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European Infrastructure: Billions Needed in Investment

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

this point in time is less likely a hindrance to the establishment of a single market in electricity (and one in natural gas) than is the absence of a single central regulator. Consider for a moment how the electric transmission rules might look in the United States without the benefit of FERC regulation. Speaking at the 2003 annual meeting of the U.S. Energy Bar Association, one of the French energy regulators, Commissioner Jacques-Andre Troesch, indicated that the task of the current regulators is to harmonize national regulations across borders in areas of tariffs, renewable energy, taxation, public service obligation and integration of stakeholders. He further said the creation of a single European regulator is hindered by differences between national markets that are too wide, cooperation requirements among the existing national regulators, the necessity of establishing a European-wide committee, and the difficult option of a single regulator.

In recognition of the need for more coordination of European regulatory policy, on Nov. 11, 2003, the European Commission announced the establishment of the "European Regulator Group for Electricity and Gas" as an official advisory body to the commission. The group is to advise and assist in consolidating the internal energy market. Members of the group will be the heads of the respective regulatory agencies in the European Commission member countries. This mechanism may prove both cumbersome and ineffective, but the ability of the CEER to come together and agree on the CEER's eight principles gives hope that the new group may be able to establish some guidelines based on these principles.

To complicate matters even more, the EU's single market for electricity soon will be expanded to include neighboring states in central and Eastern Europe. The EU also has looked ahead at steps to integrate with the more distant but larger market of Russia. Finally, on Dec. 9, 2003, the EU also signed a memorandum of understanding to integrate the energy markets of Southeast Europe by 2005. All of the skills used to date in the EU to create a single market in Western Europe will be called upon to extend that market to this diverse and recently troubled part of Europe.

The successful creation of a single market for electricity and another for natural gas among economically developed states of the EU is a formidable task. Lacking a central regulator and operating on treaties and agreements rather than a single constitution, the member states of the EU have managed to create a single vision and cohesive energy policy. This policy has at its core the belief that competitive markets are more efficient than central planning and monopoly. The EU has determined that markets should be allowed to develop where feasible. The EU also has accepted that the functions of transmission and distribution are better provided by regulated monopoly. Finally, the EU has shown that it can advance its objectives, slowly, through the use of forums and summits that bring together the many stakeholders.

Whether there are any lessons here for the United States is debatable. The United States lacks a single cohesive view of