EU gearing up for battle over splitting up energy groups

(BRUSSELS) - The European Commission, eager to fire up Europe's energy markets with more competition, is drafting plans to break up big integrated gas and power majors despite stiff opposition from many countries.

The European Union's executive arm is due to present plans on September 19 that it hopes could bring relief to European consumers, which it has long said pay too much for their energy due to a lack of competition.

The Commission believes that the situation could be rectified by forcing them to loosen their grip on both gas and electricity production and the infrastructure needed to get it to customers.

Therefore, it is finalising proposals for so-called ownership unbundling, which could force big integrated energy majors to split into separate companies either producing energy or delivering it.

"Choosing a gas or electricity provider is a fundamental right," said Commission spokesman for energy issues, Ferran Tarradellas Espuny. "For that, asset separation is equally fundamental."

"We still believe that this asset separation is the best solution."

German business daily Handelsblatt reported that a draft version of the Commission's proposals did indeed call for big energy companies being split into separate companies either generating electricity or distributing it.

According to the newspaper, the Commission is considering two options.

Energy producers that also own distribution networks would either have to sell it to an independent investor or if they remained the owner they would have to entrust the management and investment decisions to an independent operator in exchange for "appropriate" fees.

The proposals would need the backing of most of the European Union's 27 member states to go ahead, but so far they are deeply divided into the for and against camps.

In June, eight countries -- Belgium, Britain, Denmark, Finland, the Netherlands, Romania, Spain and Sweden -- came out in defence of ownership unbundling in a letter to EU Energy Commissioner Andris Piebalgs.

But in July, nine countries -- Austria, Bulgaria, Cyprus, France, Germany, Greece, Luxembourg, Latvia and Slovakia -- voiced their opposition, arguing that there was no proof that unbundling would deliver lower prices and boost investment.

Although other member states still have to reveal their positions, as things currently stand the Commission does not have the qualified majority necessary for its proposals.

However, the European Parliament, which would also have to give its backing for the proposals to go ahead, indicated in July that it was in favour of unbundling.

Unbundling is not the only bone of contention the Commission is likely to raise in September as it is also to propose to create a European energy authority charged with regulating cross-border energy flows.

It would set transparency rules for gas and electricity sellers and buyers, which would have to make sensitive information for the market public in the interest of competition.

However, it remains to be determined whether to create a new European agency or boost the powers of an existing advisory body called the European Regulators' Group for Electricity and Gas (ERGEG).

Even though some counties are uneasy about giving up powers, Tarradellas that "there is a consensus on the necessity" for a European regulator.

A 2003 law requires European countries to have an independent national regulator, although results so far are mixed and their status remains to be clarified.