1. 2nd Annual Conference of Competition and Regulation in Network Industries
Center for European Policy Studies (CEPS), Brussels, Belgium
November 20, 2009
Regulatory Reform and Industrial Restructuring:
The Cases of Water, Gas, and Electricity in Italy
Alberto Asquer
Dipartimento di Ricerche Aziendali
Faculty of Economics
University of Cagliari, Italy

2. Introduction
'Standard prescriptions' for reforming infrastructure industries:
unbundling, liberalizing, regulating (Joskow, 1996)
How much effective are these 'standard prescriptions'?
How do they apply to different infrastructure sector (i.e.,
different physical, technical, economic features)?
Theoretical framework of the new institutional economics:
property rights, asset specificity, contract incompleteness,
transaction costs, information asymmetries, economies of
scale and scope, externalities (Williamson, 1975, 1985;
Glachant, 2002)
Method is comparative case study: regulatory reforms and
industrial reorganisation in the water, gas, and electricity
sectors in Italy (1990s-2000s)

3. The water sector (1994-2008)
Background
Highly fragmented sector (23,500 operators) mostly operated
by local government firms, plagued by water leakage,
shortage, pollution, poor sewage systems
Reform (1994)
Provided horizontal and vertical integration, separation of
planning & regulation from management, full cost recovery,
price regulation; partially implemented vis à vis resistance of
sub-national governments
Industrial reorganization
Aggregation of water firms in 67 OTAs (79% population),few
franchise allocation competition, less investments than
expected/needed and water tariffs slightly increased but lower
than other countries (UK, GER, FRA, SPA)

4. The gas sector (2000-2008)
Background
Vertically integrated public companies (ENI-AGIP-Stogit-
SNAM-Italgas), declining domestic production and growing
imports
Reforms (2000, 2004) (ref. 98/30/CE & 2003/55/CE)
Progressive liberalization of all segments, market caps,
accounting or legal unbundling, franchise allocation of local
distribution (12 years, 6,400 local governments), price
regulation (AEEG)
Industrial reorganization
Incumbents still largely dominant (86% production, 98%
storage, 96% transmission), distribution concentrated (86%
market in 20 firms), a few franchise allocations (4%
reassigned), low switching rate (comp. UK), prices stable
(about EU average), a few investments (subsidies)

5. The electricity sector (1999-2008)
Background
Originally fragmented, later nationalised and integrated
(ENEL), later on production progressively liberalized; mostly
domestic production (14% import)
Reform (1999) (ref. 96/92/CE)
Spin-off energy generation and market cap, legal unbundling
transmission and dispatching, franchise allocation of local
distribution (30 years), price regulation (AEEG), green
certificates
Industrial reorganization
Fragmentation in production (Elettrogen, Eurogen, Interpower)
but ENEL still holding about 2/3 of generation market, 86.4%
of distribution, prices stable (much above EU average), a few
franchise allocation, incentives for garbage incineration plants

6. A comparative analysis

7. Policy implications
Despite regulatory reform, incumbent firms tend to retain a
considerable influence on the regulated infrastructure sectors
Further elements need to be considered in the 'standard
prescriptions' which tackle the behaviour of incumbents when
implementing or reacting to the implementation of new
regulations
Implications much beyond the Italian experience:
For regulating gas and electricity in the EU: cross-border
infrastructure investments, cooperation for managing
international transmission systems and regulation
For regulating water (no common market rules, but designing
efficient institutions for pursuing environmental goals):
effectiveness of franchise allocation as policy design option

8. Thank you for your attention