EU to propose splitting energy groups to boost competition

(BRUSSELS) - Eager to fire up competition in the energy industry, the European Commission will unveil on Wednesday a sweeping shake-up, which already has many members up in arms over plans to split big power and gas companies.

The European Union's executive arm has long lamented the lack of competition in the energy sector, and has finally drafted radical proposals aimed at breaking the tight grip that the biggest companies hold over their markets.

For Brussels, big integrated energy companies that both produce electricity and gas and deliver it through their power lines and pipelines have an inevitable conflict of interest.

Like all companies they try to increase their sales, but their control over distribution networks allows them to keep rivals from mounting serious competition.

In the Commission's view, the answer is therefore to require gas and electricity companies to separate their supply businesses from their transmission networks.

In a slightly less drastic option, companies would be allowed to keep legal ownership of their delivery networks as long as they are run by an "independent system operator".

The Commission's more radical solution of requiring generation and production businesses to be separate companies already exists in 11 EU countries for electricity and seven for gas.

However, if the Commission's proposals succeed, some of Europe's biggest energy countries would have to sell some of their prime assets, a prospect which enrages some EU members.

Germany and France, home to such European energy titans as EON and Electricite de France, are in particular up in arms at the thought that some of their so-called national champions could be dismantled.

But the compromise option of letting independent operators run distribution networks has found little favour in the industry, with German groups RWE and EON and French companies GDF and Suez deeply opposed.

German state secretary for the economy Joachim Wuermling suggested a third option at the beginning of the month of simply giving more power to national energy regulators, an idea which is unlikely to find much favour in Brussels.

"Dismantling does not fix the problem," he said.

Meanwhile, France has warned that the shake-up could even reduce competition and French European Affairs Minister Jean-Pierre Jouyet has attacked the Commission's proposals as being driven by the "ideological position" of certain commissioners such as Competition Commissioner Neelie Kroes.

So far eight of the European Union's 27 member states have voiced support for the reform, while nine have come out against it.

To avoid non-EU firms grabbing up Europe's energy companies, the Commission's proposals call for a reciprocity clause that would make companies from abroad subject to the same rules as their domestic rivals.

While speaking in vague terms on Thursday about "defence mechanisms" to guard against some foreign investors, Commission chief Jose Manuel Barroso found it "strange" that Russian giant Gazprom could buy a European distributor but EU groups can not buy Russian energy producers.