The European Commission's drive to separate gas and electricity grids from large utilities gained new momentum Thursday after German utility E.ON AG (EONGY) reversed its position on the matter.
E.ON announced plans to sell its power grid and some other assets in order to resolve E.U. antitrust concerns. The move came as a surprise to one German government official, who had been lobbying with France and six other E.U. nations to find another alternative to the commission's "unbundling" plans, the term used to describe the E.U.'s call for asset separation.
E.ON's decision "was surprising," Peter Hintze, Germany's Parliamentary State Secretary to the Federal Minister for Economic Affairs, said at a press conference. However, Germany won't change its stance on the matter, he added.
The European Commission wants large, vertically integrated utilities such as E.ON, Electricite de France (1024251.FR) and Italy's ENI SpA (E), to separate control of their gas pipelines and electricity cables from their power stations and gas fields to ensure more access to Europe's energy grids. The commission believes such a move will spur more competition and reduce energy prices.
"E.ON's decision is definitely very much welcome," European Energy Commissioner Andris Piebalgs said at a press conference in Brussels. "It makes a huge impact on the debate," he added.
The move, however, failed to break the political impasse over the unbundling proposals. Energy ministers of the 27 European states met Thursday in Brussels and failed to agree on a common approach to unbundling, only deciding that a final political accord should be done by June.
E.ON Thursday offered structural remedies to the European Commission to settle two ongoing antitrust cases in the electricity sector.
The remedies included selling its electricity transmission system network to an independent system operator and divesting 4.8 gigawatts of power generation capacity to competitors.
"These proposals, if adopted, would structurally change the electricity sector in Germany and could spur competition in the sector to the benefit of domestic and industrial customers," E.ON said in a statement.
E.ON previously said it didn't believe unbundling would lead to lower consumer prices, although it began softening its stance as early as this past summer, according to a German newspaper report, citing E.ON's chief executive Wulf Bernotat.
Tony Ward, a director at consulting firm Ernst & Young's power and utilities division, said he wasn't surprised by the move.
"Whilst (E.ON) may have been looking to create a compromise, they knew the direction (the European Commission and other member states) were going," Ward said. He added that E.ON most likely made the announcement because "they want to realize full value for their assets now, rather than being forced to sell or being last to sell."
Ward believes that other German utilities such as Vattenfall Europe AG (VTT.XE) and RWE AG (RWE.XE) will soon follow suit as momentum gathers behind the unbundling proposals.
Vattenfall Europe said Thursday it wouldn't rule out selling its German high-voltage power transmission grid as part of its review of options for the asset. RWE, on the other hand, said it had decided against the sale of its German high-voltage transmission grid.
RWE believes power grids should remain with the current operators for reasons of security of supply, and called for support of a different option, which would allow utilities to own transmission and generation assets as long as they are run under separate brands and from distinct headquarters.
This option, which was put forth by Germany, France and six other E.U. nations, was deemed unworkable by the European commission's antitrust chief Nellie Kroes.
The E.U. wants to separate transmission assets from the rest of energy businesses within utilities by either pushing for full-ownership unbundling or by allowing utilities to keep legal ownership of their transport networks as long as they are run by an "independent system operator."