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. Last Updated: 07/27/2016

A Tough Road Ahead for Barroso on Energy

Jose Manuel Barroso is clearly keen to show with energy that he means business about energy. The European Commission president says he is considering new laws requiring energy generators or suppliers to sell off any transmission networks they might own, and possibly the creation of a single European Union energy regulator.

Barroso may be bluffing, knowing the likely fate of such proposals at the hands of governments protective of national champions, but keen to hang a legislative sword of Damocles over a sector already being probed for market abuse by Brussels antitrust authorities. But he is certainly raising the stakes with these legislative ideas.

For the EU has never attempted this kind of forced divestiture for competition's sake in the way the United States did with Standard Oil and AT&T. And only in the medical field does the EU have anything like a single regulator.

Current EU legislation requires that companies separate out their main electricity transmission grids and gas pipelines in "functional unbundling" (with separate accounts and management) or, at most, with "legal unbundling" (in a separate subsidiary). But this has been no impediment to the rapid trend of ownership consolidation in the European utility industry in recent years. This trend has been backed very actively by governments. They are increasingly susceptible to the argument that national energy champions with bargaining power and big balance sheets are needed inside the EU to counter the emergence of mega-suppliers outside, such as Gazprom.

A couple of years ago the German government overruled the private doubts of Brussels and the public opposition of its own cartel office to let Eon take control of the Ruhrgas gas pipeline company, with its stake in Gazprom.

This has helped lock Germany into a long-term energy relationship with Russia. Is it therefore likely that a German government will sign up to a Brussels proposal for ownership unbundling that would mean forcing Eon to disgorge Ruhrgas?

Yet the proposal makes sense. Separation is already accepted practice in Britain and some Nordic and East European states. Transmission networks are natural monopolies in energy systems, and separating them out makes them easier to regulate.

Likewise, national regulators need, in a sense, to be to be given more independence -- as Barroso suggests and the recent sorry performance of Spain's regulator in the Eon/Endesa/Gas Natural bid battle shows. However, a single energy regulator might have to await a single energy market.

This comment was published as an editorial in the Financial Times.