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Europe may allow utilities to keep energy grids, traders say

European Union lawmakers will likely allow power and natural gas utilities to keep owning their energy grids, as long as they adopt independent management of those assets to boost competition, said a trader group.

„It was politically impossible” to force energy utilities to sell their grids, a concept known as ownership unbundling, because large nations including Germany and France opposed the idea, London-based Peter Styles, chairman of the power committee of the European Federation of Energy Traders, said by telephone today. EFET members include E.ON AG of Germany and Electricite De France SA, the region's biggest utility. The federation is helping draw up laws allowing utilities to own grids, yet hand their management to so-called independent system operators that would ensure all energy suppliers access them on an equal basis, boosting competition, Styles said. There could be one German power transmission operator instead of four, for instance, he said.

The European Commission, the EU's regulatory arm, is pushing to open Europe's €250 billion ($328 billion) power and gas market, where national barriers still persist four years after legislation gave customers the right to choose suppliers. The lingering obstacles threaten to increase prices, curtail supply and weaken the European economy, the regulator says. The trading federation has not yet decided the best way to make independent operators, known as ISOs, work. „There's still a lot of disagreement on what an ISO is,” Styles said.

The independent operators would likely set tariffs for using networks and probably calculate and allocate cross-border capacities. What's less clear and „most controversial” is whether ISOs would own new investments in gas pipelines or power connections, needed to clear bottlenecks and improve trading, Styles said. There could be new laws establishing ISOs considered by lawmakers by the end of this year and introduced a year later, he said.

German Chancellor Angela Merkel last week teamed up with French President Jacques Chirac to water down a commission proposal to break up - or „unbundle” - big utilities including EDF and E.ON. Citing „different national traditions,” Merkel said it wouldn't be realistic to force power producers to sell their transmission businesses as a way of pushing down prices. A better solution would be to force EU utilities to let their grids be managed separately from energy sales, similar to the regulatory model in the US, said Kim Keats, a London-based analyst at ICF Consulting Group Inc., which advises companies on energy strategy.

American Electric Power Co., the second-biggest US electricity generator, is allowed to sell excess low-cost power from Ohio, West Virginia and Kentucky in higher priced markets in New Jersey, Maryland and the Washington D.C. area through its membership in a regional transmission operator, he said. „The commission apparently had no plan B and its ownership unbundling plan died a premature death,” Keats said March 9 in an interview from London.

Adopting regional transmission operators would require the European Union to „rapidly adopt clear, binding rules promoting transmission system cooperation on cross-border questions,” Eurelectric, a union of regional power company representative groups, said today on its Web site. „Investment planning is not harmonized in the USA and there is much debate on the recurrent lack of investment in networks,” Eurelectric said. Chris Boothby, a Brussels-based Eurelectric spokesman, said today the group has not finalized its views on how cooperation between networks and competition should be improved. Energy companies do require changes in the law to obtain „better ability to trade” power and gas, Boothby said. (Bloomberg)