The Competition Authority has opposed a direction by the electricity regulator, Mr Tom Reeves, on the separation of the ESB from its national grid operation, EirGrid.

The authority is understood to have written to Mr Reeves informing him that the proposed separation is "sub-optimal" and leans heavily in the ESB's favour. The system proposed by Mr Reeves would impede entry into the market, the paper is understood to have said.

EirGrid has refused to implement the direction and its board met yesterday to consider a threat by Mr Reeves to seek a High Court order to carry it out.

Mr Reeves set a deadline of the close of business yesterday for EirGrid's response, although it is understood that none was expected at the regulator's office before this morning. An EirGrid spokesman would not comment last night on its likely response.

Observers believe the board may consider resigning if forced to accede to the direction. Directors are understood to have been told by the Minister for Public Enterprise, Ms O'Rourke, that the direction should be enforced.

The dispute centres on the proposals for the development of the national grid, which is being separated from the ESB as part of the liberalisation of the electricity industry. Because the grid operator controls the flow of power through the system, independent management is required to ensure fair competition between the ESB and independent producers of electricity.

The ESB owns the grid, but EirGrid operates the network. In refusing to implement the direction, EirGrid has argued that this means it will be unable to carry out its statutory duty. Its stance is understood to have been supported by the Competition Authority.

The authority's paper is understood to have said that the ESB should have responsibility only for the construction stage of network developments. If implemented, the direction would lead to an "excessively costly" system of relations between the ESB and EirGrid, it said.

The authority is also understood to have said that allowing the ESB to control any aspect of the transmission network would have a "chilling effect" on the market because potential entrants were less likely to enter the market.