TheE ESB should be split in two to foster competition in the electricity market, the Competition Authority claimed yesterday.

In a hard-hitting report which described the ESB as "super dominant", the authority said the liberalisation of the Irish market had "patently failed" to deliver competition.

Electricity prices have increased twice since the market was liberalised in 2000 and many potential investors have walked away. The authority said the current legislation had delivered only the third best outcome.

It said: "Because of the manner in which the EU Electricity Directive has been implemented, we have a regulated, nominally vertically separated, super-dominant undertaking, which brings none of the proven benefits of competition (as shown in other countries) but which costs, apart from the efficiency losses associated with separation, additional wasted resources in terms of the increased regulatory burden."

The authority said the current liberalisation model had little potential to encourage competition in the short or medium term.

"It has supported the dominant position of the ESB and sent extremely negative signals to new entrants."

It was responding to a new Government Bill on the electricity business which, it said, almost entirely failed to deal with remaining restructuring issues in the industry since the ESB's monopoly.

"To the extent that the new legislation focuses primarily on consolidation of existing legislation, it will perpetuate these problems," said the authority.

Stating that the new legislation ignored the failure of the current system to create competition, the authority called for a "radically different" approach.

This required both structural reform of the ESB and a new regulatory structure favouring new entrants. "Structural reform would entail splitting the ESB both vertically (that is, fully separating transmission from generation) and horizontally (that is, separating the different generating plants, possibly into portfolios)," said the paper.

But this was rejected by the ESB. Its spokesman said: "The ESB's strategy going forward is based on the company remaining vertically integrated and it is through this channel that we will continue to deliver maximum benefit to our customers."

The authority also said a regulatory structure favouring competitors to the ESB was required because "new entrants and rivalry among existing generating capacity are both necessary for competition to operate in the medium term".

It added: "Horizontal and vertical separation of incumbent utilities is a tried and tested approach toward the introduction of competition in newly liberalised electricity sectors. For instance, the horizontal and vertical separation of incumbent electricity utilities has been used in the UK, Spain, Italy, the Australian states and New Zealand, to great effect."

A spokesman for the energy regulator, Mr Tom Reeves, declined to comment on the call for the ESB to be separated or the call for asymmetric regulation. He attributed the slow development of competition to a poor appetite for investment in the international markets.

He said: "The issues are more complex than those set out the Competition Authority paper. An NCB Stockbrokers report that we commissioned highlighted the difficulty for new suppliers securing an offtake contract as the biggest obstacle to securing finance for power projects.

Defending the liberalisation process, the ESB said that competition was working in the domestic market adding that the Irish industry was opening at a faster pace than in Britain.

"The ESB has facilitated the faster opening of the Irish market to competition," it said.