Next February one of the longest lasting monopolies in the history of the State comes to an end.

After 72 years the ESB's hold over the Irish energy sector will be broken, although to what degree it will lose market share remains unclear.

Ever since the first electric light was switched on in Dublin's Princes Street in 1880, the State has been involved in the electricity industry. Even when it was deciding the industry's future in 1927 the State was prepared to fly in the face of the prevailing international trends by establishing a State-owned utility, rather than relying on the band of private operators then in existence.

Even today the ESB still has to get approval from the Department of Public Enterprise for major capital expenditure projects.

However, all this is coming to an end and a new electricity regulator, Mr Tom Reeves, will now occupy much of the ground formerly controlled by the State.

This is not happening because the Government decided of its own volition to free up the sector, but because EU directive 96/92/EC obliges all member-states to open up their markets to some degree.

The Republic has not been a keen participant in these moves towards liberalisation and successfully sought a derogation from the directive until February. The impact of the directive, currently being imported into Irish law through the Electricity Regulation Bill, is that from February, 28 per cent of the market here will be open to competition.

Put simply the biggest customers (about 320 make up 28 per cent of the market) will be free to sign a contract with whichever supplier they want. This contrasts with EU states like Germany, Sweden, Finland, the Netherlands and Britain, which have decided to open up 100 per cent of their markets. In the Republic the 28 per cent increases to 32 per cent, the minimum level allowed under the directive, in 2003, when the whole issue comes under review again at EU level. At that stage the possibility of the whole market opening up comes into view.

But for now, only customers using 4 giga watts or more of power per year, can choose their own supplier. This suggests that only businesses with large electricity overheads should be concerned with the issue. However, the implications are potentially much greater because the ordinary domestic customers may end up being the only losers in the rush towards an electricity free market. As the ESB will remain their only supplier, until at least 2003, they will be at the mercy of a company desperately trying to maintain its existing revenue base.

The technical phrase "tariff re-balancing" is the one used by the company to explain its strategy. As ESB chief executive, Mr Ken O'Hara, explained to an Oireachtas Joint Committee in January, the company's industrial customers (many of whom make up the relevant 28 per cent of the market) are currently subsidising domestic customers by between 10 and 12 per cent.

While it may come as a surprise to many, domestic electricity rates here are among the cheapest in Europe. The ESB has made it quite clear in public statements and in representations to the Minister for Public Enterprise, Ms O'Rourke, that this cannot continue. Why?

Because the company claims it will not be able to compete against new entrants if its industrial prices, used to subsidise domestic consumers, have to remain high. As a result it has been pushing for a price rise for domestic consumers. Some 3 per cent is the current claim, although it may seek a higher price hike in the future, according to sources.

Members of the company's management express a weary acceptance that no government minister, in a year of elections, is likely to sanction such a rise. However, they are hoping the regulator, Mr Reeves, who assumes office when the current bill becomes law, may see things differently.

Under the proposed legislation such price rises require his approval, although with the sole shareholder in the company - the Government - against such a move, the options look limited.

"They are hoping Mr Reeves will be a little more open to their difficulties than the Minister, but any price increase will need some kind of political support," said one source.

The Irish Times understands that in communications between the ESB and the Department, the company made the argument that to deny it the opportunity to "re-balance" its tariffs would result in the value of the company being reduced for its shareholder - the Government.

This would obviously be of concern, if as indicated by Ms O'Rourke earlier this year, the Government decided to float the ESB on the stock exchange at some time in the future.

According to Dublin-based equity analysts, if it listed now, the ESB would have a market capitalisation of about £2 billion (€2.54 billion), easily putting it in the top 10 companies on the stock exchange.

However, the same analysts point out that this figure would be significantly whittled down if the company failed to hold onto a significant share of the 28 per cent of the market being opened to competition.

While the ESB continues to lobby behind the scenes, other companies are waiting on the sidelines and watching the regulatory structure being established. Among those with plans to enter the market as generators are: Viridian (plans a £300 million joint venture with CRH to build a gas plant at Huntstown, Co Dublin); Bord Gais Eireann (has plans for a gas plant in Co Cork with a company called Canadian Utilities); the Finnish company IVO (currently building its Europeat plant in Edenderry, Co Offaly); Marathon (owns the Kinsale gas field and is understood to be planning a gas-fired plant on the southern coast). All these companies are hoping to operate in the area of power generation.

Other companies are seeking to take market share from the ESB through wind-farm technology, while the property group, Treasury Holdings, is planning to spend millions on combined heat and power (CHP) plants.

These produce smaller amounts of electricity than conventional plants, but are cheap and suitable for industrial users, who can utilise the heat which CHPs produce in their manufacturing processes.

The Irish market is comparatively small and many in the sector are surprised at the number of companies expressing an interest.

The return on capital in the first few years for any new power generator is unlikely to be huge. The ESB may retain a significant share of the market, mainly by offering lower prices and relying on its established reputation.

Nonetheless, industry sources estimate there is approximately £360 million a year in potential turnover for any company which can take the whole 28 per cent. Assuming the normal industry margins, this would mean potential pre-tax profits of about £80 million a year.

A spokesman for the ESB says the company "accepts" it will lose some market share, but would not speculate on how much. "We will not let our market share go lightly, but we need the commercial freedom to compete," he comments.

He says a re-balancing of prices was agreed with the Department when the company's cost-and-competitiveness review was signed.

Ironically, among the signatories to that agreement, which covered pay issues and the future of the ESB, was Mr Reeves, then working at the Department. The ESB spokesman claims a change in its pricing structure needs to happen well in advance of February.

However, Ms O'Rourke has already said that with the ESB likely to report pre-tax profits of £200 million in June, the company cannot "justify" a price increase to its customers. The ESB spokesman says it will be unable to make attractive offers to corporate customers unless this happens.

The electricity industry operates on the basis of discounts to larger customers and the ESB, as matters stand, will have little leverage to engage in this.

The issue has created a great deal of mutual suspicion between the ESB and Ms O'Rourke and it is possible both sides will be relieved when it falls into the lap of Mr Reeves shortly.

Meanwhile, other companies claim the ESB itself is not playing fair, by refusing to disclose the charges it will levy on new entrants for using its transmission and distribution network.

The company rejects this and says the charges are a matter for Mr Reeves. "He sets them and he approves them, so there would not be much point in that information being disclosed," said an ESB spokesman.

However, Viridian claims that all it wants is an "indicative" list of charges so it can give an informed quote to potential customers.

Mr O'Hara said at January's committee meeting that large-scale entry of new competitors "clearly has the potential to lead to widespread closure of existing power plants, waste of investment and a reduction in the value of the ESB".

To prevent this happening the new bill includes several provisions to ensure the ESB is not washed away in the deluge of competition. The company has several plants around the State which, compared to the modern combined-cycle gas stations being planned by Viridian and Bord Gais/Canadian Utilities, are inefficient and not cost effective. Many of its peat plants, which employ several hundred people, would fall into this category.

The bill supports the continued operation of these plants and instead sees them as a "public service obligation" for the ESB. As a result the bill gives the ESB the power to impose a levy on "final customers" effectively to compensate it for continuing to operate these plants.

This "public-service obligation" levy will be imposed on the customers which sign deals with the new providers. How much this levy will amount to is not made clear in the legislation.