indexes, we analyze the positions of agencies with regard to different aspects of their regulatory governance, considering not only performance in each variable but also scores in the different components of each category. This evaluation allows for the identification of particular country shortcomings regarding governance, and indicates needed improvements.

A few papers have focused on the relationship between regulatory characteristics and performance. Sirtaine _et al._ (2004) that define a Regulatory Quality Index, considering three key aspects of regulatory quality: legal solidity, financial strength, and decisionmaking autonomy. Despite their small sample sizes, three out of the four models show that the regulatory quality variables are significant in overall terms, and that are on their own capable of explaining 20-25 percent of the internal rate of return of private investment in infrastructure projects in LAC. More recently, Estache and Rossi (2007) explored the causal relation between the establishment of a regulatory agency and the performance of the electricity sector. They exploit a unique dataset comprising firm-level information on a representative sample of 220 electric utilities from 51 developing and transition countries for the years 1985 to 2005. Their results indicate that regulatory agencies are associated with more efficient firms and with higher consumer welfare.

# **3. REGULATORY GOVERNANCE FRAMEWORK**

We base on our work on the governance of electricity agencies. In our paper, we selected a theoretical framework of analysis and designed a survey that was completed by nineteen countries of the region. The evaluation of agencies’ governance was done through several indexes that reflect different dimensions of agencies’ organization and functioning.

Building upon Correa _et al._ (2006) and the majority of the research on the subject, we evaluate the electricity agencies’ governance structure. We develop two related indexes of regulatory governance--an aggregated measure (Electricity Regulatory Governance Index, ERGI) and a principal components based governance index that includes autonomy, transparency, and accountability-and evaluate the impact of agencies’ governance on the performance of the sector. Exploring this dimension is the objective of this section.

Our conceptual framework or benchmark model of analysis is the independent regulator model. This decision was based on two main factors. The first factor is related to the use of independent regulatory agencies as the model for electricity regulation in the majority of the region. According to their database,<sup>2</sup> almost 70 percent of the countries in the region have adopted a separate regulator from the line ministry as the preferred institutional arrangement for electricity regulation. The second factor is related to empirical evidence that considers the independent regulator model as the most effective approach in the regulation of privatized infrastructure industries (Brown _et al_ ., 2006).

Following our work on the subject, we conceive regulatory agencies as both public bodies that are part of the public administration—and as such in charge of the delivery of public services—and as instruments to implement regulatory policies. This approach to assessing electricity agencies’ governance led us to consider not only existing research on

> 2 Based on the information collected through the surveys submitted by countries, Andres _et al._ (2007b) designed a database composed of 46 electricity regulators (including both federal and national regulators).

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