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EU Commission sets strict terms on unbundling

The European Commission has put forward draconian conditions for allowing vertically integrated utilities to keep their electricity and gas networks, infuriating Germany and France, diplomats said on Friday.

Berlin and Paris led a group of eight European Union states that rejected a Commission plan to break up ownership of power supply from transmission networks -- a process called unbundling -- in a bid to force more competition into the EU energy market. They proposed an alternative, known as the Third Way, under which giants such as Germany’s E.ON and RWE and France’s EdF and Gaz de France would be allowed to retain ownership of pipelines and power grids, which would be operated by an independently managed subsidiary.

Brussels has now circulated draft amendments stipulating that the parent company must provide “appropriate financial resources for future investment projects and/or for the replacement of existing assets” at the request of the transmission system operator (TSO). The draft, seen by Reuters, would handcuff the parent company, which would not be allowed to lease staff or render services to the system operator, which would own all the assets needed for energy transmission, including the network. “This is not acceptable. The group of eight stands by its proposal,” one diplomat familiar with the document said. “Property rights to the network infrastructure cannot be so hollowed out that they practically no longer exist,” he said.

Under the Commission plan, the parent company’s board representative would be able to veto decisions when they “may significantly reduce the asset value of the transmission system operator.” The parent company would have to pay for an independent trustee, appointed by a national energy regulator, whose role would be to safeguard the independence of the transmission system operator from the vertically integrated energy concern. The trustee would appoint and dismiss members of the supervisory board of the TSO except for the single parent company representative, and exercise the voting rights of the parent company in the TSO.

The Financial Times Deutschland, which first reported the draft on Friday, quoted an unidentified energy industry official as saying: “If this is what comes out, we’d be better off selling our networks.” A Commission spokesman declined comment on the draft but said Brussels was working to achieve a compromise among member states in June „in which the level of separation is equivalent to what we proposed in the directive”. EU sources said the Commission and the Slovenian EU presidency were waiting to see what position is taken by the European Parliament, which has legislative co-decision power on the issue, as well as the final stance of the German government. Berlin has so far stuck to the Third Way proposal despite a surprise decision in March by E.ON, the world’s biggest power company, to spin off its network in Germany in return for the closing of an EU antitrust investigation. (Reuters)