Currently pipelines, transmission lines and power stations are often controlled by one company. This makes it hard for small businesses to get a foothold and for cross-border networks to develop.

Most EU governments agree that unbundling can lower costs and give consumers more choice. Since July 2007, all EU households have been free to pick a gas and electricity supplier but their choice is still often limited by one company’s domination of their region.

The agreement reached by the energy ministers of all EU countries on 10 October would give companies three options, including one that involves splitting up the ownership of supply and distribution businesses. The ministers also agreed to set up an agency to help regulate the market, another key feature of the legal proposal.

Energy commissioner Andris Piebalgs welcomed the agreement as a show of support for the creation of a common energy market. The vote clears the way for final negotiations and the bill now is expected to be adopted in the first half of 2009.

Besides spurring competition, the bill aims to boost the use of renewable energies like wind and solar power and to increase energy security. The EU relies on Russia for about a third of its oil and about 40% of its natural gas imports. But in recent years regional politics have disrupted supplies.

Integrating national energy markets would make it easier for EU countries to help each other when supplies are threatened. If they want to operate in the EU, foreign companies would have to follow the same rules and would only be allowed limited ownership of EU networks.