BRUSSELS, Jan 31 (Reuters) - The European Commission's energy chief welcomed on Thursday an alternative proposal from eight EU countries, led by Germany and France, to its radical plan for breaking up Europe's big gas and electricity companies.

 

"I saw it as a very positive sign because all 27 countries now are clearly moving towards agreeing on an internal market in energy," EU Energy Commissioner Andris Piebalgs told a Brussels conference of the French Institute of International Relations.

The eight countries proposed a full functional separation of supply activities from network operations with strong national regulation but without splitting ownership of the utilities' infrastructure, as the Commission had proposed.

 

Piebalgs stressed the European Union executive was not abandoning its proposal for full "ownership unbundling" but said it was important that France and Germany were seeking a solution and not just rejecting the Commission plan.

 

Control of gas pipelines and electricity grids was crucial to increasing competition and encouraging new suppliers to enter the European energy market, he said, citing the shortage of interconnections between Spain and France as an example of the opposite.

 

"If the market is very much controlled by one company, then you never have competition and new supplies coming in," he said. "It's very clear that network companies are crucial."

 

The commissioner said he had not had time to study the alternative proposal in detail but he welcomed the political will for compromise that Paris and Berlin were showing.

 

In a letter to Piebalgs on Wednesday, ministers from Germany, France, Austria, Bulgaria, Greece, Luxembourg, Latvia and Slovakia challenged the legality, proportionality and efficiency of Brussels' plan.

 

"Neither the impact assessment, nor the policy debate of the last months have been able to dissipate these serious concerns already expressed..., and therefore we remain firmly opposed to this measure," they wrote.

 

The Commission suspects utilities such as Germany's E.ON and RWE and France's EDF and Gaz de France of using their dominant position to limit supplies, keep up prices and shut out new suppliers.

 

In parallel with the unbundling proposal, the EU executive's competition department is considering using antitrust law to force open the energy market after raiding utilities in France, Germany, Belgium and Italy in 2006. (Reporting by Paul Taylor, editing by Anthony Barker)