The long-awaited energy policy package unveiled by the European Commission on January 10th will, as the EU’s competition commissioner Neelie Kroes says, “make uncomfortable reading for many energy companies.” This is not surprising. For the past year it’s been widely expected that, among other things, Brussels would be coming up with a plan for the enforced separation of power networks from suppliers. This prompted some fierce lobbying by the French and German governments in recent months and appears to have led to a moderation of language in the final text. There is no longer, for instance, a specific call for the break-up of giant vertically-integrated power companies like E.On or Electricitie de France as many had feared.

But that’s about as far as the concessions to the industry go. The text makes quite plain that the majority of the 27 European Commissioners (including Britain’s Peter Mandelson) favour some pretty drastic “ownership unbundling” which would in effect force the big power groups to hand over transmission networks to other investors in a bid to promote competition.

Eurelectric, the pan-European association of the electricity industry, shares the goals of improving energy security, combating climate change and ensuring competitiveness says spokesman Chris Boothby. However the association disagrees with the Brussels view that asset separation to divest transmission operations is the way to ensure fair access to the networks. “We believe that what we need is co-ordination between the TSOs and proper coordination between national regulators,” Mr Boothby said. “We don’t go along with this idea of expropriation of assets – for that’s what it is. They call it ownership unbundling, we call it forced asset divestment,” he said.

Ms Kroes’ own inquiry found that “consumers and businesses are losing out because of inefficient and expensive gas and electricity markets.” It said that “under-investment is rife, especially in networks.” As a result there were “high levels of market concentration, a lack of access to infrastructure for new companies, and collusion between incumbent operators to share markets.” The report said there was “faulty integration” between the EU member states’ markets and “an absence of transparently available market integration.” Ms Kroes said Brussels intended to “pursue follow up action in individual cases under the competition rules and act to improve the regulatory framework for energy liberalisation”.

This would suggest that there are some tough times ahead for Europe’s power companies on the legal front but there are two considerations that may hold back the Commission. The first is that the energy proposals have to be approved by all 27 EU member countries, and with France and Germany firmly opposed to them it is not at all certain that they will go through without major modification. The second is the position of Russia as a major energy supplier to the EU and the seemingly recurring tensions over security. Will Brussels want to be seen breaking up the EU energy giants at such a delicate time ?

Some answers may be forthcoming when the energy package is discussed by the EU heads of state at their spring summit meeting on March 8-9th.