Bloomberg News

France’s Besson Favors Keeping Household Gas Rates Unchanged

November 29, 2011

(Updates with comment from minister in fifth paragraph.)

Nov. 29 (Bloomberg) -- The French Industry Minister Eric Besson wants to keep natural-gas rates unchanged for households through July even after the country’s highest court ordered the government to lift a price cap.

The minister “is studying all options and favors a scenario that would avoid any increase in gas tariffs for individuals,” according to a statement from Besson’s office.

France’s highest court yesterday suspended a government decision to freeze regulated gas prices for consumers and ordered the energy ministry to set new tariffs within a month.

The ruling has thrown into question the way regulated prices are set in France for GDF Suez SA, the former monopoly that is still 36 percent state-owned. The government, facing presidential elections next April and May, is under pressure from consumers not to raise tariffs.

The government “will do everything” so as not to raise gas prices for households this winter, Budget Minister Valerie Pecresse told parliament today, adding that the administration wants to protect the purchasing power of consumers and review the formula to calculate the rates.

The government in April froze household gas prices for a year, a decision the energy regulator ruled should be reversed from Oct. 1 to allow GDF Suez to cover supply costs. The regulator said the rates should have been raised Oct. 1 by 8.8 percent and 10 percent depending on the type of household consumer. Instead the government kept prices unchanged for households and raised them 4.9 percent for businesses.

Price Cap

Suppliers competing with the utility, grouped under an organization called Anode and including Direct Energie SA and Poweo, asked the court to lift the price cap because regulated rates weren’t high enough to cover costs of supply and hindered competition. GDF Suez brought a separate case against the government saying the rates would lead to a 400 million-euro ($533 million) shortfall for the utility.

“We need stable and lasting competition rules,” Anode said in a statement today. “Only competition will ensure lower prices for consumers.”

GDF Suez and the government reached a so-called public service agreement for 2010-2013 that gave partial responsibility for household prices to the regulator. The regulator would have a “binding opinion” on rates to take the pressure off the government, which historically has been reluctant to raise tariffs.

At the end of 2009, GDF Suez said it hadn’t covered supply costs in France in four of the previous five years because state-set rates were too low. In August of that year, the accumulated shortfall was almost 2 billion euros.

--Editors: Alex Devine, Charles Siler

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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