Separation of Assets

"If all goes well, the EC could take a decision regarding the unbundling of energy supplies on Sept. 19," commission spokesman for energy issues, Ferran Tarradellas, told journalists in Brussels on Thursday.

"Unbundling" is a model of separating production and distribution channels in the energy sector. According to this model, companies providing energy supplies -- oil, gas or electricity -- could not own and control transmission systems such as pipelines and cables at the same time.

"Choosing a gas or electricity provider is a fundamental right," Tarradellas said. "For that, asset separation is equally fundamental."

Free-market advocates have hailed asset separation as a move that would efficiently open up the monolithic energy market to free and fair competition and benefit consumers in the long term.

Two approaches

German business daily Handelsblatt reported on Thursday that the European Union's executive branch was considering two possible approaches to force big energy concerns to loosen their grip on bundled energy systems.

Under the first approach -- known as full ownership unbundling -- owners of distribution networks that are also energy producers would have to sell their networks to an independent third party or form a new separate business by splitting their shares.

The second approach foresees big energy companies retaining ownership of the networks, but forcing them to hire an independent system operator that would manage the networks and make investment decisions in exchange for an "appropriate" fee.

"If you want to guarantee that consumers can choose their energy supplier, that necessary investment is done, and that prices respond to market rules, you need strong measures to ensure real competition in the EU," Tarradellas said.

Opposition

Eight EU countries -- Belgium, Britain, Denmark, Finland, the Netherlands, Romania, Spain and Sweden -- already voiced their support for separation of assets in a letter to EU Energy Commissioner Andris Piebalgs in June.

In July, however, nine countries -- Austria, Bulgaria, Cyprus, France, Germany, Greece, Luxembourg, Latvia and Slovakia -- opposed the plan, claiming that unbundling did not guarantee a rise in investment and lower consumer prices. Concerns have been also raised about whether the separation of supply and distribution would make it easier for EU companies to fall under the control of non-European firms.

Unbundling is also not favored by Russia -- one of the EU's main energy suppliers -- which sees its practical monopoly over gas production and transmission as a key national security issue.

Proposal still lacking a majority

While, according to the AFP news agency, the European Commission does not, at the moment, have a qualified majority necessary to implement the plan, it has the backing of the European Parliament, which indicated in July that it was in favor of unbundling.

"We won't propose anything which cannot get a majority in the European Council," Tarradellas said.

EU energy ministers are expected to consider the proposal in October and reach a final decision sometime next year.

In addition to unbundling, the commission is expected to propose setting transparency rules for energy sellers and buyers in order to boost control over wholesale energy prices.

A 2003 law requires EU member states have an independent national regulatory authority on energy matters. The commission, however, is planning to strengthen the role of a pan-European regulator, either by creating a new agency or giving a wider mandate to its existing advisory body, the European Regulators' Group for Electricity and Gas (ERGEG).