European energy generators should give up their power grids and gas pipelines, the European Commission has proposed as part of a sweeping plan to boost competition and investments -- and shield markets from outsiders such as Russia's Gazprom.
The European Union's executive arm said foreign energy companies wishing to enter EU natural gas and electricity markets must cast off their transmission operations too -- a swipe at Gazprom, which supplies 25 % of Europe's gas and has already acquired stakes in EU energy businesses.

EU energy companies now control the generation and the transmission of their gas and electricity. That dominance gives them "an inherent interest to limit new investment when this will benefit... competitors," the European Commission said in a report.
It said billions of dollars were needed to upgrade Europe's energy grid, connecting fragmented markets and preventing blackouts or shortages.

The EU's head office listed two options: Governments could either force energy companies to sell off their power grids or pipelines, or create fully independent transmission operators. In the latter case, energy companies can retain their networks but must lease these to operators not active in energy supply, generation and production.
Because "energy is the driving force of our economy we need [to] achieve greater energy security and provide abundant energy at a fair price for citizens," European Commission President Jose Manuel Barroso said. "This is only possible if we have a competitive gas and electricity market."

The commission prefers "ownership unbundling" -- whereby energy firms sell their transmission networks -- to create more market access and lower prices. But given stiff resistance to that -- notably in France and Germany -- the "independent [transmission] system operator solution will ensure similar results... with strong regulatory oversight."
The plan is subject to approval by governments and the European Parliament, which can alter it.

BusinessEurope, the EU employers' lobby, said "a radically new approach such as ownership unbundling" must be weighed against the option of breaking up energy giants.
German Economy Ministry spokesman Steffen Moritz said that "significant points are not convincingly resolved" in the proposal and that it marked only the start of negotiations between EU nations.

Germany's E.ON -- which has a small stake in Gazprom and works closely with the company -- said the EU had not laid out any convincing evidence to justify such far-reaching proposals and the company did not believe the plan would succeed in hitting the EU's goals.
"Some of the commission's proposals would more likely lead to more red tape and a return to state control," Chief Executive Wulf Bernotat said. "That... makes us concerned."

Energy deregulation has not been an EU success story. The block largely remains a hodgepodge of national or regional monopolies that can manipulate gas and electricity prices and supplies.
"It is now time to complete this process and ensure that the benefits of this market are real, effective and available to each and every person and company," Energy Commissioner Andris Piebalgs said.

The EU's antitrust chief, Neelie Kroes, said she would separately push on with investigations into possible monopoly abuse, cartel agreements and unfair state subsidies in the energy sector.
But she warned that these could not substitute for a major liberalization effort.

Source: Dow Jones & Company