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Global Regulation: Exporting 'America' to the World

Why U.S. public utility commission-style ratemaking has becomes a hit overseas.

Fortnightly Magazine - February 2007

and Transmission Arrangements (BETTA) implemented in April 2005. As a member of the EU, the UK’s restructuring and liberalization preceded and fulfilled the EU’s Electricity Directives requirements.

The European Union: Still Struggling

The member states created the EU with the goal of obtaining benefits to their national economies by establishing a single competitive internal market. The electricity and natural-gas sectors have been among the last sectors to which the EU has applied requirements for open-market competition, i.e., liberalization. The EU adopted an “Electricity Directive” 96/92 EC of 19 January 1996 abolishing the monopoly rights of electricity suppliers, whether nationally or privately owned, over electricity and natural-gas supply. In other words, it introduced liberalization. The directive, however, did not require the privatization of state-owned assets.

To ensure that customers had access to competitive markets, the EU Electricity Directive established requirements for open access on all transmission and distribution networks. The EU, in 2003, added the requirement that each state have a designated authority to ensure “regulated” access to the grid and competitive supply, and to establish rates and tariffs for delivery services. This 2003 provision of the EU directive has led to the recent establishment of regulatory agencies in all the 25 EU member states (not including the newly added Romania and Bulgaria). As in the case of the United States, each country’s national regulator, while similar in some aspects to U.S. regulation, has its own unique characteristics reflecting national priorities, legal procedures and preferences.

While there is no EU-wide regulator, the issue of whether the EU needs a single regulatory agency is being debated heatedly. The EU has established a statutory advisory group of regulators from member states—the European Regulators Group for Electricity and Gas (ERGEG)—whose current chairman is UK regulator Mogg.

Absent an EU-wide regulator, the issue of successful implementation of the electricity and gas directives currently is before both the EU’s energy commissioner and competition commissioner. The Financial Times, on Jan. 5, 2007, released advanced notice of a report to be issued by the EU’s Competition Commissioner Neelie Kroes that finds “evidence of collusion and other severe market failures” in the EU’s power markets.

When the report was released Jan. 10, 2007, the BBC reported that “the commissioner said she wanted to ‘unbundle’ large companies such as Germany’s E.On, and Electricite de France, so that the businesses that generated power and supplied gas were not the same ones that controlled the network of pipelines.

France’s Regulator: No Teeth

The EU’s electricity directive opening up electricity supply to competition was implemented in France with the passage of the Electricity Law of Feb. 10, 2000. France has had a single national electricity system of generation, transmission, and distribution (Electricite de France) owned by the government since 1946. The introduction of competition has resulted in more than 50 suppliers becoming active in France and has led to the establishment of a French power exchange, “Powernext,” according to the 2005 report of the regulator.

The Electricity Law of 2000 also established an independent national energy regulation agency, the Commission de Regulation de l’Energie