Energy Deregulation at Critical Point

The plan was to break up Europe's gas giants, but the EC has backed down due to opposition from a group of member states. Talks are scheduled

The European Commission has tabled a compromise deal to liberalise the EU's gas sector, bowing to pressure from a group of member states, who firmly oppose the idea of separating gas companies' production and supply wings.

Energy experts from all 27 EU states have entered a critical phase in the months-long battle over the commission's furthest-reaching intervention in the energy sector yet, with talks scheduled for almost every day over the coming weeks.

The core of Brussels' proposal, known as full ownership unbundling, is to break up EU energy giants—such as France's EDF or Germany's E.ON—by forcing the parent company to sell its transmission networks.

The EU's executive argues that control of both supply and transmission makes it harder for new entrants to enter the market and that asset break-up is essential to boosting competition and cutting prices.

Earlier in May, members of the European Parliament's industry committee backed the commission's view. But in a new vote on Monday (19 May), they made an U-turn, diluting the very same ideas.

From the very start, EU capitals have been split into two camps on the issue.

Ireland, Spain, Sweden, the Netherlands and the UK are among those who favour the radical asset break-up idea.

On the other hand, eight EU states—Austria, Bulgaria, Germany, Greece, France, Latvia, Luxembourg and Slovakia—reject full separation of energy assets, claiming the idea violates the right to private property and runs the risk of EU companies falling under the control of non-European firms.

The battle gained new momentum after Andris Piebalgs, the EU commissioner in charge of the energy dossier, changed his original 2007 legislative proposal by including a so-called independent transmission operator (ITO) option—something closer to the views of the group of eight.

"We try to respond to member states' concerns," a European Commission spokesperson said, adding that the proposal is "a way to explore possibilities for compromise."

What is in the proposal?

According to the paper, seen by EUobserver, the transmission system operator—carrying out gas transmission—will be organized in "the legal form of a limited liability company."

The parent company will be allowed to retain ownership of the ITO, although the operator will have a "separate identity" and be fully independent of the company's production part.

Leasing of personnel, rendering of services, sharing shareholders or auditors between production and supply wings will be strictly prohibited.

In addition, the commission suggests a number of ways to oversee "effective independence" of the operator, including strong national regulators able to fine the ITO or the parent company up to 10 percent of the yearly turnover if they breach the rules.

But the devil is in the detail, EU diplomats say about the proposal, which only covers the gas market so far but would set a precedent for the electricity market down the line.

Time is running out

Amongst other things, controversy centres around whether the ITO option will be a five-year-long derogation before all member states accept the full ownership unbundling model, or whether it will be an equal option reviewed every five years.

According to German centre-right MEP Angelika Niebler, who chairs the industry committee, it was "necessary" that the commission took on board objections by the group of eight sceptical EU states.

"Some details of the proposal still need to be clarified," she said, but urged negotiators to stick to a tight schedule.

The hope is that all 27 ministers in charge of the energy dossier will reach a political agreement on the controversial liberalisation plans during their meeting on 6 June.

The upcoming French EU presidency—lasting from July until the end of the year—will be tasked to wrap up the dossier by translating the deal into a concrete legislative act and securing the European Parliament's support.

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