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European Infrastructure: Billions Needed in Investment

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

the benefits of competition either at wholesale or at retail. This was the core problem in failed attempts last year to pass a comprehensive energy bill. At a minimum, the EU has chosen competition over monopoly, and collaboration over division. It also has looked to extend its market to create an even larger energy market, ensuring greater benefit to its member states and ultimately to its citizens.

European Union Adopts Directives Supporting a Competitive Market

Following input from the electricity forum, the European Parliament and the Council of the EU on June 26, 2003, adopted a new electricity directive (2003/54/EC) and a new regulation (12/28/2003) effective July 2004. The new directive repeals the 1996 requirements and moves to create common rules for an internal market as well as new conditions for access to the network for cross-border exchanges of electricity. However, the EU has established a stringent set of requirements beyond those possible by the U.S. Federal Energy Regulatory Commission (FERC), short of additional legislation. The new electricity directive requires:
1. Unbundling
Further unbundling through a new requirement that transmission and distribution system operators be independent of generation in "legal form, organization, and decision-making."
2. Retail Access
All non-residential consumers must have access to competition by July 1, 2004, and full retail access must be in place by July 1, 2007. The United Kingdom and Germany opened access to all consumers earlier, but the new requirements are the minimum standard for all member states and are enforceable by the basic treaties governing the EU member state relations.
3. Open Access
Such access to the transmission and distribution grids is now mandatory and regulated. The old practice, where it remained, of negotiated and private tariffs will be superceded by a system of published and regulated access tariffs to electric transmission and distribution systems.
4. Independent Regulators
Each member state must establish independent regulatory agencies charged with enforcement of competition by the development of access charges and methodologies. Independence is defined in terms of the electric industry. It is not clear whether this precludes agencies from being within various cabinet ministries.
5. New Generation Capacity
The new directive calls for "authorization" procedures rather than "tendering" procedures. In this case it appears that the EU wants to create a system where a potential builder of new generation capacity faces a set of clear rules for how to apply for authorization to build a facility and put it at market risk. Tendering, or bidding to fulfill a specific supply contract, is allowed if the government feels that there is insufficient generation coming on line in the open market process. To ensure transparency, the tendering process can be done by a fully independent transmission system operator or in its absence by the regulator directly.

Commissioner Troesch of the French regulatory agency reported at the December 2003 annual meeting of the U.S. Energy Bar Association in Washington, D.C., that the main legal provisions of the new directives also include review clauses, consumer protection, energy labeling, and the establishment of a European regulators group.