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EU calls for break-up of energy companies to boost competition

European Union regulators called for a break-up of energy companies to boost competition in the electricity and natural-gas markets.

The European Commission, the EU's regulatory arm, wants to open competition to new entrants by forcing the separation between incumbent energy companies' transmission and production businesses, a practice known as unbundling. „We make it clear that our preference is unequivocally in favor of ownership unbundling,” European Commission President Jose Barroso told journalists in Brussels today. The recommendations, which will be discussed by EU leaders in March, are part of the EU's drive to break down barriers in the region's €250 billion ($325 billion) energy industry.
They come amid Spanish efforts to thwart a takeover of utility Endesa SA by Germany's E.ON AG and a French-orchestrated merger of Suez SA and Gaz de France SA to avert a possible bid for Suez by Italy's Enel SpA. The commission also outlined a softer approach in which companies would be forced to deepen the separation between transmission and production businesses. The ideas will be the basis for future legislative proposals. The ideas, included in an energy and environmental policy review, address mounting challenges facing the 27-nation bloc. The region wants to diversify its gas and oil imports away from Russia and the Middle East and cut emissions of heat-trapping gases that are blamed for climate change.

The commission also proposed lowering emissions by at least 20% by 2020 compared with 1990. That's less than the 30% cut the bloc would agree to if there's an agreement among all developed nations, it said. The EU wants to make it more costly for the energy industry to emit greenhouse gases while limiting price rises for consumers. Existing EU legislation requires energy providers such as E.ON to have a legal separation between production and transmission businesses. Competition Commissioner Neelie Kroes said this approach doesn't go far enough because incumbents continue to favor their own distribution companies at the expense of new entrants. The commission's first option, which was promoted by Kroes, is to break open the market through so-called „ownership unbundling.” That would involve legislation to force former monopolies to split their production businesses from the units operating the power lines and pipes.

The second recommendation doesn't go as far. It would allow companies to remain the owner of their businesses and to receive a regulated return on them, while no longer being responsible for the unit's operation, maintenance or development. The commission said it prefers ownership unbundling because „this would create a level playing field and it would change the incentive structure in the right direction.” Kroes also led a commission probe into the functioning of the EU's power and gas markets and has threatened to fine energy companies as much as 10% of annual sales for failing to open their networks to competitors.
She accused energy companies of possibly colluding to keep out rivals, calling the practice „one of the most serious threats to competition.” Europe's gas and electricity markets are inefficient, overly concentrated and suffer from a lack of investment, the commission said in a report concluding a 19-month review of the industry. Last May, EU regulators raided the offices of utility companies including E.ON, Gaz de France and Eni SpA looking for evidence that they shut out competitors by restricting access to pipelines. In December, EU authorities conducted surprise visits at E.ON and RWE AG to collect evidence of possible market- sharing, price-fixing and unfair business practices. (Bloomberg)