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European Infrastructure: Billions Needed in Investment

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

Troesch explained that the "review clause" provisions require that special reports be made by the European Commission to measure the benefits of liberalization. These reports are due before Jan. 1, 2005, and should refer to issues such as the ability of the competitive markets to fulfill public service obligations within the member states.

To create a single internal market for electricity, the European Commission issued a directive on Dec. 19, 1996, requiring implementation by the member states by February 1999. A directive is binding as to the results achieved on each member, but national authorities can choose their own form or methods to meet the results. Under the European Commission laws, a directive is the secondary level of law after a regulation, and it carries more authority than a decision, recommendation, and opinion.

The electricity directive called for significant changes in the way electricity was treated in the member countries and for unbundling of generation from network and supply activities. The directive also adopted the objectives of transparent pricing and non-discriminatory access and service on the part of the transmission operators. It did not, however, call for changes in ownership or privatization in the case of government ownership of assets.

The directive did call for competition in generation through a combination of free market entry through an authorization process and tendering of competitive bids for new capacity requirements in generation. The directive also addressed the issue of retail access by initially offering electricity suppliers a choice of a single-buyer model, negotiated third-party access, or mandatory market openings for large customers. The unbund-ling was to be functional with an independent transmission system operator, at least in terms of management. Most member countries introduced the concept of regulated access rather than negotiate and establish national regulatory agencies to handle this task.

As the member countries moved ahead with implementation, it became apparent that certain provisions were not working as intended, and additional measures would be required. The commission established a forum to discuss the issues and barriers to the establishment of the single market for electricity envisioned by the directive. The first commission Electricity Regulatory Forum, held in Italy in 1998, addressed cross-border trade, including lack of interconnection in critical locations. Nine additional meetings have been held since that time. A parallel program-the European Gas Regulatory Forum-has addressed similar issues in natural gas.-B.T.

European Regulatory Agencies

Almost all the member states of the EU have electricity regulatory agencies. These national regulatory agencies are members of the Council of European Energy Regulators (CEER). Only Germany is currently missing from this list, as it is in the process of establishing an independent regulator. The structure of the new European regulatory agencies varies from the single person Ofgem regulatory office in the United Kingdom to the 10-member Spanish commission.

The United Kingdom was the first of the EU member states to establish an independent regulatory office through its creation in the 1980s of separate gas and electric regulatory agencies Ofer and Ofgas.

In the 1980s Ofer, under the initial direction of Professor Stephen Littlechild, and Ofgas, under