The company that operates the national electricity grid wants to lease it from the ESB, according to sources.

EirGrid is understood to have argued in a paper to the Department of Public Enterprise that this is the best means of ensuring the fair operation of the power system in the newly competitive market.

Under an agreement reached before 29 per cent of the market was opened last February, the vertical separation of the national grid from the ESB was ruled out.

EirGrid's management is now believed to favour a leasing arrangement in which it would pay annual fees to the ESB to operate, maintain and develop the national grid.

That company will be formally established under the terms of a Statutory Instrument proposed by the Minister for Public Enterprise, Ms O'Rourke.

But in a consultation process managed by the Department of Public Enterprise, EirGrid's proposed structure has been questioned by the Commission for Electricity Regulation and the Competition Authority - and, it is understood, by its own management.

While EirGrid - the transmission system operator - will control when and which power stations feed electricity into the network, the ESB will continue to own the grid and keep responsibility for its maintenance and development.

Yet a paper published last week by the electricity regulator, Mr Tom Reeves, said the current plan fails to fully implement the EU Directive under pinning the market's deregulation.

The Competition Authority has argued the plan means the ESB could favour its own interests against competitors.

This has been rejected by the ESB, whose spokesman said it favoured the current proposal "in broad terms".

He said: "The separation, as proposed in the Statutory Instrument, we believe removes potential conflicts of interest from the transmission system operator.

"For instance, the system operator, if it was also the transmission asset owner, would benefit from investment through increased revenue streams and would therefore favour transmission network investment solutions over other solutions which might be more economic. This has been referred to in other countries as the gold-plating of networks."

He added: "If you make the transmission system operator responsible for planning and make the asset owner responsible for implementation you remove this conflict of interest and there you would have a truly independent body at the centre of the industry rather than just another commercial player."

This conflicts with legal advice given to EirGrid.

Like Mr Reeves, the company is believed to argue the plan fails to implement the EU Directive in full.

Its lawyers are believed to have pointed out that Ms O'Rourke said last February the transmission system operator should have such control over the system as was necessary to comply with its functions under the Directive.

They argued it was crucial for the company to be given the powers and rights needed to manage the transmission system independently of all market participants, particularly the ESB.

It was critical, they said, that the control of maintenance of the system be retained by a body which is "completely independent" of groups that supply and generate power.