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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 chartered accountant Sir James McKinnon, provided a stellar example of independence and objectivity to the new European energy regulatory scene, as well as the commensurate controversy. British regulation followed the pattern established in Professor Littlechild's earlier white paper, which introduced the primacy of the price cap rate-setting regime into European regulation.

As the EU expands membership, the newly created regulatory agencies of Central and Eastern Europe also will join CEER. At this time, all of the countries of the former communist block except Serbia and Montenegro have established regulatory agencies and created an affinity organization, the Energy Regulators Regional Association (ERRA.) The secretariat has been established in Budapest with the active assistance of the U.S. National Association of Regulatory Utility Commissioners (NARUC) under funding from the U.S. Agency for International Development. In most cases, the structure of these agencies has been the U.S. multi-member commission model, with some variation in the number of members appointed.

Russia has both a Federal Energy Commission and regional commissions. These regional regulators also have established a trade association similar to the NARUC model. Clearly the U.S. regulatory model has been a major export success in Europe. -B.T.

The following agencies are currently members of CEER:
Austria
Belgium
Denmark
Finland
France
Great Britain
Greece
Ireland
Italy
Netherlands
Norway
Portugal
Spain
Sweden

Principles of Regulatory Control

Principle #1

Public authorities should endeavor to encourage sufficient investment in gas and electricity network infrastructure in order to implement the internal energy market, facilitate efficient competition, and safeguard security of supply. Public authorities need to maintain oversight of infrastructure decisions in order to promote both security of supply and network efficiency.

Principle #2

Transmission system operators must manage their networks in a way that ensures the efficient use of infrastructure.

Principle #3

Public authorities should establish transparent, non-discriminatory and standardized options for the development of infrastructure, and aim as far as possible to minimize regulatory risks.

Principle #4

Public authorities should enforce a minimum procedure for the publication of the transmission system operators' infrastructure plans.

Principle #5

Transmission system operators must be effectively unbundled to ensure that there is no conflict of interest when making investment decisions and to ensure there are sufficient incentives to provide non-discriminatory third-party access. Unbundling of network ownership is the preferred route to follow.

Principle #6a

Public authorities should establish, in advance and in a transparent manner, which regulatory regime is to be applied for both national and cross-border investments. That regulatory regime should include a clear description of its applicability, the relevant criteria for the financial reward for new infrastructure investment, and should describe the relevant criteria applicable to third-party access to the new infrastructure.

Principle #6b

Merchant infrastructures have to be decided on a case-by-case basis and should continue to be subject to an ex-ante regulatory control for each individual case. Where the merchant status is granted on a time-limited basis, the ongoing regulatory status should be properly reappraised at the end of this period.

Principle #7

Public authorities should guarantee that procedures applicable to granting required licenses for new investments in gas