Germany’s biggest utility, E.On, has offered to sell its electricity grid in a deal with the European Commission that would protect the group from a potentially damaging ‘anti-trust’ investigation into Europe’s energy markets and end its involvement in the unbundling wars that are about to come to a head between France and Germany on the one hand and the EC on the other.

The multibillion-euro sale of E.ON Netz, which would include 4800 MW of its 26 000 MW generating capacity, puts E.On at odds with Germany’s government, which has maintained a staunchly nationalistic (in the sense of ‘patriotic’) approach to European energy markets for years and has strenuously opposed recent efforts by Brussels to force unbundling on European utilities. Peter Hintze, Germany’s economy minister, has expressed astonishment at E.On’s deal. “The timing of these events, when the Commission is trying to force through a very sharp position against a minority — it’s a very questionable game,” he said. Other energy utilities, such as France’s EdF and Germany’s RWE and EnBW, have also reacted predictably. “What E.On has done is unbelievable and has made everybody here very unhappy. It couldn’t have come at a worse time,” a senior executive at a large energy company told the Financial Times.

This kind of posturing is unlikely to have any effect on the Commission, which has repeatedly expressed its determination to force the large utilities to live up to competition ideals, including opening up their networks to rivals, although it may be a different matter when unbundling legislation comes up before the European Council and parliament later this year. It is the prospect of watered down or emasculated legislation that gives heart to the major utilities, which have pressed for a notional (ie fictional) form of unbundling wherein transmission and generation assets are legally separated, but remain under the same ownership, and that is why this pre-emptive move by E.On is so challenging. It undercuts the undeclared alliance between giant French and German utilities and their governments, which favour the existence of ‘national champions’, that is, huge companies that can roam around in European and world markets, in some cases using state backed financial resources, to buy up companies and assets that, unlike them, are not protected by national policies. Germany and France, together with Austria, Bulgaria, Greece, Latvia, Luxembourg and Slovakia, have formed a minority group within the 27-nation EU with the purpose of blocking its unbundling legislation.

E.On’s move is therefore likely to undermine Berlin’s fierce opposition to the Brussels idea of separating energy companies’ production and supply wings. But the European Commission has welcomed the company’s suggestions, saying: “If adopted, [they] would structurally change the electricity sector in Germany and could spur competition in the sector to the benefit of domestic and industrial customers”.

“It encourages us that our proposal is a very good one and it does not create problems for companies,” said EU energy commissioner Andris Piebalgs, reiterating Brussels’ intention to push for full liberalisation, known as ownership unbundling. Neelie Kroes, the competition commissioner, launched a campaign against abuse in the energy market in 2006 and last year proposed the unbundling of transport networks.

The deal is likely to add to pressure on E.On’s rivals, including RWE, its fellow German utility, and Electricité de France to toe the Commission line and agree to sell power transmission networks, such as electricity and gas grids. Electricité de France, which has an electricity grid worth €11 billion, is seen as being at greater risk. France has accused Ms Kroes of pursuing an ideological agenda in seeking to break up Europe’s big utilities, but the move by E.On was yesterday hailed in Britain, where Ofgem, the regulator, has campaigned for more competition in continental European markets.

In January, the Commission imposed a €38 million (£29 million) fine on E.On for breaking a seal placed over a door at offices of E.On Energie by Commission anti-trust investigators. Analysts have suggested that the company had little to gain by continuing to fight the Commission, and little reason to fight to keep an asset that was under regulatory pressure and yielding lower returns. The German regulator is squeezing utilities’ rate of return from networks, and it is likely that E.On would rather invest its money in non-regulated assets.