Unbundling authority: the strategic formalization of regulatory intermediaries in liberal electricity markets

Abstract Governors can expand their authority in industrial governance by unbundling industrial actors and institutionalizing regulatory roles for the unbundled units. This form of appropriation of industrial capacity enables governors to constitute a new path of regulatory intermediation through formalization of the relation between the governor and the intermediary. But the intermediators importance is related to the level of discretion in the regulatory work. To show the relevance of appropriation to constitute authority, this research explores the political significance of the unbundling of System Operators (SOs) from private transmission companies in two liberalized electricity systems, Chile and the UK. Relying on theoretical debates over indirect governance and regulatory intermediation, the research shows how unbundled SOs can play roles on market design, investment coordination, and supervision, in solving a problem of asymmetry of knowledge and competence. The article challenges the current understanding of the SOs as rule implementors developed under the principal-agent theory and theorizes the strategy of appropriation through unbundling as a form of mitigating institutionalized business power in deregulated regimes. The establishment of regulatory intermediation, thus, becomes a viable option for taking back control where nationalization of assets and operations is not feasible or desirable in public service industries.