regional analyses that assess institutional design and governance behavior do not exist.

In a previous paper (Andres _et al, 2007b)_ , we attempted to fill that gap. Based on selected literature on the subject, we defined and assessed electricity’s agencies governance through four main characteristics of their governance design: (i) autonomy from political authorities and of their management and regulatory competencies; (ii) transparency before institutional and non-institutional stakeholders; (iii) accountability to the three branches of government (Executive, Legislative, and Judiciary); and (iv) tools and capacities for the conduct of the regulatory policy and the improvement of its institutional development. We defined regulatory governance as the agency’s institutional design and structure that allows it to carry its functions as an independent regulator.

Although we tried to capture as many governance variables as possible, some caveats need to be taken into account. Our assessment of the governance of regulatory agencies was based on the regulatory and institutional inputs that agencies need to implement their procedures and tools, but does not consider the outputs or outcomes of agencies’ regulation.<sup>1</sup> In other words, the measurement of agencies’ governance is not an indicator

> 1 This has been the overwhelming mechanism used by the literature on the subject to assess the independence and other attributes of regulatory agencies. Although, ideally, we would like to include the effectiveness of

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