Driving Performance at Mexico's ASEA, CNH and CRE - The Governance of Regulators KEY RECOMMENDATIONS - OECD.org

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Driving Performance at Mexico's ASEA, CNH and CRE - The Governance of Regulators KEY RECOMMENDATIONS - OECD.org
The Governance of Regulators

Driving Performance at
Mexico’s ASEA, CNH and CRE
KEY RECOMMENDATIONS
Driving Performance at Mexico's ASEA, CNH and CRE - The Governance of Regulators KEY RECOMMENDATIONS - OECD.org
INDEX

Driving performance of Mexico’s energy
  regulators                              1

2013 structural reforms in Mexico         2

Mexico’s energy regulators                4

Review findings and recommendations       6
  Roles and objectives                    6
  Input                                  10
  Process                                14
  Output and outcome                     18

Regulators, performance and the
  delivery of public services            22
  Performance Assessment Framework
  for Economic Regulators (PAFER)
  review process                         24
  Network of Economic regulators (NER)   25
Driving Performance at Mexico's ASEA, CNH and CRE - The Governance of Regulators KEY RECOMMENDATIONS - OECD.org
DRIVING PERFORMANCE OF MEXICO’S ENERGY REGULATORS . 1

DRIVING PERFORMANCE OF
MEXICO’S ENERGY REGULATORS
This brochure presents the key findings and recommendations of the
Performance Assessment reviews of the Mexican energy sector’s three
regulatory agencies (Agency for Safety, Energy and Environment, ASEA;
National Hydrocarbons Commission, CNH; and Energy Regulatory Commission,
CRE), focusing on the regulators’ internal governance. The reviews follow the
publication of a report on the external governance of the sector (OECD, 2017a).

The review of external governance noted the      reform. The reviews put forth a series of
need to enhance institutions and processes       recommendations, summarised in this
that, upstream, strengthen role clarity,         brochure, to activate an integrated system of
co-ordination and planning in a new and          energy regulators and support organisational
complex institutional context, and,              change within the three agencies.
downstream, instate accountability for
agreed objectives and results.                   Together, the four reviews constitute a
                                                 comprehensive body of work on the regulatory
The parallel reviews of ASEA, CNH and CRE        governance of Mexico’s energy sector and
find that it is critical to enhance internal     propose important recommendations to
governance systems across the three              bolster future work of the regulators at a
regulators so that they are fully equipped to    critical moment in the implementation of the
support the implementation of the energy         country’s 2013 energy reform.
Driving Performance at Mexico's ASEA, CNH and CRE - The Governance of Regulators KEY RECOMMENDATIONS - OECD.org
2 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

  2013 structural reforms in Mexico
  The government of Mexico, led by President Enrique Peña Nieto, launched a major structural reform in
  2013 to modernise several key areas of the country’s economy, including the energy sector. The reform
  restructured the oil and gas industry and opened access to the country’s hydrocarbon resources to
  national and foreign, public and private entities, and further opened the electricity sector to private
  participation.

  The reform aimed to increase sector investment and government revenue for the benefit of all Mexicans,
  as well as to make Mexico a global leader on environmental issues by embedding clean energy targets in
  legislation. In the power sector, it sought to place downward pressure on prices, facilitate the transition to
  renewable sources of energy and extend electricity coverage.

  Far-reaching modifications were made to the institutional framework with regard to sector regulation,
  with the strengthening of existing regulators and the creation of new ones (see Figure 1).

  Figure 1. Overview of institutional arrangements, pre- and post-reform

  Pre-reform
  2013                                                                   SHCP
                                                                 (Ministry of Finance)

                                          Secretaries
                                          (ministries)                                               CRE

                                                                        SENER
                                                                 (Ministry of Energy)

                                                                                                     CNH
     Executive branch

                                                                        PEMEX

                                       Deconcentrated
                                          entities

                                                                         CFE

      Policy maker
      Regulator
      Operator
      Financial entity

  Source: Adapted from CRE.
Driving Performance at Mexico's ASEA, CNH and CRE - The Governance of Regulators KEY RECOMMENDATIONS - OECD.org
DRIVING PERFORMANCE OF MEXICO’S ENERGY REGULATORS . 3

                     Bank of Mexico          Mexican Oil Fund

                                                    SHCP
                                            (Ministry of Finance)

                       Secretaries                 SENER
                       (ministries)         (Ministry of Energy)

                                                SEMARNAT                    ASEA
                                                (Ministry of
                                               Environment)         (Safety & EP Agency)

Post-reform                                                               CENACE
                                                                     (Electricity market
2013-14                                                                      ISO)
                    Deconcentrated
                       entities

                                                                         CENAGAS
                                                                      (Gas market ISO)
 Executive branch

                                                  PEMEX

                      State-owned
                       productive
                       enterprises

                                                    CFE

                                                    CRE

                      Co-ordinated
                    energy regulators

                                                    CNH
Driving Performance at Mexico's ASEA, CNH and CRE - The Governance of Regulators KEY RECOMMENDATIONS - OECD.org
4 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

MEXICO’S ENERGY REGULATORS
AN INTEGRATED ENERGY REGULATORS’ SYSTEM

The three regulators should establish an integrated energy regulators’ system
that can help them overcome shared challenges and design joint solutions.
Taking advantage of these available synergies, the reviews propose a number of
measures that the regulators could implement together to set up and bolster
this integrated system, contributing to the overall effectiveness of the federal
government and the delivery of its policy objectives.

AGENCY FOR SAFETY, ENERGY AND                       Natural Resources (SEMARNAT), relying on
ENVIRONMENT (Agencia de Seguridad,                  the Ministry for financial and administrative
Energía y Medio Ambiente, ASEA)                     management.

ASEA is a multi-disciplinary regulator.             ASEA has navigated initial challenges linked
Its mission is to oversee industrial and            to its operationalisation admirably, notably
operational safety and environmental                by successfully absorbing functions from
protection. Its responsibilities cover the entire   a variety of actors, issuing regulations for
hydrocarbons value chain, from upstream             previously unregulated areas, and defining
exploration and extraction to midstream and         and implementing robust management
downstream transformation, production and           processes. The consolidation of these
storage, and all the way to distribution and        results and processes will be crucial for the
retail at petrol station level.                     successful implementation of the energy
                                                    reform in the coming years.
Established in 2015 as part of the energy
reform, ASEA operates in a complex legal
setting, referring to 11 federal laws and
attached to the Ministry of Environment and
Driving Performance at Mexico's ASEA, CNH and CRE - The Governance of Regulators KEY RECOMMENDATIONS - OECD.org
MEXICO’S ENERGY REGULATORS . 5

NATIONAL HYDROCARBONS COMMISSION              ENERGY REGULATORY COMMISSION
(Comisión Nacional de Hidrocarburos, CNH)     (Comisión Reguladora de Energía, CRE)

CNH regulates the “upstream sector” of        CRE regulates the “midstream and
hydrocarbons by regulating, monitoring        downstream” sectors of hydrocarbons, as well
and evaluating the exploration and            as the entire electric power supply chain.
extraction of hydrocarbons in Mexico.         It also holds responsibilities linked to the
                                              regulation of clean and renewable energies.
Established in 2008, the functions, powers
and status of CNH were strengthened           Created in 1993, the functions, powers and
by the 2013 energy reform. It is now a        status of CRE were strengthened by the
ministerial-level entity governed by two      2013 energy reform. Like CNH, it is now a
federal laws, which establish technical,      ministerial-level entity governed by two
operational, and managerial autonomy for      streamlined federal laws, which establish
the regulator.                                technical, operational, and managerial
                                              autonomy for the regulator.
The remit of the CNH was substantially
broadened by the energy reform. CNH has       Following the reform that substantially
successfully traversed the early phases of    increased CRE’s responsibilities, CRE has
implementation of the reform and is seen      been able to swiftly realign its organisation
as a professional and trusted regulator. It   and processes to focus on implementing
is urgent to build on this trust and track    key aspects of the reform. Moving forward,
record to enhance internal processes that     it is paramount that CRE also place more
can further support the performance of        emphasis on internal processes such as
CNH and fully reap the benefits of its        planning, resources and performance
formal autonomy.                              management in order to ensure its effective
                                              working over the long-term.
Driving Performance at Mexico's ASEA, CNH and CRE - The Governance of Regulators KEY RECOMMENDATIONS - OECD.org
6 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

ROLE AND OBJECTIVES – FINDINGS
AND RECOMMENDATIONS
INTEGRATED ENERGY REGULATORS’ SYSTEM

l Set up the Energy Regulators’ Group (ERG)                 Are the objectives
  – a collegial body that brings together the          aligned with the regulator’s
  three energy regulators for the purpose of
                                                          functions and powers?
  implementing joint work, co-ordination
  and information sharing in the area of
  governance of the agencies. The ERG
  would be created and its agenda would
  be set by the three regulatory agencies.        l Ensure that the three agencies have in
  Its work would be supported by working            place three to five-year operational plans,
  groups as necessary (e.g. a working group         including budget and resources, to achieve
  to set up a shared human resource policy          their long-term strategic objectives. The
  and mechanisms, to align sector Key               plans should consider sequencing and
  Performance Indicators (KPIs), or to align        phasing activities in line with formal
  and simplify licensing procedures), which         obligations, and include milestones and
  could be dissolved once the assigned task is      budget information. This plan should be
  delivered. The presidency of the ERG could        developed internally and shared with other
  rotate between the three agencies, with           federal entities through the Co-ordination
  each regulator responsible for ensuring the       Council for the Energy Sector (Consejo de
  secretariat of the committee during their         Coordinación del Sector Energético, CCSE).
  “mandate”. This mechanism, under the
  ownership of the regulators, would be an        l Conduct a mid-term review of the
  essential tool for the correct functioning of     operational plans based on the experience
  the integrated energy regulators’ system.         of the first years of implementation.
                                                    These reviews could be conducted by the
                                                    regulatory agencies with external support
                                                    as necessary and be used to identify any
                                                    necessary modifications to the current
          Does the regulator                        operational plan. The reviews can also
        have clearly identified                     assess the relevance and alignment of the
        objectives and targets?                     agencies’ mandated roles and objectives.
ROLE AND OBJECTIVES – FINDINGS AND RECOMMENDATIONS . 7

AGENCY FOR SAFETY, ENERGY AND ENVIRONMENT (ASEA)

ASEA is a deconcentrated agency of the
Ministry of Environment and Natural Resources                    Is progress towards
(Secretaría de Medio Ambiente y Recursos Naturales,            achieving the objectives
SEMARNAT), which sets it apart significantly
from the other two energy regulators, CNH and
                                                                 reviewed regularly?
CRE, which have ministry level autonomy. As
such, ASEA is subject to SEMARNAT processes
which can be burdensome, and the agency
intervenes in a sector where its parent ministry        l Function as a fully-fledged member of the
has limited technical experience.                         integrated energy regulators’ system (the
                                                          Energy Regulators Group, ERG and the Co
ASEA objectives are clearly defined in law.               ordination Council for the Energy Sector,
However, it operates in a more complex legal              CCSE) and actively propose areas of work
framework than its peers, due to the transfer             and co-ordination relevant to ASEA to the
of powers and functions from a variety of                 ERG and the CCSE.
federal and state actors following its creation
in 2015. Pursuant to its multidisciplinary              l Foster a culture of independence within
mandate, ASEA is called upon to co-ordinate               ASEA to offset the Agency’s lesser legal
with a wide variety of stakeholders. These                autonomy.
characteristics make it essential for ASEA to
be a fully-fledged member of the integrated             l Finalise the ASEA reglamento unificado to
energy regulators’ system.                                clarify mandate and functions and socialise
                                                          the new text and its implications with
ASEA has made considerable advances in                    stakeholders.
defining its strategic objectives and the
accompanying performance assessment                     l Review and fine-tune the strategic
system in its first years of operations. A more           framework to include medium and long
broad and medium- to long-term vision would               term and high-level policy objectives.
strengthen this framework.

         Are there operational                                                                       BIENVENIDO

      plans to achieve objectives
              and targets?                                           GASOLINERA

                                           BIENVENIDO
8 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

NATIONAL HYDROCARBONS COMMISSION (CNH)

Entrusted with the responsibility of running
                                                           Can the objectives
a novel process for Mexico – the auctioning                be used to develop
of the access to oil resources – CNH has                 performance indicators?
successfully managed the launch of the first
round of auctions. The professionalism in
running this process, a conscious effort to
be transparent and the development very
early on of a code of ethics against undue
influence from industry and government have       l Broaden the planning horizon of the
created a capital of credibility that needs         operational plan, for example by aligning
to now be invested into building internal           it to key CNH deliverables (e.g. five-year
processes supporting performance over time.         auction plan, management of potential
This should start with the development of           future contracts and entitlements).
a comprehensive strategy to steer CNH’s
activities.                                       l Set short to medium-term priorities by
                                                    weighting sector and organisational risks
CNH has started a vision/planning exercise          so that actions can be streamlined and
that has led to the identification of six           priorities can be communicated internally
core strategic objectives, stemming from            to align CNH workforce around the same
the CNH’s enabling legislation, as well as          vision and goals.
general, specific and operational actions to
be implemented over a one-year horizon.           l Set up internal mechanisms for developing
However, there isn’t yet a medium-term              and overseeing the implementation of the
operational plan to set priorities for              strategy, its medium-term objectives as
the achievement of the core strategic               well as annual operational plans.
objectives. Administrative and operational
demands related to CNH’s new tasks and
responsibilities have been particularly intense
for staff, leaving limited space to consolidate
and focus on more analytical and strategic
tasks like deciding which oil fields are to be
auctioned, or monitoring exploration and
extraction entitlements and contracts.

        Are operational plans
     adjusted to reflect progress
     towards meeting objectives
            and targets?
ROLE AND OBJECTIVES – FINDINGS AND RECOMMENDATIONS . 9

ENERGY REGULATORY COMMISSION (CRE)

The 2013 energy reform created additional                    How are overlaps
regulatory responsibilities for CRE in the
                                                             with other actors
hydrocarbons and electricity sectors. The
reform also provided CRE with a new status                      minimised?
as a co-ordinated energy regulator with
technical, operational and managerial
autonomy and the ability to generate income
to carry out its regulatory responsibilities.
                                                 l Develop annual plans that set out the
Fully occupied with implementing the reform,       activities that CRE intends to undertake
CRE has not yet developed a strategic plan.        in that year in order to implement the
Greater emphasis will be required on setting       medium and long-term goals set out in
and implementing strategic objectives,             its operational plan. CRE should also put
while pursuing the implementation of the           into place arrangements to ensure that
reform. This is particularly important given       the work plans of its units are aligned with
the recent decision to bring forward the           these annual plans and revise internal
liberalisation of the downstream gasoline          planning processes so that they reflect all
and diesel markets, which will continue CRE’s      of the activities needed to deliver CRE’s
heavy workload in implementing the energy          annual plan.
reform. The delivery of this policy objective
is also dependent on co-ordination among         l Communicate CRE’s progress in delivering
CRE, the Ministry of Finance and Public Credit     its annual plan by providing regular
(SCHP), the Federal Economic Competition           updates to stakeholders through the
Commission (COFECE) and the Federal                Advisory Council.
Consumer Protection Agency (PROFECO).
                                                 l Establish a formal co-ordination
                                                   mechanism between SHCP, COFECE, CRE
                                                   and PROFECO to support the successful
                                                   implementation of the liberalisation
           Are co-ordination                       of Mexico’s downstream gasoline and
           mechanisms used                         diesel markets. This would facilitate the
                                                   timely transfer of information between
              effectively?
                                                   the agencies, for example where price
                                                   information collected by CRE indicates that
                                                   there is market conduct that needs to be
                                                   investigated.
10 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

INPUT – FINDINGS
AND RECOMMENDATIONS
INTEGRATED ENERGY REGULATORS’ SYSTEM

l Conduct a co-ordinated collective review          – Opportunities for joint induction
  of financial sources and needs beyond                programmes for new recruits (for
  2019. An integrated energy regulators’               example on regulatory skills);
  system can provide unique opportunities
                                                    – A common graduate recruitment system
  to identify overall funding needs over the
                                                       with exchanges across regulators;
  medium to long-term. The objective should
  be to link missions and activities, related       – Common gender and diversity policy
  costs and revenue sources, based on a cost           across the regulators;
  recovery mechanism. The three regulators
                                                    – Comparable career systems to facilitate
  should assess current and future sources of
                                                       movement across the three agencies;
  funding in a co-ordinated fashion to identify
  needs over the long term, cumulative costs        – Common salary scales.
  for the regulated entities and a streamlined
  Trust Fund management system.                   l Ensure that the recruitment strategy
                                                    emphasises diversity. If the regulators do
l Establish an integrated energy regulators’        not proactively tap into all talent pools,
  career service (ERCS), in a progressive           they are not likely to attract a diverse,
  manner. There are significant opportunities       vibrant and competitive workforce.
  to develop an integrated ERCS common
  to the three regulators, which can be           l Mutualise digital resources and develop
  greater than the sum of its parts. The ERCS       data analytical capability. Digitalisation
  would provide opportunities to attract            provides significant opportunities to
  and retain talent more easily, and create         deliver on priorities and actions, but
  economies of scale for the establishment          its development and management
  of common systems, while each regulator           require internal capabilities. There are
  would retain control on recruitment               opportunities to mutualise capabilities of
  decisions, performance assessment and the         the three regulators by developing common
  identification of specific competencies and       solutions, sharing a group of IT specialists
  skills. The ERCS could include:                   and relying on off-the-shelf solutions. IT
                                                    expertise should be complemented by
  – Common mechanisms/procedures for
                                                    capacity for using digitalisation to read
     advertising positions;
                                                    and manage data in order to facilitate the
  – A common set of regulatory skills to be        delivery of core activities (and truly make
     identified jointly by the three regulators     digitalisation a means to an end).
     (in addition to those specific to each
     agency);
INPUT – FINDINGS AND RECOMMENDATIONS . 11

AGENCY FOR SAFETY, ENERGY AND ENVIRONMENT (ASEA)

By law, ASEA is funded by the federal budget
and its own income. In reality, the agency does          Are the regulator’s funding
not yet receive funds from regulated entities            and staffing aligned with its
and has not yet set up the trust fund that
                                                           objectives and targets?
would receive these resources. It is intended
that the Agency will gradually reach financial
autonomy.

As a deconcentrated agency of SEMARNAT,            l Explore and strongly advocate for solutions
ASEA is governed by SEMARNAT rules and               that will increase the institutional
procedures for managing financial and                agility and autonomy of ASEA, including
human resources and for procurement. These           advocating for a multi-annual budget
processes can carry a high transaction cost          settlement.
and are seen to undermine effective and
autonomous operations.                             l Prioritise the operationalisation of the
                                                     ASEA trust fund and move towards
Regulators are faced with the challenge of           less dependence on the federal budget,
attracting and retaining qualified staff, a          reviewing and defining methodologies for
task that will grow more difficult as oil prices     setting fees and levies, in collaboration with
recover and the development of the industry          the Ministry of Finance and Public Credit.
in Mexico picks up speed. ASEA has explored
and implemented strategies to attract and          l Establish an internal Resource
retain staff in a challenging context due to         Management Committee to regularly
competition from the private sector and lack         assess and re-allocate resources, roles and
of flexibility within the federal system. These      processes, prioritising high risk activities
efforts are worth pursuing in collaboration with     and taking into account the stabilisation of
CNH and CRE.                                         activities following the Agency’s start-up
                                                     phase.

                                                   l Continue to explore and propose solutions
                                                     making ASEA a more attractive employer,
                                                     from flexibility within the federal salary
                                                     scale to non-financial rewards.

                                                         Is there a transparent and
                                                      accountable process to allocate
                                                         financial resources to the
                                                                  regulator?
12 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

NATIONAL HYDROCARBONS COMMISSION (CNH)

The CNH is funded through the federal                        Can the regulator
budget and fees, taxes and duties. CNH’s                     manage resources
own income has come from the most part
from selling information for exploration and
                                                              autonomously?
extraction to the regulated sector. The energy
reform foresees that by 2019 CNH should be
fully funded through fees, taxes and duties
from the regulated sector.
                                                  l Develop robust internal financial
Fees, taxes and duties are paid into a trust        management mechanisms to identify
fund. The CNH cannot make use of the                spending needs linked to priority actions
trust fund until the third month of the year        and consider a multi annual budget
and needs government approval in order              settlement in Congress, providing financial
to do so. These processes represent a high          stability and facilitate long-term planning.
transaction cost and undermine effective
and autonomous operations. The lack of            l Strengthen the recruitment process and
a medium to long-term strategic plan and            incentives to retain personnel, including
performance evaluation also hinders CNH’s           through a competitive recruitment process
capacity to prioritise activities in the most       able to attract and retain staff, building
efficient manner.                                   on the recommended regulatory career
                                                    service.
There is currently no established recruiting
mechanism to fill in vacancies and little         l Consider having an annual training and
has been done to put in place such a career         skills development programme to stay up-
service. This can create a perception of            to-date with new and innovating methods.
unfairness and undermine the capacity of
CNH to attract and retain talent over time.
The CNH also needs more autonomy and
flexibility to attract and retain talent, given
the competition with the regulated sector on
talent and the constraint of the federal salary
scale.

       Can the regulator attract
       and retain the necessary
     talent to meet its objectives
             and targets?
INPUT – FINDINGS AND RECOMMENDATIONS . 13

ENERGY REGULATORY COMMISSION (CRE)

CRE’s financial and human resources have            l Strengthen the recruitment process by
increased substantially over a short period           making it competitive and create incentives
of time due to significant expansion in               to retain personnel, building on the
its regulatory mandate due to the energy              recommended regulatory service career
reform. While its headcount has risen by              system.
163% between 2012 and 2016, CRE has not
yet established job descriptions setting            l Align internal processes, such as budgeting
out the specific professional and technical           and staff evaluation and development with
requirements for each position within CRE.            the operational and annual plan. Linking
                                                      these internal processes to the operational
At the same time, CRE faces competition for           and annual plan would align CRE’s
its staff from the private and public sector.         resources to the delivery of the objectives
While CRE seeks to provide competitive                in these plans and to the CRE’s strategic
salaries within the confines of the federal           objectives.
salary scales, there appear to be opportunities
for CRE to improve staff retention by               l Conduct strategic workforce planning.
providing further non-salary incentives. This         Strategic workforce planning involves
may assist them to recruit and retail staff           identifying the needs of the organisation
with specific skills, such as expertise in tariff     in terms of numbers and skills in the
setting.                                              medium-term consistent with the
                                                      objectives that are sought to be achieved
                                                      in the operational plan. This strategic
         Does the regulator have                      workforce planning would then inform
                                                      the discussions with SHCP about future
    sufficient data analysis resources
                                                      resourcing needs, and could avoid
      to harness the challenges of                    bunching human resources together in a
           fast evolving markets                      manner which poses a challenge for the
                and sectors?                          organisation to absorb.

                                                    l Consider additional non-salary incentives
                                                      to attract and retain staff and build
                                                      internal capacity. CRE could consider staff
                                                      exchanges with other economic regulators
                                                      to share expertise, continuing to pursue
                                                      partnerships with universities and other
                                                      institutions to provide opportunities for
                                                      staff to further increase their expertise, and
                                                      flexible working arrangements to enable
                                                      staff to balance work with their personal
                                                      responsibilities.
14 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

PROCESS – FINDINGS
AND RECOMMENDATIONS
INTEGRATED ENERGY REGULATORS’ SYSTEM

l Consider the creation of a joint risk            The agencies should harmonise their rule-
  management strategy that enables                 making process including stakeholder
  the agencies to share information and            engagement mechanisms (apart from the
  create a platform that allows synergies          compulsory consultation with the Federal
  between them. The strategy may consider          Commission for Regulatory Improvement,
  elements such as setting clear governance        COFEMER) based on the forthcoming OECD
  and responsibilities on the management           Best Practice Principles on Stakeholder
  of the strategy, having a score to address       Engagement, disseminating calendars
  the most imperative issues, measures and         of upcoming regulation to the regulated
  ways to address the aforementioned risks         sector, and conducting ex post evaluations to
  and specific guidance to elaborate the risk      verify that the intended objectives of issued
  matrix. The topics could be discussed in the     regulation are being met. The synergies
  Energy Regulators’ Group (ERG).                  would enhance the benefits of a harmonised
                                                   process while decreasing transaction costs
l Assess the digitalisation needs of each          involved in designing and implementing
  regulator. Evaluate where ICT processes          these mechanisms separately.
  can be shared in order to reduce costs
  and to exchange knowledge (i.e. service        l Assess and review the internal governance
  platforms for data analytics and talent          arrangements in light of changes to agency
  management). Particular focus should             objectives and activities brought about by
  be given to the automation of internal           the reform. Particular attention should be
  management processes.                            given to assessing roles and responsibilities
                                                   for decision-making and day-to-day
l Seek to have an aligned process within the       management of the agencies, as well as to
  integrated energy regulators’ system to          the necessary continuity and stability of
  improve regulatory quality.                      these functions.

          Who is the regulator                              How are conflicts
           accountable to?                                of interest addressed?
PROCESS – FINDINGS AND RECOMMENDATIONS. 15

AGENCY FOR SAFETY, ENERGY AND ENVIRONMENT (ASEA)

The Executive Director (ED) of ASEA is
                                                           What evidence and data
nominated by the Minister of SEMARNAT and
appointed by the President of the Republic.              support regulatory decisions
Most decisions linked to the technical work and              of the Board /Head
management of the Agency are made by the ED.
                                                                 of Agency?
Like all federal entities, ASEA is accountable to
Congress but presents its annual reports to the
Technical Council led by the Minister. ASEA can     l Enhance and include a transparency
be called to appear in Congress, but hearings do      dimension in all ASEA activities to build
not happen systematically.                            trust in the regulator and boost its culture
                                                      of independence. This could include pro-
ASEA has set safeguards to avoid conflict of          actively publishing information relative to
interest through a code of conduct that strictly      inspections, meetings of ASEA governing
regulates interaction with regulated entities.        and advisory bodies, and stakeholder
Unlike CNH and CRE, ASEA’s code does not              engagement.
instate a supervisory mechanism. Moreover,
the Agency is audited as any subsidiary             l Advocate for the creation of an ASEA-
or deconcentrated entity of the ministry              specific Internal Audit Office.
and is supervised by SEMARNAT’s Internal
Audit Office (Órgano interno de control, OIC)       l Review the Agency’s current governance
which does not reflect its critical role in the       model and explore options for more
implementation of the energy reform.                  continuity in decision-making and focused
                                                      oversight of strategic planning.
ASEA follows federal requirements for
stakeholder engagement and has also set             l Ensure that the reglamento unificado
up early-stage consultation mechanisms. It            reflects good regulatory practices such as
is expected that the reglamento unificado will        administrative simplification.
improve the overall quality of ASEA’s regulatory
activities.

          Which processes
        support the quality
      of regulatory activities?
16 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

NATIONAL HYDROCARBONS COMMISSION (CNH)

CNH is headed by a governing council made                How does the regulator
up of seven Commissioners of whom one
serves as the President Commissioner. The
                                                          manage and evaluate
President of the Republic presents a shortlist                  risks?
of three candidates for each Commissioner
position and the Senate chooses following a
hearing.

The President Commissioner acts both as           l Allow the governing council to be more
chairman of the governing council and as the        focused on strategic decision-making by
chief executive officer. There is no designated     enhancing the role of a Chief Operating
person acting as operational Co-ordinator.          Officer.
Cumulating these functions without such a
co-ordination role burdens the agenda of the      l Create an internal Regulatory Committee
President Commissioner with operational             to oversee the rule making process and
matters, leaving a narrow margin for strategic      embed regulatory management tools.
thinking and representation.
                                                  l Consider having diverse ways of engaging
As all federal entities, the CNH is accountable     with stakeholders that are not the “usual
to Congress and Audit Institutions. However,        ones” and facilitate the involvement of new
there is no regular reporting and interaction       small companies in the business.
with relevant bodies in Congress.

The CNH has set safeguards to avoid
conflict of interest such as an internal Code
of Conduct and the issuance of a yearly                  How does the regulator
declaration of conflict of interest from                engage with stakeholders?
Commissioners, Heads of Unit and General
Directors.

The regulatory process builds on internal
and external quality control mechanisms,
including stakeholder engagement and
regulatory impact assessment. However,
some of the internal mechanisms
are either ad hoc or still in
the early stages of
development.
PROCESS – FINDINGS AND RECOMMENDATIONS. 17

ENERGY REGULATORY COMMISSION (CRE)
                                                             Have responsibilities
CRE’s decision-making body is its Governing             and capacity for the day-to-day
Council, which is composed of seven
                                                         management of the regulator
Commissioners, one of whom serves as the
                                                            been clearly identified
President Commissioner. All meetings of the
                                                               and assigned?
Governing Council are publicly broadcast.
Meetings between Commissioners and industry
are held at CRE’s premises with at least two
Commissioners present, and are recorded.
                                                 l Put in place arrangements to allow the
Commissioners also participate in the              Governing Council to focus on CRE’s strategy
development of regulation in Commissioner          and the delivery of the long-term goals in
working groups, which were established             CRE’s operational plan. This would involve
to distribute the workload associated with         looking at steps to empower staff to deliver
implementing the 2013 reform. Separate             projects more independently, and providing
working groups were established on                 additional time for the Governing Council to
electricity, natural gas and petroleum.            review, challenge and focus on the strategic
Commissioners also work directly with staff        implications of its work programme.
in the development of specific regulation.
                                                 l Consider whether tariff-setting processes
The regulation that CRE develops is subject to     should be opened to public consultation,
the COFEMER process, which requires CRE to         and whether sufficient consultation is
prepare regulatory impact assessments and          taking place for other regulatory processes.
submit regulation to a public consultation
process. While CRE has a Regulatory              l Link the current review of hydrocarbon
Performance Evaluation Committee that              tariff setting methodologies with the
is tasked with reviewing its regulation, it        process of formalising electricity tariff
has not yet developed processes for the            setting arrangements. This review could
ex post review of regulation. However, CRE         draw on tariff setting approaches and
does review its regulatory approach, and           practices in other jurisdictions, including
is currently in the process of revising its        looking at linking tariffs to the outputs that
approach to tariff regulation and making it        consumers demand (for example, reliability
consistent across hydrocarbon markets.             and quality).

           Have digitalisation
          needs been assessed
            and addressed?
18 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

OUTPUT AND OUTCOME – FINDINGS
AND RECOMMENDATIONS
INTEGRATED ENERGY REGULATORS’ SYSTEM
                                                         Is the performance of the
l Set organisational performance                        regulated industry assessed
  indicators to measure and track the                          systematically?
  agencies’ effectiveness of implementing
  the strategic goals and activities in the
  operational plan. The indicators should:

  – measure the organisations’ inputs and           should be communicated to senior staff
     processes through critical dimensions           within the regulators on a regular basis
     such as quality, efficiency and timeliness;     to serve as a dashboard of progress and
                                                     current trends in the energy sector.
  – assess the impact of delivery of outputs
     (for example, permits granted, open
                                                   l Establish a common platform for
     seasons, inspections) on outcomes (for
                                                     providing information to stakeholders
     example, new entry in markets, market
                                                     about the performance of the energy
     concentration ratios for each of the
                                                     sector. The indicators that the regulators
     hydrocarbon markets, and compliance
                                                     use as a watchtower for assessing the
     with regulatory obligations).
                                                     performance of the sector should be made
                                                     available externally, in order to enable all
l Consider the data and information that
                                                     stakeholders to track the performance of
  will be needed to measure performance
                                                     the energy sector, using a single source
  for each of the indicators. Where
                                                     of information. This could be developed
  possible, indicators would be tracked with
                                                     through the ERG.
  information that the agencies already
  collect from regulated industry and
                                                   l The agencies should report regularly to
  elsewhere.
                                                     the CCSE, the ordinary Energy Committees
                                                     of the two chambers of Congress and the
l Overall energy sector outcomes should
                                                     Special Commission of the Co-ordinated
  be used as an indicator of the impact
                                                     Energy Regulators, tailoring the content of
  of a regulator’s delivery, recognising
                                                     the reporting to the body’s mandate.
  that a diversity of factors can affect
  the performance of the sector. Overall
  indicators could be used to serve as a
  “watchtower” for assessing the overall
  performance of the sector, and the
  regulator’s own performance in delivering
  its operational plan. This information
OUTPUT AND OUTCOME – FINDINGS AND RECOMMENDATIONS . 19

AGENCY FOR SAFETY, ENERGY AND ENVIRONMENT (ASEA)

ASEA has recognised the importance of
assessing its own performance and the                    How is information from
Agency’s leadership team has engaged in an
                                                         performance and impact
exercise to set strategic objectives as well as
indicators to monitor their implementation                  assessments used?
since 2015. To consolidate these advances, the
framework should be reviewed to present an
appropriate balance between input and process
(internal functioning) and output and outcome     l Build skills and internal capacity to analyse
(sector performance) indicators, so as to give      the data that will be sent to ASEA by the
medium/long-term visibility to the Agency.          industry and ensure that this is in place for
                                                    late 2018 when SEMS data will begin to be
A wealth of data will be provided by the            submitted.
industry as of 2018, pursuant to SEMS
regulation. ASEA needs to ensure that it has      l Explore and implement more engaging and
adequate skills and resources to process and        accessible ways to communicate on the
analyse the data that will be sent by regulated     activities and results of the Agency, beyond
entities to adequately report on sector             the publication of its institutional annual
performance.                                        report on the website.

                                                  l Develop a methodology for engaging with
           Is the performance                       the industry on their performance, based
                                                    on the analysis of the data submitted.
      of the regulator and impact
                                                    This would include the compilation of an
        of its activities assessed                  annual report and its socialisation to the
              systematically?                       wider public.

                                                  l Review and fine-tune the performance
                                                    indicators to allow for the monitoring of
                                                    medium and long term and high-level
                                                    policy objectives.
20 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

NATIONAL HYDROCARBONS COMMISSION (CNH)

The CNH hosts the National Centre for           l Develop a comprehensive set of indicators
Hydrocarbon Information (Centro Nacional          that track not only actions and inputs but
de Información de Hidrocarburos, CNIH) that       also outputs from CNH’s regulatory activities
receives all data provided by the regulated       as well as direct and wider outcomes.
sector, including PEMEX. The CNIH has
developed a dedicated platform where            l Advocate for a formal engagement
information regarding the exploration and         mechanism for the CNIH that can help the
extraction of hydrocarbons can be accessed        management and development of data.
(portal.cnih.cnh.gob.mx).
                                                l Evaluate information needs and aim at
In 2016, the CNH carried out a process            collecting fit-for-purpose data that will
to define their vision and set high-level         be useful to support the performance of
objectives that would allow monitoring its        the hydrocarbon sector (especially on
performance. However, the planning exercise       measurement of production/extraction).
did not produce granularity on timelines,
milestones or budget requirements to attain     l Assess internal information needs and
the regulator’s six core objectives.              develop the mechanisms to produce, share
                                                  and use information.

                                                l Develop a dashboard – with regular
            Have data needs                       updates and information for the leadership
                                                  team and the governing council – on
             been assessed                        tracking progress of the objectives and
            and addressed?                        activities of CNH.

ENERGY REGULATORY COMMISSION (CRE)
                                                          Has the regulator
CRE collects a large amount of data from the
regulated industry in order to carry out its        developed internal capabilities
regulatory responsibilities, some of which             to develop and monitor
include making information available to the
                                                       performance indicators?
public (such as information on gasoline and
diesel prices). This data could be useful for
assessing how CRE performs.

In the absence of an operational plan and       prepare an annual report, but it does not
strategic objectives, CRE does not yet have a   have a regular obligation to report on
framework for measuring its performance.        its performance aside from reporting of
CRE is accountable to Congress, and does        indicators to SHCP.
REGULATORS, PERFORMANCE AND THE DELIVERY OF PUBLIC SERVICES . 21

Regulators, performance and the
delivery of public services
Will my light switch work? Will the train run on time? Can I fill the
tank of my car? Is there clean water in the tap?
As “market referees”, regulators contribute       opportunities, better targeting of scarce
to the delivery of essential public utilities.    resources and overall, for improving the
Regulatory agencies are at the forefront of       performance of regulatory policies and
making sure citizens and industry have access     regulatory agencies. To help regulators in this
to fundamental essential services that create     quest, the OECD has developed an innovative
enjoyable, prosperous and safe places to live,    framework that looks at the internal and
work and do business.                             external institutions, processes and practices
                                                  that can enhance regulators’ performance
To be successful, regulators need to be           and bolster their performance measurement
constantly alert, informed by live data,          efforts.
checking sectoral trends and assessing the
impact of their decisions. The performance        PERFORMANCE ASSESSMENT FRAMEWORK
of regulators is also largely determined by       FOR ECONOMIC REGULATORS (PAFER)
their internal governance (their organisational   REVIEW PROCESS
structures, behaviour, accountability, business
processes, reporting and performance              The analytical framework that informs this
management) and external governance (roles,       review draws on OECD work on measuring
relationships and distribution of powers and      regulatory performance and the governance
responsibilities with other government and        of economic regulators. Measuring regulatory
non-government stakeholders).                     performance can prove challenging, starting
                                                  with knowing what to measure, a number
Measuring regulatory performance allows           of confounding factors that can also affect
for the identification of bottle-necks and        outcomes, or a lack of data and information.
22 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

To overcome some of these difficulties, the                                 held to account, to improve the overall
framework breaks down the regulatory                                        effectiveness of regulators and promote
process into a sequence of discrete steps in an                             growth and investment, including by
input-process-output-outcome logic that can                                 supporting competition. Using the seven
be tailored to economic regulators.                                         principles (Figure 1), the PAFER review
                                                                            identifies the drivers of performance and
The OECD Best Practice Principles on the                                    studies the environment and context where
Governance of Regulators recognise the                                      regulators operate (external governance)
importance of assessing how a regulator                                     and how regulators work internally (internal
is directed, controlled, resourced and                                      governance).

Figure 1. OECD Best Practice
Principles on the Governance
of Regulators
                                                                       1
                                                                  Role clarity

                              7                                                                                 2
                                                                                                      Preventing undue
                        Performance
                                                                                                        influence and
                         evaluation
                                                                                                         maintaining
                                                                                                             trust

                                                                 Best
                                                               practice
                     6
                                                              principles                                                  3
                                                                                                                 Decision making
                 Funding                                                                                       and governing body
                                                                                                                    structure

                                                 5                                            4
                                                                                      Accountability
                                           Engagement
                                                                                     and transparency

Source: OECD (2014). OECD Best Practice Principles for Regulatory Policy, The Governance of Regulators, OECD Publishing, Paris,
http://dx.doi.org/10.1787/9789264209015-en
REGULATORS, PERFORMANCE AND THE DELIVERY OF PUBLIC SERVICES . 23

PERFORMANCE INDICATORS                                    effective use of a regulator’s input, the
                                                          quality of the regulatory processes and
For regulators, performance indicators                    identify outputs and some direct outcomes
need to fit the purpose of performance                    that can be attributed to the regulator’s
assessment, which is a systematic, analytical             interventions. Wider outcomes should
evaluation of the regulator’s activities in               serve as a “watchtower”, which provides
order to evaluate the reliability and usability           the information the regulator can use to
of the regulator’s activities. Accordingly,               identify problem areas, orient decisions and
indicators need to assess the efficient and               identify priorities (Figure 2).

                                  Figure 2. Input-process-output-outcome framework for
        Role &                    performance indicators
       Objectives
                                  Clearly identified role & objectives
                                  Clear role and set of objectives aligned with functions and powers to inform
                                  actionable performance indicators

                                  Efficiency and effectiveness of input
                                  Organisational and financial performance
          Input                   (e.g. planned activities completed on time and on budget).

                                  Quality of processes for regulatory activity
                                  Existence and effective use of regulatory tools and processes
                                  (e.g. measurement of accuracy, timeliness, accessibility, participation,
                                  risk analysis, use of evidence).

         Process                  Output from regulatory activity
                                  Effective regulatory decision, actions and interventions
                                  (e.g. decisions taken which were upheld).

                                  Direct outcome/impact                           Market structure
                                  of outputs                                      (e.g. level of concentration);
                                  (e.g. compliance with regulator’s
                                                                                  Service and infrastructure quality
                                  decisions).
         Output                                                                   (e.g. frequency and reliability of services
                                  Wider outcomes                                  to consumers, reliability and deployment
                                  To note that these indicators are               of infrastructure);
                                  meant to be a “watchtower’ to loop
                                                                                  Consumer welfare
                                  back and help identify problem
                                                                                  (e.g. ability of consumer to choose the
                                  areas, orient decisions and identify
                                                                                  service that best fits their preferences);
                                  priorities; they should be used as
                                  learning (rather than accountability)           Industry performance
        Outcome                   indicators:                                     (e.g. revenues, profitability, investment).

                                  Source: OECD (2015), Driving Performance at Colombia’s Communications Regulator, Figure 3.3
                                  (updated in 2017), OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264232945-en.
24 . THE GOVERNANCE OF REGULATORS: DRIVING PERFORMANCE AT MEXICO’S ASEA, CNH AND CRE

NETWORK OF ECONOMIC REGULATORS (NER)                                                                                                                                                                    countries from across the world. It brings
                                                                                                                                                                                                        together regulators with responsibilities for
What makes a “world-class regulator”? The                                                                                                                                                               communications, energy, transport and water,
OECD Network of Economic Regulators (NER)                                                                                                                                                               in addition to other economic, competition,
has been addressing this question through                                                                                                                                                               consumer, environment and safety issues.
objective data, rigorous analysis and dialogue.                                                                                                                                                         Members share their experiences, discuss
A subsidiary body of the OECD Regulatory                                                                                                                                                                challenges, identify innovative solutions, and
Policy Committee, the NER is an open and                                                                                                                                                                balance the competing priorities that frame
unique forum that promotes dialogue across                                                                                                                                                              the features of a “world class regulator”.
regulators operating in different sectors and

                                                                                   2012

                                                                                     RECOMMENDATION OF THE
                                                                                     COUNCIL ON REGULATORY
                                                                                     POLICY AND GOVERNANCE
       The Governance of Regulators

                                                                                                                    The Governance of Regulators

                                                                                                                                                                                                                      The Governance of Regulators

                                                                                     The Governance of Regulators                                                                      The Governance of Regulators
                                                                                                                                                                                                                                                                                     The Governance of Regulators
                                                                                     Driving Performance                                                                               Driving Performance
                                                                                                                                                                                                                                                                                     Driving Performance
                                                                                     at Mexico’s Agency                                                                                at Mexico’s National
                                                                                                                                                                                                                                                                                     at Mexico’s Energy
                                                                                     for Safety, Energy                                                                                Hydrocarbons
                                                                                                                                                                                                                                                                                     Regulatory Commission
                                                                                     and Environment                                                                                   Commission
       Driving Performance at Mexico’s Agency for Safety, Energy and Environment

                                                                                                                    Driving Performance at Mexico’s National Hydrocarbons Commission

                                                                                                                                                                                                                      Driving Performance at Mexico’s Energy Regulatory Commission
The reports presented in this brochure were          REFERENCES
discussed in the OECD Network of Economic
Regulators (NER) in April 2017 and peer reviewed     OECD (2017a), Driving Performance of Mexico’s
by senior officials from the National Energy Board   Energy Regulators, OECD Publishing, Paris.
(Canada), the National Energy Commission (Chile),    http://dx.doi.org/10.1787/9789264267848-en
the Petroleum Safety Authority (Norway), the
National Commission for Markets and Competition      OECD (2017b), Driving Performance at Mexico’s
(Spain), the Office of Gas and Electricity Markets   Agency for Safety, Energy and Environment,
and the Water Industry Commission for Scotland       OECD Publishing, Paris.
(United Kingdom). Data informing the analysis in     http://dx.doi.org/10.1787/9789264267848-en
the reports was collected through desk research,
questionnaires completed by Mexico’s energy          OECD (2017c), Driving Performance at Mexico’s
regulators and meetings with senior management       National Hydrocarbons Commission, OECD
and staff of the regulators.                         Publishing, Paris.
                                                     http://dx.doi.org/10.1787/9789264280748-en

                                                     OECD (2017d), Driving Performance at
                                                     Mexico’s Energy Regulatory Commission, OECD
                                                     Publishing, Paris.
                                                     http://dx.doi.org/10.1787/9789264280830-en
OECD work on regulatory policy
www.oecd.org/gov/regulatory-policy

OECD Network of Economic Regulators (NER)
www.oecd.org/gov/regulatory-policy/ner.htm

Agency for Safety, Energy and Environment (ASEA)
www.gob.mx/asea

National Commission for Hydrocarbons (CNH)
www.gob.mx/cnh

Energy Regulatory Commission (CRE)
www.gob.mx/cre

For more information, please contact:
Faisal Naru
Faisal.Naru@oecd.org

Filippo Cavassini
Filippo.Cavassini@oecd.org

Anna Pietikainen
Anna.Pietikainen@oecd.org

Guillermo Morales
Guillermo.Morales@oecd.org

                                                   Design and imagery: Baseline Arts Ltd, Oxford
                                                   Illustrations: Shutterstock.com
                                                   Front cover image: Leigh Prather – Fotolia.com,
                                                   Mr Vander – Fotolia.com, magann – Fotolia.com
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