Understanding Differences between Formal and Factual Autonomy of Regulatory Agencies: The
Role of Trust
Jan Rommel (Department of Public Governance, Flemish Government)
Koen Verhoest (University of Antwerp, Belgium)
[email protected]
INTRODUCTION
This paper explores how semi-autonomous regulators can develop a reputation of being a trustworthy
actor, and how this reputation affects their autonomy.
The creation of independent regulators has been one of the most widespread features of the regulatory
state (Jordana and Levi-Faur 2004). Much research has been done on the design and formal autonomy
of these agencies. However, many studies have found that the actual extent of autonomy from parent
ministers may be very different from what is prescribed in formal-legal statutes (Christensen and
Laegreid 2007, Groenleer 2009, Maggetti 2009).
In order to explain differences in formal and factual autonomy, autonomy has been regarded as a
relational concept (see Rommel and Verhoest 2012). Autonomy is increased or reduced through the
relations that agencies have with their principals. Assuming that actors can manage their relations with
others, they can also try to influence their autonomy vis-à-vis these actors.
The concept of trust has been used to describe and explain relations between agencies and parent
ministers (van Thiel and Yesilkagit 2011). When trust is high, ministers will enforce controls less
rigidly and will allow more autonomy for their agencies (Lægreid et al. 2005). Verhoest (2002) found
that agencies may try to deploy tactics to increase their trustworthiness vis-à-vis the principal. These
tactics were situated on a ‘response dimension’ and an ‘influence dimension’. With respect to the first
dimension, agencies can be responsive either to customers, whereby behaviour is aimed at meeting
customers’ demand, or to principals, so that the agency acts to reach the principal’s objectives. With
respect to the second dimension, an agency can choose to influence the market by trying to control
competition, or it can try to influence the principal, in order to gain political support.
However, these (quantitative) studies often use simple measurements of the concept of trust. In order
to learn more about how trust is formed, the multiple dimensions of trust should be taken into account.
This paper explores how the Flemish Regulator for Electricity and Gas (VREG) builds up a reputation
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for being a trustworthy actor vis-à-vis its parent minister, and how trust affects autonomy from the
minister.
The data from this case study is based on document analysis and 39 semi-structured interviews.
Interviews were coded and analyzed in Atlas.Ti. Case studies allow to study a phenomenon (i.e. the
autonomy of regulators and their interactions with the minister) within its real-life context (e.g. the
specific routines and rules that have developed over time). It allows to describe how an independent
regulator interacts with other actors (e.g. via which mechanisms, on what topics) and to explain how
these interactions affect the decision-making autonomy of the organization.
THEORETICAL FRAMEWORK
Autonomy
We focus on policy autonomy, which is the freedom to decide on content or results of the primary
organizational process. The extent to which an agency enjoys policy autonomy depends on the extent
to which it is steered on processes, outputs or effects (Verhoest et al., 2010). Four types of policy
autonomy can be discerned. Operational policy autonomy is the discretion to make decisions in
individual, specific cases, such as deciding to grant a license to a particular regulatee. Tactical and
strategic decisions are more abstract and not bound to individual cases. Policy autonomy for tactical
affairs refers to choosing which methodology will be applied to make operational decisions. With
respect to licensing decisions, this refers to the freedom to design the procedure that applicants must
follow for obtaining a license. Policy autonomy for strategic affairs is the discretion to prioritize
objectives for the next year. An example is the question which types of firms should be controlled
more strictly (i.e. determining target groups), how many on-site inspections will be performed
(quantity of output) or the extent to which controls must be successful, i.e. result in prosecutions
(quality of output). Whereas these three types of policy autonomy concern the freedom to apply
existing rules and to make decisions within the current policy framework, the fourth type is the role in
the policy-making process. This refers to the extent to which the organization is involved in the
evaluation of current policy and/or the preparation of new policy.
Trust
Literature on inter-organizational relations has identified ‘trust’ as a key variable in explaining
collaboration (Huxham 2003, Lane and Bachmann 1996, McEvily and Zaheer 2006, Nooteboom et al.
1997, Ring and Van de Ven 1992). Trust means that an actor is confident that another actor will not
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behave opportunistically, despite uncertainty and risk (Gambetta 1988, Lyon 2006). In bureaucracies,
predictability comes from rules and routines. However, post-bureaucratic environments are
characterized by participative management styles and consensus-building. Actors must engage in some
form of ‘self-making’ to render them predictable. Trust is said to be effective in post-bureaucratic
environments (Grey and Garsten 2001, Hudson 2004: 79-80). Agencification creates such an
environment, as ministers no longer have hierarchical authority over agencies.
By co-ordinating the actions of actors, trust allows actors to cooperate. High trust is assumed to result
in a deeper form of collaborative behaviour between partners. Partners that trust each other will
engage in increased information-sharing, especially the sharing of tacit information (Edelenbos and
Klijn 2007). They will also share strategically important information and competencies, allowing the
partner to learn and to innovate. Partners will also engage in joint problem-solving and joint action
(Dyer and Chu 2003, Muthusamy and White 2005). High trust will reduce the need for control, so that
transaction costs and the need for formal contracting are reduced (Ring and Van de Ven 1992, Das and
Teng 2001).
Trust is a relational concept. A ‘trustor’ will consider whether to place trust with a potential ‘trustee’.
The trustor takes the particular trustee into account by considering several characteristics of the
trustee. Trust will only be placed when the trustor perceives the trustee as being trustworthy. The
decision whether to place trust is determined by two kinds of characteristics.
The first characteristic is related to the individual traits of the trustor. Some trustors have a
psychological disposition towards placing trust and will be more easily inclined to place trust than
others (Becerra and Gupta 2003). This characteristic is invariable and not associated with a particular
trustee. The second kind of characteristics are associated with the particular trustee and with the
relation beween trustee and trustor.
The trustworthiness of an organization encompasses three antecedents of trust (see Becerra and Gupta
2003, Brashear et al. 2003, Zaheer et al. 1998). Expertise-based trust refers to the competences and
expertise of an organization. Routine-based trust arises from previous exchanges. As partners
exchange information, they will gradually learn more about the other’s reputation. Information about
previous behaviour is used as an estimate for future behavior (Lane and Bachmann 1996). The trustor
assumes that, if partners have not behaved opportunistically during previous exchanges, they will not
do so in the future either. Thus, trust increases when more information is exchanged and partners learn
to know each other.
Third, identity-based trust means that a trustor believes in the good intentions and the integrity of a
trustee. The trustee is believed to have internalised the trustor’s norms and values, so that both partners
share a common identity. Hence, identity-based trust will be high when partners know and share each
other’s interests, norms and values (Lyon 2006, Maguire et al. 2001). These norms and values serve as
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informal control instruments because they define what kind of behaviour is desired. One example of
such a norm is reciprocity. When a trustor gives something valuable to a trustee (e.g. autonomy), then
this debt must be paid off by realising the trustor’s objectives. If the mutual obligations are fulfilled,
then the norm of reciprocity is respected and trust will grow. However, if the trustee does not pay off
the debt and behaves opportunistically, the trustor may retaliate through the use of sanctions (e.g.
placing the trustee back under hierarchical control) or by presenting the trustee as untrustworthy with
other trustors. This is referred to as ‘shaming’ (Bottom et al. 2006).
Trustors will use the signals that are produced by trustees to decide on trustworthiness. A summary of
our research model can be found in figure 1.
Signal strength
Competence-based
trust
(credibility)
Routine-based trust
(routines)
Trustworthiness
Trust
Identity-based trust
(norms, values)
Autonomy
Deep forms of collaboration
This paper adopts a perspective of ‘active trust’. Trustees are not merely passive actors but can play an
active role in initiating, shaping, sustaining and changing trust (Möllering 2006: 79). Trustees may
partially determine themselves which signals are being sent to the trustor and how the relationship
with the trustor is maintained by (e.g. interactions with trustors) (Giddens 1994). For instance,
organizations can signal their competence (competence-based trust) or increase their visibility, so that
the trustor learns to know them (routine-based trust).In order to increase identity-based trust, actors
may appeal to the norms and values of the trustor, by ‘constructing’ a shared identity (Phillips and
Hardy 1997). Such mechanisms include gift-giving and conforming to the opinion of the trustor (see
Bottom et al. 2006, Lawler and Yoon 1996).
ENERGY REGULATION IN BELGIUM
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Energy regulators control four submarkets: production (i.e. generation of electricity in power plants or
the pumping up of natural gas), transmission (transport of electricity over long distances, via highvoltage power lines/ high-pressure pipelines for gas), distribution (transport via low-voltage/ lowpressure lines and local grids) and supply (selling electricity or gas to the end user, notably households
and firms). Production and supply markets are fully liberalised, whereas transmission and distribution
networks are regulated monopolies.
In Belgium, the authority to regulate these markets is shared by two levels of government. The federal
level is exclusively competent for production (i.e. fossil fuels, nuclear energy) and transmission, while
the regional level regulates distribution networks and supply markets. Regulators grant and retract
licenses to (production and supply) companies, and set technical standards for network grids. Both
levels impose public service obligations to network operators. The regions are competent for
promoting the production of renewable energy. However, the approval of tariffs, including distribution
tariffs, is the exclusive competence of the federal level. Whereas distribution network operators turn to
the regions for obtaining a license, they must turn to the federal level to have their tariffs approved.
Hence, distribution networks that run across multiple regions are regulated by one federal regulator
and up to three regional regulators, one for each region (Flanders, Brussels, Wallonia).
Within the Flemish region, energy policy is allocated to two organisations. The ‘Flemish Regulator for
Electricity and Gas’ (Vlaamse Regulator voor de Elektriciteits- en Gasmarkt - hereafter VREG)
regulates the supply market and the distribution networks in Flanders. The preparation of energy
policy and the Flemish energy laws is allocated to the Flemish Energy Agency (Vlaamse
Energieagentschap - hereafter VEA). The federal regulator is the Commission for the Regulation of
Electricity and Gas – hereafter CREG.
As required by EU regulations (Directive 2009/72/EC), VREG is an externally decentralized agency,
governed by a board of directors. Its parent minister has no hierarchical authority and cannot simply
reverse the decisions nor take the place of the agency. Yet, certain control instruments are put in place.
VREG is controlled ex ante, as its establishment decree prescribes the appointment of two
‘commissaires du gouvernement’ (Verhoest et al., 2012). These are appointed by the minister and have
the authority to appeal all decisions of the agency that they deem incompatible with the interests or the
decrees of the Flemish government. Their appeal would effectively suspend the decision taken by the
regulator. In practice, these commissaires have never been appointed.
Because of the agency status, we expect that VREG has a high extent of operational, tactical and
strategic policy autonomy. Conversely, given that the regulatory state implies a separation between
regulation and policy functions, we expect to find a low involvement in policy-making.
RELATIONS BETWEEN VREG AND PARENT MINISTER
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Autonomy from parent minister
The agency status results in a high extent of policy autonomy for operational affairs. VREG is legally
competent for making binding individual decisions. These decisions include economic regulation (e.g.
imposing unbundling in case a network operators also have a supply undertakings), technical
regulation (e.g. demanding more investments from network operators to increase network capacity)
and social regulation (e.g. imposing public service obligations).
VREG is not formally competent for preparing new policy. The energy laws are set by the Flemish
government and prepared formally by VEA. However, the Flemish energy decree does allow VREG to
produce advices on all legislative initiatives related to the Flemish energy market.
In practice, respondents indicated that the policy on renewable energy is prepared jointly by the
ministerial cabinet, VEA and VREG. They jointly evaluate the existing policy and draft legislative
proposals. For instance, there has been some controversy over the cost of subsidies for the production
of renewable energy. Network operators can recover the cost of these subsidies by increasing the
tariffs that must be paid by the end users. The original subsidy scheme was very generous and heavily
over-subsidized the installation of solar panels. This lead to an increase of the distribution tariffs and
evoked much criticism. Distribution tariffs amounted to 40% of the energy invoices charged to end
users. VREG and VEA jointly published a joint proposal to gradually reduce the cost of subsidies
(Winckelmans, 2011: 11). Hence, although the preparation of the energy policy is allocated formally
to VEA, VREG seems to play a strong factual role as well.
This factual role is even more evident for regulatory policy issues, such as the criteria regarding access
to distribution networks, or the approval of network investment plans. For instance, the European
Commission presented the Third Legislative Package on energy in 2009. These Directives are aimed
at further developing the Single Market for energy and to regulate the autonomy of national regulators
from their parent minister. The transposition of these Directives into Flemish legislation was drafted
entirely by VREG, and has been adopted by the minister with only minor adjustments. A personal
advisor of the minister said that ‘There was really nobody else we could turn to’, since VEA had little
expertise regarding distribution issues (Interview 6, quote 48).
Although VREG was formally only competent for giving a non-binding advice on legislative
proposals, it played a more important role in practice. In fact, many proposals for which it produces a
formal advice have actually been prepared (informally) by VREG:
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‘It sometimes leads to strange situations, where the minister asks us informally to prepare the
proposal. After we have sent it to the cabinet, it returns to us as part of the legally prescribed
procedure, so we then have to give a formal advice on our own proposal’ (Interview 4, quote 4).
For the regulator, being involved in policy is deemed important:
‘Our core task is to regulate the market, not to prepare policy. But you cannot separate these two very
strictly. Exerting oversight and making rules are complementary: we can see where things are going
wrong and where policy should be adapted. When we feel that the market needs a new legislative
initiative, we signal that to the minister. Sometimes you really have to take the initiative yourself ’
(Interview 5, quote 10).
Expertise trust
The ministerial cabinet consists of two personal advisors to the Minister for Energy. has a limited
capacity of 2 FTE. Because all regulatory competences are allocated to VREG, it is evident that the
expertise for regulatory policy is only available at VREG. The cabinet has “really nobody else to turn
to” (Interview 25, quote 48).
The most surprising evidence of the unique expertise of VREG is its role in policy-making. The thesis
of the regulatory state holds that regulation and policy-making are strictly separated (see Scott 2004).
We have found that both the regulator and the minister strongly emphasize the need to be involved in
policy-making, precisely because of VREG’s unique expertise. Whereas its role is formally limited to
issuing non-binding advices, it appears that the organization factually prepares and drafts much of the
regulatory policy itself. As the respondent from the cabinet says:
“We told VREG: since you have the expertise on the functioning of the market, please follow that
aspect of energy policy for us.” (Interview 25, quote 24).
For several aspects of energy regulatory policy (direct lines, Third Package) the government has been
fully dependent on VREG for drafting the transposition of the legislation.
Respondents mention that a large part of the expertise comes from the contacts that VREG has built up
with a diverse range of actors (Interview 25, quote 24).
1. Networking at EU level
VREG coordinates with other national regulators and with the European Commission via European
Regulatory Networks (Eberlein, 2008). The European Regulators Group for Electricity and Gas
(ERGEG) was established to ‘facilitate consultation, coordination and cooperation of national
regulatory authorities, contributing to a consistent application, in all Member States’, of the energy
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Directives (European Commission, 2003). ERGEG also provided a forum for energy regulators to
participate in policy-making at the EU-level. ERGEG could ‘advise and assist the Commission in
consolidating the internal energy market, in particular with respect to the preparation of draft
implementing measures on any matters related to the internal energy market ’ (European Commission,
2003).
ERGEG was organized into eight permanent working groups. The Belgian regional regulators have
been a member of the working groups on consumer protection and on renewable energy, whereas the
federal regulator represents the Belgian viewpoint in the other working groups (e.g. cross-border trade,
monitoring of implementation of the Third Legislative Package). In July 2011, the Agency for the
Cooperation of Energy Regulators (ACER) replaced ERGEG. Notwithstanding, some ERGEG
working groups still meet on a regular basis (Agency for the Cooperation of Energy Regulators 2011).
Networking with other national regulators provides several advantages for VREG. First, it allows to
exchange experiences and to gain new expertise: ‘It is good to have an informal network to rely on,
when we perform a certain market study. We can ask colleagues to pass on data, or ask their opinions
regarding the methodology that we should apply’ (Interview 4, quote 33). ERGEG contacts have
helped VREG to develop new regulatory instruments. In order to inform consumers regarding
possibilities to switch suppliers, it developed the ‘V-test’, a web application by which consumers can
track which suppliers offer the lowest tariffs for their specific situation. It takes into account the
consumption patterns (number of kWh consumed last year) and the tariffs of their local network
operator. Based on similar applications in other Member States, VREG has started to expand the ‘Vtest’. The revised test allows to compare suppliers with respect to the quality of service. The test ranks
suppliers based on the costs charged when customers cancel their contracts and the quality of client
help desks. Six months after the revised application had been launched in February 2011, a record
number of 750,000 consumers had performed the V-test (VREG 2011).
A second advantage of ERGEG-membership is that the reputational power of VREG has increased
(Interview 13, quote 2). ERGEG documents gained a large moral weight because they represented the
uniform viewpoint of the European regulators, and because they usually resulted in Commission
decisions (Interview 5, quote 7). Respondents indicated that it is much harder for a minister to ignore
an advice of VREG when it reflects the same opinion of the ERGEG network, since the minister
would not risk to contrary to ‘what Europe wants’ (Interview 15, quote 6).
Thirdly, network membership may even increase the formal autonomy from the parent minister. In an
advice to the Flemish government, VREG argued that the Third Legislative Package required a further
insulation of the agency (VREG, 2010: 44-52). In particular, VREG referred to article 35 of Directive
2009/72, which states that national regulators should not take direct instructions from any public
entity, including government. The minister acknowledged the need for more autonomy under the
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Third Package (Van den Bossche, 2010). In 2011, a new decree came into force, to transpose the
Directives into Flemish law (Vlaams Parlement, 2009, art. 1.1.2). Under the new decree, the agency
head and the members of the board of directors are appointed for a fixed term of five years, renewable
once, making early dismissal by the minister much harder. In addition, the new decree abolishes the
‘commissaires du gouvernement’.
2. Networking with other regions
VREG has frequent contacts with the other regional energy regulators of Belgium (Wallonia, Brussels
region). Respondents indicate that they often share the same opinions regarding regulatory objectives:
“There is a very big consensus between us.” (Interview 23, quote 20).
“The other regional regulators live in the same situation like us and we know each other very well”
(Interview 24, quote 28).
A second reason why regions coordinate, is to exchange experiences and to learn from each other:
“It is very interesting for us to have an exchange with organizations who share exactly the same
problems.” (Interview 23, quote 20).
They inform each other regarding methodologies to perform studies:
“It is useful to know: How much does a study cost? How long does it take? And how do they do it?”
(Interview 23, quote 24).
3. Networking with regulatees and stakeholders
VREG coordinates with the regulated industry in several respects. First, via written consultation
procedures, regulatees can comment on draft decisions or opinions of the regulators. In addition, there
are monthly meetings between VREG and the CEO’s of the two distribution network operators ( Eandis
and Infrax), as well as with the ‘Belgian Federation of Electricity and Gas Enterprises’ - FEBEG.
Those groups also have meetings directly with the ministerial cabinet and VEA, where VREG is not
necessarily present (Interview 26, quote 34).
A third way of consultation is by asking the opinion of market actors via surveys. Two important
examples are the ‘market model study’ (Studie Marktmodel) and the ‘stakeholder survey’. The former
is a study undertaken jointly by the regulatees and VREG, with the aim to develop a common longterm vision on the governance of the energy market (VREG 2009: 1). The latter is a survey involving
consumer, industry federations and social partners (Interview 27, quote 11).
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Signalling relations with networks
The networking, both on international scale, (Association of Issuing Bodies, ACER/ERGEG, London
Forum), national scale (FORBEG, other regions), with consumers (V-test) and regulatees
(consultations) is a deliberate strategy of VREG:
“My personal task is to make sure that the relations are well-managed. It is important that we consult
very closely with all involved actors.” (Interview 27, quote 4).
Reports and advices gain considerable credibility when VREG can demonstrate that they are
supported by these influential and knowledgeable actors.
Being considered as a reputable actor by the stakeholders is an important factor for playing a larger
role in the policy process. The minister involves VREG into policy precisely because it has gained
legitimacy in the field and with the public:
“The factual role that the organization plays differs from the formal role. How can VREG strengthen
its role? By writing valuable reports. Those reports are worthy to be read and they are widely read.
You can see that VREG has developed expertise, its CEO is frequently interviewed by the media, when
it concerns rising energy prices. In a similar vein, when people have complaints about their energy
supplier, they contact VREG, even when the topic is not a competence of VREG. So, they have become
the single point of contact for many stakeholders and the spokesperson of the Flemish energy policy.”
(Interview 25, quote 94).
Routine-based trust
The cabinet holds monthly meetings with VREG and VEA, but VREG has frequent informal contacts
via email and telephone as well, almost on a daily basis
Many of these contacts occur on an informal basis. We could argue that VREG has developed a
certain ‘relational strategy’. This strategy entails that VREG manages its visibility vis-à-vis certain key
stakeholders by contacting them directly, at regular periods, and in both formal and informal ways.
The CEO manages these contacts carefully:
The aim of this strategy is to build support for initiatives that the organization has taken:
“We have set up a communication system with the cabinet that runs very well. We see them a lot and
we try to maintain those channels, so that they are not surprised of the things we are doing. That is a
kind of informal trust between us” (Interview 23, quote 9).
Before VREG formally publishes a regulatory decision, a market monitoring report or a policy
opinion, it has usually discussed this informally with the cabinet first. The respondent of the
ministerial cabinet confirms this informal way of working:
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“In practice the collaboration between us is very informal and goes very smoothly.” (Interview 25,
quote 41).
Personal relations are emphasized repeatedly, between VREG and VEA and between VREG and the
ministerial cabinet. Within the subfield of energy policy, personal relations are reportedly very good
(Interview 26, quote 40). These relations have been built up over time. All actors have a long-standing
experience in the sector.
We can conclude that routine trust between VREG and the minister is rather high.
Identity-based trust
VREG and the minister seem to adhere to the same values. They both attach much importance to
maintaining an informal culture, where policy issues are discussed via personal contacts. The CEO of
the regulator called this “ the informal trust with the minister” (Interview 23, quote 9). The relational
strategy of VREG entails discussing decisions with the minister in an informal way, even before they
are formally announced.
Furthermore, we find some indications of the need for reciprocity in the mutual relationship. We see a
certain extent of ‘gift giving behaviour’.
First, despite the alleged need for credible commitment and depoliticization, VREG seems to leave
some space for political influence. Respondents indicate that the chair of the Board of Directors was
appointed for political reasons, rather than his personal expertise.
With respect to the transposition of the Third Package, we can see that VREG only asked to remove
some steering instruments, while others could be maintained. The main focus was to remove the
possibility that ‘commissaries du gouvernement’ would be appointed and expanding the board of
directors, to allow for independent directors. However, other steering instruments remain. The minister
still appoints the CEO and the chair of the board of directors. We could say that, even though the
Third Package provided arguments to further reduce the influence of the minister, VREG has not
pushed for this. Instead, it seems to differentiate between steering instruments that it finds too
intrusive and steering instruments that do not violate the independence. VREG sees itself as a part of
the executive branch and as partly being under the authority of the minister. When the Third Package
was first proposed, VREG initially believed that it should be put under the authority of parliament
instead of the executive. However, this idea was abandoned eventually:
‘You cannot just detach yourself and be completely 100% autonomous.” (Interview 23, quote 65).
In fact, when organizations are solely focussed on their independence, this may have a reverse effect:
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“Organizations that strictly defend their independence often create the opposite effect: they get a very
strenuous relation. Off course, it works in two ways: when ministers behave in a very threatening
manner, then this will evoke very defensive behaviour” (Interview 23, quote 66). According to
respondents, when regulators defend their autonomy aggressively, this will be counter-productive and
will evoke distrust from the minister. Instead, they promote an approach of close collaboration
between regulator and minister, which will give the regulator a larger de facto role in policy-making.
We also see gift giving behaviour from the minister to VREG. The minister grants considerable policy
autonomy to the energy administration. This applies to both VREG and VEA. During policy
discussions with other ministerial cabinets, VEA accompanies the minister and is directly involved in
the negotiations:
“I believe it is very motivating for them.” (Interview 25, quote 53).
We have seen that VREG is more involved in the policy process than could be expected on the basis
of the establishment decree.
RELATIONS BETWEEN VREG AND THE FEDERAL ENERGY REGULATOR
Because the authority regarding energy regulation is fragmented across the regional and federal levels,
the regional regulator VREG needs to coordinate with the federal regulator CREG. Actors coordinate
on several types of issues.
Coordination on operational affairs. The Flemish government imposed several public service
obligations on distribution network operators. In order to reduce energy poverty, all households
receive an annual amount of electricity free of charge. During the winter, operators must not cut off
supply when households cannot pay their energy bills. Other obligations are aimed at reducing the
demand for energy (e.g. obligation to pay subsidies to households that invest in better insulation
materials for private homes), or at increasing the production of renewable energy (e.g. subsidies for
solar panels). Operators can recover the costs incurred by these obligations by increasing the tariffs
charged to energy suppliers for accessing the network grid. In turn, suppliers will charge these tariffs
to end users. As mentioned above, the approval of tariffs is the exclusive competence of the federal
regulator. Tariffs are approved on the basis of a cost-plus system. Operators declare which costs they
make to operate the network (e.g. maintenance costs, investments to upgrade capacity, public service
obligations). The regulator approves these costs when they are justified. Combined with a pre-defined
profit margin, the approved costs constitute the tariffs that network operators can charge to suppliers.
There have been disputes between the regulators regarding the costs incurred by the regional public
service obligations. For several years on end, CREG set the tariffs at a lower level, because it argued
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that the costs were not sufficiently justified by the requirements in the Flemish energy legislation.
According to the Flemish government, CREG was not allowed to reject the costs declared by the
operators. The Flemish government considered the legal obligations only as minimum investments
that operators were obliged to make. Companies declaring higher costs were not necessarily inefficient
but sometimes offered more services than strictly required (e.g. by paying additional subsidies to end
users). According to VREG, these additional subsidies contributed to reducing the overall demand for
energy and were thus consistent with the general Flemish policy. It argued that the rejection of the
costs hampered its task of implementing this policy (Interview 7, quote 25, also interview 8, quote 52).
VREG published a memorandum, in which it argued for a decentralization of distribution tariffs:
‘In order to be able to develop a coherent Flemish energy policy, the Flemish region needs to have the
authority over distribution tariffs. Flanders should continuously argue for a transfer of this
competence to the regions’ (VREG, 2008: 2).
Following the general elections in 2010, VREG distributed the memorandum to the negotiators of the
new federal government. The request was also backed by the Flemish government (Van den Bossche,
2010). In December 2011, a new federal government was formed and presented a major reform of the
state, by which several tasks would be transferred from the federal to the regional level. The transfer of
the authority to set distribution tariffs is among these tasks (Federale Regering, 2011). Hence, in order
to achieve its objectives, VREG engaged in highly political processes such as the negotiations on the
formation of a new government.
Coordination on strategic affairs. The regional and federal regulators have to agree on a uniform
Belgian viewpoint that will be defended at the European level. Until 2006, VREG was not involved in
ERGEG activities. The federal regulator had been the single point of contact, because the European
regulations concerned mainly issues of federal competence (e.g. cross-border trade). But as the EU
became more active in issues of regional competence (consumer protection, renewable energy), the
representation of the Belgian regulators became more contested.
Since 2006, the regions have become members of the ERGEG working groups on consumer protection
(VREG) and renewable energy (Walloon regulator), where they represent all Belgian regulators. This
was possible because the European Commission allowed that Member States designated ‘one or more
competent bodies with the function of regulatory authorities’ (European Commission, 2003: article 2). The
Belgian regulators informed each other of the activities in the European working groups. After each
meeting of the working group on consumer protection, VREG sent all documents to the other three
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regulators, to allow them to comment. VREG integrated these comments to compose the common
Belgian viewpoint. For all other working groups, CREG remained the only Belgian representative.
The implementation of the Third Legislative Package poses problems for the relations between federal
and regional regulators. The 2009 Directives require Member States explicitly to appoint a single
national regulator to represent the Member State in the newly-created EU agency. Hence, the federal
and regional levels have to agree who will become the national representative. CREG claimed that
only the federal regulator was entitled to be the national regulator, as it is the only body that has
authority over the entire Belgian territory. The regional regulators are confined to their own region.
However, VREG questioned this claim. It proposed to establish a new collegiate body, where the three
regional regulator and the federal regulator would all be present. This body would then be competent
for appointing the senior representative of Belgium in the Board of Regulators of the ACER agency.
According to VREG, the Directives do not require that the senior representative is appointed by the
national regulatory authority alone. Instead, the directives allegedly allow that the representative is
appointed ‘jointly by the national and regional regulators’ (VREG, 2010: 43). The parent minister of
VREG has supported this proposal and has requested the federal level to revise the current multi-level
coordination mechanism (Vlaams Parlement, 2009; Van den Bossche, 2010).
Routine-based trust
Both the respondents from VREG and CREG indicated that the organizations have contacts almost on
a weekly basis. Both respondents also indicated that the mutual relations are based on formal
agreements rather than informal contacts.
The weekly contacts entail passing on data about the functioning of the energy markets, such as the
number of requests made by households to acquire a new connection to the electricity network, or the
number of licenses requested by suppliers. These information exchanges are usually automated and do
not entail direct personal interactions. Besides this automated exchange, members of FORBEG
working groups have some informal contacts to draft and amend texts and joint reports.
Personal meetings do not occur very frequently:
“Originally, we held meetings every month. But we noticed that this frequency was too high, because
we don’t really have a lot of shared responsibilities. So the frequency of meetings was scaled back and
is currently about every two months.” (Interview 27, quote 6). We would conclude that there is a
moderate to low extent of routine trust between VREG and CREG.
14
Expertise trust
Respondents from both organizations indicated that they perceive the other organization as having a
sufficient amount of resources and expertise for executing their tasks. Since tasks are rather clearly
delineated, there is little overlap between the regional and federal levels. Both levels are not directly
dependent upon each other for technical knowhow. Notwithstanding, we can observe some indications
of mutual distrust. The discussions about the costs of regionally imposed public service obligations
suggest that both actors disagree about which method should be used to calculate distribution tariffs.
Identity trust
Considering the literature on ERN’s and the transformation of national regulators, one would expect
that VREG and CREG share the same technocratic values, since both regulators are active in ERGEG.
Both organizations do indeed agree on the need for unbundling and the importance of increasing
competition in the market, which is an opinion that energy regulators generally share among each
other (Eberlein 2008). In addition, both organizations stress the importance of having a sufficient
extent of management autonomy and they are convinced that expertise and sound technical analysis
should inform policy decisions.
However, it seems that they have a different vision of how regulators should deal with influence from
politicians. Respondents from VREG perceive CREG as an organization that is too heavily focused on
safeguarding its independence. It is regarded as being very confrontational, and as an organization that
tries to ‘detach’ itself completely from policy. This contradicts with the approach followed by VREG,
which seems to explicitly allow influence from the minister, as part of a relational strategy. Although
it does emphasize its formal autonomy, VREG seems to signal more explicitly that it endorses the
minister’s broader energy policy; that ‘politics’ is inevitable in the composition of the board of
directors; and that ministers should retain the right to appoint the CEO. VREG even gets itself
involved in a highly political process such as the negotiations about reforms of the state (i.e. transfer
of competences from the federal level to the regional level), by publishing a memorandum and
propagating its opinions regarding the transfer of distribution tariffs.
A second value conflict seems to be formed by a low perceived extent of equality and reciprocity in
the relation between the two organizations. Regarding representation at the EU level, CREG sees itself
as hierarchically superior and claims to be the one, true NRA:
“We have allowed them to sit in the working group [emphasis added].” (Interview 22, quote 44).
Because membership of the European Regulatory Networks is so valuable, both want to be considered
as an NRA. The uncertainty about the state reform and the decentralization of authority undermines
trust.
15
DISCUSSION AND CONCLUSIONS
The first aim of the paper was to shed a light on the antecedents of trust. Expertise trust is driven
mainly by the extent to which organizations have unique expertise. Vis-à-vis the parent minister,
VREG has much unique expertise on energy regulation. This expertise is derived mainly from the
networks that VREG has built up with reputable actors. For instance, it is the only actor on the
Flemish regional level that has direct contacts with the European Commission and with regulators in
other Member States, via the European Regulatory Networks. In addition, they exchange expertise
with the energy regulators of the Walloon and Brussels region. Finally, because they have extensive
consultation procedures with regulated firms, and because they receive many questions and complaints
from consumers, they have unique knowledge of ‘the field’ and of the functioning of the energy
market in Flanders. The minister values the fact that VREG has so many contacts with stakeholders.
Reports carry more moral weight when they are produced after consultation with stakeholders (e.g.
regulatees, EU networks).
On the contrary, the extent to which VREG has a unique expertise vis-à-vis CREG is low. Since tasks
are largely separated, VREG and CREG have each developed expertise in their own particular areas.
Routine-based trust is built up by approaching stakeholders intentionally and by having much more
intensive contacts with them than formally required. These contacts are very frequent and of a very
informal nature. For instance, besides the legally required written consultation procedures, VREG has
regular informal contacts with distribution network operators. In a similar vein, contacts with the other
regional regulators, the federal regulator, the parent minister and the ministerial cabinet, and VEA are
very informal. The intense personal contacts with regulatees and the parent minister are particularly
surprising, given the need for independence from these actors. Furthermore, VREG clearly attempts to
manage its reputation with consumers and the general public. The CEO is interviewed frequently and
acts de facto as a spokesman of the Flemish regulatory policy on energy.
Conversely, the low number of contacts with the federal regulator CREG seem to result in a low extent
of routine-based trust.
The identity trust between VREG and its parent minister is driven by reciprocal gift giving behaviour.
Although VREG does stress the need for independence, especially for operational decisions, it does
not completely insulate itself from political influence. Instead, VREG explicitly ‘allows’ influence
from the minister. For instance, it aligns itself explicitly with the strategic objectives of the minister. In
addition, the revised organizational design after the transposition of the Third Package leaves ample
room for steering from the minister, such as the appointment of the governing board and of the CEO.
16
VREG also shares the same objectives with the Flemish government concerning the transfer of
authority to the regional level. VREG is surprisingly active in highly political processes, such as the
reform of the state. In turn, Flemish politicians defended these viewpoints during negotiations with the
federal level. The Flemish government lobbies for two aspects: the regionalization of distribution
tariffs and a formalization of the role of regional regulators in European regulatory networks.
However, this lobbying hampers the identity trust between VREG and CREG. If the coordination
regarding EU affairs would indeed be reorganized into a formal, collegiate body, CREG would lose its
current status as the ‘single point of contact’ with the EU institutions.
A second aim of the study was to explore how trust impacts the relations between actors. Trust helps
to understand why the formal autonomy from the minister differs from the observed factual autonomy
(cfr. Lægreid et al. 2005). Because of its high expertise and especially because it shares the same
policy objectives and political values as its minister, VREG is much more involved in policy-making
than what would be expected based on the formal-legal statutes. The high extent of trust with the
minister even affects the relations of VREG with the federal regulator CREG. Because the minister
adopted the viewpoints of VREG regarding the need to transfer the authority regarding distribution
tariffs and the need to revise the task divisions regarding EU representation, VREG also becomes less
dependent from CREG.
In addition, trust allows to understand on what kind of topics actors coordinate. Although trust
between CREG and VREG is low, these actors do exchange information on operational affairs (e.g.
passing on information regarding public service obligations). Actors coordinate less about strategic
policy affairs (e.g. preparing the Belgian viewpoint in EU fora). According to the trust theory, trust
leads to a ‘deeper’ form of collaboration. Coordination on strategic issues can be regarded as a
‘deeper’ form of information exchange because it goes beyond the daily routine activities: it concerns
the exchange of information on future priorities of organizations and on new policy. While this
information has no immediate impact on the organizations, it is of strategic importance on a longer
term because it determines how the daily activities will be performed in the future. Such information is
often delicate and confidential, especially when it concerns the preparation of policy. Hence, while
trust may not be a necessary condition for sharing information concerning daily activities, it appears to
play a more important role in facilitating the coordination on strategic and policy affairs.
The concept of trust suggests that closer contacts between the minister and the agent do not always
imply more control of the agent. Frequent contacts may actually be an indicator of a higher
involvement in the policy process. This would call for a modification to the way the concept of control
has until now been measured in other research: not only the frequency of reporting is important but
17
also the type of issues that are discussed (strategic/policy versus operational affairs) should be taken
into account.
The trust literature suggests that it is important for organizations to build and demonstrate (‘signal’)
their trustworthiness to the trustor. In this respect, actors can render into self-making behaviour and
can develop tactics to initiate, shape, sustain and change trust.
Much of the literature on bureaucratic autonomy, emphasizing the importance of reputation, networks,
legitimacy and expertise, can be linked with such self-making behaviour (i.e. increasing expertise
trust). One example is the ‘relational strateg’ of VREG, which is aimed at increasing its visibility with
a range of influential stakeholders. But trust suggests yet other venues that agencies can follow to gain
autonomy. One of the most surprising observations of the case studies was the ‘political mentality’ of
VREG. Even though respondents emphasized the importance of independence from politicians, and
that VREG attempts to increase its formal independence, it also seems to acknowledge the need for
‘allowing’ political influence, the need to develop close contacts with its principal and to embed itself
explicitly within the policy agenda of the minister. Identity trust learns that agencies can gain
autonomy when they demonstrate to have similar attitudes as the minister, and when they engage in
gift-giving behaviour.
Vice versa, when agents insulate themselves too much from politicians and safeguard their autonomy
too heavily, this may evoke distrust and ultimately have an opposite effect on autonomy.
This is somewhat different from the popular argument that regulatory agencies are merely technocratic
and attempt to promote a depoliticized world view (Eberlein 2008). Previous research already
characterized regulators as ‘political actors’, in the sense that regulators want to have an impact on
policy (Maggetti 2009). Our data suggests that regulators may also align themselves closely with
politicians and sometimes even engage in highly political processes (cfr. memoranda of VREG on the
reform of the state).
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