UPDATE 2-EU boosts consumer rights in energy liberalisation

* Deal to improve competition in energy markets

* Options include splitting utilities, regulatory oversight

* Parliament wins demand for more consumer rights (Adds quotes, detail)

By Pete Harrison

BRUSSELS, March 24 (Reuters) - The European Union reached a deal on liberalising energy markets after lawmakers accepted a compromise over breaking up giant utilities in return for action to protect consumers' rights.

The deal between the European Parliament and EU member states late on Monday ended a year-long standoff during which France and Germany battled hard to protect energy giants such as EDF (EDF.PA) and RWE (RWEG.DE).

"We will no longer be faced with the authoritarian policies of certain companies," said Italian liberal Antonio Mussa of parliament's negotiating team. "There will be a free market."

The EU executive in 2007 proposed separating suppliers of gas and electricity from the infrastructure that carries the energy, after companies including green energy firms said the big incumbents were hampering access to the networks.

However, Paris and Berlin led opposition to any forced breakup of national energy champions, and other states accepted their proposal to give giant utilities the easier option of remaining intact under the supervision of a powerful independent regulator. [LO307947]

Parliament, which has joint powers of decision, accepted that compromise on Monday after demanding the regulator be given extra powers. It should receive formal approval in the coming weeks and come into force in 2011.

European competition chiefs have already pounced on Germany's RWE and E.ON (EONGn.DE) for anti-competitive actions, pushing them to sell networks, and that made it easier for parliament to back down on the tough stance it held last year.

"We thought that battle was not far from being won anyway," said Welsh socialist Eluned Morgan, also on the parliament team.

The European Commission said renewable energy companies would gain a boost from the agreement, which was brokered by the EU's Czech presidency.

FUEL POVERTY

Parliament won new rules to prevent the poorest families paying unreasonably high energy tariffs on pre-payment meters.

It also demanded new rules to help consumers compare energy prices easily and switch between suppliers within three weeks -- helping millions of EU citizens who struggle to switch supplier.

European nations will also have to alleviate 'fuel poverty' -- the situation that occurs when gas and electricity bills eat up so much of a user's income they cannot afford other basics.

EU member states will also have to ensure 'smart meters' are installed in 80 percent of homes by 2020, allowing households to choose the cheapest time to consume gas and electricity.

"The idea is to smooth out the use of energy ... by getting people to use dishwashers and washing machines outside of peak hours," said Morgan. "In forcing energy poverty on the EU agenda for the fist time, parliament has won a major victory."

Although some countries will be allowed to keep their national energy champions intact, safeguards were introduced for liberalised countries that fear their networks may be taken over by overseas rivals with more financial firepower.

The so-called "Gazprom Clause" would prevent energy companies from outside the bloc -- such as Russia's state-owned Gazprom (GAZP.MM) -- from buying up distribution networks without approval by governments, which would be guided by the EU executive on the potential impact on regional energy security. (Editing by Tim Pearce and Simon Jessop)