(Updates with regulator’s comments in third paragraph.)
Oct. 14 (Bloomberg) -- GDF Suez SA, France’s former natural gas monopoly, has mounted a legal challenge against a government decision to freeze regulated natural gas prices for consumers, effectively taking its biggest shareholder to court.
The utility, based in Paris, has filed an appeal to the country’s highest court, the Conseil d’Etat, against a decision to leave rates unchanged, according to spokesman Jerome Chambin. GDF Suez, which is 36 percent directly owned by the state, has said the move would cost 290 million euros ($400 million) in the second half.
The government, which faces presidential elections in May, froze rates for a year in April, a decision the energy regulator ruled should have been reversed Oct. 1 to allow GDF Suez to cover costs of buying natural gas for the French market. The freeze is “not compatible” with an open market, the Commission de Regulation de l’Energie said.
In September the government announced that regulated gas prices would remain unchanged for households and rise 4.9 percent for businesses on Oct. 1. The rates for households should have increased by 8.8 percent to 10 percent depending on the type of consumer, the regulator said.
Consumer groups, which have mounted campaigns against higher energy costs, welcomed the freeze. Industry Minister Eric Besson has said households’ purchasing power needs to be protected.
“It is GDF Suez’s right as a listed company to challenge the state,” Besson said in an interview Oct. 10 during a visit to Armenia. “They believe the state is not lawfully applying the pricing rules.”
GDF Suez has said French regulated rates haven’t covered supply costs. At the end of 2009, the utility said this was the case in four of the previous five years and in August of that year the accumulated shortfall was almost 2 billion euros. This is the first time the utility has taken the government to court on the issue.
A group of suppliers that compete with GDF Suez, including Direct Energie SA, has also filed an appeal with France’s highest court, saying the decision will hinder competition.
“We were surprised to see that GDF was also planning a legal challenge,” Fabien Chone, deputy chief executive officer of Direct Energie who supports tha challenge, said in an interview last month. “We are very determined to get the law applied.”
The freeze runs contrary to a 2007 court ruling that state tariffs must be set at a level that enables suppliers to cover their costs, the regulator has said.
The government is considering modifying the way regulated rates are calculated based on GDF Suez relying more heavily on the spot market, where prices are lower, than long-term contracts with suppliers like Russia and Norway.
With assistance from Heather Smith et Helene Fouquet in Paris. Editors: Alex Devine, Stephen Cunningham
To contact the reporter on this story: Tara Patel in Paris at firstname.lastname@example.org
To contact the editor responsible for this story: Will Kennedy at email@example.com