EU takes on Russia, utilities with energy shakeup

By Jeff Mason

BRUSSELS, Sept 19 (Reuters) - The European Union takes on Russia and big, dominant utility companies on Wednesday in a new move to open gas and electricity markets to more competition while limiting foreign ownership of EU assets.

The executive European Commission is publishing long-awaited energy proposals, which seek to force giants such as Germany's E.ON EONG.DE and Electricite de France (EDF.PA) to separate power generation businesses from their distribution networks.

Key aspects of the draft legislation are widely known.

Utility companies will be forced to sell off their transmission networks or hand over control to an independent operator, which the Commission argues will boost investment in infrastructure and allow new entrants into the sector.

But Russia, which supplies about 25 percent of the 27-nation bloc's gas, will not have free rein to buy up pipelines and power grids. The new rules will ban foreign firms from owning EU transmission systems unless an agreement is forged between the foreign country and the EU, Brussels sources said.

"Third countries cannot control the transmission systems," one EU source said. "That will be in the directive."

The Commission's 27 members are expected to debate a few outstanding issues on Wednesday, including the external relations elements.

Transport Commissioner Jacques Barrot of France wanted utility groups to have more say over their transmission networks even if they were run by an independent operator, EU sources said. Energy Commissioner Andris Piebalgs and President Jose Manuel Barroso reject that view.