Keen to break their stranglehold on electricity and gas markets, the European Commission has put in place a series of directives that force utilities to sell off their networks or to relinquish control over them in a process called "unbundling".

For every chief executive of a European utility, one of the biggest strategic choices to make is whether to keep or sell those thousands of kilometres of pipe and wire.

"It is a dilemma for utility companies. They can sell the grids at a good price, but these are typically a stable, cash-generative business, and exiting that generally makes the remaining group more risky," said Iain Smedley, co-head of power utilities and infrastructure EMEA at Barclays.

Smedley added that selling networks also risks being earnings dilutive for utilities - unless they can reinvest the cash profitably - and weaken their credit profile, as ratings agencies are more positive on networks, whose return is regulated by national energy watchdogs.

So, to keep or sell? There are good reasons for both.

Even if utilities can no longer control their networks, they can remain owners, if only in a strictly financial sense.

The EU wants grid operators to be completely separated from generation. They have to be unbundled legally as well as operationally, which means their owners cannot realise synergies and even have to operate with different staff.

"For a utility, it's like operating a satellite. You can control it from afar, but your influence is very limited," said Dirk Uwer, partner at German law firm Hengeler Mueller.

A bit of stability remains no bad thing in a utilities world rocked by intermittent renewables, cheap U.S. shale gas and the Fukushima nuclear disaster.

Bankers say some utilities even make a great play in their earning presentations about their low-risk regulated grids.

Regulated network assets provide utilities with steady income, balance out earnings fluctuations in the volatile generation business and protect their credit rating.

REASONS TO SELL

But for an ambitious CEO with a strategic vision of how to earn higher returns in renewables or emerging markets, sitting on a pile of uncontrollable cables and wires is rather lame.

Besides questioning whether owning a regulated asset with modest single-digit returns is the best of use of company capital, shareholders may wonder why a CEO should be paid so much just to oversee a bunch of bond-like, passive assets.

With balance sheets already strained by high levels of debt, electric utilities need to invest massively in the years ahead as the generation mix is changing faster than ever before.

German utilities need to switch from nuclear to renewables, French utilities need to upgrade ageing nuclear plants, and nearly all EU utilities are hurting as recently built gas generation plants stand idle across Europe because of low coal prices.

"Utilities need to deploy significant amounts of new capex in a relatively compressed period of time," said Daniel Wong, head of infrastructure and utilities at Macquarie Capital.

He added that if utilities are not reducing dividends or raising new equity to fund this investment, they need to recycle capital on the balance sheet or attract partners.

"If they choose to recycle capital, a logical place to start is to sell their regulated assets," Wong said.

Of course, utilities CEOs know that selling grids is like selling their souls - once the grids are gone, they no longer are utilities in the traditional sense of the word. They become power generators - developing, constructing and operating power generation and supplying customers with gas and electricity.

"Looked at it this way, utilities are becoming more pure-play energy companies rather than an energy company plus a bond," Wong said.

PICK YOUR ACRONYM

The degree to which utilities separate ownership of networks and generation varies across Europe, and depends on the extent to which countries subscribe to the idea of open energy markets.

As the EU introduced more competition by allowing customers to choose their suppliers, the former monopolies were reluctant to give competitors access to the grids, as that meant losing market share.

The European Commission resolved the problem by forcing parent energy companies to separate or unbundle their grid businesses and sell them.

These independent grid businesses only run grids, and are free to treat all potential customers equally, without conflict of interest, said Siobhan Hall, editor at the Brussels-based Platts EU Energy Policy newsletter.

Most utilities in the UK, Sweden, Denmark, Italy, Spain and Belgium have largely unbundled generation from transmission.

But this was too big a concession for some former monopolies and their governments, particularly in France and Germany, who argued this was tantamount to forced expropriation.

Therefore, the Commission proposed an alternative under which grid businesses is set up autonomous subsidiaries with compliance officers and regulatory supervision to ensure the parent gains no competitive advantage from owning the grid.

This model is called an "independent transmission system operator" (ITO) and is the model under which most operators in France, Germany and several other countries work.

There is also a similar and rarely used "independent system operator" (ISO) model and some EU countries do not have to apply these grid independence rules as their energy markets are too small or not connected to the rest of the EU.

In private, some EU regulators express their doubts about the true degree of independence the ITOs enjoy and point at the fact they are often run by relatively junior executives who are not empowered to manage their companies as they see fit.

"Do you really think the utilities have no influence on the grids they own?" said an EU regulator who declined to be identified. (Editing by David Holmes)

By Anjuli Davies, Christoph Steitz and Geert De Clercq