Transport

Regulatory Design, Policy, and Advice

NERA's economists are experts in the design, implementation, and review of regulatory regimes and have extensive experience across a wide range of countries and industries, including the transport sector. Our studies cover all aspects of economic regulation, from the inception and design of the regulatory framework to the provision of detailed advice to regulated firms and regulatory bodies during the course of price reviews, appeals, and other regulatory processes. NERA has wide-ranging experience in designing markets and advising on access arrangements in cases where previously integrated industries have been broken up or liberalized.

We have addressed a wide range of issues across the transport sector including:

• Scope and nature of regulation. We provide advice, at an early stage of industry restructuring, on the need for economic regulation, the particular services or products for which regulation is required, and the advantages and disadvantages of different forms of regulation.
• Design and review of regulatory frameworks. Based on best practice from different industries and countries, NERA experts identify options for the regulatory framework and assess their suitability for the specific circumstances of each industry. Our advice covers general methods of regulation, as well as more detailed issues such as the choice between single till and dual till approaches, or the need for risk-sharing terms in price caps.
• Regulatory due diligence. We use our extensive industry knowledge and expertise in economic regulation to provide due diligence advice to potential investors in transport sector transactions. We explain how the current regulatory framework operates, highlighting risks arising and protections provided, and can address questions such as how regulators might respond to potential future developments or whether the regulatory framework itself might be subject to change.
• Advice during price-cap reviews. We have extensive knowledge of and practical experience with price cap regulation, and provide robust and independent advice to firms, regulators, and customers during price-cap reviews. We advise on issues including measuring the regulatory asset base, the cost of capital, efficiency benchmarking, and financial sustainability;
• Regulatory governance. NERA has a track record of authoritative studies on regulatory governance covering both transport and other regulated industries. These studies address important issues such as the clarity of the regulator’s role and objectives, its effective independence from government, accountability arrangements (including appeals mechanisms), transparency requirements, and the constructive involvement of industry stakeholders.
• Contract and incentive design. NERA has worked extensively on the design of franchise and concession contracts, advising on issues such as optimal franchise length and efficient allocations of key risks. We also design efficient payment mechanisms that provide franchisees with effective incentives and, where relevant, can be incorporated in the competitive tender process.
• Analysis of cost structures. Our economists help regulators develop cost-reflective charging structures which encourage the efficient use of facilities while meeting any cost recovery constraints. We design efficient charging systems, taking full account of practical constraints as well as economic principles, and carry out econometric analysis to improve firms’ and regulators' understanding of cost causality.