EU Serious About Transportation of Natural Gas

By Jonathan Stearns

April 22 (Bloomberg) -- The European Union agreed to make dominant electricity and natural-gas companies improve access to transmission networks for competitors, ending 19 months of contentious negotiations with a compromise to open markets.

The European Parliament approved legislation forcing EU nations to choose one of three options to ease access to the power and gas grids of such producers as Electricite de France SA and E.ON AG. The choices are to force the companies to sell or spin off the transmission business; require them to hand over management of the grid to an independent operator; or oblige them to make the unit more independent through internal actions.

Germany and France added the last option, fending off calls for the breakup of national champions or the removal of their network-management role. At the same time, EU regulators opened a second front in the battle for more energy competition by using existing European antitrust rules to force some grid sales in Germany, threaten such a step in Italy and leave open the possibility of similar actions in France.

“We are moving toward a separation of the transmission networks one way or the other,” said Alejo Vidal-Quadras, a Spanish member who helped steer the new legislation through the EU Parliament today in Strasbourg, France. National governments’ final approval of the package, which also establishes an Agency for the Cooperation of Energy Regulators and creates rules to facilitate energy flows, is a formality in the coming weeks.

Improving Access

The EU goal is to facilitate network access for energy companies such as Centrica Plc without their own grids. After 2003 laws gave customers the right to choose suppliers, the EU’s 300 billion-euro ($388 billion) power and gas market remains fragmented by national barriers, according to the European Commission, the 27-nation bloc’s regulatory arm that proposed the new rules in September 2007.

The commission said electricity and gas producers should sell or spin off their transmission business -- steps known as ownership unbundling -- or hand over operation of the network to an independent entity. The regulator said such structural separation was necessary to remove a conflict of interest that leads incumbents to discriminate against new entrants when it comes to network access.

‘Detailed Obligations’

The third, looser option demanded by Germany and France includes devising an in-house program to ensure non- discrimination on grid access and appointing an authority to monitor it. This approach also requires the transmission business to have its own information-technology equipment, imposes “cooling-off” periods for ties between the unit’s managers and the parent company and forces the grid business to submit network-development plans annually to regulators.

“There are quite detailed obligations,” said Sylvie Maudhuit, a Brussels-based partner at law firm Howrey LLP. “The third option could work, but it remains to be seen what happens in practice.”

EU countries will have up to 30 months after the rules are published to enact one of the three options. Publication will probably be within the next five or six months.

While EU lawmakers debated and diluted the draft unbundling legislation, the commission probed companies including EDF, E.ON, Gaz de France SA -- now GDF Suez SA -- RWE AG and Eni SpA for possible illegal business practices. Last year, Germany’s E.ON agreed to sell its electricity-transmission grid and fellow German supplier RWE chose to sell its gas-transmission network to settle commission investigations.

‘Message Is Clear’

Last month, the commission charged Italy’s Eni with possible abuse of its dominant position by limiting gas-pipeline investment. The charges prompted Eni and Italian Prime Minister Silvio Berlusconi to say the forced sale of the company’s pipeline stakes would threaten gas supplies.

“The message is clear: the commission will do everything possible to achieve unbundling,” Maudhuit said.

Another part of the legislative package approved today establishes an agency to oversee national authorities and transmission-system operators, advise EU regulators on market regulation and decide on cross-border issues. A third part creates a “European Network of Transmission System Operators” for electricity and gas whose task will be to develop codes for matters such as grid access, congestion management, interoperability and transparency.

To contact the reporter on this story: Jonathan Stearns in Strasbourg, France, at jstearns2@bloomberg.net