Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

European Infrastructure: Billions Needed in Investment

Electricity demand in parts of Europe is on the rise.
Fortnightly Magazine - February 2004

For Transmission Infrastructure

The EU has recognized that the current situation in transmission is one of inadequate transfer capability leading to the inability to fully integrate markets. At a recent Barcelona Summit, EU member states pledged to increase interconnection to at least 10 percent of the installed generation capacity by 2005.

The transmission component, whether high voltage for electricity or high pressure for natural gas, and the local distribution component continue to be treated as monopoly services under state regulation. However, as is the case with U.S. policy, competitive production needs non-discriminatory and fairly priced access to its markets. Transmission service must be both adequate and offered at just and reasonable rates. To create a system large enough to provide this level of "adequate" service, the role of the regulator is crucial.

The European Commission, recognizing the size of the investment problem, sent a communication to its association of national electric and gas regulators, the Council of European Energy Regulators (CEER), requesting it "put forward guidelines on how to regulate and financially reward the construction of infrastructure." In response, the CEER issued in March 2003 a white paper, "Principles on Regulatory Control and Financial Reward for Infrastructure." The CEER determined to first advance a set of principles and follow up later with more detailed guidelines for the electricity and gas energy sectors.

In the United States there are no government-established and agreed-upon principles of regulation. However, the regulation of public utility rates in the United States is relatively fixed by a series of U.S. Supreme Court rulings based on the application of the U.S. Constitution's Fifth Amendment takings clause and the Fourteenth Amendment's due process clause, which provide the underpinnings for the "just and reasonable" standard adopted by regulators and now enforced by U.S. courts.

While the introduction by the CEER of a set of principles is not the same as a new law, it is an important step in the creation of an investment climate needed to attract capital at reasonable rates. Perhaps a future EU constitution will provide the opportunity to provide the legal framework and higher level of investor assurance provided by the U.S. Constitution, when applied to utility rate setting.

The CEER opens its document with a single statement of principle: "The full liberalisation of the market is the dominant prerequisite for the efficient use of existing infrastructure and the development of new infrastructure. In these circumstances, a key focus should be on the ability of signals emerging from trade to highlight the need for new investment."

The document presents eight principles around which future guidelines should be based. The principles cover the role of government, the need for independence of the network, and the duties of regulators (see sidebar, p. 45).

A Single Standard Market: Can Europe Succeed Where the U.S. Failed?

Anyone familiar with the various interpretations and the applications of the federal law by state and federal regulators in the United States will marvel at the attempt to harmonize the regulatory regimes of 15 countries in this manner. The absence of an EU constitution at