Ownership unbundling (OU). Unbundling refers to the separation of energy network activities from production and supply activities. Under OU, companies that own gas pipelines or electricity transmission lines should not also be engaged in production and supply activities. This is the Commission’s favoured option in its September 2007 proposals.

Independent System Operator (ISO).The Commission also proposed a second alternative option to ownership unbundling. Vertically integrated energy companies have to hand over all the functions of a network operator to another entirely separate company or entity if they wish to maintain ownership of their physical network assets. This is called an independent system operator (ISO).

Independent Transmission Operator (ITO).This third alternative allows vertically integrated energy companies to retain ownership of electricity networks or gas pipelines if they completely separate management thereof in an independent transmission operator (also owned by the vertically integrated company). The ITO’s operational independence and complete separation from its parent company should be guaranteed by an independent trustee, a supervisory body made up of gas company representatives, third-party shareholders and transmission system operator representatives. Other additional elements in this option are a compliance programme and compliance officer.

Third-country operators.Under the so-called Gazprom clause, individuals and companies from third countries cannot acquire control over an EU TSO unless there is a specific agreement between the EU and that third country. Such companies have to respect the same rules that apply to EU-based undertakings. No restrictions, however, are placed on third-country investments in generation, production and supply activities.

Distribution system operators (DSOs)are responsible for operating, maintaining and developing distribution systems in given areas. DSOs are the connection between TSOs and local consumers. DSOs with less than 100,000 connected customers are not required to conform to unbundling obligations. The Commission said that the existing rules should be maintained as they stand.

Energy povertyexists when a person cannot afford to heat his or her home to an acceptable standard, based on the levels recommended by the World Health Organisation.

Small isolated electricity systemsexist when, in the base year 1996, there was consumption of less than 3000 GWh and less than 5% of annual consumption is obtained through interconnection with other systems. Such countries include Cyprus, Malta, and Luxembourg.

European Regulators Group for Electricity and Gas (ERGEG)is an independent advisory group on electricity and gas established by the Commission in 2003. ERGEG is composed of representatives of the national regulatory authorities. The Commission proposes converting this body into a formal agency structure (the so-called ERGEG+ solution). Parliament calls for an Agency for the Cooperation of Energy Regulators with stronger powers.